u.k. prime minister theresa may travels all over europe to discuss a deal. jpmorgan now sees a 40% chance of a no brexit. emmanuel macron's u-turn. the french president caved and opens the door to a wider budget deficit. china gives an inch. .hina said to move on tariffs secretary of treasury steve mnuchin and robert lighthizer talk to the chinese. welcome -- david: daybreak.""bloomberg i'm here with alix steel. s&p futures have moved before that. is this a step or is this just grandstanding, and easy concession to make? a little bit. up.: s&p futures

you to 1.9% decline in then ended .2% higher. 126, our rate, analysts are watching. that pressure continues as the brexit uncertainty continues and yields backings up by about does go basis points and crude up about 1%. now the market cares about libya. today the market cares. at 8:00 eastern time we will get ppi data for november. at 11:30, president trump is going to meet with white house congressional leadership over a partial government shutdown and how to avoid it and funding for the wall he wants along the southern border. at 1:00, the u.s. treasury will sell $33 billion in three-year notes. that is coming up today. , we're joined by

rachel evans and michael mckee. we have to start with brexit. big news this morning, michael. i will put up a chart that shows the volatility of the pound. it keeps spiking up. in the meantime, the prime minister is going back and forth , brussels, berlin, back to london, where we headed? michael: nobody knows. into a black hole where anything is possible. she might be looking for some sidesf deal to allow both to vote at the ian d of 2020 when the backstop is supposed to end. with a get -- when the backstop -- at the end of 2020 when the backstop is supposed to end. she will come back maybe with a

fig leaf in the strategy is they're not supposed to vote until january. that puts them within two months of brexit and the pressure of a deadline might cause people to defect and vote for her. alix: might. it feels like it is an idiosyncratic u.k. issue not affecting the overall sentiment. achel: i keep looking to find an impact in the market and keep finding -- what was interesting i looked at idb, which is the european government ishares. seeingve more -- we are it impacting peoples general assessment about the region. you do see a little bit more trading in some of the u.k. etf's, perhaps the result of brexit. david: is it possible they are

doing the markets of favor. people are getting a nerd to this -- people are getting inured to this. the only victim may be the u.k. economy itself rather than the market. michael: in terms of brexit that is all you can trace at this point. the problem is we seem to be seeing wider issues. fissures in the european union. yup the british now and the problems -- you have the british now and it all comes together in investors minds. alix: a great point and we were talking to philip hammond in the 9:00 hour. is u.k. is one thing, italy a different situation. you manual macron speaking ,esterday -- emmanuel macron speaking yesterday caving to the yellow vest movement. >> i accept my share of responsibility. i may have given you the feeling it was not my concern. i also know i may have hurt some of you with my words.

i want to be clear with you tonight. i fought to shake up the political system in place, the habits and hypocrisies, precisely because i believe pardon my country and i love it. david: i love the fact that it is in a palace. it is a gorgeous palace. it in no way seems to be a president for the people. like louis the 16th coming to versailles. alix: he tried. david: what he had to say was raising the tax on pensions, hesing the minimum wage, and said to employers one of you give everybody a tax-free bonus. it is like santa claus. michael: his first effort is to try to stop the yellow vest from burning things down. it is a major setback. he didn't want to reform the labor market and make a lot of

changes. this was sparked by his efforts to impose a carbon tax to try to deal with global warming, which is bad news for the rest of the world. if any other country tries to do this, could it be repeated? the major problems the european see is the effect on italy, because the french program he outlined could raise the budget deficit to 3.5%. the eu is cracking down on italy for 2.4%. this emboldens italy to go ahead and say what is it, special treatment for france and not us? it complicates the lives of the ministers gathering this week to deal with italy and now have to do with brexit on top of it. alix: i should point out in france the 10 year yield, 72 basis points. is that reflected in the market? michael: what we are -- rachel: what we are seeing in terms of really reaction in france is this the reaction against austerity.

part of the brexit vote was a and aion of austerity middle finger at the establishment government class. that is what you're seeing in italy in france. this is become something broader. when you look at equity markets, i'm seeing developed market etf's. there is a sense people want to diversify the risks and look outside the u.s. they do not want to focus on any specific country. you have the french risk, you have the italian rest. alix: makes good sense. when we going 2019? what was said about leveraging and volatility? markets are volatile -- >> markets are volatile. i can easily see a situation in 2019 when all the -- all the deleveraging gets reinvested back into the market.

alix: it is not the first time i heard something like that. there is also cash out there so any downturn cannot be as bad as we think. rachel: the volatility aspect is interesting. it depends on who you are. when you see bargain-basement prices in the stock market -- his point is he is able to take advantage of the volatility as a hedge fund guy. for an investor, it will not be such a pretty picture. when you look at volatility, last year was the operation. low volatility. this year, despite all the up -- all the upheaval, we are in the same ballpark as 2015 and 2016. he is talking about a return to matching something like 2007. that is 18 on the vix index. a slight increase more next year. are looking at 2019,

what we see? we see a lot of money pulled out on the sidelines. on the other hand, i've been looking at global m1. it has been going down. the overall money supply seems to be going down. the global economy is slowing, the u.s. has been powering the global economy and it is slowing. political developments will keep things slowing. we do not know what is happening with trade wars. then the question becomes what do you buy? apple is 35% of the decline in the dow and one of the reasons people are not buying apple is it got to be a trillion dollar company, so how much more can it grow? where do you put your money to work if you're going to put your money to work and you are not a hedge fund person that can play in and out of the markets, especially with all of the volatility? it'll be an interesting year to try to figure out what to do

because it does not look like the volatility, the political risk is going away. the global economy is slowing. alix: thanks very much. good to see you. you can find all the charts we use throughout the next does go hours on your terminal -- over the next does go hours -- over the next two hours on your terminal. coming up, the deutsche bank chief international strategist. this is bloomberg. ♪

emma: the world's largest advertising group, wpp plans to

cut 2% of its workforce. it is part of the strategy to grow sales. thiss of wpp rose the most april. google ceo supports privacy legislation and denies the company is politically biased. that is according to a transcript he will deliver to congress. he also promised to work with the government to keep the u.s. secure. the house judiciary committee is holding a hearing about data collection and other issues. a ruling by a chinese court may push apple and qualcomm toward a settlement of their long-running dispute. the court has issued an injunction against the sale of several iphone models, saying they infringe upon qualcomm's patents. cases in similar germany. apple has stuck using qualcomm chips and no longer pays licensing fees. that is the bloomberg business

flash. british prime minister theresa may has put off the vote on brexit in definitely, which makes some think the chance of no brexit at all has gone up. newby,ome lord richard the u.k. house of lords leader of the liberal party. thank you for joining us today. >> a pleasure. david: we have jpmorgan out overnight saying they think the chances of no brexit has gone to 40%, which seems dramatic. ?s that the assessment do you think that is the course that is the most likely? >> i think you have to look at what the options are. the prime minister's deal is dead. she is going to europe to get some vague reassurance, but it is not going to change the text. when she comes back to parliament with the text, she

will lose that. what then are the options? deal, to leave without a to which there is certainly no majority in parliament or to put the whole question back to the people and say you instructed the government to negotiate a brexit deal. they have done it. is this something you want? we think not only is that the right thing. now i think that is the only course of action likely to get a majority in parliament. theresa may has been steadfast in saying she does not want to do that. not on her watch. why is that? she said we asked the people to vote, they voted, we cannot go back and say we do not like your answer. >> she is very stubborn. i think she genuinely believes that what she has got is the best deal that is on offer. she may be right on that.

she also is very aware that the vast majority of her party activists and a lot of her voters are very hostile to another referendum, although the majority of the country is in favor. i think she is playing to her base rather than looking at the views of the country as a whole. david: if you are right that she cannot get her deal through the parliament, and if she stays to her position that she must remain with the referendum to lead, will the parliament act to replacer -- to replace her if where she is headed is no deal? >> the key question now in parliament is what the labour party does officially. labor says it wants an election. if they cannot get an election -- they cannot get an election

if they support a referendum. if the possibility of an election is taken off the table by them putting down a no-confidence motion, the only option for them is to go for a referendum. if they do that, there will than be a majority in the commons for a referendum and it will be the only course of action for which there will be a majority. i think once the prime minister's deal has lost in a vote, there will be other members of the government who will come out in favor of a referendum at that point. there may become a time there is a majority in parliament for a new referendum and not withdrawing from brexit. is there majority in the country? , but its a narrow vote did favor leaving. at what point is there a backlash from voters you say you people in london are not listening to us? >> what has been happening consistently is that the

majority position in the country has changed. all recent polls show a majority of about 10%, 55% to 45%, say that if there were a referendum they would mode to remain -- they would vote to remain. the majority has shifted. most young people by a majority of seven to one are in favor of staying in and a lot of them are on the electoral roll and old people have died. that is a big demographic change. we also know that many people who believed some of the lies they were told in advance of the referendum now realize they were lies. i also think that some people who voted on all kinds of reasons that had nothing to do with europe, 30% to voted leave did not give europe as one of the reasons.

i think if there were a referendum, a lot of those would be so fed up that they had not been given what they were led to believe they would get, i do not think they would vote. i think the polls are accurate. momentum in the ands of activity, energy, what people really think in the country is very different. we were very complacent before the last referendum because we thought we cannot lose it. everybody on our side is very far from complacent. david: thank you so much. lord richard newbie of the british house of lords joining us from outside parliament. i remember when that happened in the election 2016 in the u.s. just pointing that out. in the markets it was a touch below 126. joining us is alan ruskin, deutsche bank chief international strategist. what is the trade, was the expectation?

alan: it has been such a wild ride. i'm not sure there's a trade that will last more than five minutes. one thing that is clear is there is so much volatility that has been priced into the market. if you look at implied volatility, not just through january for -- not just through january 21 of the next year, the range of decline on sterling are roughly 1.15 to 1.30. the market is pricing in all sorts of possibilities. result, meaning a good result from a sterling ,tandpoint, sterling rallies even if we get a bad result, i do not think volatility can be sustained at these levels. short volatility is being structured in that way is probably the better way to be,

as much as people can go short volatility. that is the inclination at this point. alix: if you look at the overnight volatility on a short-term basis, we are nowhere near where we were in june 2016. at thef you look long-term volatility, it is not far from the brexit period. that tells you something. brexit came as quite a shock. i do not think the markets were positioned for that. this time around, i think people are much more ready, which means you'll probably get less of a shock. termnk over the very short , there was just the short move down in cable. you can probably see a squeeze higher. over the next 24 hours for the next 48 hours, the natural buyers would probably take sterling to the top side. we will not have the news flow

that extremely sterling negative that you just had. david: that is cable. let's talk about the euro versus the pound. let's put up a chart, which is the pound u.s. dollar three-month risk reversal which suggests the euro is not taking the hit the pound is taking. why is that? sterling,nusual for for the tail to wag the dog, which is the euro. we been seeing that of late. it has been an unusual story. we are seeing sterling drive the euro. i would not expect that to continue for any length of time. normally the bigger currencies can be driven by their own story. talk about their own story. we have brexit for the pound. let's talk about france for the euro. we had president macron saying we will do a lot of things for the people because i like the people. this is part of what he had to say.

>> accept my share of responsibility. i may have given you the feeling it was not my concern, that i have other priorities. i also know i may have heard some of you with my words. i want to be clear with you tonight. i thought to shake up the political system because i believe in our country and i love it. david: this sounds good for the people, that what does this do for their budget and for the euro overall? they are in a tussle with italy to keep the deficit down and macron says we will hand over the checklist. alan: you end up with a government deficit beyond anything italy is fighting for. the debt situation is different. the longer debt dynamic is different. nonetheless, you have bigger issues here.

this is taking place in the midst of an upswing. when you get a downswing, you're going to have big problems. the eu and the euro area budget looks good. it is concentrated -- the goodness is concentrated in germany and france and italy have problems. those problems will be exposed in the next downturn. alix: what does the ecb do on thursday? how they manage that? alan: they are dealing with a situation where it looks like there economy has slowed. you see it most obviously at the core in terms of germany. you see a global environment which is looking like a financial market -- pretty much everywhere you look. there is no reason at all to be hawkish. i think you construed at the same signals, which is the end of qe.

in terms of rates, do not expect anything farsighted that expects highs were soon. david: talk about the euro/u.s. dollar. what does that do? people were talking about the ucb starting to tighten. the fed looks like it will go on. how does that play out? alan: if what is trying to construct a good view as far as the euro is concerned, the most positive thing you can say is it is been hammered with everything that is negative. the euro has hung in there. it is external surplus, it is large enough. it has created the buffer. you just need something small to turn positive. handou get that natural over from the fed tightening to the ecb tightening? that looks less likely.

one thing we have seen over the last 14 or 15 years is 14 out of the last 15 years, we have see the one 20's. are we going to zoom higher? i doubt it. alan ruskin will be staying with us. a financial services m&a leader will break that down and discuss the potential car tariffs being lifted. we will get some insight as china is said to move on u.s. tariffs. this is bloomberg. ♪

this is bloomberg daybreak. the s&p down to percent yesterday. s&p futures up by about one

point. getting a boost and holding on to that level. looking for more of tariffs, looking for clarity on that. european stocks participating in the risk on rally. president macron says i am going to lower taxes, not go through with the gas tax. the market seems to like it. we take a look at what is moving in the currency markets. sterling is up. theresa may goes on her whirlwind to heur. getting a little bit of -- 10-year yield getting a little bit of a selloff. up now that the libya field has halted. better china credit data.

if there is money flowing, that is good for the market. david: let's get a look at headlines outside the business world. >> president trump meets with the top two democrats in congress over the border wall. if the president cannot reach a deal with chuck schumer and nancy pelosi, there could be a partial government shutdown december 23. when they met a year ago, they could not agree on a plan, and the government shutdown. the reserve bank of india governor quit. of tension months with the bank. as we were just mentioning, china is cutting its trade war

tariffs on cars imported from the u.s. they are cutting from 40% to 15%. president trump has said this was a concession he won during trade talks in argentina. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. david: thank you. we want to stay on the subject of cars and china. we go to our bloomberg managing editor on asia. thank you for joining us. this announcement came up just before we came on air. was it a surprise? >> was it a surprise? i think when president trump tweeted earlier this month that this would potentially happen, people did not know whether to

believe him. there was silence from the chinese side. we have heard a key ministry has submitted this proposal to the state council. it will be reviewed by top leaders. they are looking at reducing that 40% tariff on u.s. made cars into china, which has ballooned during the trade war, down to 15%, which is what is levied on all cars imported into china. you can see it as china coming good on some of the things from said he got out of the stocks in argentina. agreement shopping hugging on over the cfo of huawei. david: the biggest beneficiaries will be bmw and mercedes-benz. it will not be general motors.

does this indicate that while huawei will not stand in the way of progress between the u.s. and china? >> it seems to be moving in that direction. it is still in the review stage. be on the side of that ledger of those trade talks.talks -- truce david: thank you. ruskintill with us, alex of deutsche bank. what is your outlook? what are the possible scenarios for the dollar next year? >> we have just come from huge divergence in the u.s. economy in favor of the u.s. dollar.

how do we transition? do we transition to somewhere where the convergence comes gently? do we see the euro economy, the ecb takeover? that is positive for the euro. does the whole global economy start to slow down? you see nobody effectively able to hike interest rates. the fed is cutting interest rates. that environment is mildly dollar negative. the scenario where you actually have the fed cutting and the ecb hiking, that is much more constructive euro. we are tossed between those two views. it is increasingly looking like that may be in doubt. alix: overall, it is going to be what central banks can actually

deliver. what is the terminal right for central banks? how is that going to happen? >> as the markets rise into skittishness. we have passed the apex of growth much everywhere. we are starting to see a slowdown into 2020. the ecb, it is almost terrifying to think the peak in interest rates might be a negative number. that is not impossible. given what the markets are pricing in, these effectively zero rates rising through 2020. we don't really know anything about anything through 2020. alix: i don't know anything about anything today. >> that prediction has all sorts of uncertainties inclusive of the possibility we never really get to zero. peaking in the negatives.

that is extraordinary. turbulence in the markets for mergers and acquisitions heading into 2019. a new sector outlook sees a robust new year german by the need for companies to add to growth and take advantage of still plentiful capital. nadineus through this is , eyus financial services. you take a look at 2017 into 2018. this is not going into 2019. it is the value in m&a in the financial services industry. it went up. >> we think deals over $100 million, there was an increase in 8%. financial services have trended higher.

increasing 10%. that is a strong close to the year. i think it is based on fundamentals. the fundamentals are fairly strong. we have volatility. we have a lot of noise in the current marketplace. the long-term fundamentals exist. david: value creation is one thing. price paid is another. we are talking about specifically banks. it is still well above where it was a couple years ago. >> we have seen stronger valuations. the have come off recently. dry valuationsnk are interest rates. we have had tax reform that has created earnings. there is imperative around scale. institutions are looking for deposit funding, loan growth,

scale that continues to focus on cost efficiency. those things are good indicators of valuations. i think there is still a fundamental human with these price points. alix: is it going to be big deals or small deals? >> we think it will be in the $1 billion to $5 billion range. i don't think the largest institutions will be doing megadeals. you see consolidation at the regional level. seen regulatory approvals recently that great forward momentum. from the banking's perspective, it is on the smaller side. david: what about insurance companies? how much of it will be in banks or in insurance companies? >> if you think about the life

insurance space, they are looking for modern solutions to age-old problems. technology is part of that. we are seeing technology around infusing technology into the business. if we think about life insurance, there is a lot of interest around closed block life insurance deals. private equity are looking to life insurance as part of their asset management strategy. we have seen a lot of insurance reinsurance. we think that is a forward trend that is going to continue. it helps to drive talent and product. what is the one thing that changes your view? higher yields, market volatility, tweets? >> i think there will be m&a appetite. the volatility does not help in the short term. aroundtes uncertainty valuations, currency pay for

m&a. wealth and asset management is very market sensitive. i think the fundamentals around imperativere is an there. i think it is a when question, less if. david: talk about one of the fundamental sentiments. we see all these uncertainties about trade, brexit, are you seeing cooling in sentiment? our ceos saying i want to hold off? abouty are very clear parsing through the noise and returning shareholder value at the end of the day. things like deferred investments in technology, acquiring talent, entering new markets. there is caution, but it is not completely off the table. i think the boards are not living these institutions take

it off the table. the market wants growth. thank you. very interesting. uping up, however he made changed the -- bernie made off changed anie madoff industry. n industry.

>> this is bloomberg daybreak. coming up in the next hour, credit suisse cohead for american echo the capital. this is bloomberg. this is bloomberg daybreak.

long-awaited merger in the chemical industry is in the works. chem andp and -- sinochem arvinmeritor talks. -- are in merger talks. a settlement of a long-running dispute. they say they infringe on qualcomm's data. there are cases in germany and the u.s. trade commission. apple has stopped using qualcomm chips. cameron winklevoss are trying to woo individuals to a that allows users to

buy bitcoins on their exchange. your bloomberg business flash. alix: let's turn to wall street be. -- beat. madoff hedge fund impact. it has been 10 years since he was arrested for fraud. the $100 million wedding. richest man is scheduled to marry his daughter. he will not miss the money. off, it turns out the hedge fund industry has changed. >> in one way it is the fund of funds that has seen the most

change. our colleague writes about how fund of funds got a lot of story.y after the madoff david: it does not help that they are taking a fee off of a fee. double dipping. hedge funds are more open about what is going on. >> the hedge fund industry right holdreally starting to calls with investors, letters to investors, or disclosures. we have seen institutional investors move into the hedge .und industry that has elevated the demand for disclosure. alix: if you have had a lot of outflows, you have had big

players like pension funds. the negative headlines are good for those guys because they can actually buy. >> that is one of the things that is noted. blackstone has been a beneficiary because it was not invested in madoff at the time. alix: i can't believe it has been 10 years. david: it is amazing. alix: it really takes me back. david: there were a lot of lives that were destroyed. alix: countless. if something is too good to be true, it is actually too good to be true. let's get to the business schools. the top nine were in the u.s.. there is this 10th one. where is this? >> i'm not actually sure. alix: i don't know. david: it is a merger of two swiss schools. imi and medb.

they are specifically not attached to a university. they are a trade school. we will teach you the business, and you go forward. there are 8000 students that take their classes in any given year. it is huge. i had never heard of it. bythe list was dominated u.s. schools. there was another international school in paris that popped up to number one when you filter by which school sent people into the technology industry. that was ahead of m.i.t. that is interesting. america's great still in business school. nine out of 10. marriage inory, mumbai. withichest person in asia

a 27 story house, this is a picture from their wedding. $100 million or more. $115 i heard it was million. what? david: i know somebody who was invited. he told me about it. he chartered 100 private planes to pick you up and take you there. they will go from place to place with the wedding. >> a fascinating detail, they have rented out five of the five star hotels in the city. that is how many people that have going. indian weddings are phenomenal. they take place over a course of days. alix: you actually know him. yes, i served on an international advisory board for jpmorgan, and i served with him. alix: are you like, that is a lot more that is like toilet

paper fund? david: we knew he was really wealthy. he beat his brother and took over the business. he has been extremely successful in cell phone and media. alix: a 27 story has. literally, what do you do with 27 stories? is one a pool? is one just a bedroom? how do you stack 27 stories? >> it's great exercise. n, there is an elevator. the sonhe is marrying of a billionaire. it is to powerhouse families. what do you get that couple? what does their registry look like? alix: do you give money? david: i don't know. alix: i would ask to donate your gift to charity. david: when you get that much

money, that's what you can do. thank you. coming up, google on the hill. the latest tech ceo to face lawmakers. more on what i am watching. that is next. this is bloomberg. ♪

david: this is what i am watching. testifyinggoogle is on the hill this morning in front of the house judiciary. he says as an american company, we cherish the values that have allowed us to grow and serve so many users. i am proud to say we do work and will continue to work with the government to keep our country safe and secure. he has a lot of explaining to do. they want to talk about a special search engine for china, privacy protection, political

bias. the you have a dominant position, even maybe in monopoly? it is a ceo finally. last time, sheryl sandberg was sitting next to a lawyer. david: it must be a realization that they are going to have to answer at some point. democrats will have a majority in the house. alix: and they are so far behind your comes to tech regulation. this is bloomberg. ♪

alix: may's political gamble.

theresa may travels all over europe. 40% chance of no brexit. -e french president case into cuts, openingax the door for a wider budget deficit. welcome to bloomberg daybreak. i am david westin. we have some news. new governor of the bank of india. he has been in monetary official for some time over there. alix: he was at the ministry of finance for a little more than two years. he also came from corporate. he was chairman of titan industries. this raises the question, central bank independence.

that was one of the speculated reasons the central bank governor left. what will the relationship be? this is across the world. david: we have seen it in turkey, argentina, the u.s. from president trump. the stepping down of the prior markets iniled india. there was perception that they were tampering with the independence of the central bank. alix: it looks as though the market was taking it as an idiosyncratic issue. in the markets, s&p futures are up 0.8%. the markets started to move. you have news that potentially china could cave on u.s. auto tariffs. sterling is still up 0.4%. newsuch more that brexit could be priced in?

the 10-year yield moving higher three basis points. you have more supply coming online in the next three days. crude is up over 1%. it is due to a weaker dollar and supply issues in libya. ppid: we are going to get data for the month of november. at 10:00, the google ceo will testify in front of the house judiciary committee. president trump will meet at the white house with democratic leaders over a partial government shutdown and border wall funding he wants. right now, let's get an update on what is making headlines outside the business world. china is moving towards cutting its trade war tariffs on imported cars made in the u.s.

the proposal to reduce tariffs from 40% to 15% has been submitted to the chinese cabinet. meanwhile, president trump needs today with the top two democrats in congress over the wall on the border with mexico. if they cannot reach a deal, there could be a partial government shutdown december 21. when they met a year ago, they could not agree on a spending plan and the government shutdown a month later. secretary of state mike pompeo blasted russia for sending to caracas. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. alix: thank you.

theresa may indefinitely puts off the vote on her brexit plan facing sure defeat, leaving markets to wonder what will happen next. >> i think the most likely outcome if she does face a vote is defeat. >> we took our odds of no brexit outcome up from a week ago. we have some interesting catalytic events coming. >> on u.k. assets at the moment, too risky to be taking bets either way. >> there will be an outcome. there will be life after. taken the brunt of the beating and is more likely to recover that to fall into a bottomless pit. >> i think sterling is under pressure, but a no-deal brexit is not priced in. >> if there is no deal, it will be significantly bad for the

u.k., and it will be negative for the rest of the eu. it is in no one's interest for a no deal brexit. is u.s.ining us investment strategist and jamie murray. pick up on that. how much more bad news to be priced in? >> i think we can use the brexit example from last year as the model. we saw automatic market selloff as we heard the brexit story unfold. markets started to recover quickly after that. if we get some no deal brexit, markets will get nervous. at the end of the day, there will be life after brexit. the british economy will not, hopefully, completely collapse. there has been a lot of thought about how britain can move forward. all scenarios have been thought out.

we are comfortable that at some point this could become an investable opportunity. david: we talk about panicked selling. what about buying? afterund usually devalues brexit. has that happened? is there money pouring into assets in the u.k. because of the price? >> the answer is not really. the reason for that is the pound is just what was required to keep investment treading water in the u.k. we have not seen this boom in exports. we have seen and modest adjustments on imports, but not a huge amount. falling sterling has not provided a huge lift to the economy. now, theit more binary outcome? >> it has shifted in a more nuanced way. the chance for no deal brexit

has receded because there is an amendment to the withdrawal act that has gone through parliament that has said parliament will happensig say in what next if theresa may does not get her deal through. the no deal chances are lower. what is becoming increasingly likely is we have to have a second referendum. if people except parliament is unable to decide, the public has to be consulted again. it looks like brexit continues to be idiosyncratic. i think after march 29, we will figure out exactly what happens. more and more, we have been hearing about this second referendum. rift with create a the general public in britain. thatd a 52% population voted to do a brexit deal. if we try to offer them to stay in the union, we offer a brexit

ment this could create populist tensions we have seen globally. i think march 29 to give us some clarity. at some point we have to consider whether or not sterling has fallen to far, too fast. david: we are focused on brexit right now, which is london and brussels. let's extended further out to france. we have riots in france. we had president macri take to the airwaves last night. here is what he had to say. i accept my share of responsibility. i may have given you the feeling that it was not my concern, that i have other priorities. i know that i may have heard some of you with my words. i want to be clear with you tonight. i fought to shake up the political system precisely

because i believe in our country, and i love it. david: when we talk about global growth with the u.s. or europe, we normally don't like uncertainty. on the other hand, we seem to be moving away from austerity in italy and france. could that be beneficial at some point? >> historically, deficit spending has hindered growth. the government crowds out other productive investing. instead of investing in the economy and systems, they paid out deficits. what we see with economies that wrapped up deficit spending, it is not positive for growth. this whole european experiment, this is no longer and italy problem, brexit problem, it is widespread throughout europe. when we think about how we are investing globally, we have said there is a barbell approach that is forming. on the one hand, the u.s. is

still interesting. relative to develop economies, it is holding up. the other end of the barbell may be the asian economies. if the dollar softens, that is where we could see upside. euro becomes this blackhole for now. as some point, they have solid dividends in europe. there could be interesting plays that come out of it. onx: kent mario draghi's job thursday just became a little more confident. thank you. you'll be sticking with us. china makes a move to lower tariffs on u.s. made cars. global carmaker shares jump in more on that next. this is bloomberg. ♪ s bloomberg. ♪

>> this is bloomberg daybreak. i am emma chandra. the world's largest advertising group plans to cut 2500 jobs, a little under 2% of its workforce. it is part of the new ceos strategy to grow sales and keep dividend payouts stable. google ceo supports privacy legislation and denies that the company is politically biased according to a transcript of testimony he will deliver to congress today. he promised continued to work with the government to keep the u.s. secure. the house is holding a committee hearing today. yearmarket volatility next not be good or investors who hold long-term positions.

timeis might be a better to be a trader than to just hold. i don't know you have a huge amount of france. >> that is your bloomberg business flash. alix: there are potential signs of easing u.s. trade tensions with china. automakerslobal moving higher. you have a risk on deal in the market. z globalus is allian investors. >> i think trade we have seen over the last couple weeks has become a show me story. xi, out withmp and great plans -- xi come out with great plans. the markets are saying we no

longer trust the words. we want to see some actionable o utcome. this is the first actionable outcome to come to fruition. this is something people can start to discount models. hopefully we will get something around intellectual property, technology transfer. david: how much of this is basically sentiment on both sides? is the size of these tariffs able to affect the economies of the size? >> no. it is less than 0.1% of global gdp. impactful from a global spectrum. are we fighting some sort of technology cold war with china?

will they have their own supply chain? that is not a base case scenario for us. at the end of the day, we think both parties from an economic president iand trump have the incentive to come out with a deal. alix: the price to earnings ratio is dropping. versus that pricing in the economy and reality? >> we are touching some technical levels here. 2600.p broke there is the u.s. recession watch going on and the global on.down watching going

the fed took themselves out of the equation when j powell spoke and said we are closer to neutral. europe, china, asia feeling that slowdown. atn the u.s. decouple from th slowdown? there are headwinds. fiscal stimulus is anniversarying. we have things like autos and housing starting to slow down. those are all on the table. recession in is no 2019. david: let's look at a

technical. we borrowed too much money. nonfinancials have borrowed a lot of money. should that be a concern? >> that is a potential driver of the next slowdown. banks are more comfortable with housing leverage, the area they are concerned about is corporate leverage. high yield had been doing recently.ly until we are watching it. rates remain relatively low from a historical perspective. 2.9%.e are sitting at

relatively low. free cash flow metrics have improved quite a bit over this 9 year bull market. without a recession on the horizon, we're not looking at a default cycle. we're coming closer to a tipping point. david: if you take interest costs, they are at high levels. companies have more money to pay. >> we see a lot of money from companies borrowing to invest in themselves. we have seen stock buybacks. it is a combination of those things. the u.s. consumer has been healthy. post-crisis near

highs. alix: yesterday, the rally was led by tech, not financials. do you like tech? >> tech is longer-term interesting for us. we like the theme of disruption. if you look at cloud computing, mobile payments, there are a lot of areas that are gaining traction. they are no longer cyclical stories. they are secular growth markets. from a long-term perspective, we like technology. we may get interesting opportunities across the space. barbell say a defensive is appropriate at this point in the cycle. david: you will be staying with us. alix: coming from verizon, the company seeing a severance charge on the high-end as much as $1.6 billion in the fourth

quarter. basically it's media business had some increased market pressures, lower-than-expected earnings. we are now down 0.3%. david: what that means is they 10,400ven buyouts to employees. we are starting to hear about layoffs, which we have not heard about in a while. alix: i am guessing president trump is not going to like that. david: not good news. qualcomm's win in china produces a ripple effect across other apple suppliers. this is bloomberg. ♪

david: it is time for the bottom line, where we look at three

countries worth looking at this morning. europe is up nicely in as the new ceo has announced they will lay off 2500 people, maybe get rid of some operations. they are scaling back their vision. alix: if you work for a good year in venezuela, you get severance and tires. you get 10 tires per worker. that is a huge currency in venezuela. david: they are saying they just cannot get the supplies. prices are going crazy. they cannot do business in venezuela anymore. we are watching qualcomm and apple with its semiconductors. brooke joins us now. this big win over in china over a patent case. >> this is regarding a long-standing dispute with apple. fees based on the

technology that underlies all modern smartphones. this is the first landmark win for qualcomm in this apple dispute. it has been chipping away over time as apple has declined to pay those royalty payments. qualcomm has said give us time, eventually we will win. the goal is if you get more injunctions like this one in china, that could bring apple to the negotiating table. yesterday inport china was apple could not sell iphones in china. that would be a pretty big love. >> it would be great this ban does not include the newest models of iphone. it is not clear if that will stay the case. when qualcomm filed this lawsuit, those models were not out yet. it may try to expand that. those new iphone models are not included, which should protect some of apples revenue.

apple has said they will challenge this. they're looking to repeal this objection -- appeal this injunction. they do. you have to wonder what the endgame is and why not just come to the negotiating table and find a solution. qualcomm is intent on maintaining its split business model and having this license fee program. apple is saying you have to reconsider this, consider the way you charge these. there is something to be said for that. alix: license it, a four. thank you. this is bloomberg. ♪ is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?"

"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. ♪ there's no place likargh!e ♪ i'm trying... ♪ yippiekiyay. ♪ mom. ♪ alix: this is "bloomberg daybreak." we have ppi coming out. it is a risk-on day. a weaker dollar and equity rally in europe is spreading to the

u.s. is a broadasses, it bond market selloff. a weaker dollar as well. that 2/10 spread in the u.k. a little bit steeper. got hit hard on the brexit news. now.right ppi, if you back out food, you back out energy, that is coming in and 0.3%. that is a move. that is definitely a move. david: better than projected. year basis, up sequentially, and beating estimates. inal demand coming in paying line with estimates at 2.5%. cpi tomorrow, what we learn about margins. oil prices are down, so many the margin story is not going to be in the forefront. this is a solid pbi -- ppi. number,s i look at this

i think maybe it is just costing more money to get things. or it is actually growth. mona: you know what? tariff impact.he a lot of what we are seeing is, earlier on, we saw a lot of people pull forward a lot of their orders to avoid the tariffs. what we are seeing the tariffs come into play. this could impact producer prices. it will be interesting to see how consumer prices react tomorrow. we have the offset from the oil and a stronger dollar. there are forces in play. i think the trend we have seen generally is that inflation is coming in line or below estimates. , i think, istrend interesting, it given what we have seen with the fed. there are two primary factors -- unemployment and inflation. inflation is pretty benign, overall, in line and perhaps

slightly below their expectations. there is the question of, do they need to move so quickly? do they need to move at all? the day pause? these trends are going to be that playsto see how out, with a december meeting on the horizon. alix: what i find interesting is, this is a goldilocks thing. in october, we saw a big move in ppi. it was the biggest move i think in six years for core ppi. that's right, on an overall basis. mrs. stabilization, we are not going to hide. mone: part of it is that. going back to the fed, they have said they will be taliban of a little volatility around that 2% in terms of core pce -- they will be tolerant of a little volatility around that 2% in core pce. this is what producers have to pay in terms of their goods. when you think about that, it impacts the margin story for

corporations. one of the concerns right now is slowing earnings growth. this is one factor to consider as we move forward. earnings growth for 2019 has come down from 10% to about 8%. perhaps there is even more downside to go from there. it could be things like trade, pressure,be margin wage growth rising. for us, we think about a 20% earnings growth in 2018 falling to about sub 8% in 2019. that says a lot in terms of where market potential is, and were total return for the s&p can come out. you add market multiple compression, you are looking at single-digit concerns. do witherything has to oil. ryan lance, ceo of conoco phillips -- we spoke about price levels and capital spending. ryan: at $50, you will see pare back of capital programs. growth will moderate.

long-term, it may have impacts on this business. i think it is healthy in the $50 to $60 world. sub $50.orth -- worse by the cost of supply of resources have come down in the u.s., and that is the advantage we have now, that we have built into the system in the u.s. we can make cash flow at $50. not many will make returns. we will. some of our competitors will not. that will attract competitors back into this business. alix: that was ryan lance. santangelo,russ credit suisse, capital markets. he does it all. i want to start with oil. you might be fine at 50, but what about your peers? what are you hearing? russ: i think you'll see a slowing of growth in the u.s. independents at $50. you will see capital budgets fall where there is significant investor focus on free cash flow and driving toward free cash

flow. toward free cash flow. you will see companies moderating spending, and that will is production growth in north america. i do not think it mitigates it. i think the miracle story of the cycle has been a high-quality u.s. independent being successful, as ryan said, at $50. it is a matter of degree of success. the u.s. has a big role in the mid cycle at $50 to $60. even below, i believe. you are going to see continued success out of these companies. alix: for other players that may be struggling or touched higher levels, or they are dealing with regional differentials that are hurting them at $50 oil, what does that mean for secondaries, for the ipo market? robert: i think you'll have less capital formation in energy in fact thatecting the there will be discipline on spending and you will not be funding out spend it with growth.

i think people will try to get closer to cash flow neutrality. i think in most cases they will not fund and outspend with growth. -- an outspend with growth. they will use a sale, as they are largely delivered. where there is free cash flow at $50, there is growth story. you will see that in some of the midstream companies that are solving these bottlenecks in the industry. you'll see it in new assets like minerals companies. david: that is in the energy sector. robert: correct. david: does that apply it generally, or is energy different with respect to capital formation? 2019, do you see companies not going after as much capital? robert: i think it will be a busy year for ipo's. you will see growth in -- growth and tech ipo's become more relevant, finally. that will be a significant trend. i think the question there is just, will market volatility permit that? david: that is the question.

we are seeing more volatility right now. the you expect that to continue or even increase in 2019? what does that do potentially to those ipo's? robert: i think you'll see windows, banks and companies looking for reduced volatility. you will have lighter calendars and periods of reduced volatility, and you will see waves of transactions. alix: if you look at uber and lyft, i cannot imagine a harsher market to want to announce your ipo. softbank is committing to one price. what do you make of that? away from those transactions, i think it will be sector driven. as economically sensitive, given the worries about economic growth, are not likely to see a lot of ipo's. sectors that are driven by underlying secular fundamentals that outwork any modest slowing in the economy is where you will see the ipo model.

you will see it in technology. i think you will continue to see it in health care as you get into 2019. alix: do you see big numbers, like uber and lyft? robert: i think you are going to see a handful of very high quality companies finally come to market in 2019 that will be significant market events. david: when we look at u.s. investing, what does that tell you about capital investing, about productivity, about growth and the underlying fundamentals, if there is that kind of capital formation? generally, what we talk about in terms of the long-term neutral rate of growth in the u.s., we look at two factors. one is productivity growth and the other is labor market growth. growth where labor force is generally going, 0.5% over the long-term. we have an aging population in the u.s. our demographics are working against us. productivity growth is more questionable. we have been pending around 1.5%.

the have's if we can get that higher in terms of perhaps new , morel formation productivity from technology firms and some of the automation, robotics -- that trend growth goes from about 2% to maybe a little bit over 2%. i've -- i think what we are seeing in forecasts is markets are projecting u.s. economic growth to fall back toward trend , 2020 and beyond. but there are factors that could impact that. rob, you talk to clients at companies. what is the biggest concern? robert: right now, it is trade with china, economic slowing. are we at the verge of a recession? i think those are the biggest questions we see. david: those are big questions. alix: that makes sense. [laughter] david: we could get going for a while. mona mahajan is with allianz global investors. and robert santangelo with

credit suisse. thank you for being with us. for headlines outside the business world, emma chandra is here with first word news. is touringsa may european capitals, trying to win concessions on brexit. her meeting with the leaders of germany and the netherlands today. she needs even leaders to agree to changes so she can sell the agreement to a hostile comments back home. may delayed today's vote to avoid an embarrassing defeat. emmanuel macron is promising new spending measures to try to win over the yellow vest protesters. he admitted he lacks sensitivity to concerns of regular people. he boosted the minimum wage and abolished a controversial tax on smaller pensions. the u.s. senate's drive to push saudi crown prince mohammed bin salman for the death of a journalist will slip to next year. senators are struggling over how they should respond. they are considering sanctions such as banning arms sales and freezing assets.

senators may pass a nonbinding resolution declaring the crown prince responsible for the murder. global news on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am emma chandra. this is "bloomberg daybreak." david: coming up, building to withstand stronger hurricanes. we look at how extreme weather events are affecting coastal developments with jeff lynne can. -- with jeff. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i am emma chandra. coming later today, james lockhart. this is bloomberg.

week, "bloomberg daybreak" is taking a closer look at climate change and its relation to extreme weather events. weather disasters have caused more than $1.5 trillion of damage in the united states since 1980, with 31 disasters in 2017 alone. losses amount to more than $1 billion. we will look at wildfires on wednesday and water scarcity on friday, but today, we kick things off with wind and the going intensity of monster hurricanes. largestump: it is the hurricane they have ever seen coming out of the atlantic, the winds the strongest they have ever seen. the worst was one of hurricane seasons in history and did not stop there. pres. trump: it is one of the biggest storms ever to hit our country. alix: category 4 hurricane

michael slammed the florida panhandle, resulting in $25 million worth of damages. so many lives have been changed forever. so many families have lost everything. homes are gone. businesses are gone. roads and infrastructure along the storm's path have been destroyed. this hurricane was an absolute monster. alix: and it was not the only one. a month earlier, hurricane florence wrecked properties in the carolinas, with damages of $45 billion. catastrophic losses from hurricanes in the last 20 years amount to more than $500 billion. three of the most expensive were in 2017, as storms hit more often, with more force. >> look at not just the frequency -- the intensity of hurricanes. there is no question in my mind that climate change contributed. alix: this leaves businesses on the hook to adapt to rapidly-changing weather patterns, from rebuilding to prevention. >> people are hurting and are

going to be hurting for a long time. they will rebuild and it will be newer. it will be better. and it will be a community coming together in crisis. thed: joining us now is spoke weather service's chief weather analyst, jacob. this is bad. we saw it and heard it. why is it they are? is it climate change? people tend to think it is, although the president says he does not see it. jacob: it is not that black and white. climate change plays a role, but it is not causing the hurricanes or the reason they are forming. we have always had storms. if you look across the history of the atlantic reason, the past six or seven years, there has not been much uptick in terms of how strong storms are, how much accumulated cyclone energy there is, one measure of the wind energy of tropical cyclones. that said, climate change has worsened some of the impacts.

it is easier to bring storms like hurricane harvey that cause significant flooding. the levels are higher, so you stormeing worst -- worst surge. and they increase the author that storms will rapidly strengthen up to the coast. david: let's put up a fascinating chart you have prepared and we modified slightly for television. on the left axis, what it says is how related it is to climate change. at the bottom axis, it says how confident we are. the cyclones, the hurricanes that fall into the cycle in category -- we do not know much about them. jacob: this is from a national academy of sciences report couple years ago. it shows what we understand about the impacts of climate change, and what we do not. fieldis an up-and-coming called impact analysis, impact science. it is trying to figure out the impact of climate change specifically on storms. warmth, cold, heat waves. heat waves are some of the easiest to tighten things like

climate change. individual storms, it is a bit higher. that storm would have formed anyway. with some of these storms, you are increasing the odds that the storm could rapidly intensify. it has some worse characteristics. when you combine that with building population centers along coastlines, recent population growth in major cities like houston, you create a scenario where it is so easy to have major economic impacts. alix: jacob myself, the spoke weather services -- you can b meisel, -- jacom bespoke weather services. you can literally ask him anything. joining us is jeff lamkin, developer of cinnamon scores -- rtores in fort -- in po something, texas? david: porter man's us.

-- port aransas. alix: thank you. jeff: the reality is, you do not build for a storm. modernt you can do -- materials have evolved so much in the last 10 years, and fema has raised the base flood elevations you have to build two. miami had their streets built 100 years ago. they are just low, and heavy rains are going to impact them. the new stuff is built five to seven feet higher. it will avoid the flood. the windstorm is there -- no more than you would worry about a race car windshield breaking for driving 200 mph, the new windows are hurricane proof. concrete siding is there. aluminum roofs are there. we have structural tiedowns, screw 30s that have a feet tall, mounted into the concrete foundation, that goes all the way to the roof. after the last event, less than

10% of the homes in cinnamon sure had enough damage to even make an insurance claim. there was one i went to see because it had a 40 foot roof facing where the wind was pushing. i went to see and i thought the roof was going to be blown off. i went to check it out afterward, and there was a 12 by 12 beam you could see torqued a quarter of an inch where the wind caught it. we have these go bolts and other structural tiedowns. modern building practices help. alix: does that increase your cost? jeff: it probably cost us 30% to 40% more to build a home on the coast than if i was building in san antonio or somewhere else. by the time we put in the more expensive windows and structural issues -- but that also goes into, we are going to sustain the storms, and we are built for the climate that is going to be there. rap, the coast gets a bad you look at harvey, a lot of the damage happened from floods. it were all the way in houston. we were at ground zero where the

winds hit hard. four miles inland is where a lot of the damage and insurance claims are taking place, the majority. is a healthy 40% premium. are people willing to pay to have that safety or do you eat some of the cost? what is that work for the person buying the house? jeff: technically, i do not build houses. i sell the land and do the master planning and builders come in. texas, our prices are still probably about 1/3 of what they are in most other beaches. cinnamon shore has beautiful beaches. it is in the strongest economy in the world. texas by itself is now the 10th largest economy. it is going to pass the next two, refill and i forget -- and i forget, to become the eighth largest. it is a solid business that has appreciated steadily, so we do not have as many economic

factors with daily trading. it is part of the cost of owning a beach home. if you are lucky enough to be able to afford one, it is just part of the cost of owning. alix: when you look at the frequency of hurricanes, the type of hurricanes, some of it somewhat related to climate change in a particular way, do you literally have to look at changing business models, p&l? how do you look at something like that? jeff: to be honest, we build 400 year events. i proclaimed that when we came out, for about 12 years. when harvey hit us, coming ground zero on mustang island, it did wipe out a lot of the houses and buildings that were just a mile south of us and a couple miles on both sides of us, older structures that were totally wiped out. i was concerned. i was afraid. maybe we have these bolts and every place is going to be leading on its side. after going through the storm and witnessing how well the homes held up, my confidence that we are built to withstand a 100 year event is extremely

high. in fact, our highest sales of happened since the storm, and our sales will you has increased, because people are able to see what is still standing. david: how does this fit with insurance companies? is your premium lower? you have seen some places where you cannot get insurance at all. you are seeing this with the wildfires in california. jeff: i have not heard of any coastal environment where homeowner insurance was not readily available. it does cost more, and they factor in your baseline elevation. we build a couple feet higher, which offsets insurance costs to lower it back down to be more normalized. or 20% more to ensure a home, with all the best building practices, then if you were inland. that said, a 15 hundred dollar increase on your insurance rate on a million-dollar house is not going to do deferred -- not going to deter you from buying a beach house. worse andare getting

worse storms. it seems that way. do you envision a day when the building code will require the things you are doing right now? other places are trying to protect against hurricanes. jeff: building codes have evolved. the international homebuilders association's codes -- it is from watching the storms. if it was built 15 years ago, it does not have the right codes. it has some of the right stuff, but you still have to replace your wood floor. in the last 10 years, you are built well and will withstand floors pretty good. david: thanks to jeff lamkin of sea oats group. alix: i am watching the price action, in particular, the volume at the open. the purple line is the s&p and the white line is the smart money index. the smart traders -- discounts the first 30 minutes of trading.

we moved significantly lower. it has dropped a lot. it peaked right when the s&p picks. now it is moving lower. what does that mean? conflicting results as to what hedge funds are doing. roman sacks and j.p. morgan saying the hedge fund did buy on the dip. -- goldman sachs and j.p. morgan saying the hedge fund did buy on the dip. i am watching the price action. david: it is contrary to what i have always heard. alix: that is true. withg up, the open jonathan ferro. a chief european economist will be joining him. ♪ ng him. ♪

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

coming up, global investors whipsawed i volatile markets. the s&p 500 bouncing off eight-month lows. stocks rallying has trade talks continue between american and chinese officials, despite a diplomatic row. prime minister may beginning a tour of europe, distracted by french and italian politics. futures positive. the treasury market yields up a single basis point to 2.87% on the u.s. 10 year. a big issue -- investors struggling to adapt to volatility. >> this is what volatility should be like. >> this is payback for a complacent middle of 2018. >> coming off excessively low volatility. >> a bit of an overreaction. >> everybody is running to safety or capital preservation. >>