a change of leadership in the conservative already now will put our country's future at risk and create uncertainty when we can least afford it. alix: may will fight on. theresa may says she will contest the vote of no-confidence. trump shutdown threat. president trump says if he doesn't get the wall, he will shut down the government. a new trade hope. president trump said he would intervene in the huawei to get a trade deal with china. david: welcome. i am david westin here with alix steel. the action is in london come in the parliament. were looking at parliament now. were waiting for prime minister's questions. it will be this evening where she fights for her leadership with her own party, the conservatives. alix: either way, how do you move ford from something like this? what will she say, and how much he will she take? it will be brutal. david: if she survives this, she

gets 12 months clear and free, so she may be emboldened. they can't challenge her again for 12 months. alix: you said that. cable is up, cable is up, but i'm skeptical how you govern after that. it is a risk on field. a trade deal may be with china. apparently the market is taking the vote of no-confidence .otentially s&p futures are up. sixth intraday move for the s&p. , 1.25.le rate up by .4% -- $24, $27 billion billion worth of supply coming online. we will see what the takedown is for the 10 year. crude up by over 1%, almost 2%.

we are waiting for the opec monthly report. and we have the prime minister questions happening right now in london. theresa may speaking. >> mr. speaker, i will have meetings, possibly many meetings with minister colleagues and others. [laughter] just a normal day in the office then, prime minister. i would want to share condolences for the tragic events in strasburg. minister, the prime told us there was not going to be a general election, and there was. this week, she said she would not have the vote, and she did. can i ask her if she will rule out having a general election? alix: we will keep listening in to see what theresa may will be saying. for now, bloomberg's first take. reporter andets

lisa joining us. is it up because of the scenario? >> who knows? just cable rate or stocks, who knows? hours later,r, two it could be at completely different story. it is just making it impossible. a constant is is your cable volatility versus your euro-dollar volatility. that has been plateauing at the highest level since brexit. >> i think it is interesting. blackrock said you can't handicap potential outcomes. david: we want to go back to theresa may. >> in the unlikely event of no deal, this government will still protect eu citizens rights, and

we wish to know that actually other eu governments would respect the rights of u.k. citizens as well. >> jeremy corbyn. >> thank you, mr. speaker. thank you, mr. speaker. i am sure the house will join me in joining the prime minister in condemning the shootings in strasburg and extending our sympathy to the families of those killed or injured there. see the prime to minister back in her place after her journeys. -- journies. having told the media this morning she has made progress, can she update the house on what changes she has secured to her deal? >> i did travel to europe yesterday and meet a number of heads of government at the commission and eu council. tot is because i've listened

concerns made in this house and have taken those concerns to one i metd no yesterday is any doubt about the strength of concern in this house on the issue with the ration of the backstop. -- the duration of the backstop. honorable general and couldn't care less what i bring back from brussels. couldn't care less what i bring back from brussels. what ever comes back from brussels, he will vote against it. all he wants to do is create chaos in our economy. damage and create division in our society and damage to our economy. that is the labour party, jeremy corbyn. >> jeremy corbyn. >> it is clear, mr. speaker, nothing has changed.

she needed any clarification, mr. speaker, about the temporary nature of the backstop, she could have just asked her itorney general, who said indoors indefinitely. as prime minister may recalls, when she left on her journey, we were about to start day four of a five-day debate on the deal. since the prime minister has not achieved any changes, either to withdrawal agreement or the future partnership, can she now confirmed that we will have the concluding day for debate and dayswith in the next seven before the house rises for the christmas recess? had discussions with a number of people yesterday. i have made some progress, but course there of

isn't a you council meeting and further discussions to be held. the vote has been deferred and the date of that vote will be announced. the business motion will be agreed and discussed in the usual way. i will tell members on the other side when we've had a meaningful vote. we had it in the referendum. and if he wants a meaningful date, i will give him one, march 29, 2019, when we leave the european union. >> jeremy corbyn. >> totally and absolutely unacceptable. to a: we are listening spirited exchange between jeremy corbyn and the prime minister of the u.k.. jeremy corbyn saying did you get anything new from europe. want to votedon't

for anything i do anyway. even if shet point, wanted to do something different, she couldn't. angela merkel saying we have no intention of changing the exit agreement,. .she can travel all she wants and tried to get concessions, but merkel is standing firm. david: what do you make of all this if you are in europe now? i must say, what ever else you think, you have to have respect for her ability to stand up there again and again and again. she has almost no one on her side in parliament, but she keeps at it. >> you have to wonder why. she frames it as i am trying to keep us together. if i leave, there is no leader who can get anything through. she is getting pummeled. they laughed at her. ineone screamed, shut up

order to keep her going, yet she persists and does it with a smile on her face and tries to emphasize the importance of it. alix: hence the volatility, binary outcomes, how do you possibly hedge? sure a lot have been wondering how bad it will get. that is the direction things have been trending and brexit talks. when you look at the multiple this year, it has compressed to a level where it even if all of this goes away, there has to be something in here for me that is not sterling-oriented or we can hedge that risk. david: we want to thank our guest for reacting to this extraordinary session in parliament. francineo welcome now lacqua. great to have you. is a lot of sound and the

fury, but does it signify anything? , i don't knowl whether you would call it pageantry, but it is third british. we've seen heckling, the prime minister being called to order, the house being called order as the prime ministers heckled. if you look at the amount of political turmoil we woke up this morning to come at this confidence boat, let me talk you through the procedure. methis confidence vote, let walk you through this procedure. this is not a vote of confidence from the house of commons. it is a vote of confidence from her own mp's. we found out from the head of the committee of 1922 in charge of this conservative procedure, saying he received 48 editors asking for the promised her to be put to a vote to see whether the conservative party still has the confidence in her. if she doesn't, we will go to

elections. if she wins this boat, she would be rewarded with immunity of any fresh attack under the rules of the committee. david: if she wins it, is she in a stronger position to ultima get a deal done, because she gets 12 months? if she loses it, is it likely to have a more hard brexit position by whoever she is replaced by? >> you can see the market reaction. pound rowling a little bit today . they think she will win the vote. support to58 mp's get through today. there is thinking if she gets the vote through today and people basically support her today, for the next 12 months, she is in a more comfortable

position she has been in the last six months. isshe loses it, it impossible for her to stay on has prime minister, then we go to this election. we are hearing from the conservative party we may have a new prime minister by mid-january. that would mean we are closer to that march 29 day where the u.k. needs to get out of the eu, so it could be very messy. boat, i wouldhis expect a lot more volatility on the markets -- this vote, i would expect a lot more volatility on the markets. alix: i was going to say congress doesn't get like that. david: i was reminded of yesterday with president trump that, nancy pelosi -- and nancy pelosi and chuck schumer. alix: joining us in new york is fidelity director of global macro. from boston, cibc private wealth cio.

the jump in cable rates today, what do you make of it? >> nobody knows. alix: you can say it. >> i was talking to our colleagues in london. nobody knows. the assumption she will survive the vote. the reason we have the vote is because she canceled the vote in parliament because there is no majority, so even if she survives as prime minister, there is still no answer. the march deadline looms. they have to leave either way. we are all on pins and needles here. nobody knows. we read theder how markets on this right now. we see a lot more volatility in the pound. does it mean anything? are a lot of people saying i'm not moving anywhere until i figure out what is going on? that.re is a lot of it is so hard to process what is going on with these brexit negotiations and what this no-confidence vote means, but i

recommend investors focus on two questions regarding this no-confidence vote. number one, how does it impact the terms of brexit? , how does it impact the odds of jeremy corbyn becoming prime minister? those are the two issues. that is where i would focus the attention, even if she wins the no-confidence vote. alix: when you look at markets over all, what is priced in? is it an appropriate price risk? they general view is that u.k. market from an equity standpoint is not one of the more attractive markets. i would expand that to europe in general. you are short on growth and growth potential and long on political volatility, so in our regional work, we favor other parts of the world than the u.k. and the eurozone. david: ultimately it depends on growth.

what does this do to growth in the u.k.? and we also have emmanuel macron , there is a no-confidence vote scheduled thursday there for him. what does that do to inhibit growth on the continent and in the u.k.? >> it may curtail confidence among corporations to invest in their businesses, but it is a microcosm of the question investors are facing everywhere right now. is ae u.s. as well, what dollar or euro of earnings worth? 15 times, 16 times, 12? this re-rating this year is indigestion by the markets. we are switching regimes. midcyclee from this regime where earnings growth is , knowingd accelerating where monetary policy is, to one that is much more uncertain.

we don't know where earnings growth and 2019 will settle, other than it will be less growth in 2018, and deciding the right multiple is the key, 15, 16? i tend to look less at price levels and more at fight you wish and in terms of figuring out. of uncertainty, investors will be willing to pay less for every dollar of earnings in europe and the u.s. alix: we just had an interesting exchange between jeremy corbyn and theresa may, theresa may accusing him of bringing down the government, so that heated words getting more heated as we go. david: that is his goal, to be prime minister, and the only way to do that is have a new election, but it is far from clear that even if her own party turns her out his leader, that that will be the result. angela merkel still speaking, saying we have little

time, but there is time left, but we will not change the exit agreement. >> timing is of the essence. , you have may loses to elect a new person. the march deadline is the march deadline unless the eu says take another year to figure it out, but at this point they will leave with or without a deal. maybe this whole thing is a ploy to force the conservatives to rally behind may, but it is a risky gamble. david: let me ask the ultimate question. europe, u.k., and by the way, not limited to europe, as an investor, where do you turn with this political and geopolitical uncertainty? where are the safer spots in the places where you think you should put your money? >> when you look at the array of conditions in the u.s., the u.s. equity market looks pretty good.

i envision a 2019 in which economic growth slows, but continues at a respectable pace, inflation seems to be well anchored around 2% or a little higher over the course of 2019. i think we will hear from the fed next week that they are downshifting the pace of the rate hikes. earnings growth, i agree with my colleague, it is questionable but that number looks like, but is likely to be positive. ,aluations on a forward basis earnings are at the median level, so i don't think valuations are a stretch, so i don't think the outlook is bad for the u.s. equity market in 2019. david: we will talk about that in a moment, that threat of the so-called trump shut down, what happened in the oval office yesterday, next. this is bloomberg. ♪ his is bloomberg. ♪

still looking at theresa may answering prime minister's questions in parliament, hours away from her vote of no-confidence. tories saidting 148 they will back the prime minister. she can get as feisty as she wants. it looks like she may stay the leader. david: 158 is the magic number. no one can challenge her again. alix: that will feel good. david: i think she has earned it.

let's go from turmoil in the u.k. back to turmoil in the united states. president trump raise the stakes on a government shutdown when he confronted house and senate leaders over his demand for a border wall, giving us a rare glimpse into the bickering that normally stays behind closed doors. >> the the shutdown should not happen. you have a white house -- >> i can't get it passed in the house. it will not pass in the senate. >> you can get it started that way. >> we need border security. >> of course we do. >> we need the wall. we need border security, of which the wall is just a piece. the wall, not border security, but on the wall. we do not want to shut down the government. you said i want to shut down the government. we don't. you just say my way or we will shut down the government. we have a proposal that democrats and republicans will that will nota cr shut down the government. >> i am proud to shut down the government for border security. i would take the mantle.

i will be the one to shut it down. david: really extraordinary episode there in the oval office with the president of the united states. still with us are our guests. reacted.ts certainly you could see it. i was on the air. the equity markets were up nicely and just came right down. how important is this in the longer term? is that't think it important. we've seen this movie many times before, government shutdowns. we have an administration that likes the art of the deal. to place any bets on assuming the government will shut down. if it does, if it's not more than a certain period, it doesn't affect the way businesses and consumers behave. we have a lot of headlines and worries. earnings growth is slowing. valuations are resetting.

those of the much bigger issues we need to think about. of onee have seen a lot person swings in the s&p. we had up show the whipsaw action. the volatility of the vix is lower them meaning not a lot of protection hedges come into the market. what do you make of that? >> it is an environment in which investors don't know which way to go, and volumes would suggest people are frankly doing nothing. at the same time, you see so much skittishness in the market. i was amazed to see the market reaction to the press conference and this whole worry about a government shutdown. the government shutdown issue is like a horror movie without any suspense. we see this play out over and over and we know how it ends. it is a nothing issue for markets, and yet, you see volatility spike in the markets. i think with all this macro and

political noise, not just in the u.s., but around the world, that may be the environment we will be in for a while. david: exactly the point, because that is nancy pelosi as the leader of the minority democrats before she takes over the majority position a speaker in january. what might that indicate about the way congress will do with the president going forward? .> i think we are seeing it now this might be a preview of coming attractions, this very public bickering, but may be behind closed doors, dealmaking, so a lot of the important legislation has been passed already in the first two years, so now we have a somewhat gridlocked congress, which the markets don't always disliked. sometimes a little gridlock is good. to dave's point, it is important to note that liquidity is low,

so it is easy to move the markets. s&p is up 18 points as of this morning. whenever someone decides to sell, the buyers disappear. when the sellers are done, the buyers come out of the woodwork was so i do think this is par for the course. comeonger-term investors it's important to not get too swayed by the action. as a technician, ultimately what i will be looking for is assigned the selling pressure has exhausted, in the market stops going down on bad news. that is always a key thing. this is bloomberg. ♪ alix: you are sticking with us. coming up, a new trade hope. this is bloomberg. ♪ ♪

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alix: this is "bloomberg daybreak." i am alix steel. it is a risk-on kind of day. s&p on an intraday basis, down

.8%. european stocks also getting a lift. table waiting also a rally with the ftse 100. the nestle report from bbc theresa may will be able to withstand a no-confidence vote. equities also helping the cable rate. take a look at the other board. you can see the jump there. you can see a little bit on the back nine when it comes to -- b ack end when it comes to yoo u.k. gilt. salvinie in italy, may see a reelection. supplied with the opec report coming out in the next half hour. david: we will turn out to stay with china.

president trump says he will now intervene in the case of the huawei cfo.il wanzhou was arrested are speaking in an interview with reuters, the president said "if i think it is for what will certainly be the largest trade deal and remain, which is a very thing, or is good for national security, i would certainly intervene if i thought it was necessary." still with us are jurrien timmer of fidelity and dave donabedian of cibc private wealth. we thought it was a law enforcement matter, into a trade dispute, but he says we will try to get a big trade deal going. do people believe it? jurrien: my assumption is it is a deliberate long game of containment. afterrest coming two days

the deal was not a total shock, although it certainly raises the stakes. this is a multiyear thing that will play out over a long time. e, beenill be a win her something else to worry about over there. until march truce 1, that is actually important, even though it is a piece of a longer battle. economic problems were waiting for our trade issues, because they were unable to stash they were sort of hamstrung by u.s. monetary policy, and with the fed presumably pivoting more the chinesend getting more breathing room, it does give them a chance to kind of get their economy back up. it isn't, but i do not think it will put everything behind it. david: this will be a long

process. how much patience to investors in the market have? and i must say, both in china and in the united states. because it affects sentiment. dave: it has affected sentiment, and it will continue to. much newsere is so flow, newsroom, whatever, on trade, it is constant, and you see the market moving at the slightest little piece of data. sense is to makes step back and kind of ask the big question, which is -- what are the chances that this trade conflict escalates such that it could lead to a global recession? certainly the number one and two economic powers in the world in a constant battle with higher s, that couldriff lead to a global recession. something the question is -- what are the odds of that scenario? i imagine the odds of that are rather low, certainly way below 50%. the reason is i think it is

starting to mature life as a two track process. withher words, our issues china are variable, economic, geopolitical, diplomatic, military. happening ifbe agreement, trade and economic issues will be on one track, and all of those other things. is used north korea, south china sea, etc. are on another check. issues with north korea, south china sea, etc. are on another track. i think there is a good enchantment economic rationality and political necessity come together, and we get a deal in the first half of 2019 on trade. alix: it goes to the point of the underlying fundamentals versus the sense that you can see it in the price ratio. is you come into the bloomberg here, has dropped in the bull market to near average. the potential outlook for 2019, or is that a buying opportunity? dave: i think it is appropriately priced.

in other words, you do not assume multiple expansion when you are doing forecasting for 2019. so within kind of comes back to -- what is the potential for errors earning dividends growth? we know earnings will downshift significantly. we cannot keep going at a rate above 20%. high singleo digits for earnings growth for s&p next year. that is the kind of market we think it will be in terms of return potential. david: i want to go into something you raising your notes, jurrien, how the equity markets get set, a combination of earnings on the one hand and fed rates on the other. the chart shows the expectations on earnings and the expectations on federal funds rates. be interesting thing is, you see the blue line here is earnings expectations. at the same time, the expectations on a rate hike have actually come down quite a bit. doesn't that mean that the value will go up?

because of the discounted future cash flow. it isn: the way i look at the discounted cash flow model, earnings obviously very important. interest rates or the cost of capital, liquidity issues are very important. those two together kind of set a fair valuation value for the market. once you know the evaluation and the earnings side, you can solve it. so price over the long-term follows earnings, but sometimes it follows faster than other times. so the question is have the p.e. rerated enough? they have mentioned earnings downh at 26%, coming likely to 14% in q4, then only 5% or 6% in the first two quarters of next year. there is usually downside risk to the earnings expectation. if earnings make you grow 5% to 7% of that raises rates once, twice more, and then goes on

hold, and we have that against 15, 16, it is not the biggest margin and the world, but to me, that is fair. especially in the world of 2% inflation. one thing i've learned about peter lynch is with the rule of 20, you get a sense of where the p.e. should be, so is the main historically, in a low inflation period, actually, it is 2%, but historical context. jurrien timmer and dave donabedian, thank you guys so much. david? david: it is not just competition over trade and investment. it is also competition over how to fund the government, and it turns out china may be gaining. bloomberg'sten by editor-in-chief matt winkler. welcome back, matt.

i have not been following it, but it sort of surprised me that china may be leading us a little bit on the cost of funding the government. will it for sciences we have been compiling data at bloomberg, china is feeding less on its debt than the u.s. is a income of which is unprecedented. been in could not have a better position in 2016 with rising gdp. in fact, record gdp. and low inflation, as already mentioned. relatively low interest rates and a very good fiscal outlook, actually. the budget deficit, the percentage of gross domestic product, was getting towards 2%. but all that changed in the past two years. one thing that happened for us, we got the street that -- this trade that trump initiated, which does not bode well for companies on either side of the atlantic or the pacific, and then you have to tax cut, which holely throws the big

into the deficit outlook, it makes the u.s. look very weak especially if there, is a growth slowdown that everyone is talking about. the fed hashat that been a raising interest rate since 2015. and china is doing everything it can to contain, essentially, this trend toward lower growth. china was growing, you know, in double digits as recently as 2010. and now it is less than 7%. does it tell us anything about the relative strength of the economy? if in fact, the fed may be raising because they think we economy, but china is easing because of trade and concerns about growth? matt: absolutely. you look and say so much of this is driven by central-bank policy. the u.s. raising interest rates, tightened credit. china, for all kinds of reasons, is having a more easy policy and

is not in a position to tighten is.way the fed having said that, look at the bond market and the spread of the 10-year treasury -- bond notes and treasury notes have collapsed. that is really kind of, if you will, a warning sign about what iay come, especially the fiscal situation in the united states slowsf, which it shouldn't come as a we will be in a position where we will be paying much more money to get treasury. not that it will go away. it is, as jacob lew said, interest rates are likely to rise, relatively speaking. alix: to that point, you mentioned it briefly, matt, scott dunlap talked about you will have an issue with cap and gains because of all of the issuance. he basically said in his investment notes it is a technical thing, and the other part of it will be a fundamental

thing. is that how you will be doing it? matt: absolutely. i think you nailed it. the outlook is greater pressure from the deficit on the bond andet, both short rates long race. china is in a very different position, so this, if you will, crossover that is unprecedented is likely to prevail. david: ok come up bloomberg's matt winkler, thank you so much for being with us, matt. you to thet to bring u.k. u.k. prime minister theresa may still speaking in parliament. it appears that, from bbc reporting, she does have enough votes. rate.ble jumping to the highest of the session i should also point out the political risk in france, but in italy, the 10-year yield falling for the first time since september. there was a headline earlier

that potentially there be another election, but also the government is looking at or proposing a 2% deficit target to the eu. david: which is looking pretty good come when francis talking about 3.4%. france is making an early look good. [laughs] alix: and the money is moving on that as well. much more coming up with that. david: coming up, elon musk gets the last laugh. tesla seems to finally find its footing. this is bloomberg. ♪ this is bloomberg. ♪

alix: this is "bloomberg daybreak." coming up in the next hour, mike wilson, morgan stanley, chief

equity strategist. ♪ alix: we turn now to wall street, three things buzzing about this morning. first up, wanting to manage your money. are inviting big givers to have that money given by the endowments. been morgan stanley called out a newestment -- in report, trying to source funding, and musk gets the last laugh. tesla stock recovers and the company finally achieves some profitability trade for now -- david: [laughs] for now. joining us now, jason kelly, bloomberg business bureau chief. said -- we will invest it for you, if you want. by the way, harvard did not.

jason: right. it is a fascinating sub trend in endowments. endowments have some of the best money managers out there. yel -- david at yale is one of the best investors of our time. so you say all right, i will let these guys manage my money through the catch is, they get to keep most of it, the colleges do, because they are eventually treating it as donations. david: normally come you get to direct the fund where to put the money. jason: you do get to direct it, but the profits largely -- david: profits ok, so the growth yale. client goes to jason: exactly. alix: do you get a say in where the profits go at yale? jason: essentially, because you donor at thatgger

point, so you are part of the system in a more meaningful way. it is allude to come little more controversial, we talk about them in terms of the big wall street banks. goldman has a big business. it is a pretty sweet tax setup, and people have questioned that a little bit, because you do get a pretty big tax break, and you have a long time to put the money to work. great reporting here. alix: interesting. james gorman said he wants to illuminate the aim to to thevestors' eyes opportunity that everyone is missing, basically saying gender and minority by us when trying to raise money. it is not just their. -- there. i have talked with hedge fund managers who say people just do not want to invest their money with me, because i am a woman. jason: it is not just on the margins. they are twice as likely to

question whether a woman-owned fun poor and minority-owned can match the expected returnd. that is incredible. so you see why it is that was much smaller.at david: it is a higher bar they have to clear. jason: right. so first, you have got to get there, you have to be at the party, and then people are like yeah, i am not so sure you are as good as he is, even though the record rates show otherwise. alix: we will support you -- we are all for gender equality, but i'm not going to give you my money. jason: right. with anya jung, a geithner, running a long, and --sked her why is it in this a pioneer, running avon, and i

asked her why is it, in this day and age, down this way? whether it is ginny at ibm or indra, who ran in its ordinary barra, thei, mary fact that women have spoken to gives me some optimism. actually andrea jung thinks we're making progress, see you can see that interview at 9:33 we will talk about a lot of things, and including how she got passed over actually by a man at how she stuck it out at avon. elon musk, we know he had a tough time earlier this year, particularly after a series of accusations about manipulating stock, saying "i can take it private," and things like that, and it plummeted, and now the stock is almost at its peak. jason: almost to spite him.

when he has been out with all his bluster, like on "60 minutes congo "i don't respect the sec." ok, slow your roll, bro. he has actually created a pretty good car company now, and investors are able to look at everything he is saying and everything he is tweeting and find out that he is making a month cars, and they are pretty good cars that people are buying. candice: this -- alix: this came out a few months ago, retail shell holders in this -- shareholders in the stock love him, they are in it to win it, whereas analysts, he cannot quantify that kind of risk, etc., this is a really interesting brick that i cannot recall another company in the public that have that. jason: exactly, and there are very few companies where

investors are so binary. radio showme on a with cathie wood over at our investments, one of the most successful active etf managers out there. that tesla has been able for a long time. she says i am looking past all of it, because this is a great company. gm producesny like so many cars and is worth actually less. amazing. rta's, thego back to like,, its valuation was, stacy times earnings. -- 60 times earnings. alix: david was not alive then. [laughter] david: no, i just read about it. alix: david? david: this is one i am watching, prime minister theresa may, confidence in her

leadership and the fate of brexit is hanging in the balance. joining us now is bloomberg's francine lacqua, who is still outside. questions have been going on for some time now, that at the same time, she has the votes she needs to withstand this leadership challenge tonight. francine: yes, actually, david, on the back of that bbc were, they have been doing the numbers, they probably have a spreadsheet on what w yoump is -- what mp is going to vote for her or against her, but right from the start almost, first of all, when we found out there was a vote of confidence, the pound dropped, then it kind of strength and, because there is engthened, because there is hope, industry wins it it, she ishe wins

almost immune from another conservative challenge from the leadership party for another 12 months. if you think about this from the logic that she could actually, stronger, she could actually come out more victorious, and it actually means maybe some of the brexit supporters that have been against her so far would actually support the prime minister. alix: all right, so francine, where do we go from here? give us the ted talk. francine: hi, alix. we know we will be briefed by the spokesperson of number 10 shortly. we understand the prime minister will try to individually seek mp's at 5:00 p.m. the vote, which is actually a secret ballot, not being held in the house of commons but in the that chambers of westminster, the vote will be secret, that will happen between 6:00 p.m. and 8:00 p.m. london time. we should happy result of the vote around 9:00 p.m. will give us an

idea of whether she will continue to be the prime minister and strong or whether they will attempt to have a contest to see who will take over the leadership and therefore who could become the next trimester. david: thank you so much. that is francine lacqua outside parliament. you can find all of this on your terminal. in the meantime, we have developments on the other side of the channel, i understand. alix: candice: we are still looking -- alix: we still looking at what is happening in italy. the prime minister has not confirmed 2% deficit target. about an hour ago, we got a headline that they were looking at the 2% deficit target, which would be a huge boost for the eu. coming in fords the market. we kind of stopped those bids, they are off the lows, but 13 basis points lower, below 3%. potentially, you may see a 2% deficit target, despite what government officials are saying. no, just kidding, said the prime

minister. david: in the meantime, france is saying we think we will have budget. deficit a lot of pressure on the european zone. term,nd in the longer how do germany and france were together? merkel willn and really bonded together. both leaders are much more challenged. alix: at least merkel has an end in sight. looking for a recession and earnings next year. megan greene, our chief economist, joining us on all things brexit. this is bloomberg. ♪ this is bloomberg. ♪ ♪ there's no place like home ♪

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in the conservative party now would put our country's leadership at risk and create uncertainty when we can least afford it. alix: may will fight on. she is said to have enough tory backing to stay on as leader. bank harness, on track, dragged down by a yield curve. and president trump says he will intervene in the huawei case to get a deal with china, triggering a risk-on move in markets. david: welcome to "bloomberg daybreak" on this wednesday, december 12. i am david westin along with alix steel. if you look at parliament, that is a beautiful shot. will really i am not sure how much wil progress is made. alix: we have reports that at least 158 tory party members will be supporting her.

taking a stand there in parliament. i have no idea if that means we will get an brexit deal or not, but nonetheless, at least we will have clarity for the next 12 months. and we have merkel saying to her own parliament, there is no change in the deal. look at that, parliament really emptied out there, the headliners. it is a risk-on kind of rally that the trade overnight, having to do with huawei, equity futures up by .9%. we have seen six days, intraday moving 1% for the s&p. a real shocker with the action happening. the cable rate .1% around the highs as we see that perhaps theresa may can fight off and vote a no-confidence. we have up by two basis points, $24 billion on the 10-year. two-year was pretty solid.

crude also up, finally factoring is supplied times as we wait for an opec word out today. david: as you are saying today, prime minister may appears to be ready to face a no-confidence challenge from her own party. is she leaves willingly, it would delay brexit. tomay: that would go beyond january, and it would mean that the new leader, were a new leader to come in, the first thing they would have to do would be to extend article 50 or percent article 50, and that would mean delaying or stopping brexit. welcome megan greene from just outside of parliament, guy johnson. guy, does it look like she has the vote, and if she does, what happens tomorrow?

guy: increasingly, it does look like she has the vote, they ventured this looks like something that will have to happen behind closed doors. all we could do at this point in time is trying to get a straw poll of the number of mp's that would be likely to back her. it looks like she will have the numbers necessary. as soon as she does, that would give her 12 month of clarity in terms of the fact that she could not be challenged again. present herort of with at least a few more options, because she would be strengthened by this story. i think in some way, this could still be a red herring. the biggest threat that exists is a parliamentary vote of no-confidence, which could still happen. that would be something that the markets would react to significantly. if you take a look at the other side, though, it is suggesting that the pound withdrawal by

somewhere around 20%. is she maintains her position, the markets do not change a great deal. if she were to lose, that would be a downside. the bigger overarching threat remains. david: just to remind everyone is she had a plan for brexit that she pulled because she was not going to get the votes for it. she was over on the continent trying to make amendments to that plan, getting back to parliament of having a better chance. is there any deal being indicated on either side, either on the consummate or in brussels, or any parliament on this plan? guy: um, no. the conservative plan, that kind of is the story for tomorrow. we get back to that tomorrow, depending on what the outcome of today is. and kind of the progress of that plan, the market is very focused on.

there is an argument, david, that says she may have facilitated this vote. theers for her to write to committee, to try to precipitate is, to try to remove it as one of the obstacles of getting that plan through it is very michael bayley and. we do not understand -- through. an.is very machiavelli we do not understand yet. there are indications it will not be renegotiated. if that stays, the bell curve of outcome, we are still not dealing with the other outcomes at this point in time, but you never know where we're going to go with it. alix: guy, great stuff. you will be continuing this on your show starting at 10:00 a.m., the "european close." maria tadeo is joining us in brussels. what is the reaction to this vote of no-confidence? maria: good morning, alix.

european leaders are still operating on the basis that byresa may well blocked behind things tomorrow, she will make it to the summit, but i think it is what, for a lot -- at this point, for a lot of european leaders, it is really not so much about the trade deal, it is not so much about the backstop, really it is a country that is divided, that is basically split up in two, and this is an issue that is domestic, and the conservative party have many different issues as to what they want, and they have not made up their minds two years after the referendum. ,lix: bloomberg's maria tadeo thank you so much. wilson,us now, mike morgan stanley chief u.s. equity strategist, and megan greene, man u life asset management chief economist. megan: it is evenly split on where this could go. really anything could happen.

i think it will be difficult for theresa may to get anything out alternativesso any to the deal that she has are things that the eu would never agree to, other than no brexit or no deal. tohink she could put this parliament, you can see the rejection of it in parliament, which could be cathartic, and then maybe it will pass, so really anything could happen. david: if would be more dramatic and entertaining if people were not directly involved, like theresa may. we have seen unemployment, things like that. megan: that is a great question. it is showing up in the u.k., and it definitely has for a while now. outside the u.k., though, it is not really showing up. even if the u.k. crashed out of

the eu with no deal, it would affect the eu through financial volatility. u.s. equities would probably adjust in the short-term, but the asian growth, not really. alix: perfect segue to mike wilson. than hedgesre against the vix, not all that active right now. that is kind of what we have been calling for is the trapping market, particularly in the line since october -- decline since october. we clearly took out the 10 day moving average. orchids are broken in the cyclical cents, and when that happens, it takes time. we have to shop around. that is why people have been frustrated. is part of the cocktail, but it is not the main part of the drink. it is just part of the uncertainty that is out there. there is no incentive to make a bid back one way or the other, and that is why it is hard to

hedge. it is choppy action, you do not get paid on the hedges, and people go back. alix: it is like the salt on the margarita glass. david: i actually do not like salt on my margarita glass. [laughter] alix: ok, not for david. david: it was the stock market, a lot of different asset classes. does that tell us something more fundamental, about, for example, global growth? mike: the their market we have been calling for all your, which is it started with tightening financial conditions, and growth was very good, but the markets should pay for that growth. it is unsustainable. by the way, every asset county in the world right now has been hit. there is an amazing statistic -- i do asset allocation as well -- every asset we can allocate you around the world has underperformed inflation year to date. that is a very rare outcome. in fact, it did not even happen in 2008.

to.e has been no place hide it is a liquidity issue. drain, weighing on financial assets. at the same time, growth is speaking globally, now the market is starting to worry about growth. is kind of a two-stage correction. you are right, value having risk, we put that out. second is the growth concern for next year. we have a lot of advantage. as that prices have repriced. alix: we will get to that. i know megan is not super jazzed on growth for next year. megan greene and mike wilson will be sticking with us. mike019 outlook from wilson, and earnings recession is a possibility. we will break that down. this is bloomberg. ♪ omberg. ♪

>> this is "bloomberg daybreak .:" apple's biggest productions may shift away from china if tariff s skyrocketing. the majority of iphones are assembled in china. trade were between the u.s. and china. activist investor elliott management has taken a dig into french maker of jamison whiskey and a champagne, and the firm, run by billionaire all elliott sanger, once changes. he said the company has lost market shares and has peers.erformed its c

credit suisse plans to buy back shares over the next two years and increase evidence by at least 5% a year. wants toisse's ceo reward investors who have stuck through the bank -- with the bank three major restructuring. the bank projects it may fall up to 10%. that is your bloomberg business flash. alix: thank you. we are nearing the end of the year, and there is no clear signal what the banks can expect ahead. >> i think 2019 will be an interesting year. >> we see a change in attitudes on the streets. be in formarkets may a rougher sledding in 2019. >> earnings growth for 2019 has now come down a bit from 10% to about 8%. perhaps there is even more downside to go from there. >> the s&p 500 is highly insulated from what goes on outside of the u.s.

we do not necessarily go with movements in other parts of the world. the disconnect between what you have seen not just in the core results reported this far but looking into 2019 is inconsistent with the price action. mike wilson of morgan stanley and megan greene of manulife. 2019 outlook -- what are the bulls getting wrong? think they were late to recognize financial conditions were getting tighter this year. the fed is on a much more deliberate path. they told us that, but i do not think we could believe that. it obviously got worse, but point number one, i think people thatestimated, it is funny to her three years ago, they were kind of worried about qt, and then they kind of forgot about it. number two, the growth we are seeing this year is not repeatable. we are not going to see that kind of growth again next year, and at the same time,

comparisons get difficult, and the good news of the tax cuts is affectively negative, which you were doing tax cuts at the end of a cycle, it is a good idea, but the timing was terrible, to do a tax cut at the end of next year, because you are already running pretty hot. what does that do? unemployment at 3.7%, inflation, and the economy is tight, that is causing margin pressure, potentially, for next year. that is all bad news. the good news is the market has been adjusting to it all yea r. not at a consensus anymore, although we are still the lowest target on the streets. we just think there is a two-year consolidation. the s&p is flat on the year. it is not that bad of a year, if you think about it. david: again, why is it only two years? what i just heard might say, whether it is fiscal in the form of tax cuts or monetary policy

and central banks, they take it out of the balance sheets, was to take the money out, you will get hit again. why does it matter? megan: i think you're are right, we're probably not going to get the fiscal stimulus again. rate, in theh u.s., is about 2%. we happen growing about that because the systems get reduced by a tax bill and by a spending spill. there is a chance we will get an infrastructure bill that will extend the recovery. is roughlyy, europe 2.5%. they did not have the fiscal stimulus that we had. japan is between .5% and 1%. we all had an affair synchronized growth coming into this year that faltered -- we all had fanfare about synchronized growth coming into this year that faltered. alix: what is your small-cap

outlook if you are looking at a returned to trend growth? it is not as bad as people make it out to be, but it will still be draining to the market. mike: sure. ingot out of small cap july. we think the economy will drop in the first quarter, the international part of the economy, and the u.s. will drop in the third quarter, which will argue that the u.s. will be relatively worse, domestically-oriented companies will likely underperform. i think sometime early next year, early second quarter, they probably become attractive again. we will be making a lot of 2019, butchanges in starting the year, we do not think the kind of trends we have been seeing will be anytime soon. david: what if it does not rollup this much, how does that change you now? mike: it is constructive.

first of all, the market has been screening all year trying to get the fed's attention, and, look, the fed is doing their job. i am not blaming the fed. they should be doing a balance sheet. the problem is, it is creating a lot of stress. they will probably raise rates next week. maybe they will not do any rate hikes next year. the big issue is the balance sheet reduction, and they have not even addressed that yet. but i do think they will do that next year. alix: part of your thoughts is also related to the thing. megan, do you see this for the u.s.? megan: for the u.s., maybe even fiscal stimulus really peters out next year, so definitely in the second half for the u.s., whatever the fed does. david: mike wilson of morgan stanley and megan greene of manulife will be staying with us. alix: don't cry about it. david: i was crying about the

pun. since 2011.drop more on the bottom line. live from new york, this is bloomberg. ♪ york, this is bloomberg. ♪

will know for the bottom line, where we look at three companies. -- is mine. they can make more money for them if they really focus on the two things. they are really not happy with the mergers and acquisitions they have done, but they think they can get the margins of for champagne and things like that. in trading right now, it is up over 4.5%. alix: i am taking a look at apple here. apple away from china is the u.s. tariffs on imports skyrocket.

we think , we do not know where or what that means. base: it does not help his back in the united states. it depends on where they go to. alix: that is interesting. david: i do not know. they could be shipping to silicon valley. alix: containment for years, this is more commitment -- david: and a larger side effect of trade could be longer supply chains that are not so easily reversed. now we go to the third story come into banks, morgan stanley and bank of america. an analyst joins us on the telephone. bothust downgraded ranks from market to poor. how much is it specific to banks, and how much is a more general issue? guest: thanks for having me. as a generalis issue, but there are some bank-specific factors involved here, especially as we look at next year.

we have tiny yellow flags making us more cautious on earnings growth, making us more cautious on the group broadly, so we look increases thane before, and we are also expecting a risk-off environment, and at this point in time, we really do need to see new catalysts emerge for both morgan stanley and bank of america, and right now, we do not see those on the horizon. just make the rate cut some of the banks will be making a lot more money. as you say, if they don't go up, but the fed went up quite a bit, and trading, there really was not volatility. why did those not help the banks? brian: they did help the banks initially, certainly with the rate rising environment, and then when you get to later cycle, what we are seeing is the cost of higher rates come

through, and that has been negative for earnings growth as a result, so that banks have to pay a deposit. the larger asset sensitivity is played out for the group, but the trade environment, we are looking at what is considered more of a bad trade environment. at the bank management with regards to the fourth quarter already, and that was really the volatility we have seen has not translate into better trading revenues. that is the kind of revenue we expect going forward. risk-offget to the environment, you are looking at the sidelines and not actively trading. david: what is the margin? there has been a a lot of frustrating already at the bank. does that continue or accelerate? they cannot consolidate much more, the large banks. brian: yes, consolidation is out of the question. there are already regulations to prevent that from happening. we are looking at banks can kind of manufacturer earnings growth. hass fargo, for example,

expensive programs in place during that is one way to manufacture earnings growth. share repurchase is another way. if you look at where we are at in 2020, we are looking at almost 2/3 of earnings to come from share repurchasing. that can manufacture earnings growth in that kind of environment. david: it does strike me as a little ironic, because when president trump came into office, he wanted to pump the brakes a lot, also deregulation of banks, which they moved forward with quite a bit. maybe he has not help to the banks quite as much as one would have expected. brian: certainly not as much as when the elections first happened. what we have seen is the regulation really affects smaller banks and regulations for the larger banks. it has changed modestly but not to the degree we first thought they would. the other risk is trade wars.

the effects of trade wars have been negative. we have seen loan growth be below expectations and the corporations to invest at this one a time. alix: all right, brian bw analysts.a k still with us mike wilson of morgan stanley and megan greenup manulife. do you like the banks -- megan greene of manulife. do you like the banks? keefe, bruyette, & woods for the next few months, we do. first, we should have been underweight -- first of all, we do -- mike: first of all, we do. for the next two months, we should have been underweight. we have seen banks underperform and breakdown like this, and it usually means something is looming out there, the market is sniffing out. that is related to the balance

sheet reduction we talked about a minute ago. i am not saying there will be a financial accident, but the banks are priced in for something really bad is going to happen because these things are dirt cheap. this is not 2008. these banks are not undercapitalized, and this is not a systemic issue. alix: megan, what are you thinking? megan: i think it is a question of the yield curve. it has gotten much harder for banks to profit. and i think the yield curve will remain flat for a while. i do not think it will invert anytime soon, and by inverting, the two months or the 10-year. it has largely been a repricing of the term premium, not a huge expectationsn. it is not really a macro story, i do not think. i do not think we will get what i was people have been waiting for, given how late we are in the cycle. i think the fed will continue to go gradually.

i think the balance sheet radloff will happen in the background for a while, without anyone paying attention, which is exactly how the fed intended it to be. i think the yield curve will remain pretty flat. alix: we will talk more about this in just a moment. we have cpa data coming out. in the markets, it looks like a risk-on kind of day. you have the dow jones up by 29 points, the european stocks higher, ftse higher. it appears theresa may does have the vote in her tory fighter to provide the -- party to provide the no-confidence vote later today. this is a more confident plan, cable riate is up. it looks like a selling bonds kind of story. you see very strong buying coming into italy, down by 14 basis points, potentially italy could be looking at a 2% deficit target.

from the italian prime minister's office says no, that is not going to happen. under 12 basis points, and crude is up by 2%. we are moments away from the cpi i am watching natural gas because that can be a feature to cpi that had crazy movement the last couple of weeks. year on year, energy bang and line with estimates. that's in line with estimates. no big surprise. goes up, you ppi would expect some passing through to consumers and it does not look like they are passing anything through. at the supply route, it is not going through to consumers at all. alix: if you look at year on year in general, 2.2% versus the 2.5% we saw in october. down a touchevised

for average hourly earnings but they were up 8/10 of 1%. what do you make? megan: i think it takes longer than it used to and a lot of firms are eating it in terms of their corporate margins because they are trying not to jack up prices and lose market share. it is the amazon affect. if we get a re-escalation of tariffs, we will continue to see that. david: is your response i told you so? when you are swaging the margins, that -- squeezing the margins, that will not help earnings. mike: the stoxx know this now, and this is the story for 2019 ks know this now and this is the story for 2019. we could see market degradation. this is a commodity business. several executives have talked

about they are going to compete away all the benefits of tax cuts over the next several years. once again, the market took that advice to heart and that is why the banks traded at a steep discount to where they should be. even if you have a flat yield curve, these banks will make a lot of money over the next 12 months. people just do not know how much the margins will contract and what the deceleration will be. david: does that put a premium on parts of this that are not a commodity business? a lot of wealth management is not a commodity business, it is a relationship business. , does are wanting a bank that indicate you should put more resources to avoid the commodity? mike: wealth management is the ballast. that is not where the volatility is. the volatility is in the investment bank, m&a, trading businesses, and that business

probably well, under pricing pressure. -- will come under pricing pressure. companies will not want to do transactions, and trade is weighing on the m&a business in the near term. alix: what does have pricing power? where will we see the ability to remain martin -- retain margins? megan: i do not have a clear answer. i think it is pretty much across the board that you will not have firms that feel they have pricing power so it will eat into corporate margins. on inflation, i think it should remain muted. we have had serious issues in the housing market. none of that is changing, so we can expect the housing market to continue to get soft. housing and medical care, those are the two biggest weights on the cpi and ppi baskets. david: if we are looking for the

half full part of the glass, if we have no inflation pressure that we can detect, that would support that maybe the fed should not be raising and can trim back on some of its rolling up? mike: i do not think it supports the consumer. oil prices are down a ton. if they are not getting the prices raised on them for things they are buying, that can extend the consumer cycle. we are looking for a meaningful slowdown in the economy. that is far from a recession, a consumer led recession. i just think we are stuck a little bit. we had a heck of a run. people got a little too excited about the growth surge and now it is reality setting in. i think we are in a bear market and it is pretty obvious you are being objective. it is an unsatisfying bear market to the bears. we will not get a big plunge.

that will not happen again. ,he economy is in good shape just not as good as people were dreaming about. david: i cannot have one of these discussions without talking about productivity. where is the productivity? have you received any glimmers up or down? megan: not much. we have had very weak productivity growth and we began to get some spending at the beginning of the year but that petered out. capex spending at the beginning of the year, but that petered out. i think it will happen with a lag and we might have to wait. alix: im going to steal a page from your outlook -- a major challenge for next year that the unexpected growth will mean more fed tightening. --wer than expected growth for the first time it is good

news and bad news will create problems for the u.s. market. do you agree? megan: i think that is right. it also sticks the fed at the center of this. the fed is the biggest risk to the u.s. economy. 10 out of the past 13 rate hiking cycles have resulted in recession but they are aware of this, and they would like to avoid this. jay powell suggesting we should go really slowly. we should go really gradually, slowly, carefully. that is the way we should look at it so i think the fed will back off the current dot plot rate path. i think they will have to back off and go more slowly. the economy looks strong. we are not seeing a recession anytime soon. it is a little bit worse than investors had been expected. alix: when you pivot to an asset allocation perspective, that

feels like value versus growth but if you mentioned the financials look really dangerous , they would normally be where you see value. how do you see -- understand the value versus growth conversation? mike: there are two cohorts to the value pocket, defense and cyclicals. we update a lot of defensive areas and those have led since june. the second part of the value will come next year when the market feels it has priced enough in. the cyclicaldicate ratio is pricing in a slowdown, which some would argue is a pretty significant economic deceleration. i am getting more comfortable with the idea that those parts of the market are pricing in basically a really bad outcome already. we are inclined to be buying a lot of those things into the first quarter. it will be early, but we have to be early.

we have been moseying into value all fall and if you look at the russell 1000 value versus growth, it has outperformed significantly because growth is coming down. that is the part of the market that is not discounting a slowdown next year. people say, they are secular growth stocks. baloney. these are economically sensitive business models and if we have an economic slowdown, they are not priced correctly. that is where the risk is the greatest. david: at what point do you want to hold onto your cash and wait if his you think maybe six months, a year down the road there will be better opportunities? mike: the single biggest change in the last 12 months for us is that you were getting a positive real rate of return on your cash. andid raise cash in january in the summer when we got back toward the highs, but we will not raise 15% to 20% cash

because we are in a structure bull market. for asset owners, the worst thing you can do is have them sell stocks and pay tax and time them getting back in. at the margin we have raised some tax, to try to tax-deferred in a efficient way. ,e have been very deliberate saying to buy when you get close to the end range. be a little more sensitive to the price you are paying. alix: we have lasted 40 minutes talking about trade. truce feel like a trade in some capacity is more likely now after g20, after seeing some conversation? megan: no. i am not even convinced we will make it the 90 days. i think trade will get worse. alix: how does it get worse? megan: an escalation of the tariffs, from 10% to 25% initially, and more tariffs.

trade is a multi-front war so it is not just between the u.s. and china. we could get things with -- the president has threatened to withdraw from the new nafta. you have problems with japan. alix: why are you so negative when president trump says i might make this while i thing disappear? -- while way thing disappear -- huawei thing disappear? megan: who will be the next that has not been addressed and i do not think either he the u.s. or china -- either the u.s. or china will back down. david: it is time now for a bloomberg business flash, look at some of the biggest business stories in the news right now. the u.s. government sees oil production continuing to grow despite lower prices.

the energy information administration predicts domestic producers will pump 12 million barrels a day from last year -- next year. the average price a little more .han $54 a barrel the last estimate was slightly under $64. the largest clothing chain is entering the christmas season refusing to raise prices. they say they will maintain prices despite a price war. hitachi has agreed to buy abb's power grid business for up to $7 billion according to nikkei. they have a joint venture with this was company to supply equipment for japan's energy grid. the companies say they are in talks. that is your bloomberg business flash. david: thank you so much. bloomberg daybreak is taking a

closer look at climate change and its relation or possible relation to extreme weather events. incurred by costs hurricanes and we will look at water scarcity, but today we are looking at the costs and damages of the deadly wildfires. >> see what has happened here. nobody would've thought this could happen. alix: one of the deadliest wildfires in california's history, 85 dead, 153,000 acres burned. some blame climate change. rising temperatures create kindling for fire. not everyone agrees. >> this is not a political issue. this is a management issue. alix: no one wants to pay for it. >> we are tired of giving california hundreds of millions of dollars for their forest fires where they would not have them if they manage their forest. utility company pg&e is at

the epicenter of this debate, and on the hook for billions. >> you have $15 billion here and last year. the company certainly will not be able to survive. alix: pg&e issued bonds to help pay for the cost and now california assemblyman bill -- will introduce a bill to extend that legislation. not everyone likes it. the company cannot pay. the government will not pay. taxpayers do not want to pay. >> we have to have a reordering of the power industry and certainly the broader industry -- energy issues. the risk is becoming acute. david: we rep -- welcome howard mills and former insurance commissioner of new york. thank you. when we see astronomical risks, we think about how do you spread

that risk, who should be held accountable. howard: the first thing you need to do is look at what constitutes a healthy insurance market. they help market is one where insurers are allowed to charge rates relative to risk. in california where people have unfortunately seen premiums raised, they are still not yet paying actuarially justified regulations because of the laws in california. any increase over 6.9% must have an approval by the department, so it is not easy to raise rates. as we saw in your report, we are entering into a new normal. there is no doubt the severity ,f wildfire risk, the frequency the fact that wildfires move faster is increasing due to climate change, lack of rain.

it is making living in fire prone areas more risky and if people choose to live there, they will pay more. david: if you took off the restrictions on the rate rises, you would allow insurance companies to charge prohibitive amounts of money. could you have depopulation in areas prone to this? howard: what we are seeing in the competitive market desk in california is not in a crisis insurance situation -- we are seeing markets move in difficulty pick up the excess capacity, but a lot of these carriers are not admitted. that means there is no guaranteed fund to back them up in the case of a company collapse, so it is riskier for the homeowner that purchases insurance through those companies. they may get a lower rate and be able to reduce their rate by medication, but there is greater risk.

we are seeing some rate increases for known carriers, but not everywhere. they are using modeling more efficiently and trying to better predict where the risks are. you have communities called fire safe communities where the community bands together and makes a concerted effort to remove brush and debris and medicate -- mitigate their effort. alix: who is going to fork over all the money? the homeowners do not want to. insurance companies cannot raise their rates. pg&e is in bankruptcy talks. the states are backstopping them. president trump said no way, no how. howard: the effect is, everyone is paying so in california if you were denied by three insurance companies, you can go to the fair plan, the insurer of last resort which is subsidized by the taxpayers.

you were talking about hurricanes. it is a fact that if you choose to live on the coast in a state that is hurricane prone, you wind up paying more. the new normal, given climate ,hange an increase in severity to live in these areas unfortunately will cost more because of the end of the day, someone has to pay. the insurance market does a great job carrying the risk, but for them to be healthy you cannot require them to write risk in a fire prone area. pg&e, thereng about are reports out today that there was a fire observed before the official start of the fire that might've been the cause. there is strict liability in the state of california. is that the right way to structure it? do we want to hold utility strictly liable for these enormous damages? howard: it has not yet been

determined who was at caused in the camp fire and some of the other fires. question is how do we mitigate and make them are resilient? legislators going forward will work on things like zillions. -- resilience. do we require the building codes to be changed? clearinguire brush efforts be undertaken? do we require insurance companies must take into account that people have taken medication into account? how do we maintain a healthy insurance market? regulators have to allow risk relevant rates to be charged. alix: there is also talk in the energy community about having to revamp the business model, do not build a power line, look at something under the ground to mitigate that risk. , how dore an insurer

you change your business model? you cannot look at your past instances to look at your model going forward. inard: that is a good point, the insurance industry has been at the vanguard of thinking about climate change. they have done so much research and are working on mitigation. the point you make is a very good one. a lot of underwriting is done on and the eta, -- data, past history of wildfire risk will not be apparently the future of wildfire risk, given the greater severity and frequency. we need to make adjustments across the economy. i know that some people dispute, argue, there is no doubt we are seeing greater severity, increased frequency in severe weather events, whether it be hurricanes or wildfires. the entire u.s. economy has to adjust. alix: it is great. howard mills.

rallying onhe pound a report that theresa may has the votes to survive a no-confidence challenge. this is bloomberg. ♪

♪ alix: we have some breaking news coming from "the wall street journal" that has to do with china and the u.s. according to the report, china is going to allow the entrance of foreign companies when they are working to replace its made .n china 2025 plan they are planning to increase access for foreign companies and they are working to replace their 2025 plan. what does that mean? david: it is a "wall street

journal" report. made in china 2025 was at the core of their tech and it bothered president trump a great deal. this is artificial intelligence, things like that but they have been doing in china, and aggressive attempt for china to move forward. if they allow the u.s. and other western countries to participate , that would potentially be a major state -- stepped. president trump said yesterday we should expect some major steps to be announced from china. alix: part of the rhetoric out of g20 was that china was going to focus more on the trade deficit whereas the u.s. was focusing more on the structural ip property changes. this is a structural fundamental change. david: it goes well beyond trade deficit and beyond opening up markets, because a lot of

opening up markets is opening services. tech,s is really going to particularly artificial intelligence at reddit the center of what they are doing, if that will open -- at the center of what they are doing, if that will open up that could be the opening of the iron curtain we have been warned about. up likeld be opening the fall of the berlin wall. alix: brad beck tell is joining us. what do you make of this kind of headline? if the wall street journal is correct, they will open up more countries to come in, what do you make of that further risk on rally? brad: it definitely helps markets broadly. are making some kind of progress on the china-u.s. front. we have headlines from trump

yesterday and now this news, so there is clearly conversations being had and the ball is rolling. that is good for the broader risk market, good for u.s. equities, and good for riskier currencies. slightly dollar negative and maybe positive for some of the emerging markets or the australian dollar or anything levered like the korean won. alix: any headline on train provides with the action all over -- on trade provides whippy action all over. brad: what we know for sure is that volatility has increased and is likely to remain high, so you want to protect yourself with options and options strategies. remain nimble in your portfolio. you cannot get married to a position because one headline could change your view on a dime. it is a fast-moving market.

it pays to be nimble, protect yourself with options, things that are levered toward the china currency like the australian dollar or the asian exporters. it might make sense to own the asian exporters. anything could change on a dime. of jeffries,chtel thank you for being with us. journal street announcing that china is planning to draft a change to its made in china 2025 to include other countries. david: pretty dramatic. alix: this is bloomberg. ♪

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

jonathan: coming up, the president willing to intervene in the wall way case -- huawei case. politicians playing shutdown politics in washington, leaving equity traders suffering from whiplash following some of the wildest swings in the stock market since 2011. already minutes away from the opening bell, futures up a good time. treasury yields positive two basis points. 2.90 on the u.s. 10 year. let's get the headlines. andor: mood music improving futures gaining on the news that china is planning to increase access for foreign countries. they are redrafting the made in china 2025 plan that was helping china dominate in the manufacturing space. they a