francine: at westminster, rebels and boris johnson's party vow to defeat a no deal brexit. pounded, gable drops below 1.20 for the first time in more than two years as downing street threaten snap elections. chinese and american officials struggle to agree to a plan for the next meeting. u.s. futures point lower before wall street returns from holiday. good afternoon if you are watching from asia. welcome to "bloomberg: surveillance." i'm francine lacqua at

westminster. brexit, a pretty historic and tumultuous couple of hours we are expecting. the meantime, let's check on your markets. we are seeing market volatility, pound dropping lower today. let's get the board up for you, pound at 1.1981. there is a lot of debate in the newsroom over whether that has to do with dollar strength or markets realizing an early election could mean an alliance among the ones who wanted a hard-line brexit and increasing the chance of a no deal, but we are seeing a tilt to the market overall, a little risk off mood. you can see a little higher than usual at 10% higher and gold at 1530. coming up, we speak to sir howard davies, a chairman of rbs as the prospect of an election surges.

we will talk about what that means for the banks. don't miss that interview 11:00 a.m. london time. let's get to the first word news with sebastian salek. u.s. areand the struggling to agree on a schedule for the next round of talks after watching -- a rejection of allaying tariffs. a date hasn't been set but it isn't a sign it won't happen. >> it is a concern there seems to be an impasse. is has worsened in terms of deal of the escalation of measures applied against each other and we don't see a clear offramp in terms of how either party will get to a point of having successful discussions to resolve it. >> in hong kong, carrie lam said she never asked for beijing's permission to quit. tendered a never

resignation to the central people's government. i have not even contemplated to discuss a resignation to the central people's government. the choice of not resigning is my own choice. sebastian: lam also denounced a leak of audio from her meeting with business leaders. reuters reported she discussed quitting but in the briefing, she clarified that was only the easy choice and she committed hong kong. dorian is bashing the bahamas but the winds are weakening. forecasters are looking for signs it is ready to turn north out of the u.s. coast rather than making landfall in florida. dorian is still category three, overturning cars and tearing down power lines. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more , i'm120 countries sebastian salek and this is bloomberg.

francine: thank you. westminster has woken up to the prospect of a third general election in over four years. ultimatum, the u.k. prime minister will attempt to trigger a snap call on no deal brexita will try to seize control of parliament business today with the aim of passing legislation to delay brexit in the event of a no deal. let's get the latest with our u.k. politics reporter. also joining us, james athay at aberdeen standard investment. it pretty exciting week. 59 days until brexit, so what are we expecting from the rebels? >will they try to block boris johnson? 59 days until brexit, maybe.

we don't know. the great thing about hung parliament is it is all going to go down to the key votes. we will have a vote this evening and probably, if the speaker allows it, signs are he will, we could have another vote tomorrow. that means every individual tory ofhas a say in the future the country. it is not just the government deciding what they will do and boris johnson is putting maximum pressure on those tory mps. the former chancellor leading wet group wrote and said want answers so negotiations are still very ongoing and while some of those leading voices in the group like justin greening have said we will vote against the government, others could be swayed to back the government if boris johnson puts enough pressure on them. francine: one is sterling worried about today? dollar strength? james: i certainly think

is, given signs of concern, worry, the business investment has essentially hit a brick wall and that has been attributed to the fact that businesses have no idea what they are playing on. the scene unfolding now will not and away the uncertainty potentially kicks they can further down the road because you have an a general election with an unknown outcome and none go -- unknown government with an unknown set of policies with respect to brexit. weak.onomy is already francine: would an election be worse for the markets because a no deal could also -- by parliament? been myhat would have initial expectation because if we go back 18 months, markets would have cheered essentially any sign of an outcome that was either no brexit or a softer

brexit, which reasonably a general election raises the possibility, and yet we seen sterling weaker from guilt strain and that shows the market is concerned about the uncertainty continuing. any outcome that is definitive is better for the u.k. economy. francine: including a no deal? james: obviously the market is not going to enjoy a no deal but reasonablys it could put behind it before the skirmishes but the short-term disruption is not going to be great for the u.k. economy. i don't see sterling rally in that. francine: it is once again all about the arithmetic. how many do we think we'll -- will vote to take control of the timeline at how many will vote for a notable exit? jess: the key people to watch are the tory rebels, but also there is a group of very

pro-brexit labor mps who possibly don't want to go to a general election and run -- we see a labor government backing a second referendum. not be choosing brexit, but representing seats that are pro-brexit and fear they could lose them. those are the two key groups to watch and it will go down to the wire this evening. francine: this evening to have an idea -- could boris: election this evening? -- call an election this evening? jess: he can't call an election. he would call on parliament to vote. the actual taking control will happen tomorrow after the spending review at 3:00 p.m. francine: that is basically calling election. it would be difficult for the opposition to say i disagree with everything you do, but we don't want to go to the

election. jess: we are in a situation where everyone is calling everyone else's bluff. boris johnson is saying if you try to make me delay brexit, you are leading the country down the road and that is not what i want. francine: what is priced in the market right now? does anyone out there still give the eu could just boris johnson a deal he could pastor parliament? james: i don't think many do. it doesn't seem government is preparing to negotiate, is really asking the eu for anything specific. i know there have been conversations task with the latest data play is but for me, it doesn't look like those have gone on. what is priced in terms of the market, we have a decent amount of no deal priced but we could see evidence in today's moves. we are not all the way to know deal and not as extreme as we could get.

i do think the risk level, they will strout -- struggle to rally too much more with the bank of england. they will not cut the rate into negative territory. francine: jess shankleman and james athey stay with us. later on "bloomberg: surveillance" trouble over tariffs as the u.s. and china struggle to agree to scheduled talks. plus, devastating as the bahamas gets battered by one of the most powerful storms in history. will bring you the latest on hurricane dorian. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg: surveillance

." time francine lacqua at westminster. when it comes to markets, we have extra data checks. the pound trading below 1.20 but we are seeing some yields at record lows. italian yield, i'm looking at the u.k. yield and some of the european yields. there seems to be a risk off mode -- risk on mood and we will see where that goes until the end of the day. let's look at pound. if you look at sterling versus euro, it hasn't moved that much but what is interesting, it does look like there is a little dollar strength and that might be something to consider, though you could also, the markets worry about a possible election which could mean boris johnson has some kind of alliance with the hardline pro-brexit people that could push sterling lower.

we will get straight to the bloomberg business flash with sebastian salek. sebastian: spencer is set to lose its place in the ftse 100 after 35 years. the high street retailer will be relegated to the mid-cap ftse 250 as part of a quarterly rebalancing. its mortgage portfolio in a deal worth 3.8 million pounds. part of-- acquire as a the agreement. it announced it was ending mortgage lending and selling its home. group cathay pacific is under investigation by chinese supplies wereer found depleted or empty. another headache weeks after chinese regulators threatened to bardi airline from the mainline after staff supported the hong kong protest. francine: thank you, sebastian.

china and the u.s. are struggling to agree on the schedule of the next round of trade talks after washington rejected beijing's request to delay tariffs that took effect over the weekend. we've learned that a date has not been set. still with us, james athey from aberdeen standard investment. what is the market pricing -- kidding. with trade, is the market getting used to the idea that it is a tit-for-tat and we don't have a resolution? james: essentially, the distance by which the equity market declines on these positive or negative bits of news is relatively small but i have to say i still don't think the equity market is looking at the same world as the bond market. there is a dramatic difference in what those are pricing. i feel the bond market is closer to being accurately priced. the fact they can't even agree

on a date now is not a particularly positive sign when we've rode way back from six months ago in terms of what was agreed and that was before they dealt with tricky issues which are the things we know about like ip and enforcement of any agreement and how that will work going forward. to me, i think this will be here to stay until the next presidential election. francine: talking about market moves, i can do that on the terminal. if you look at the u.k. 10 year italian,l-time low, all-time low, german khan all-time low. how low can they go? james: everyone said when you got to zero in european yields, that would be the floor and we have blasted through that with ease. you have 10 year yields in that are lower. there are many reasons for that beyond a pure view of the economy but realistically,

central banks set the tone. who set the ones risk and that is where we go from there. that theno evidence central banks are having an introspective moment and questioning whether or not they are part of the problem. until they do that, we can see it this way. francine: if they say they are part of the problem, do they stop doing what they have done so far? james: economists have said for years that would be the worst outcome but i read a piece from larry summers or he said that is the right thing to do now because there are two problems with the way they are enacting policy. is probably making things worse but taking away any pressure on the fiscal authorities to be involved and an act or structural policy or more appropriate cyclical policy. i think there is something to be said for central bank saying we supported the economy enough. we can't do anymore at this stage. francine: would that not

automatically tip us into a recession? if the central bank said,, tough love. is a recession around the corner? james: i think a recession is around the corner anyway. six months or 12 months, we don't know. we don't know until it is in the rearview mirror. we usually extrapolate and make workptions, they normally in enough cycle or down cycle. they don't typically work in an inflection point. i think we are at the point where we have seen the best of it in the labor market and the labor market is the economic cycle. that absolutely describes the economic cycle. consumer confidence is correlated with headline unemployment in the u.s. when that moves in a negative direction, and we see early signs of that, there is not central banks or the fiscal authority can do.

certainly not with some of the issues we face in the amount of debt. francine: how much do you worry about misallocation? if you look at yields, are we dismissing the politics and geopolitics and's or you are talking about? james: what is more concerning to me is it is essentially sharing investments in favor of investments in the financial sector and financial markets because there is a belief, a pavlovian belief that financial markets are underwritten, so the risk -- whereas investing in the real economy, you lose your money. because you itself see a decline and economies weaken, central bankers underwrite the financial market so more people see a better risk opportunity in markets rather than what is going on in the real economy. francine: i think we are seeing a new low on the 10 year german yield.

what can the ecb do to mitigate that? james: does it want to? that is the other question. francine: it is looking at tier ing. will that be enough? james: not enough. the diversions is and imbalances exist. more in germany, specifically, there are huge imbalances and when it comes to tiertiing, you see those that won't benefit and have bad loans on their books and aren't able to act to support the economy and they that theirnefit problem at the moment is about the nature of the balance sheet, the assets they own and the quality of the assets and the domestic situation. i don't think tiering will help a huge amount. francine: james athey from aberdeen standard stays with us. coming up, we will follow everything happening with

hurricane dorian. the deadly hurricane continues to strike the bahamas but the winds are wind and -- weakening. this is bloomberg. ♪

francine: this is "bloomberg: surveillance." i'm francine lacqua in london. we are at westminster watching every development on brexit let's get the latest on dorian. bash the continues to

bahamas but its winds are weakening. it remains powerful as forecasters map its path. annmarie hordern has been following the story. hurricane dorian continues to devastate the bahamas, killing five on an island and inflicting colossal damage to property and infrastructure. even though it has been downgraded to a category three 125m with winds slowing to miles per hour from as high as 85, it remains hazardous according to the national hurricane center. it will move dangerously close to florida this evening and later, very near georgia and south carolina. airlines have canceled more than 1000 flights and there have been mandatory evacuations ordered in parts of georgia, florida, and south carolina. the latest figure on potential costs put dorian on track to be the most expensive national -- natural disaster since 2017. ubs says it will cost at least $25 billion of losses for insurers and that figure could rise as much as $40 billion depending on whether the storm

hits florida in the next few days. quickly, in general, i want to show you the history of the cost of hurricanes. they have become much more costly. scientists say water warmed by human greenhouse gas emission has made hurricanes stronger and flood damage rather than high winds, that is what costs so much and harvey, at $138 billion, is the perfect example. francine: annmarie hordern with the latest on hurricane dorian. next, war -- more from westminster. we will get the latest. this is bloomberg. ♪

♪ francine: boris johnson's party about to join the opposition to

no deal brexit. >> downing street threatens elections october 14. chinese and american officials struggle to agree on a plan for their next meeting. good morning, everyone. good afternoon if you're watching from asia. live at westminister for what will be a pretty decisive, a pretty, i would say, couple of historic days that we're following as parliament will vote on various measures the next couple days to see if they can stop brexit or take control of the timetable. we're also getting some p.m.i. construction figures out of the u.k. for the month of august, falling to 45 instead of 46.5 we were expecting. already anything below the contraction is worse than expected coming in at 45 instead of 46.5. now usually for the month of august, i don't know if this is

tied to brexit or tied to seasonal adjustments. we'll have plenty more on that and some of the moves we've seen. cable is currently up 12003 and was at 119 something just like minutes ago. let's check in on the biggest stock movers. here's annmarie. annmarie: let's kick it off with ferguson, a plumbingmaker in the u.k. spinning off their u.k. business and will focus on the u.s. where they get the bulk of their revenue and announced a new c.e.o. kevin murphy, running the u.s. division will step into that role. down 2.2%. first half earnings missed estimate and had a loss of 92,000 subscribers where analysts thought the number would come in around 54. goldman sachs needs to increase the generation of cash flow. r.b.c. lowering the price

targets for swatch and says they are exposed to the protests in hong kong as opposed to other soft luxuries. francine: thank you so much with some of your main stock movers. now straight to the bloomberg first word news in london with sebastian. sebastian: starting with the bloomberg scoop, china and the u.s. are struggling to agree on the schedule for trade talks fter washington did to the take in the request for the weekend. not necessarily a sign the talks won't happen. >> it is a concern that there seems to be an impasse that has worsened the course in terms of the escalation of tariffs and measures applied against one another and yet we don't see the clear off ramp in terms of how either party is going to get to the point of having

successful discussions to resolve it. sebastian: opec's production raised last week after cuts the first of the year. saudi arabia led the way with output of 200,000 barrel as day. the cutback struggled to shore up prices against the deteriorating outlook for global demand. waiting to see how prior rate cuts and tax relief affect the country. r.b.a. keeping it at 1% was widely expected now they're waiting to see if the economy is experiencing the gentle term as expected. carrie lamb never asked beijing's permission to quit. >> i have never, i have never tendered a relation to essential people of government. i have not even contemplated to discuss a resignation with the

central people's government put . the choice of not resigning is my own choice. leaks.an: lam denied she denied there is only the easy choice and she's committed to hong kong. global news on the air and kicked off by twitter powered by more than 2700 journalist and analyst. this is bloomberg. francine: let's get more on our top stories. tuesday is shaping up to be a dramatic move at westminister. rebels from boris johnson's party threatened to join the opposition to defeat the prime minister on no deal brexit. downing street responded with a threat to snap the election october 14 days before the european council meeting. what happens next? let's go to tim bail, deputy director of the u.k. in changing europe and also professor of politics at the

you've of london and with us is james from aberdeen standard investment and sometimes is a guest appearance and we have the opera singer over there sometimes. professor, what happens the next couple of days, they'll certainly be exciting if you're in the house of commons, what are the chances they get the numbers to take control of the time line or actually take control and force an extension? >> i think if they've got the numbers to take control of the timetable which it is about today, they will have the numbers to pass legislation mandating boris johnson to ask for an extension from the e.u. 27. i don't think there's much doubt actually there in nonconservative m.p.'s who will control the timetable and get that legislation. i think that's almost certain and then there's the question of what boris johnson does to respond to that. we think now he will call for a general election.

but of course he will call for a general election. he can't call an election. he has to get parliaments permission to get that. francine: what will labor do and you say prime minister, you're wrong, you're wrong, isn't it almost impossible to not support an election? >> labor is in a real bind. clearly it won't go for election after october 31. it doesn't want an election to allow us to crash out of the e.u. it would say. the main question is whether labor would fall into what tony blair called the elephant trap and that is an election before october 31. the signs over the last 24 hours are actually that jeremy corbyn would be prepared to do that if he had some guarantee from boris johnson that johnson wouldn't change his mind on the date which is possible. francine: can he really change his mind on the date? speaking to a foreign defense minister who thought if they say it's october 14, then it

will be october 14 . tim: slightly depends on how the election is achieved. if achieved by getting a 2/3 majority in parliament for an early election, possibly he could change his mind. and an alternative by another piece of legislation which mandates aelection will be held on a certain day that will be a more difficult outcome. francine: what is the best chance of staying on as prime minister. boris johnson once remained prime minister, is he better off having an election before october 31 or after? tim: i suspect his game plan has been to have an election before the 31st actually. i think he thinks he has the beating of jeremy corbyn and the polls indicate that is the case. it is a risk but anything is a risk at the moment and probably that is the gamble with the biggest and best payoff for him. francine: does he do an alliance with the weatherity party in the election? tim: everything boris johnson

has done is show the need with the labor party for that. he's essentially turning the conservative party into the brexit party by talking a lot about no deal and by adopting some of the other policies the brexit party supporters might like which is increased spending for public services, etc. he's doing everything to pull back the supporters without having to go for some formal alliance. a formal alliance is a problem for the party because it will put a lot of floating voters off voting conservative if they think they are too close to nigel. francine: what does the bank of england do the next couple days? >> nothing. the bank of england is not in a position or have a desire to panic as early responding and certainly doesn't want to be politicized. the economic data is not looking great. we already have interest rates that are incredibly low and actually lower than the u.s., for example. i don't think it's the case the bank of england needs to weigh

in with their boots at this juncture. francine: if there's a no deal brexit come november 1, what does the bank of england do? i guess there's the shock, would there be an immediate shock where they have to intervene but then possibly hike rates because inflation is up? james: the bankers certainly put the view out there to the market but it's not a given they would immediately cut interest rates. personally i thought that was a big mistake they made post referendum 2016. there didn't appear to be any data first and foremost. when we did see data it was a negative supply shock. a negative supply shock means potential g.d.p. shrunk but not as much and that's inflationary and the bank has an inflationary mandate and saw it play out and was a mistake. by the same token that was just the low, now we're talking about the reality and i think the negative economic impacts of the long term have been way

overplayed but fair to say there is a huge potential for short term disruption in that scenario. francine: if there's no deal brexit are we automatically in a recession? james: good question. potentially recession is two quarters of negative g.d.p. growth. the reality is the global economy is not in a great place and whether or not we have a close relationship with the e.u. we're a small, open global economy and we can't shrug our shoulders and ignore that. francine: what are the chances the e.u. are giving boris johnson something that would be enough to go back to parliament and get it through? tim: that's the hope from the sounds coming out of the e.u. 27, they're close to zero at the moment and even if they were, it would be difficult to imagine the u.k. parliament able to pass the necessary legislation that would allow decisionmakers of the european council in mid october to be part before october 31.

very, very difficult to imagine that happening. where the e.u. has said we want to see what you're saying on the backstop and the u.k. government frankly hasn't provided any extra information to allow the e.u. to make a change. francine: it may seem like an unfair question, but what is the base case? tim: it has to be now an election, i suspect the conservatives would probably win that election. i can't be sure. and i would have thought we would then leave the e.u. without a deal on the 31st. who knows. francine: thank you both for joining us. tim bales, professor at the james ty of london and stays with us from the investment company. we talk about the banks and peak to sir howard davies. we'll get his thoughts. he'll join me here on the green at 11:00 a.m. london time. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i'm francine lacqua in westminister. checking in with the markets, record low yields for the bunda. and we're seeing a little bit of the yields being on the move. the sun is out. looking at the data board when it comes to pounds sinking yet the dollar currently trading at around $1.20 and we're seeing dollar strength which is one of the things we've been watching out for and also on the back of the u.s.-china trade deal without being able to find data for them to talk so i'm looking at pound and then i'm looking at euro pound. i think euro is weaker with pound which is one of the

things we're trying to figure out why that's going on. now straight to the bloomberg business flash in london in our londin' studios with sebastian. hi, is he bags. sebastian: mark and spencer is about to loose its place to ftse and may be relegated to the 250 and is rebalancing by the ftse. the traders will be concerned after the markets close tomorrow. tesco is telling the mortgage portfolio to lawyers worth 3.8 billion pounds. they will acquire others. the banking arm announced it was ending mortgage ending and spelling its home loan book. the shares climbed this morning after the chinesemaker talked about a buyback. the company is demanding attention with ability to grow high margin businesses. and it could mark the biggest stock repurchase since the 2018

i.p.a. saudi arabia removed the foreign minister as head of saudi aramco. and it comes as the business prepares for sales. he is being replaced by the head of the country's sovereign wealth fund. that's bloomberg business flash. francine? francine: thanks so much, sebastian. italy is closer to a new government after a coalition was made between the five-star movement. 66% say they're in favor and 51% of five star members backed the idea. the prime minister is now set to form a new government though it's not clear what five star politicians will do. with us is james from standard investment. we won't have jeremy and not talk about italy. is it a government in crisis play or the reverse side of the brexit play? >> from a market perspective, an e. exrmplet b. play and is

the only thing driving things at the moment which is the euro zone economy and the aggregate looks incredibly weak and they're waiting in the wings too take in the high yields. but in terms of what's going on under the hood in italy, i'm exposed, the italian commodity and even in 2017 when we saw young growth we couldn't get above 1% and there's still a huge number of stock of nonperforming loans on the bank sheet and now you're talking zero growth and 3% deficit on g.d.p. and politics which unfortunate for liberty but it's hard to see a commonality. francine: i never heard that term before. what does italy need to grow, structural reform? james: that won't make it grow and why structural reform is difficult because it makes

things worse in the short term you have to be prepared and have the liberty mandate to accept short term pain and the problem is magnified by an order of 100 in italy because it's e.c.m. on the union. you have u.k. in the early 1980's, late 1970's, huge structural form and massive declines in the pound to ameliorate it. italy is the at the floor and monetary policy which has to be set for all which it can't be. 3 long term we need structural form but that would be a short erm drag on their economy. francine: coming up we'll talk about germany and be back to westminister as sterling continues to weaken. we'll get the latest. this is bloomberg. . 12340e9 ♪

francine: economics and politics, this is "bloomberg surveillance." i'm francine laqua in westminister. they're waking up to the prospect of a third election in

four years. and the u.k. prime minister will tend to trigger a snap poll october 14 if he was in the crunch voting parliament this evening. will opponents of the no deal brexit led by the labor party succeed in parliament today. we'll speak to a labor member of parliament and the candidates for the party leadership he's going to mix. thanks for joining us on bloomberg. would you vote for general election? >> no. i think the country is being played for fools by boris johnson and dominic cummings, his advisor. they've been setting up a election all summer long where they'll try and paint themselves of the people versus parliament forcing the will of the people and the lane party in my view would be equally foolish to be suckered into that and accepting a general election which would be used as cover for a hard brexit that will be utterly devastating for our communities and country. francine: you're arguing you couldn't have assurances from the prime minister that a, the

vote would take place before october 31 and even if there was a vote we would not have a no deal. what if there was a suspension of october 31 but say an election, how hard is it for labor party to say we don't want an interaction but we disagree with the government. owen: if the government offered reassurances in all there would be a decent period after a election to try and sort out brexit and in my view should be through a second referendum which is the clearest way to term whether out country now wants this brexit deal as we understand it. that's one thing. what we're being asked to do is vote for what boris johnson wants which is a no deal brexit being facilitated. the reason he wants it s he's the representative of the heart right wing of the tori party which is dominant and set to

ick out all the parliament effectively and how major and dominant that right wing facility is. and they always wanted britain to a low tax, low security, low wage economy because that's how they think we succeed and brexit is the one that if a kill states that and we oppose it. francine: why can labor not come up with a proposition saying we don't want a no deal brexit and why won't you have enough votes for counterjohnson getting closer to october 14. owen: we're 9% behind the tori party. that's one reality labor has to face up to. unless you think we're about to change hitivity -- history to winning an outlook election. francine: would you if your

labor substance were clear? owen: in my view if they'd been clear the way i had been the thrast three years. it's a zast are for our country and we should make the case to stay in the european union. the root to doing that is the having the second continuum relationship and a how damaging it will be and b what the positive plus sides are as a remaining member of the european union and labor could win another election. at the moment we'll go into it looking rather confused. francine: you don't want a general election. do you think your other peers, the labor m.p.'s will vote for general election or not? owen: a lot on the back bench understand we are being played for fools by boris johnson as is the country being played a fool by boris johnson. we won't allow him to use a general election for the cover for the hard brexit he's always wanted. francine: are you sending texts

to groups to make sense? owen: there are more groups than we know what to do with. it's a very strong message being conveyed to the leadership of the labor party some t not be huggered in massive fashion by boris johnson if selecting an election if we think he is not a party of our country. francine: owen smith, he is for the party leadership. i'm going to be joined by tom from new york. the prospect of election. and we talked to the chairman of r.b.s. that interview london time and this is bloomberg.

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rebels in boris johnson president party about to join the opposition to defeat a no deal brexit. cable sits below 120 for the first time in two years as downing street threaten as snap election october 14. and scheduling difficulties, chinese and american officials struggle to agree for a plan for their next meeting. u.s. futures a point lower before wall street returns from holiday. good morning, everyone. this is "bloomberg surveillance." i'm francine lacqua. tom in new york. we have a brexit briefing that will last five hours to baffle international viewers. i spoke to many on the ground and i have to say you speak to the pro rebels to the conservative party and no one seems to be on the same page. tom: we get to the new york 10:30-ish time as he speaks to this international crisis. i not only see sterling but a entrance into the trade war and

brexit in the global slowdown bet. francine: we're seeing a little weakness in euro and may be the flip side what we're seeing in the u.k. with brexit. we'll have plenty more and data checks in the next two hours but first to the bloomberg first word news in london with sebastian salek. hi, sebastian. sebastian: ultimatum from british prime minister boris johnson who will try to figurer -- trigger a snap election october 14 if he loses the crucial vote on brexit this evening. he'll make to oppose a no deal brexit and force to delay it in effect of no agreement. dorian is getting weaker and still stalled over the bahamas, battering the island chain and winds fallen to 120 miles an hour making it a category 3 hurricane. forecasters are looking for signs it is ready to turn north and head up the u.s. east coast rather than slam head on into florida. the death toll is rising from the dive boat fire off the coast of southern california.

the coast guard said 25 were killed and nine missing. five of the six crew members escaped by jumping into an inflatable craft. the five broke out while 35 people were sleeping below the top deck. chinese and u.s. officials agree on a schedule for talk aimed at ending the trade war. the day for the visit for chinese officials to washington still hasn't been set. washington rejected the delay of tariffs that took place over the weekend. on twitter powered by more than 2700 journalists and analyst in more than 120 countries. i'm sebastian and this is bloomberg. francine and tom? tom: thank so you much. let's do a data check. equities, currency and commodities on the move. down futures negative 182. they were a bit worse earlier, .2 spread comes in the last hour but really hasn't moved all that much. as francine mentioned, weaker euro. that's profound and been a grind. moving on with oil weaker as

well. breaks out over 20.5 and a solid 1.47. one point is a stick and 1.47. sterling, a stunning statistic. sterling now set below the weakness after brexit. and a record low in the 10-year deal. howard davies to join us the next hour. francine: record lows on italian bonds and looking at the german tenure as a record low for those yields. stocks low in europe. i ang lot of people are trying to figure out what exactly the u.s. china trade spat will bring. looking at pound again as we said sinking against the dollar as brexit divisions raise the possibility of an early election in britain and could mean boris johnson has an uncanny alliance with extra hard-liners such as nigel but

market is nervous about that and something to keep an eye on in your area. july producer prices coming in as 0.2 and pretty much as estimated, tom. tom: francine, battling the sirens and the protests at the green. let me go to the bloomberg now for a graphical representation of protests. brexit in the plunge from the 145 area, down we go to the unthinkable autumn of 2016, rally rollover right on trend and we break down the new sterling weakness. that's just one indicator, one map of the tensions of brexit as we go to the prime minister's speech this afternoon. francine? francine: we have a baritone today. it's pretty feisty at westminister. waking up to the prospect of a third general election in just over four years. that's the latest here from

westminister in a dramatic ultimatum the u.k. prime minister boris johnson will tend to trigger a snap poll on october 14 if he loses a vote in parliament. m.p.'s that include a no deal brexit including senior members of his conservative party will try to seize control of the parliamentary business with the aim of passing legislation to delay brexit in the event of no deal. joining us scott fields, black rock chief strategist and bloomberg reporter jeff. to the politics of this. first of all, i was speaking to a senior member of labor and he did not want to vote for general election because he says look, if he votesd for general election he doesn't know the date and could be actually after a no deal brexit or they could have a general election and then still go through a no deal brexit. what are the chances we actually get general election? >> i think they're looking pretty high at the moment. for a long time the different roots have led to a general

election but the question is how we were going to get there and who was going to be the one for put the hand down. and boris johnson has done it but done it in a way i don't want this but basically my only option is rebels in my own party vote against me then i won't go to brussels first delay but rather have elections. francine: it's all about math so it's difficult. what are pound traders worried about right now? >> a couple things going. the market is chill and can only focus on one or two times things at a time. and yesterday was a holiday and i think the market is a holiday and waiting to hear in the general election as we just said and don't know the outcome. it's clear polling suggests the conservative party is the largest member but what the alliance or coalition might have to be. the pound is in some way reacting to the possibility of a labor government which obviously is viewed as market negative. you have not only brexit but have this kind of now you bring

back this possibility of a labor government. i agree and think the general election is one of the outcomes market participants had anticipated but coming before the actual brexit deadline is a surprise and actually the way it was called i think is also somewhat of a surprise. uncertainty is the big thing. tom: help me with the liberal democrats. i like scott folds in the labor but where do the liberal democrats fit into this, do they have an importance or a sideshow? jess: the democrats have been a bit of a sideshow since they were in coalition government with the conservative party. remember, they lost all their seats but we do see them making a comeback, in the european elections in may they won seats where people didn't think they weren't. we have a fresh new leader and young woman, jo swinson who is

very strong minded and there is a chance they could gain and you could see a situation where it's not necessarily a labor government but labor goes into coalition with the dems. i heard them talk about where dorian leader is not the milwaukee. we saw mr. mcdonald four or five days ago on bloomberg, is it time for a new labor leader that will spock all? jess: lots of people who hope that and lots who hope that. but if we look at the makeup of the labor party now, jeremy corbyn supporters are the momentum group. they are really kind of embedded throughout the labor party, the roll groups to the top. it would be very difficult to unseat him if people wanted to. if that were to happen, i don't think it would be something like john mcdonald to become

the leader but think who could be the person to stab him in the back and very unlikely to be mcdonald they've been close allies a long time. francine: how long will pound go? >> if we look at the bank of england, it's suggested we have a 30% to 50% possibility but a hard brexit. francine: which is lower than i heard actually. >> it's hard to pin the thing down. but let's say the sell-off has been -- if we see a further sell-off we had right after the referendum against the euro. we could have parity people balk about the euro and that's not a totally unreasonable place to be if you think we're 50% probability and the sell-off is mirrored again. it means we could slip lower. francine: what does parity mean for the bank of england. the situation unfolds with the innation profile. it's the inflation markets in

the u.s. or one anticipating a more very veer outcome. so they pect the regulation it's gone up in the u.k. than it has in the u.s. the bank is in a tough spot. we'll hear from mark carney later this week and here what he says. phillip: in terms of politics francine: in terms of politics -- they come with innovative ways. when do we think we know exactly what is going on? will it be tonight? could it be delayed a couple days because it's a no deal? couldn't we'll see proceedings around the rebel amendment taking control for 7:00 a.m. and those votes could go until 10 p.m. and parliament can sit until 2:00 a.m. if it needs to. tonight we will learn if they're going to take control of the older papers and if they do that, boris johnson's plan

to put a vote tomorrow to play and if they lose the power is back with johnson. tom: extraordinary. thanks so much. mr. teal of black rock will continue with us. there's much going on including the correlated market movement. but yen is moving. well continue with scott deal. coming up we're thrilled to bring you to start our autumn -- haw , sir howard air arrested davies looking at interest rates. this is bloomberg. ♪ ♪

♪ sebastian: this is bloomberg

surveillance. and i have your bloomberg business flash. haw way is lashing out. accused of organizing a plan to intimidate employees. the trump administration limited the sales had a huawei needs. tesla portfolio is being bought for $4.6 million and think it will hold up despite a disorderly brexit. they said they were ending mortgage lending and exiting their home books. mark spencer is set to be demoted from the ftse after 125 years according to the results of a rebalancing from equity index provider ftse russell. the shares are ranked by market caps and they had a cap of $4.5 billion, less than a quarter of what it was in 1997. and that's a bloomberg business flash. tom and francine?

tom: let's do greek letters to show the momentum. you come back from labor day in europe, all the distraction and actual ultimate. the markets are extraordinary with the slope of a two year deal and ever lower and yield headed towards negative 1%. in the 10-year trajectory is absolutely stunning and is a gamma of the u.s.-china trade war and what it means for europe. scott teal of black rock with us. the acceleration of all these tendency is just extraordinary. what breaks the acceleration? is it a continuous idea, is it a surprise out of nowhere? what makes us get to dispinous? scott: let's look and see what -- if you look at the chart there's a very sharp deceleration of rates from the middle of july and obviously that's the additional reflaring up of china-u.s. trade tensions. it's the backdrop of a lot of

issues, argentina and italy and now we have brexit. i would say the market is clearly on this idea that the geopolitical tension is going to transfer and find its way into the real economy and impact the consumer. so what has to happen, what would justify the drop in rates and justify the 100 odd basis points using the federal reserve with its ability to deliver is it the tension feeds into the economy through the u.s. consumer. the simple answer to your question is it it doesn't and the u.s. consumer continues to march on, then rates will be affected by the risk off, risk on. we need positive news in china trade. it's around the key question here is the pass-through to the u.s. exurem. -- the u.s. consumer.

tom: what is the opinion the yen has not moved stronger which typically confirms these moves. what is the significance that yen hasn't moved stronger or that we haven't even dramatic curve flatening. >> a couple things. one obviously is the brexit situation is a european problem. it's not just a u.k. problem. we've been talking about this for a long time. yes, the pound underperformed the euro and seems to make sense because that's the largest training relationship but it's a furrow. a european problems. i think what doesn't surprise me this morning is this is about europe and about argentina has had its own problem and seems to be what contained but it's not really about this morning is more about the european situation, about brexit and the parblingts are focused on the impact on europe.

francine: how is it not priced in before? >> the general election outcome was one of many different scenarios that we could proceed along. the timing is getting very tight here, right? with parliament moving soon into this pro long retention. we don't have that much time left. so plus the general election. i mean, this new information set we've been given which has caused further pressure which is a risk off fwactor and what gets the income market yields to move higher? it's a disoperation of the risk off environment which is a tough one here with all things going on. t's see there's a new deal brixity. obvious 1, what does it mean for the flip side and what does it mean for european bonds? >> it further confirms the situation. the e.c.b., if you recall, the

fed is reacting to this potential pass-through of political wisconsin but they're talking about their inflation target and so this kind of uncertainty around brexit or not aining episode, it's like they're dealing with something that takes place but a fundamental issue that they have. i think it further puts more pressure on them to continue to kind of ease policy and i think the big question we've asked at some point the rate channel, whether it's q.e. or guidance or rate cuts, at some point that stops to become effective and we've seen that, actually, when you look how bunds traded relative to treasury, they've lagged and that's a fixed income point but it meems we're getting towards a new deal.

in the meantime the pound sliding below 1o -- 120 as parliament starts later and could herald fresh elections. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i'm francine lacqua in london. tom keene in new york. we're looking at quite big market moves looking at yields and the yields in germany and here in the u.k. for the 10-year at record lows.

back with scott fields from black rock. we look at equities going one way and is it actually good for the yield and mixed -- fixed income and the markets are skewing radars across the board. scott: it's one thing, the hunt for yield is definitely a factor in the fixed income market, no doubt. you see it in the flattening curve and yields in europe in particular. what's also happening is we have a geopolitical risk moving into the real economy and central banks are reacting to that, right? they're trying to stretch the growth cycle and what you see is a extraordinary comparative, extraordinary rally on fixed income relative to equity markets or any other open market. the broadest global bond index is up 9% given where we started eeleds at the beginning of 2019. what they learn so much about is the willingness of central banks to pivot and the fed

being a big part of that. tom: what does it mean for future banking, i refuse to see how these nominal low rates affect the european and u.s. what do you see there? scott: that's the big question, tom. when we look at the level of rates and what they call kind of the reversal rate. what does the level of rate become so low it kind of has a negative of loosening the financial conditions and the banking structure becomes relevant and you see that in some part of the financials as we look through the first course of 2019. there's no doubt that the tape of the curve is a concern for banks overall. i don't think we're anywhere near that reversal rate in the u.s. but clearly with front end rates in germany pushing to minus 100 we may be getting close. phillip:

francine: what does it mean for rates, will they look at it or cheer it on? scott: they'll forget about it. what the e.c.b. is charging itself with is the broader question, how do we continue to stimulate economic growth and the path to inflation without using the central rate challenges any longer. they'll do something else with it. the eye level we have coordination of fiscal rates. that will be an important revolution of the e.c.b. particularly under the new leadership rolling into the year. francine: we'll be back with scott thiel from blackrock. this is bloomberg. ♪

tom: for those of you waking up early in america, this is one of the stories we are looking at. person isr, one

studying news of a general election possibility for the united kingdom and the price, a breakdown from brexit. in 2016, junement of 2016, we break out to a 120 level, recovery, and a massive rollover in the last year and a half. tos morning, we break down 11991 -- 119. 91. we are not get on a trade-weighted basis to where we were in the 1992 john major weakness, the prime minister blair,prime minister prime minister major all out with great criticism of prime minister johnson over the weekend. francine: they have. we've also had a lot of criticism from philip hammond. is the describe it strategy of boris johnson is

probably high-stakes. he could get it right or go in the market is not expression -- expecting. >> boris johnson has delivered an ultimatum to try to trigger a snap election on october the 14th if he loses the vote in parliament later today. his own conservative party wants to force johnson to delay leaving the eu. north korea reportedly showed kim jong-un is reporting his arsenal. according to the new york times, that's according to outside experts. testing missiles could overwhelm u.s. forces in the region. trump administration wants to speed up the death penalty for those convicted of mass shootings. mike hines said the proposal would be included in the white aimed at gun

legislature. announced remarks she made last week to business people and said she tried to explain privately they would be an easy choice for anyone in her position to make. global news, 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm sebastian and this is bloomberg. tom: we now go to hong kong. coverage seven days a week, he is our asia government reporter. ian, we can make jokes about it, but we slip into week 14 and onto week 15. how does this end? what is this perception of how every weekend, even though we they, that sequence, habit of it, how does that end?

ian: it's hard to say. both sides are going in completely opposite directions and both sides seem to be hardening their positions. the government keeps doubling down, saying they will not give concessions. this weekend, the police tried to ban a mass march planned for saturday. that didn't work because everyone showed up anyway and it ended up being one of the worst weekends for violence that we have seen so far with about 100 molotov cocktails thrown at police and government buildings and the rest of it. this week, it is only tuesday, but it feels like friday and we have already had a couple of different conferences from harry lam, the hong kong chief executive that said she didn't offer to resign, and later to -- we these radical protesters should

be rounded up and arrested. it doesn't look like there's any end in sight at the moment. or tuesdayuired evening, we are going into 5:30 in the evening. missarlow, mr. wong and chow, you can arrest us but more protesters will come out. is that true? >> i think so. on saturday, i was covering some of the protests in central hong kong and i kept asking people about those arrest on friday. there were a sweep of pro-democracy figures arrested in hong kong and they kept saying this is angering people more. these people are not formal leaders of this protest movement. they were more formally leaders movements, occupy everyone is saying is largely leaderless, so you go after these figures, arresting them, and it will just ring more

people into the streets, angering people. i spoke to 160 year-old church official who said i am ready to be arrested. you have the sort of radicalization of moderate protesters here. it seems like there is no end in sight when it comes to protesters willing to come out and face being arrested in one of these unauthorized rallies. so much, andnk you marlow there. let's get back to scott from blackrock. we're trying to figure out the fact that there is a tit-for-tat and we don't have a date on when the u.s. and china will meet. source ofs is a big the fall in yields and pricing of the federal reserve to move. geopolitical uncertainty has many layers. the top layer might be behind us, but the other top layer is the china trade negotiations.

there are other layers, hong kong, argentina being another one. i think we have to be conscious that if we solve one issue, maybe the next one comes popping up like the brexit did over the weekend. francine: what does the issue get solved? how much is it whether president trump once a resolution or doesn't want a resolution because it's good for the election? scott: i think it's a tough call because of the information set that we have, but from what we have discerned, we would say he wants to sort out the situation with china. it is important for him. it whether it is more important for him then his reelection campaign or not, they are probably related, but he has made this a big issue and understands the market impact of it, whether he can deliver or not is whether to be seen. tom: scott, thank you so much.

i want to show a charge. scott to man's we go to two standard deviations and you can do that with the currency fair. this is what the pros look at, and this is excessive move in early august. up toe the rail right up 7.18. that is a stunning number. perhaps we will hear from president trump on that statistic. stay with us. much more to come. this is bloomberg. ♪ ♪

francine: this is "bloomberg

surveillance" and this is tom and francine from london and new york. i'm outside the house of commons i when spinster. let's talk a little bit about -- comments at westminster. let's talk a little bit about -- he is still with us from blackrock. thank you so much for joining us. >> pleasure. francine: what does boris johnson want? he says he wants a deal with the eu, but does he go for general election? >> he may have no choice. we found out later today whether the small number conservative rivals are successful in colluding with the opposition and taking control of the paper. if they do that, tomorrow we will have another bill before us

with could force the hands of the prime minister to go back and say i want a three month extension. johnsonhnson -- boris needs to illustrate i will not seek an extension of yonder october the 31st. mayhe end of the day, it be in the newspapers, october holding awe could be general election on that day. francine: a lot of people are worried the prime minister might not hold the election on october 14 but wait until the 31st. can he give guarantees of members of parlett -- parliament that will happen? >> i'm sure he can. the way october the 14th is getting mentioned, that's a monday, in my entire life we have never had a general election on any other day besides a thursday. is reason for this monday

because then he has a few days before he has to go to the european council in order to get the deal he wants from the european union. that is why it is important. own view is simple, if the british parliament are unable to follow the instructions from the british people, the british people have to have the opportunity to change the parliament. francine: how can we be sure he will respect the election? there's a moratorium and the election takes place on october 14 and it is up to whoever has the majority to choose what happens with exit if this is -- with brexit if there is no extension. >> maybe that's more simple than it is. we have the fixed term parliament act, meaning we need

two thirds of all the mps voting for a general election for it to happen. whilst boris made it clear in the gardens that he doesn't want an early election, it they well be that he has no option whatsoever. he wants extended beyond october the 31st which means there is only thing he can't -- only one thing he can do. that puts the ball into the court of jeremy corbyn. years, allst few i've heard from jeremy corbyn is let's have a second election. want a referendum, i want an early election. he might have gotten what he wished for and it might be as early as tomorrow. francine: you're not answering my question. let's get tom in. nigel: hello, tom. tom: it is 250 miles from lancashire to london. right now, how far is lancashire

from london. does london have a clue that the exists?lley nigel: it's a great question. there are a lot of people who live in the westminster bubble, and hardly ever get out of london. during the referendum, a mate of mine said to me we are not going to leave the european union, are we? and i said ask my friend over there, he is a labour mp for the people next door to the valley. i have not spoken to him. he went and had a chat and came back and said the mp said all leads. it came to a huge shock that leave. voted to tom: what will happen in newton?

all of the talk is about the wentz minster bubble. -- has people in your constituency and how do they perceive this mess as they look to london? nigel: i was there on saturday and i had about 15 locals come up to me because they were concerned about the closure of a health center. that is all they really wanted to talk to me about, but i also walked around a number of other villages in that area, and it's interesting. there has been a change of mood. boris johnson is the prime minister and has only been in for about 45 days, but i am getting thumbs up from a lot of people. not just conservative supporters but people who just feel get on with the job, get out of the european union. one person said to me he finds boris johnson uplifting area another one said to me i find his positivity absolutely charming. there is definitely a clear mood

change. think you'll find a lot of people want us to get out of the european union. you for theank colorful description of our prime minister, but what are the chances of a no deal brexit right now? i think it gets bigger if people over my shoulder don't actually support boris in getting a deal. francine: but today, give me a number. nigel: i think it is absolutely 50-50. francine: thank you so much, nigel evans. we will have plenty more from westminster. we will growth or your markets, go through your low yields and have more with scott from blackrock. this is bloomberg. ♪ loomberg. ♪

tom: good morning, everyone. , the protests have been substantial today. we will finish the hour with three good conversations. john hardy is the head of ethics

strategy at fl bank. euro go to -- goes down to the recent lows of 105. is that vector in place, has something changed over the weekend where you can say weaker euro versus dollar? >> if you look at where the dollar was trading, broadly speaking, 110 was a psychological hurdle that incurred slow once it broke, and maybe this like us actions let the market worried and maybe they won't participate in the selloff. the dollar is stronger here until he gets ahead of the curve, and if they don't, the trump administration might have to swing into gear. dollaramic is that the is a force that seems to continue. tom: do you suggest that force will adjust around the continental banks? it has been amazing how they have been why acid over the last 48 hours -- quiet over the last 48 hours. john: banks are in bad shape

with the neo-curve where it is. you need to get the ecb to get creative. you need to see yield curves that maybe has the advantage rather to do what it has been doing lately. tom: is there an important sterling level for governor carney? john: i have there is one central banker that does not have any policy options ash if there is one tensile banker that does not have any policy -- if bankers one good central that does not have any policy options, it is -- tom: what is the currency pair that is most opportunistic for you given the news flow? john: if one has no ceiling on risk, sterling downside has a prominent risk on what has been transpiring over the last 24 hours. there are scenarios where that could prove wrong, so one might

look at it there option markets or others looking at the canadian dollar, because tomorrow they might have to tilt more dovish than the market is pricing and canadian dollar has catching up to do on the downside. this is a distraction compared to all this focus on serling at the moment. francine: when are we going to have fiscal policies put in place in europe, and what is that due to fixed income? john: that is the key question for europe. can enact policy around the edges, but it will be up to the national governments and eu policymakers deciding what to do about the banks and fiscal policy, especially since they can issue bonds and negative yields. will they show a change of stripes that we so far haven't seen from them? francine: john, thank you so much. ethics --, head of

head of strategy at fx bank. -- head of ethics strategy saxo bank. be watching out for, of arch from the arithmetic? it is -- is there one or two key figures that could indicate what boris johnson really wants? >> i think what we will be watching out for is to see how many of the torrey rebels are threat resist johnson's to the election and vote for the labor legislation to force johnson to delay brexit. we will also be looking on the labor side, how many labour mps and labor leave constituencies are willing to vote with corbin and support an election. we will be looking at any signs

that labor will try to attach conditions to agreeing to new elections, because this has to be approved by two thirds of parliament. there are a lot of movement pieces to determine whether johnson gets his way of a snap election if indeed parliament is able to pass this legislation. tom: americans looking at this find it bizarre. why, in a democracy, are we af raid of an election? >> this would be the third election britain has had in four years. the fixed term parliament act says you have an election every five years. there is also a complete reordering of litan's to go landscape -- of britain's political landscape. conservative party has 10 or 11 point leads in the

polls, theresa may's conservative party also had a lead that was double that when she called snap election. there are all sorts of different ways this could play out in elections, and it is entirely unpredictable because you could have tactical agreements between parties, so that is one of the parties look toward brexit with some trepidation. francine: thank you so much. scott, when you look at the movement and cable, it is a much smaller -- is it a much dollar strength? scott: if you look at the bank of england trade way, it is serious. if you look at the eurosterling, they track each other closely. at the for looking brexit premium specifically, you have to look at eurosterling, was talkingt tom

about earlier, that is the one that will move. if you take the view that we will get a deal, there is upside to the pound. if you take the view we are not, there is downside still. i think that is an opportunity if you are willing to take it. i think the dollar's trend, there is not a lot that would disturb that over the next couple of months. the fed will ease, the ecb will ease, and we will not get information about fiscal spending for some time and we are locked into this competitive easing cycle or this contemporaneous easing cycle. cheapening is a trend. francine: scott, thank you so much. up next, rbs.

♪ morning, markets price global economic slowdown, the

dollar finds renewed strength, a record low for the german 10 year yield. onthis hour, howard davies the theory, the practice of negative interest rates. it is a constitutional crisis. that would be westminster and 10 downing street. prime minister will speak to parliament october 14 on your brexit calendar. and autumn inver new york, london, and a deeply troubled hong kong. good morning, everyone. this is bloomberg surveillance from our headquarters in new york. francine lacqua. francine, behind you, the value seems to be more protesty than i have ever heard it. is that true? francine: it kind of depends. of protesting,t people marching behind, which was louder than it was today.

they get loud just to make sure they can hear us on tv, some for brexit and some against brexit read i would focus on the moves because -- brexit. i would focus on the moves because, isn't suddenly the market realizing there could be an impact on the european side? is it realizing it puts a prospect of a possible labor government, although they are nine points behind general election, or is it that you can see hardliners form some unspoken coalition to go for no deal brexit. all of the questions we need to focus on. now, futures negative, 29 on the f x -- spx. for your first were news, here sebastian. >> we have had an ultimatum from boris johnson, saying he will try to trigger a snap election on october the 14th if he loses the crew should vote this evening.

lawmakers who oppose the no deal brexit wants to force johnson to --ay the eggs to 125 milesallen per hour, making it a category three hurricane. forecasters are looking for signs and is ready to turn north and it is likely to head up the coast rather than head on into florida. the death toll is rising from the death boat -- duck boat off the side of california. 25 peopleguard said were killed and nine are missing. escaped bythe people jumping into a raft. several people were sleeping below the top deck. officials are struggling to agree on a schedule. bloomberg learned washington rejected beijing's request to delay tariffs that took place over the weekend. global news, 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries.

i'm sebastian's are like, this licke --astian saar tom: futures -27. down futures. euro comes in grinding weaker. a distant from 110. fixed top 20, 20 .95. we will get a 21 britain here showing the angst of the last 20 minutes. 7.18, a life of its own. aerling is well, well under 120. the german ten-year is a record low yield. francine? francine: i'm spending quite a lot of time looking at pound and dollar as this exits grace min ship raises the possibility of an early election -- brinkmanship raises the possibility of an early election.

germany, italy, the u.k., keep an eye on that to see if there is risk reversal going first -- going forward. we wake up to the prospect of the third general elective and four years. boris johnson is tempted to trigger a snap all on october the 14th if he gets a vote in parliament this evening. mp's imposing a no deal brexit will try to seize control of parliamentary business today with the aim of passing legislation to delay brexit in the event of a no deal. joining us now is howard davies, the chairman and -- chairman at the royal bank of scotland. thank you so much for joining us. days until the october 31 deadline and the next two days will be quite exciting here at westminster. what is your base case in area -- best case scenario? howard: government has a lot of

cards in its hand. sometimes people characterize democracy as an elected dictatorship in the government, therefore, probably you would bank on them getting what they want through, but at the moment, there is a head of steam behind trying to pass legislation which prevents no deal brexit. the issue is going to be whether you get that legislation before you get an election triggers. inviteyou will have to erskine may, but he has been dead for 100 years, to ask and parliamentary procedure because this is way above my pay grade in terms of which motion and where in parliament gets parliament over the other. francine: i'm sure they're still trying to figure it out as different factions look out for medieval laws. overall, if there is a general election, does it increase the prospect of a no deal brexit?

howard: i think it probably does, depending on the outcome of that election, which is uncertain. the party may lose some seats in scotland because the nationalists are riding high, and they will probably lose seats to liberal democrats also doing well at 19%. the question is, can they win enough from labour to upset those two losses. i heard from the people who are the biggest experts on that this morning, and none of them could give any kind of decent answer to what [indiscernible] these people only got noisy when tom keene came on. francine: they got closer, too. [laughter] francine: they are my personal protesters. tom: the guy in the background says do your summer reading before you go back to school. sir howard davies, good morning from new york. [shouting] tom: i want to go to

parliamentary procedure. [shouting] what's the risk -- howard: what are the risks what? tom: risks to the union. howard: if there is a hung parliament, their condition of supporting any government would be likely to be that they would agree to another referendum in scotland, and who knows what the referendum to that would be because the consensus is rather different from the last time. if the hard border is implemented, in ireland, there is a procedure by which there can be a border poll in ireland voting on which they can --sider irish unification reunification which would be triggered if opinion in the border areas is in favor of that. that is uncertain, but those are the two big risks.

francine: what are the chances of the eu agreeing to some kind of technological solution that the u.k. would find to backstop? if we believe boris johnson wanting a deal, what are the chances to him coming back into the deal that is good for the eu and u.k.? howard: that is difficult to say. that you said he backstop is and is onlytop there if a technological solution cannot be found in a reasonable period. i don't know whether they can change from that. michel barnier has said several times she won't change from that , whether something is going on in private which we don't know about which would be hard to say , but the current position suggests [indiscernible] francine: what does the general election mean for u.k. banks? will there be a discount because there's a prospect of labour government and they are having

talks? -- talks of nationalization? howard: i don't think nationalization is likely, but at the moment, you can see u.k. financial stocks are unloved in the market is a polite way of saying it or uninvestable is another thing people have said. i think you will see a hide this for some time while elections took lace while people try to work out what kind of government we will have in the future. i don't think labour will go into we nationalization if they were to get in -- internationalization if they were to get in. internationalization if they were to get in. there much more interested in water, so i'm not particularly concerned about that, but what i am concerned about is that you a long hiatus while the economy is declining and consumer confidence is weak, investment is weak, and the government can't act decisively to upset a

recession regression. that is the short-term risk. tom: a nice briefing here. we will come back and we really want to speak to us or howard on the theory and practice of negative interest rates as well. right now, we need to look at the european bank stocks. they are holding up this morning actually put he well all in all, but it has been a two year struggle. york,estminster, from new this is bloomberg. ♪

sebastian: this is "bloomberg surveillance." huawei is lashing out at the u.s. today.

they accused washington of over constraining a campaign -- of orchestrating a campaign to intimidate its employees. the trump administration limited the sales of american technology from huawei. having their mortgage portfolio bots. they are betting the economy will hold up to spiting the brexit.ty of a -- the british retailer is set to be demoted from the benchmark 2100 index after 35 years according to results from a rebalancing from ftse russell. with the shares are ranked by market cap. a's market cap is less than fourth of what it was a 1997. -- in 1987. tom: scott from blackrock is around -- 1997.

tom: scott from black market here, and he writes policymakers no longer have the ammo that has been required to respond properly. in the next recession, i different policy framework will be required. be called going direct. bankng money -- central money into the hands of the public and private sector spenders rather than relying on the incentives of lower rates. what a dell or it essay, sir howard davies, a negative interest rates. is it a failed experiment? is negative interest rates past and sale date? scott:scott: i don't think we can say it has definitely failed -- howard: i don't think we can say it is definitely failed. been advised on the future of the financial

sector, and i think the insight they may have is that the problem with negative interest rates is that you reduce bank profitability. as a chairman of a bank i appreciate this. in the circumstances, banks, if they become unprofitable and pitol, theyuild ca won't be lending as much as you think they should so the transition mechanism for monetary policy and credit expansion in the real economy breaks down because, by damaging the profitability of the bank so much to prevent them from lending, you made your impact on the economy much less. the argument philip hildebrand argues for his direct money, helicopter money by different name. people say helicopter money doesn't sound like a good brand so they try to think of another way of branding it.

the difficulty, and he confronts this directly, who decides to whom that money goes and how much of it should be? newsays you need a mechanism, but nobody has created a good mechanism that brings together fiscal and monetary policy and provides a framework where this is a sensible injection of money rather than a splurging out of money to own worthy causes. i think that is the issue we need to address and i don't think anyone has produced a good answer to that. tom: as a former director of the london school of economics, is it just that we don't want to clear markets? that we are going through a 15 year experiment of avoiding clearing out failure? that is another part of the argument, certainly, that by maintaining interest rates at these low levels, you are process ofthe creative destruction from

operating, and that you have a lot of low productivity firms that have remained in being. that may be part of the reason why productivity growth has been extremely weak in the last few years. i think there is that argument, but i don't think any political -- i don't see any political party prepared to say, let's have this big clear out and see what happens. i think there is no market for that policy solution, at the moment, tom. francine: when you look at negative rates, especially in germany, how will the incoming president of the ecb deal with it? is there anything they can do on top of tearing that would mitigate the impact? doned: tearing, they have so that interest rates are not so negative for banks. they could buy bank bonds. they could buy bank liabilities. they are requiring banks to issue a lot of absorbing capital

mrl's as they are car old -- they are called in the -- in europe. i think that is a policy which could be considered. francine: sir howard, thank you so much. sir howard from rbs stays with us and we will have plenty more with sir howard. we will get back to things surrounding brexit. we're live at westminster throughout the day. the pound is falling quite significantly over the last four years. this is what pound has done. we are looking at trade-weighted pound and we will bring you that. this is bloomberg. ♪ this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine, i'm outside london and tom is in new york. let's go back to one of our biggest stories and what yields are doing, how markets are moving, and whether that means there is an impending recession. we are back with sir howard davis from rbs. we are trying to figure out what market within the brexit, monetary policy, hong kong, the u.s.-china trade sp at. what worries you at the moment? is it mispricing something because there is different -- difference in yields?

howard: we are not seeing a large number of loan impairments and a lot of bankruptcies. we are seeing a decline in consumer confidence. consumer spending is pretty flat, but actually, think that we are observing most in the economy are more the structural changes as a result of online retail, for example, or the growth of syntax which is making some franchises worth less whether it is retailers or whatever. we are not yet seeing a wholesale recession set of indicators suggesting recession is around the corner. i say not yet because i guess if things carry on as they are, we probably will see a downturn in the u.k. in the next six months or so. unemployment remains remarkably low. the markets have been fairly sanguine about what is going on. it is all priced in and nothing is secret about this crisis. i don't think things are quite think.as you would

i'm pessimistic about sterling, and sterling is continuing down. francine: how does the bank of england deal was sterling? if there is a no deal brexit, if there is a shock to the economy, do they need to cut rates and raise them quickly afterwards? howard: what they have to judges ,hether the rise in inflation when we are importing inflation as a result of low sterling, at ifch point out but -- point, you think the economy is weak, we have a spike of inflation coming from the pound, you can look to that. they did that in 2010. inflation rose to 5%. the bank did not respond because they said domestically are weak. --y will look at wea whether the pound is feeding into domestic pressures. otherwise, i would expect to

look through that and except a bit of that spike in inflation and not respond if they think it would not be included. tom: sir howard, i will give it back to the people behind you. we have the surveillance megaphone here, answer howard, what i want to know simply, the countdown to the future of the , sir howard,gile is the city right now given all of this? howard: i don't think it is as fragile as all that. 20% of the city's business is done with europe. i think we will lose some of that. we are losing some of that, but a lot of the underlying strikes of the financial sector remain pretty robust, and i don't feel the tone in the city is as fragile as your question implies. tom: very good.

sir howard, thank you. great to have extensive time with howard davies. sterling is under a 120. the yen is really not moving up. and the equity markets, we break s&p futures is -24. we covered a little bit in the last 10 minutes, but we had a -28 on futures at one point as well. there is so much going on on a tuesday briefing of the global economy and markets as well. we will do that all through surveillance this morning. from the green london, the prime roughly's to speak 11:00 a.m. london time. this is bloomberg. ♪ bloomberg. ♪

francine: this is "bloomberg surveillance." i'm outside parliament in london and tom keene is in new

york. tom keene is joining the protest on both sides because we are neutral on bloomberg. let's get back to howard davies from rbs. we were talking negative rates, but overall, what is the one thing [indiscernible] something in there the way that we measure the economy that we should be looking at differently and that would also [indiscernible] howard: i think we need a clear fiscal policy because we had fiscal policy under philip borrowingd the rulon and bringing the deficit down, -- rule on borrowing and bringing the deficit down, and everyone knows that is no longer operative. what we haven't got is anything to take its place. we have government pronouncements about how they are going to recruit policemen and spent $4 billion on schools, but none of that, from a market

into view is very helpful unless you know what the overall fiscal framework as. the markets are ready to accept some fiscal expansion, particularly when the economy is slowing down and the interest-rate weapon is out of commission for one reason or another. some fiscal expansion is perfectly reasonable, but what markets don't like is the idea switch with nod opportunity to be switched off. the current chancellor understands that well and was supposed to make a statement this week, but whether that will happen is getting shouted out. i think there is some uncertainty about the governments deficit position is what the markets are looking for. francine: but this is after dealing with brexit, right? howard: i think people can see that brexit is drowning out everything, but it won't be long before the government needs to

set out its [indiscernible] on through the autumn, with no fiscal framework in place, then we will start to see even weaker sterling, that is part of the sterling s tory. i think that is the danger at the moment. tom: who will the prime minister speak to in your afternoon in a few hours? howard: at the moment, we are in a position where politics has taken over. the chancellor, to his credit held meeting with a number of financiers including me to talk about the financial markets and what needs to be done. largely surrounding brexit and how to reestablish uncertainty in terms of the regulatory framework. the chancellor, i would say, is doing its best.

you would sense at times like this there are moments when politicians turning on themselves and have to sort things out. i think the rest of us have to give them time to get to a resolution of this week's crisis. tom: what would a corbyn government to look like? i understand a blair government, a brown government, but what would a corbyn government to look like? the question has to subdivide whether you are talking about a corbyn government with an overall work majority, which has a whole parliament ahead of it, and that is one thing, and i think we know quite a lot about what that kind of government would do. we know about them wanting to give shares and companies to the employees, we know about the nationalization of water and electricity network and railways, and we know a lot about their foreign policy.

it wouldn't be friendly to the united states. we know quite a bit about that kind of corbyn government with higher taxes. what we don't know much about at all is what a government that might be led by labour but which was not an overall majority and had to depend on other parties for its majority, we don't know what that will do because we don't have a sense of the prioritization of labour's policy list, what they would be able to stick to our trade away. looking at the polls, i would say an outcome which is more of a coalition led by labour or conservative looks like the more likely outcome because even the conservatives only have 23% in the polls. even there, we don't have an idea of what that type of government would look like. francine: with the latest polls -- with the latest polls, they are at 19% who [indiscernible] howard: everybody says they

wouldn't coalesce with anybody. you know how that is. let's not pay much attention to what they say they will do. when the reality dawns, after the next election and we look at the configuration of seats, people will have to try to produce some government. the population will expect them to come together and give us a government of some sort. francine: how much do you worry about germany? is this -- this went from being the poster child of europe to maybe -- howard: when you were talking about the markets and uncertainties, you didn't mention germany because i think it has happened to the alternative for deutschland over 27.5% innd getting saxony, that causes people to look at germany and say how long can this coalition remain in being?

i think that is part of the nervousness together with german exports, particularly exports to the u.k., have fallen sharply. ishink the german prospect also part of the general sense of uncertainty in malaysia, europe, and others. tom: sir howard davies, thank you so much. a generous amount of time today. he is the rbs chairman. we greatly appreciate his attendance. equity bonds, currencies, commodities. o, downinutes ag futures are negative. the euro is a highway -- highlight story. that is maybe the single data -- watch.atch on onto the next screen. 20.65. is weaker. the german 10 year yield is a

justd low as howard davies noted. to thean: from florida carolinas is bracing for hurricane -- from hurricane dorian. it has been downgraded to a category three, but with wind reaching 125 miles per hour, it continues to pound the bahamas. dorian's path could bring it dangerously closer to florida tomorrow. the trump administration was to speed up the debt in ot for those convicted of mass shootings. an aide to mike pence said the president will be included in a white house package designed to aggress -- address gun violence. a missile test to north korea reportedly shows kim jong-un's his arsenal. that's according to american intelligence officials and outside experts varied president trump downplays the tests but the tests are on missiles that could overwhelm u.s. systems in

the region. global news, 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. sebastian, thank you so much. let's get back to brexit. we are here at westminster all day to figure out what boris johnson will tell everyone later this afternoon. joining us now is a u.k. conservative member of parliament, justine. thank you for joining us. is anid if there election, you will not stand against as mp, but how will you vote tonight? >> i will vote to allow parliament to have its say on a no deal brexit, and that means i will be supporting if you like the rebels as they have been called. francine: does that mean we are closer to a possible no deal brexit because it increases the chance of an election given -- giving boris johnson a

majority? >> i think we all know that it would be done in order to dissolve parliament, and therefore, time-out having a no deal as well. effectively, what we want to do is to allow the option of no deal, but also voting on the prime minister's deal. francine: what is the possibility of a no deal, either by choice or because the timeline is so small it actually happens on october 31? justine: people need to be concerned there is a possibility and probability of no deal if they don't act in the next 48 hours to stop that and have their say. primek boris johnson's minister went from saying it is a million to one chance during the leadership campaign to now saying it is something that may well happen. in no way, when we had the referendum, or people told we

would be crashing out without any deal. quite the opposite. they were reassured that if they the boxes, saying they wanted to leave, this would be an organized deal, managed carefully, and no deal is the opposite. i don't believe there is a mandate for it, for the government to do that. tom: you are everything the quarter levers dislike, starting with the fact that you work with price waterhouse, coopers, and others over the years. -- isr apart is a london the london the lead conservatives from the rest of the conservative party? justine: my job is to represent my community. the last thing anybody who knows me and britain would call me he leads. i grew up in a working-class an old mining and

steel community. i was the secretary of state for education, but the first want to be educated at a comprehensive state school in the u.k.. whoink, unlike many people are quite happy to see no deal, which would cost jobs and livelihoods, and i remember what it was like when my father was unemployed for year, which is why i'm so concerned about no deal. unlike my experience of understanding what unemployment means to families, there are too many people who propose no deal who are multimillionaires and have nothing on the line if no deal costs jobs and livelihood. people in my community, for the most part our young people. they have mortgages to pay, rent to pay, deeply concerned about the impact of the no deal, and they don't believe this is what resolves people during brexit. they think the promises rice it makes to the bridges people --

they think that the promises brexit made to the british are empty. that is why i'm voting the way i am over the next 24 to 48 hours. francine: we are getting news from the spokesperson of boris say that youting leaders show the brexit talks are serious and saying if the vote to defeat parliament would destroy the u.k. brexit position , they will go ahead as planned with the spending announcement tomorrow. going back to the way you will but, if we have no election an extension for three months, what will happen in those three months? what will we discuss? justine: i want to see the choice go back to the british people. parliament is being gridlocked

for over year really. to my mind, that was clear in july of last year. i predicted we would be gridlocked, have to go back to the british people to resolve brexit in a popular vote, but i also said the worst kind of popular vote you could have is a general election that would not resolve brexit's. and much more sensible approach would be to give them the choice of these different passes on brexit and allow them to pick. that is where i am still at today and everything that has happened over the past 12-15 months proven the points i made in july last year. francine: justine greening, thank you so much for greening thank you so much for speaking with us. tom: looking at the markets, let's see what is not moving. futures is -28 about 40 minutes ago. we have come off of that.

starley was under 120 and is now above it. yen to me as an uncorrelated story. we can look at all of this back we have our next and what do you see on the bloomberg's this morning? what is distinctive about the correlations and non-correlations? >> something we have been highlighting is the extent to which correlations have been high. yet, the market has not been going anywhere. if you look at months where you have an average move of over 1%, you are taking the laundry list of sharp corrections during this but markets. this is a rare month where you have an august where we are only down less than 2%, but we are moving 1% per day. i think that speaks to one thing everyone is trading off of the trade headlines. and no one was trading off of the trade headlines. tom: do people come back level

or is there a better right now? do they hedge funds and the other markets, do they have a conviction into september? luke: this was supposed to be one of the last thousand years that was a stock pickers market. people had their positions. no one will say they have been index hugging and grabbing beta. if there was a consensus in the market, it would be for long treasuries and bonds in general. that is something that has paid off. the ones in cases where it hasn't, if you look at big hedgefund managers, they haven't been doing that but the crowd generally has. -- was sort of flat this year. i don't think it was big one way or the other, but volatility was extraordinary through august and september, certainly eventful as well. andannot forget ian marlow

the team there. we have covered truly violent protests. this is bloomberg. ♪

tom: tom keene and francine lacqua in westminster. we go to the prime minister's comments, we will see that in the 10:00 and 11:00 new york time. kevin cirilli is in washington and wishes we had the length of elections in the united states like we have in the united kingdom. we do not. kevin, i want to cut to the chase. over the weekend, the former vice president and the senator from massachusetts, can the democratic party really jet is

in -- jettison aiming old-school joe biden and senator warren as their candidate? kevin: the knives are starting to be sharpened. we are a few weeks away. i weekend a half away from the third democratic presidential debate, and we will finally get to see a debate between biden and warren. what has been interesting to note, especially if you are outside washington. here inside of washington, d.c., elizabeth more has spent the last five years and grading herself -- elizabeth warren has been spending the last five years and grading herself -- and engraining herself. in terms of policy and grassroots at the state level, elizabeth warren has spent the last year ingratiating herself into the party. tom: is elizabeth warren showing any indication of moving moderate? kevin: i would not describe

elizabeth warren as a moderate, but i would describe her governing style as different than someone like a bernie sanders -- bernie sanders. that is where the nuance of this is interesting. she has been able to form coalitions. this is someone, thinking back to the fed chair days of larry summers versus janet, she has shown a savviness to impact policy whether it is the creation of the consumer financial protection bureau or the fed chair nomination. she showed savviness to penetrate on certain issues having an impact than someone like a sanders. tom: kevin cirilli, thank you so much. greatly appreciated this morning. on futures, it is are correlated market. i will go with one exception, we have seen stronger yen but it is fractional. vix1 and futures, and the -- excuse me, the vix is a 21 on that. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london,

outside of parliament. poundlooking at trade-weighted -- pound strength, dollar strength, let's get to luke kawa. when you look at the jobs in the u.s. that will come out on friday, what are you looking for? is it just the u.s.-china trade spat having an impact on consumer prices that we should be worried about? > the interesting thing with the trade war is that the textbook -- the interesting thing with the trade war is that the textbooks show it should be inflationary, but that is not true. prices are essentially as low as they have ever been. in jobs, it will be interesting to see if you get the trend of slower drug oath, which has been the par for the course for the last six months of slowing the trend. i am mainly in the market

reaction, because it seems, for quite a while, we were in a market., is good news we have shifted where bad news is bad news, because it reinforces that heading into an escalation of the u.s.-china trade tensions that the global economy is in a worse starting point. francine: luke, when do we see a more normal environment like we have seen in the past although it is quite a long time ago when you see sox, it is tracking more. luke: it hasn't been the case for the last month or so where you have seen a pretty tight correlation on the intraday between u.s. stocks and u.s. bonds. what has been more interesting is the extent to which bonds have provided amazing downside cap your. if you look at the environment we have been in, that is -- tom is offscreen, so i can't talk

too much about it, but that is --environment and bonds not being able to provide that downside capture, you do a back of the envelope and you would need the tenure to be around 50 basis points for proper downside capture. francine: luke, thank you so much. will have plenty more from "bloomberg surveillance" on radio, and what asare looking at is brexit the rallies, demonstrations behind me continue at westminster. this is bloomberg. ♪ this is bloomberg. ♪

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october. no ifs or buts. >> u.k. government meltdown. johnson faces rebel in his own party as he strikes back with a fear of snap elections. the chinese currency sinking to record low as the trade war begins is next chapter. and back to school, back to risk off. it is a month of uncertainty from a trade war to politics and central bank. >> welcome to "bloomberg daybreak." i'm david westin here with alix steel. it's back to school and a busy fall. alix: a really busy eight weeks. we're seeing risk off permeate ny asset class here. eurodollar breaking below 110. we're continuing that downslide today. now at the lowest level since 2017. it's buy bonds but you're really buying over in germany, record low