francine: the eu says the brexit deal is difficult but possible. mark carney speaks shortly. pressing for peace, the u.s. urges turkey to declare an immediate cease-fire, and hiking steel tariffs. jp morgan and wells fargo report earnings today. welcome to "bloomberg surveillance." francine lacqua in london.

these are the markets. a little bit of a lift, and a lot of focus on tray concerns between the u.s. and china. a letter concerns with turkey and possible sanctions. overall, there is optimism about fed policy and when it comes to brexit. 26 and there seems to be hope on the market. it will be difficult on brexit by the end of the week. thursday and friday is the all-important eu summit in brussels. wirecard under extreme pressure. aumping this morning after ofry accuses the company total nonsense. the share price is down 15%. we will speak to the

nobel prize-winning economist who won yesterday, michael kremer. time, a london conversation with james bullard. brexit.gan with the eu chief negotiator michel barnier saying a deal is possible this week, after "the telegraph" reported a mood of cautious optimism. the leader of thin land who says there isnd not enough time to reach a deal before thursday. in hong kong chief executive carrie lam denied the city is a police state. she repeated violence is not a solution to months of unrest. tomorrow she is set to present her new legislative agenda, but any policies will be overshadowed by continuing protests.

acceleratedflation to the highest level in more than a year. a challenge of easing monetary policy. consumer prices are rising. spike inled by a vegetable prices after a heavy monsoon season. central banks say the case for cutting outweighs the risk of out -- running out of ammo. some policy makers are concerned the move could leave them with little room to address future shock. in the u.k. police ordering rebellion campaigners to halt protests after authorities arrested 1400 demonstrators in london this month. says, theion international rebellion continues.

the group described its aim at halting mass expansion and minimizing risk of societal collapse. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. .rancine: thank you we are getting more breaking news, this was a big deal because we found out an hour ago that the flagship fund was to be shuttered and the founder would be stepping down. .his is the latest the liquidation of funds is not in the investors interest. of woodford later hired blackrock advisors to prepare the portfolio. we will have more on woodford. on theirpt regulators toes. president trump promised big sanctions on turkey for its military campaign in syria, but

the penalties are less than what lawmakers demanded. the u.s. is holding talks on a trade deal. the administration is calling for a cease-fire not a withdrawal. we will discuss wider geopolitical implications. thank you for joining us. what is the significance of the american sanctions? will they deter president and erdogan. >> it does not look like it. imposens that he did as heot really as tough suggested he might impose. markets are taking that milder. ogan i dodent anerd not think he will see this as a

reason to stop and that americans did not ask turks to withdraw, which is at the least a backdoor for president erdogan if he wants to take that step. right now no signs of that. francine: does this mean president trump has done a u-turn? >> i do not think so. president trump and his allies have insisted they did not give the green light. most observers interpreted his actions as exactly that, the starting point of this operation. the fact that tensions were not as tough as some had hoped among his own allies would suggest he is still not willing to step in strongly to stop president rdogan in this section.

francine: what does this mean for russia? retrenchings. is itself, he sees himself as a kingmaker. he brokered the deal between the kurds and assad to give the kurdish people protection. and that allows assad to push further into the country where he has not been able to control. putin is in the middle of that. he has brokered with egypt and is an ally with iran. vacuum allowing him to come in and be more of a player. francine: where is europe in this? carefully,s acting not just with sanctions announced last night. the european union is talking arms embargoes. we had news this morning about the turkish operation.

they will delay the decision on it. europe is in a tight spot because they need turkey to be part of nato. no one wants nato to fall apart. and erdogan has repeatedly threatened to send migrants into europe which would create a political problem for countries like germany and italy. they have to be careful with how they are responding. francine: we will have updates throughout the day. let's get back to markets. u.s. futures look higher. market, sterling trades higher on brexit hopes. ,e are joined by paul flood fund manager, newton investment management. get onto the optimism, how should markets trade what we

just heard? a lot of things could go wrong. paul: across the world there is huge global political risks at play, and that will continue to play on sentiment in the marketplace. the risk premium and risky assets are likely to go up. especially looking at the backdrop of falling pmi's across the world. francine: what does it mean for portfolios customer do you go to cash or hedge? paul: yes, the middle east is not a huge part of our global portfolio, but it can make a alignence with how people their portfolios. you look around the world and see an increase in geopolitical tensions and concerns of global makes people concerned. we are concerned about what is the hedge? historically you use bombs. -- historically you use bonds.

rates oninterest ten-year bonds, there is not really much to support that selloff in equity markets. our return strategy, we are taking cash to buffer the uncertainties. francine: why so much optimism in the markets today? there seems to be a believe brexit will be sorted by the end of the week. paul: sterling on any long-term basis looks like an undervalued currency. it looks attractive to us on any long-term basis under a hard brexit, but you can see the price movement indicating a lot of people were short sterling and expecting a hard brexit. movement up we have seen the last week is symptomatic of

significant short position. if a deal is agreed with, there is the thursday and friday eu summit in brussels, it is believed it will pass. we will be back with paul flood, fund manager, newton investment management. thewe will speak to one of winners of the nobel prize for economics, michael kremer. do not miss that. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance ." i am francine lacqua in london. rk, goingin with wewo to a 5 billion dollar that package led by j.p. morgan. investors are being pitched on one of the riskiest debt offerings in recent years. it could include unsecured notes with an unusual hefty coupon of 15%. the other option, a controlling stake in the company to softbank. the ceo is being ousted as his flagship funds shut down and he is hiring blackrock advisors. theford does not support

decision and liquidation is not in the interest of investors. theier this year he stunned financial world by freezing the flagship fund. unicredit may create a german holding company. the move could reduce funding .osts and shield the bank unicredit and the ecb declined to comment. it may announce details at investor day in december. facebook's currency partners signing paperwork to join the libra association. is already facing intense scrutiny from regulators. a host of original partners pulled the plug including visa, mastercard, and paypal. francine: thank you. an initial trade agreement between the u.s. and china seemed insight, but bloomberg has learned that china wants more talks before xi jinping

agrees to sign. what does this mean for markets? paul flood, fund manager, newton investment management is still with us. much would it change the global economy? paul: we were expecting a trade deal could come six to 12 months ago, and it got delayed because the u.s. economy was doing well. china was deteriorating and the u.s. felt that had a stronger waves to try for a harder bargain. the u.s. economy is starting to slow. the chinese may think let's see what happens in the next election to see if we can yet a better deal from a diachronic president. -- from a democratic president.

goes ther it corporate's are likely to expand and will strobe growth -- slow growth down. going into the u.s. election, the trump administration will want to see a strong economy. could starteal again before march because it will take six months before it comes through in the economic data. they want to see that happen in the lead up to the u.s. election. francine: will that impact fed policy? if businesses delay spending and think about protecting profits, that will bring on a recessionary period. risks, that is one of the associated with reasonable negotiations. the republican campaign wants to get some trade deal done, and we

see with the chinese, they agreed to a phase one deal, and then to step back to see more in the details. while the u.s. was delaying six months ago, the chinese are to delay going into the new year and the u.s. election campaign. francine: what does that mean for fed policy? paul: the fed is in a difficult position because the trump administration will be them with a bat. if recession comes, they will say it is the fed's fault. the economict data, unemployment at all-time lows and wage growth fairly strong, if you look at the underlying data, there is no .eed for a rate cut but on a forward-looking basis, as you look at the economy slowing because of trade negotiations and the impact that has on corporate decision plans, you could see a requirement to cut interest rate as we see manufacturing pmi's falter.

francine:, fund manager, newton investment management stays with us. fresh debt for wework. the company could issue notes with a hefty 50% coupon. we will bring you that scoop next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. is leaning toward a $5

billion debt package led by j.p. morgan, instead of selling a controlling stake to softbank. riskieste one of the offerings in recent years. part of the financing could carry a hefty 15% coupon. be favoringwork this that deal led by j.p. morgan rather than selling to softbank? dilution.s down to there is no equity issue involved. existing shareholders are not diluted. while a softbank option would be good for softbank, they could get a discount on any shares they buy, existing shareholders that are involved in wework, they would get diluted. these people on the board could be sure they do not want to see their shares diluted.

they would throw the burden on the debt side of a deal. you can understand why they would go do something led by j.p. morgan. francine: once a financing deal is finalized, what is next for wework? it is just the start of the process. they changed the leadership and brought in new leadership, i do not think that is the end of the reshuffle. but this process of financing, whether debt or equity is buying time. they need a few billion dollars to keep going for the next month, and management has to look at the business, the balance sheet, the cash flow and work out what deals they might .eed to renege on look at where they are spending money day in and day out and cut costs in terms of what they are spending at their outlets.

and the staffing. all of these things need to be done. getting a finance deal is the start of that process, and it does not solve any of the other problems they have. francine: thank you so much. let's go back to paul flood, fund manager, newton investment management. whether you question valuations from unicorns or it hurts the tech sector or the real estate sector, we are unclear what it is. paul: it is another business -- a that has seen another number of times. in 2018, 80% of ipos had negative earnings. ago we were talking about one of the biggest ipos we have seen in a long time, and now this company is on the verge of bankruptcy.

it comes back to what we do in try to allocate capital efficiently, and that means doing due diligence. if we look at this company, our team would have a field day given the governance issues and transactions within this company. we like to focus on companies that have real cash flow and a proper proven business model. francine: paul flood, fund manager, newton investment management stays with us. in the meantime, james bullard is that bloomberg headquarters here in london. speaking to him shortly. this is bloomberg. ♪ everyone uses their phone differently.

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designed to save you money. switch and save up to $400 a year on your wireless bill. plus, get $250 back when you buy an eligible phone. that's simple. easy. awesome. call, click, or visit a store today. ♪ francine: the eu says a brexit deal is difficult but possible this week.

mark carney speaks imminently with the bank of england's base case. testing for peace. the u.s urges turkey to declare an immediate ceasefire on syria. they sanctioned officials and hiked still tariffs on the nation. morgan, wells fargo all report earnings this week amid trading concerns. good morning, everyone. good afternoon if you're watching from asia. this is "bloomberg surveillance." i'm francine lacqua here in london. out of the u.k. -- breaking news the u.k.. -- breaking news out of the u.k.. we were expecting it to come in 3.8% figure. if you look at the wage growth, it has actually slowed to 3.8%. that is for the crucial june, july, august months. we will have to look at the impact brexit will have on the

future, which is why pound is moving on the back of what we heard michael kremer say -- what we heard michel barnier say about a deal been possible this week. let's check in on your biggest stock movers. >> hello fresh is surging, up 19%, as a boost to their forecast. there and berg says third-quarter results came in much better than expected and they are winning customers on a very attractive cost basis. novozymes also up this morning, up 3%. the new boss is likely to be an external candidate. to the downside this morning, wirecard, plunging, down more than 17% after the financial times released a number of documents, spreadsheets, correspondences between top financial members of the team. it sheds light on their accounting practices.

wirecard it says the report is total nonsense. francine? francine: annmarie hordern with your biggest stock movers. we are getting a little bit of news out of china. loans for the month of september, pretty much in line with expectations. yuan. 1.6 billion the aggregate financing at 2.2, a little bit higher than economists were expecting. let's get straight to the bloomberg first word news. in new york city, here's viviana. >> president donald trump announcing sanctions on three turkish officials and hiked 50%, but iteel to is a much milder punishment that many -- than many in congress expected. president erdogan says the move is necessary to push back militants and resettle refugees but the operation has been

drawing widespread condemnation. chief executive carrie lam denied the city is akin to a police state. she repeated violence is not a solution to months of unrest. tomorrow, she is set to present her new legislative agenda. any new policies are likely to be overshadowed by continuing protests in the city. australia's central bank says the case for cutting rates outweighs the risk of running out of ammunition. the minutes show the rba saw the threats to global growth as the reason to take the cash a trade below 1% for the first time. some policymakers were concerned the move would leave them with little moved to address future shocks. this friday, qantas attempting the first new york to sydney direct flight. it is said to be the world's longest flight. no airline has ever completed the root without stopping -- the route without stopping. how will humans hold up on this air marathon? scientists will be on hand to monitor the brains of the

pilots, and the food and sleep of a few dozen passengers. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. fronting? francine: thank you's -- francine? francine: the eu's chief brexit negotiator says a deal as possible this week but talks remain tough. set to continue throughout the day in brussels ahead of the crucial eu summit. the leader of the house of commons, jacob rees-mogg, says he believes any deal will pass parliament. paul flood from newton investment management is still here. i don't know whether you stay off of it u.k. assets at the moment or whether now is a good opportunity. paul: i think leading up to it, two or three years now, where international investors have not won anything to do with the u.k. because of brexit. over the last 6-12 months, we have been increasing our exposure to domestic assets in the u.k., primarily because

international investors do not want it. everybody is worried about brexit. as you look at the ftse, these are all underperforming parts of global markets. we have found a very unique opportunities where valuations are much more attractive relative to the valuations we can find elsewhere globally. like theular, we renewable energy space, which gets us away from the problems associated with bond markets. there is huge demand for more renewable energy to get away from the carbon intensive power generation of the past. we are seeing more and more demand for that and policymakers certainly, you look at the imf talking about a big green initiative. we look at joe biden talking about extending $5 trillion trying to generate renewable energy for the u.s. economy. 1.5 trillion of that will come from the federal government and under his business case. there is huge demand for the

growth of renewable energy. francine: right. paul: that is where we think we get stable, cash generated returns and keeps us away from the negative interest rates we have seen in europe and bond markets. certainly sterling looks undervalued because of the lack of international demand for u.k. assets. francine: what is your base case for brexit? i don't know how difficult it is to model, if you have elections, if you have to model a jeremy corbyn government. what do you do with other u.k. assets? paul: it is really challenging. there are so many cases here and it is very much binary. if we get a hard brexit, you can see sterling trading down against the dollar. under some form of deal in the next week or so, you could quite easily see it getting at about 1 135, so it is a very volatile currency from a forward-looking basis.

if you look at the options market, implied volatility indicates that uncertainty. francine: when you look at pound, can you do anything with pound? if there was a no deal brexit, and i don't know if this comes after an election or after october 31, would this be a contained u.k. shock? would it be something that can pivot the world economy? paul: no. u.k. is athink the small part of global gdp so it will not be the straw that breaks the camels back. if you are trying to find assets that have that inflationary protection and can also generate unattractive return for you, as i mentioned, -- an attractive return for you, as i mentioned, the renewable energy assets. under a hard brexit scenario, you have a stable cash flow and actually you get the benefit for inflation. if sterling falls, the costs of importing goods into the u.k. will rise. that will be a difficult

situation for mark carney to think about. if it is a hard brexit and currencies have gone dow, inflation is picking up, you are likely to see a lot of fiscal spending. under a corbyn government or boris johnson's government, has got more spend than the labor manifesto has. francine: the boe should look through inflation or an initial shock to the pound? paul: it's going to be difficult. you will have to see what happens with unemployment, as you see businesses are already delaying some of that because of the uncertainty around brexit. as businesses get behind this, you have a hard brexit and u.s. companies or european companies, you see that as an opportunity to invest into the u.k., then that could alleviate some of the tensions. however, he is going to have to think about if they don't do that and if unemployment rises, we are going to have inflation on one side from importing costs and larger unemployment and reduceses looking to

worker basis just to protect profitability. francine: we will listen into governor carney very shortly. is there anything that just looks unloved and the u.k. -- in the u.k.? away from renewables? once brexit is dealt with and i don't know how long we think that will take, but could it be a good opportunity? paul: you look at the u.k. banking sector. for us, that is an area that is unloved. there are plenty of u.k. domestic companies as well, so the retail sector is an area where valuations are incredibly low. we would look at u.k. domestic orientated rather than the international large-cap companies that have overseas earnings. we would look into their cost base if sterling rises, then import cost will go down. francine: we are just waiting

for governor connie to start. he is just about -- governor carney to start. he is just about to testify. he is going to take questions. are you confident that the system is financially stable? certainly, the financial system is in a much better place given where capital ratios are in the banking sector. regulators have been very focused. on the stress test we are looking at companies like rbs, which have far too much capital and they needed to return some of that capital to investors. the banking sector in particular is far more robust going into the financial crisis. francine: let's listen to governor carney. >> not giving us a precise date. he did write us to concern that the announcement will be made on february 1, 2020. has the bank heard any other further details from the treasury, such as when on appointment will be announced?

as presumably, you need time to ensure a smooth handover from yourself to the new governor. governor carney: ok. thank you, chair. i will thank jack for that question. as you are aware, it is a decision of the government. it is an appointment of recommendation of the chancellors of the prime minister and accepted by her majesty. then there is an evidentiary recession with this committee. as you note, the chancellor has indicated that from his perspective, the process is on track. obviously, the government, as parliament is, is quite occupied with some urgent affairs of state at the moment. the commitment is to have an orderly transition from myself to the next governor. there is ample time in order to accomplish that. there is a wide range of qualified candidates and i would just note in passing that whereas i was appointed several months before i took office,

there are examples, including of the ecb, where the most recent president of the ecb, mario draghi, was appointed a few weeks in advance of taking office. this time, there will be an orderly transition. jack and the rest of the people of the united kingdom will have a more highly qualified governor in the new year. >> ok. i was going to ask if there isn't a new governor appointed by january, is it something you considered, holding onto it while we all would potentially betweenterim period your departure and a new governor. has that scenario been contemplated? governor carney: there are hypotheticals. there will be an orderly transition. we have an extremely strong .nternal team

>> ok. i appreciate this may not be something you wanted to comment on. -- from north wales. the the recruit -- should government be publishing the short list of candidates? thinkor carney: well, i the government has come a long way over the years in terms of the transparency of the process, public advertisement. anyone can apply. a large amount of people did. to alsonter firm used encourage others domestically and from around the world to consider the post. independentth an panel chaired by the permanent secretary of the treasury but with external members. the chair of court conducting

rounds of interviews to narrow to a shortlist and as is appropriate, the final decision made by the political officeholders. mean, in terms of, there is a balance and having gone through this process, and a similar process in canada, there is a balance in terms of encouraging as many people as possible to apply and absolute transparency throughout the process. if i can get my personal opinion, that the government has encouraged a very high range -- wide range of high quality people to apply that is afforded a good set of options for the government to consider. >> how does the process compare with the appointment process of the central banks? is it more transparent, less transparent? governor carney: i would have to say it is more transparent, with

all due respect to the other major central banks, the ecb and federal reserve, where there is not this public advertisement, headhunting process, wider range of candidates that are funneled through. those decisions -- it is most analogous to the process used at the bank of canada, which is quite similar. as you will be aware, the difference between the two, and i will just observe that in the case of the chair of the federal reserve, ultimately, the appointment, like most appointments in the united states, is subject to approval by congress. so approved by congress in its previous role. most analogous an appointment of the european council. if the executive, in

consultation with the european parliament, but it is not an approval process of the european parliament. as you know, there is a vetting process that this committee runs but it is not a formal requirement for the appointment. >> ok. thank you. so moving on to the role of the fcc, you are appearing as chair of the financial -- committee as you have done it several times before. as this involves a more public engagement in usual, -- than usual, can i ask you to explain the different responsibilities? -- responsibilities of the monetary policy committee? >> they're are responsible for keeping inflation low, predictable, and stable.

inflation on average, 2% over the medium-term, and subject to achieving that inflation target, we are responsible to supporting the government's economic policy. in other words, supporting growth and jobs. there are some circumstances in which we have to balance the two. we saw that most recently following the financial crisis and following the referendum. the financial policy committee -- so that's the monetary policy committee. low, stable, predictable inflation, so-called price stability. the responsibilities of the financial policy committee, the representatives you see here, is financial stability. affect, our-- in responsibility is to make sure -- and i will simplify it to the banks, make sure the banks are strong enough so that they can serve households and businesses across the country in bad times as well as good.

our responsibilities are actually for more than banks. it is banks, building societies, insurance companies, the entire financial system, including financial market infrastructure and how financial market operates, how the system works together. individualny institution or individual component of the system, but that the system as a whole can serve. one way i can illustrate that is that there could be circumstances in which financial markets are under more strain but the banking system can pick up the slack, or vice versa. with think about the system and around to make sure it is resilient. we have a wide range of tools in which to do so. we have an ability to provide recommendations or directions. if i may take the moment to just reference the third major committee of the bank of england, which is the prudential regulatory committee, which mr. woods and i sit on.

responsibility is safety and soundness of individual institutions, so banks, building societies, and insurers so people up and down the country can rely on those institutions that their money is safe, their insurance policies will be honored. financial policy committee thinks about the system so that the system as a whole serves the bad times,rticularly as well as good. it is easy to serve the country in good times. the so-called p.r.c. focuses on the individual and situations. >> ok -- institutions. >> ok. thank you. we will give you a short break. i am going to ask mr. taylor to ask you to stand out from the financial public committee and march 2020 -- in march, 2020. what do you feel has been the

fpc greatest successes and where is there scope for improvement? governor carney: -- >> the fpc came into existence after the financial crisis. the crisis might have not been quite so bad. the banks might have become sort of better, some mixture of the two. when the committee set out, i think it's biggest task, and of course there was a big international dimension to this , to rebuild some resilience of the banking system. that was the overwhelming target of the early years. we've moved on from the. francine: mark carney and colleagues in front of that u.k. parliament's treasury committee. we will bring you any more moving comments when they come. let's get back to talking about economics. we will be back with paul flood shortly. coming up, we will be speaking

to one of the winners of the nobel prize for economics, michael kremer. he is coming on later so don't miss that. this is bloomberg. ♪

♪ let's focus on the global slowdown now and risks for investors. despite a resilient u.s. economy and central banks acting fast, the outlook remains uncertain with the imf expected to cut growth forecast. some of the key worries include global trade, a malaise in manufacturing and geopolitical tensions have ramped up. protests in hong kong, for example, continue. central banks have little ammunition left for monetary easing. let's get some final thoughts from paul flood from newton investment management. we touched on the fact that it is also a negative interest rate environment, which makes it difficult for banks to grow in europe. at what point does too much monetary policy or too much qe and too low rates hurt the economy more than it does good? paul: i think we are already there. we see a lot of people, not just

in the general public, but also in policy circles talking about this policy has not really worked. it is a sign of madness to keep pushing on the same thing and expecting to get a different response. not just negative interest rate, we've got $15 trillion of negative yielding bonds around the world. $17 trillion, guaranteeing people a negative return. i think we will look back on this in the years to come as one of the biggest policy mistakes of a generation. can you imagine the conversations we will be having with the people in the general public, the people in the street. what part of saving did you not understand? you are guaranteeing me a negative return and charging me for that privilege. i think there is a huge mistake here. the focus now will be pushed towards fiscal spending. the problem is, it is difficult for government to push down, especially governments like germany, to pursue a fiscal

policy, even for a green deal, when unemployment rates are so low. because you're going to be pushing up the cost or increasing wage growth, which will hurt the private sector and many other industries. i think it will be challenging. but for us, given the focus on fiscal policy, given the imf focus, all these things suggest there is a huge opportunity for growth in renewable energy and the green economy. francine: paul flood there, newton investment management multi-asset portfolio manager. this is what governor mark carney is telling people that are questioning him at the parliament treasury committee. thernor carney: it gives us opportunity and still a decision we would take, but we said we were reminded in that direction to release some or all of that -- from the couldn't be prouders

to the wait did we just win-ners. everyone uses their phone differently. that's why xfinity mobile let's you design your own data. now you can share it between lines. mix with unlimited, and switch it up at anytime so you only pay for what you need. it's a different kind of wireless network

designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you buy an eligible phone. call, click, or visit a store today. ♪ francine: the e.u. says a brexit

deal is difficult but possible this week. mark carney speaking now with the bank of england's base case. pressing for peace. the u.s urges turkey to declare an immediate ceasefire on syria. they sanctioned officials and hiked steel tariffs on the nation. big bank earnings begin. citibank, goldman, jp morgan, and wells fargo all report earnings this week amid trading concerns. this is "bloomberg surveillance." i'm francine lacqua london, tom keene in new york. minted nobelly laureate. we talked to james bullard and we talk a little bit about brexit, a bit of optimism having an impact on pound. tom: a lot of news flowing. we see a much stronger pound here. we will have that in the data check. . i want to emphasize how we will turn to washington -- not right now in the midmorning of london -- but we will turn to washington in the next 4-5 hours.

this chemistry right now of turkey is extraordinary. writing in the wall street journal this morning, we hope to have a look at that as well. francine: we had just moments trying to explain the many angles of the story. 2 nobel laureates, michael spence, and michael kremer. and in the next hour, st. louis fed president, james bullard. here's viviana hurtado. >> we begin with turkey. we begin with turkey. president donald trump promising big sanctions on turkey for its military campaign in syria, but it's penalties -- the penalties turned out to be less than what lawmakers in both parties demanded. it is halting talks on a trade deal. the administration is talking for a cease-fire in in syria, not a turkish withdrawal. volkswagen is delaying a decision on whether to build a $1.4 billion factory in turkey. vw says it is monitoring the

situation and concerned about current departments. they hoped this would help grow sales across eastern europe and the middle east. prime minister boris johnson's brexit deal is hanging in the balance. the european union says talks may need to continue after the summit that begins thursday. "the telegraph" reports it it was taking shape. the news -- a deal is taking shape. the newspaper reports there is a solution to the irish border problem. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. tom: let me do the data check right now. equities, bonds, currencies, commodities. i see it down here on my monitor on the floor. we will get the sterling in a moment. euro churning with a little bit of curve steepening over the last number of days. onto the next screen, if we could and the idea of the vix 14.14, stable market and that

columbus day, really low volume day yesterday. sterling. we are on the six watch on lira. that is a stronger turkish lira over the last 12 hours. it is not there yet, but you really wonder if we get a breakout to an ever weaker euro. that has certainly been the devaluation trend. francine: that figure coming in better than -- zew figure coming in better than expected. european stocks on the up. investors preparing for the first big third-quarter earnings on banks. further developments in the trade dispute between the world's two largest economies is what the world wants to know about. just focusing in on brexit, because michel barnier says a deal as possible. some signs of optimism and you can see cable at 1.2651.

president trump promised big sanctions on turkey but the penalties have turned out to be less than what lawmakers in both parties demanded. the u.s. is raising tariffs on turkish steel and halting talks on a trade you. -- administaff trade deal trade deal. the administration is calling for a cease-fire in turkey, not a withdrawal. know about president trump and how much pressure he is willing to apply on the president of turkey? >> on the basis of what you just said, which is that these were weaker than his own party's lawmakers were demanding, it would suggest that he is not really willing to go very heavy on resident erdogan just yet -- president erdogan just yet. against thepush narrative that he green this

operation. most observers are agreeing because it only started after withdrew trump american troops from the border. the sanctions seem to be aimed more at appeasing people in his own party, pressures in his own party. one thing he has been consistent on it is that he does not want american troops involved in wars in the middle east. francine: what does this all mean for people like president putin? you know, it seems like they are now looking to russia to be maybe a mediator in all of this. >> it certainly does look like that. president putin was just in saudi arabia and the uae, who are key players in the region. he has certainly established himself with the war in syria and other conflicts in the middle east as somebody that people have to go to to get issues resolved, to get things done. so i think from president

putin's perspective, this is very much an opportunity to strengthen the role of his allies in syria, and to strengthen his role as somebody people need to go to to get things done. tom: thank you so much. and on the watch in dubai istanbul, i should say. we begin on extraordinary morning on "bloomberg surveillance." that includes my conversation with someone from the imf. we begin strong with the laureate, michael spence of new york university, and joining us ,s well, kit juckes of socgen who is very good on the currency dynamics and greater strategy of the market. kit, let me begin with you. is there a critical level on lira where you can begin to price in sanctions? we have not hit it yet, have we? kit: no, because we don't know

what kind of sanctions they are. the lira can go on weakening and weakening as inflation reacts. it is one of those currencies that can go a really long wait when it starts to go down -- way when it starts to go down with a broken economic model that depends on foreign currency funding for every expansion they have had in a long time. what we have this morning is a little bit of a bounce, but it feels like this is a bounce until we get clarity on what happens next. we are moving around on the back of the news flow. the underlying economy is a mess. the only thing supporting the currency at all is that the underlying economy is such a mess that the current account is back in surplus for the first time in a long time. we are just going to weaken another hot before we are much -- hunt before we are much older. tom: we begin to see that long-term devaluation of turkish lira. michael spence, we are thrilled

you are with us today. and is not your focal point, the middle east, but it is the next convergence. your wonderful book of a decade ago, we look for the update on that at any point, professor. when i look at the next convergence, it is erdogan who has changed from the look to the west to europe and now looks south to the greater middle east. is that really with this is all about, the long-term view of turkey to the middle east? michael: it certainly looks like it. i think the description of the economy in turkey is exactly accurate. i think from the point of view of economic and social development, they are making a mistake turning away from europe an pursuing kind of both economic and political model that is less likely to succeed, tom. francine: what does that mean for the markets, kit? kit: look, i think the turkish lira has been a currency that

investors only ever go into a trade hunting yield and get out of pretty quickly because it has not been a winning trade a lot of the time. there is nothing good in the middle east for financial markets with the level of uncertainty we have now. frankly, markets either ignore it or worry that if the u.s. is pulling out, the vacuum gets filled by something else. francine: how do you price that? kit: just an added uncertainty. it adds something to the price of oil and the risk off nature. the entire emerging market spectrum just cannot get a bid at the moment, despite what cheap money is doing for equities. francine: professor, does a geopolitical shock actually have the power to put the global economy on a downward trajectory? michael: yes, it does, but it has to be pretty big, because there are some underlying growth engines running in major

economies in the developing world and advanced economies. you would have to crush them and that would take a major, major check. tom: michael spence, -- shock. tom: michael spence, the major shock, we will get to china, is the idea of how this -- the turmoil, the populism we see in eastern europe and what we see in turkey as well, pulled that over to china. michael: in my view, china is a big, complicated place, but a different story. tom: ok. michael: china is, you know, on a reform process in some dimensions, on an increasing control process in other dimensions. the reform momentum has not been lost. they have not abandoned the fundamentals of a sound growth model at their stage of growth. the dynamism at the

microeconomic level is really, truly impressive. so i think if you are giving them grades, they would get a higher grade than some of the ones turning away. tom: dynamism is the keyword. professor spence, a school to the north, called columbia. michael spence from new york university and kit juckes with us as well. we have so much to talk about. michael kremer joining us later. we will look at bank earnings at 6:00. francine and i are thrilled. he will join francine on site in london, james bullard on the regime change of course of the st. louis fed. 3:00 a.m. at like this morning watching the st. louis cardinals. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tom and francine from london and new york. time, we are reunited. the pound climbing towards a three month high after michel barnier said a deal is still possible this week, but talks remain tough. discussions will continue throughout the day in brussels sides try to agree on how far northern ireland will be detached from the eu's customs union. michael spence of nyu and kit juckes of societe generale are still here. i don't know whether the market's optimism is actually warranted. are we going to get a deal by october 31? kit: seems highly unlikely to me, but stranger things have happened. we have got a daily telegraph article overnight. the pound went up a little bit as i came in, then give that

back. michel barnier said we are working hard trying to get something. we have nothing close to a detail of what this winning deal will be, nor have we seen how the u.k. parliament would respond to whatever deal gets agreed. i think the answer is against it but it possibly tells you there are still some sterling shorts out there that could get squeezed. francine: what happens in the case of an election? i don't know how difficult it is to predict what an election can break? if you have a socialist government, jeremy corbyn, this economy will change quite significantly. michael: i think there is enough parameters in that that are uncertain that it is almost impossible to guess. but, you know, isn't the most likely outcome if they do not reach a deal to somehow kick the can down the road one more time? i would guess. i mean, you know, i am not an expert on british politics. francine: i don't think anybody is at this point.

tom: i thought we would talk to michael spence. he had the immense privilege of studying under john hicks a few years ago. if i look, michael spence, the dynamics of a system that john hicks invented and you and others have brought forward as well. what is the dynamic risk to the people of the united kingdom? if i look at the real economy, if i look at the money system, governor carney speaking moments ago, and if i look at foreign-exchange as the international expression, what ss the dynamic that spence-hick would speak of? michael: the way i think about it and the way that i think many people think about it, tom, is the question is really how disconnected you become. it is more in this world a matter of connection at the level of knowledge, data, information, digital things and so on, and somewhat less about

trade. i don't mean to minimize the trade issues. for the u.k. in particular, the question is the status of its and normatively -- enormously influential and powerful goal -- financial system globally. it is possible to have brexit deliver a short-term hit and then the u.k. develops a rather important, but somewhat different place in the global economy. i would not necessarily be pessimistic about the longer-term as opposed to the adjustment period, if you like. to: what an adjustment up 1.2640. mr. barnier may be pushing against all of this immediacy and wanting more time. kit juckes of socgen and michael spence with us. james bullard, as we told you about. banks, banks, banks. it is a for some of banks as

well. my conversation to begin our coverage of the annual meetings of the imf and world bank. this is bloomberg. ♪

didn'tock of the way we

2008 -- did in 2000. francine: james bullard speaking at bloomberg monetary policy and -- actually, at the conference for monetary and financial policy and he will join us on set very shortly. let's get straight to the bloomberg business flash. in new york city, his viviana hurtado. >> shares of german payments firm wire card plunging. the financial times reporting it found repeated accountable -- questionable accounting practices at the company. there appears to be a concerted effort to project reinflate sales and profits. wire card calling the report total nonsense. struggling wework prefers a lifeline at led by j.p. morgan to a rescue led by softbank. the jp morgan package may include at least $2 billion of in kind debt.ent the coupon, a hefty 15%.

that would be one of the riskiest a debt offerings in years. wework likes that option rather than selling a controlling stake in itself to. soft make that is the bloomberg business flash -- two softbank. that is the bloomberg -- to softbank. that is the bloomberg business flash. tom: we are thrilled to have michael spence and kit juckes with us. it was not in the textbooks of kit juckes and certainly not in the text books of michael spence at stanford and nyu, give professor spence a briefing on the efficacy of negative interest rates. how is that experiment going? kit: it is beginning to be place.ned all over the we had the minutes of the reserve bank of australia out last night, where they debated whether the stricken benefit of cutting interest rates towards zero was outweighed by the potential for a boost to house prices. the 10 tatian is to say, i want to cut rates -- the temptation is to say, i want to cut rates

more negatively but i don't want the banks to pass that on to retail customers. it is ok for wealthy customers but dangerous to pass it on to anybody else, in which case, do you have negative rates at all? 5%e banks do not have to pay . on all of their excess reserves so what does it mean? there is a limit to how low you can go. it is not zero, but negative one or something. tom: michael spence, a wonderful paper was written at jackson hole talking about the courage to have a greater amplitude, a greater experience of negative interest rates. -- all of thiss financial mumbo-jumbo affecting europe, is it that the courage is not there to test this experiment? michael: you know, tom, i tend to be with mario draghi on this. i think they have hit the point where monetary policy has not

got a lot to contribute at the margin. the baton is either going to get dropped or passed to the fiscal authorities to try to change the growth patterns in europe. indon't think monetary policy n the experimental territory is the way to go. francine: is it doing more harm than good? michael: that is a subject of research. i mean, i don't think there is a definitive answer to that. there's positives and negatives, but from the point of view of sort of getting the economy on a new trajectory, it clearly is not a powerful enough weapon. francine: do they need to step aside? says,l: no, even draghi we don't step aside, we just need a working partner and the governments and fiscal authorities to do their part and then we can do our part. they are probably complementary

and make each other's efforts stronger by working in a coordinated fashion. tom: we have got more headlines coming out right now. i will try to get to those. mr. barnier speaking right now in luxembourg. it just goes back and forth with sterling coming back. he says the hunt for a brexit deal is an ongoing process. i think he stole that line from kit juckes. kit juckes with us from socgen and michael spence of new york university as well. we have much more to talk about. james bullard will join us with francine on desk. as well, this is a throat, stephanie invest -- the rail, -- ingves or join us. in us.

♪ everyone,morning, bloomberg "surveillance."

incredible "surveillance" today. we have bank earnings, and the -- central bank. we are thrilled to bring you a new laureate selected yesterday, for his study on poverty and the way you study poverty, michael kremer of harvard. our first word news. wanted thengress trump administration to impose tougher sanctions on turkey over the operation into syria. lawmakers from both parties are dissatisfied. the u.s. is raising tariffs on turkish see -- turkish steel. mike pence going to turkey to demand a cease-fire, but will not ask for turkey to withdraw. in london, police ordered extinction rebellion campaigners

to halt their protest. the group setting up a base camp at your vaulter -- trafalgar square, pushing for government to cut greenhouse gases. a de facto curfew in hong kong because of the protests. the subway has closed early, cutting off the mode of transportation for million of residents. subwayers accused the operator of helping the government prevent more demonstrations. human guinea pigs preparing for the world's longest life. nonstop from new york to 20ney, the flight will last hours. doctors will monitor the pilots and few dozen passengers to see how they hold up. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado.

this is bloomberg. tom: i am so glad you did that story. i was in hong kong once laying in bed and my leg started throbbing. the idea of long flights, you have to get up and do something and i did not do that. that long flight for qantas will be something. michael spends inventing graduate studies. he is one of our leaders on information. with his study of china and their information flow. what do you glean as the messaging out of the communist party and president xi? michael: there is multiple strands. i think china is pleased and proud of the digital technology companies they produced, and i

think they are demonstrably helping the economy produce growth and inclusive growth patterns, so on that front they are fine. that have toided control internet content to control political and social stability, and political control by the communist party. that strategy will not work well in the west because it runs counter to deep-seated values we are attached to, but it is a choice. every company faces free speech and choice, and the chinese will execute control. many outside china think they have gone too far, but countries and societies differ. even those of us who are skeptical of that approach say we have problems to deal with in the west that have to do with

dysfunctional content on the internet. tom: you had the courage to go beyond the business and tourist excess of beijing, zhang -- andss of beijing, shanghai -- is there and next convergence where it is a more unified china or will it be city states in the future? michael: that is an area in which the chinese have fairly clear objectives, but have fallen behind. and shanghai and beijing have moved forward so quickly that they have an away left -- in a way left the third and fourth tier cities behind. they have major work to do to make sure the growth patterns are more inclusive. they measure income inequality

by several measures and it has been rising. they have not touted that trend. francine: how badly does china need a trade deal? need a trade deal fairly badly. this is an economy that is still much lesson exports, than 20 years ago, but still dependent on exports. this is hurting them. i think they can weather this if they don't get a trade deal, but it will be more pain than they would like to have. francine: are they willing to give more than they were six months ago because they are feeling the economic pain? michael: does not look like it, and it looks like they have decided to focus on a limited agreement rather than a broad agreement they were looking to last spring when the talks fell apart, for whatever reason.

probably the calculation is we have got a better chance of getting a limited deal because of the incentives on the chinese and united states side, and some of these other issues deal --omplex, the big if we go for the big deal we will be better off. risk,hen we talk about the geopolitical risk, you are expert at the type two, the unseen risk we are not focused on. what is the risk that is not visible in our china-american dysfunction? what is the risk we cannot see? michael: i would have said that the risks are those that are associated with decoupling.

that would be in the area of finance, you could cause just chaos if we pursued the thing that was floated in washington a little while ago about disconnecting the financial systems and protecting investors from lack of transparency in china, and the other one is even more fundamental, the flows of knowledge and information around the world. if we go down that road, i'm not saying it is a risk that nobody can see, but it is a difficult set of risks to assess because it would take us into territory we have not known for at least all of the postwar period. professor-- tom: spence will be dispensing wisdom. with a nobelo prize awards ceremony? how starched does a tuxedo have

to be this is surveillance. ♪

francine: two researchers from m.i.t. and one from harvard have won the nobel prize on how to alleviate poverty. we are very pleased to welcome michael kremer in the studio in london.

with us, another nobel laureate, michael stands -- michael spence who is happy to graduate the other michael yesterday. michael k.: it was a complete surprise. francine: did you get a call? michael k.: i was in london rather than boston so i did not get the call. somebody sent me a skype message and i thought it was a joke, and i eventually realized it was real. francine: thanks for all your work how to make poverty a little bit better. will your research be used more? michael k.: one thing i am excited about is this is a field that has been flourishing. it is wonderful to share the prize. there is a huge set of researchers who are really pushing the boundaries in this area.

what is exciting is that we now have -- we are combining , addressing rigor practical problems of health and education and finance and a range of fields, and on the ground engagement. we definitely have an analysis of data and work with models that economists are known for. that is very important in this field. the nature of the work means we are directly engaging with teachers, school children, nonprofit organizations, developing country governments, which brings a range of insights we might not have thought of. tom: before i get to the award and the method you and others have used, i have got to ask

you, did you speak to mr. and misses gates yesterday -- mr. and mrs. gates yesterday? michael k.: i have not, but i look forward to doing so. tom: he is writing a check. i recommend you speak to bill and melinda gates. ago, ihave been 15 years ran a conference into experimental economics, let's go back to the old days and do the research and do the study. so much of this award is a celebration of that approach. where do we go in the next 10 years with experimental economics of going out and testing things? i think there is a huge range of issues that can be examined with these approaches. a lot of my research started out in education and health.

people now looked away wide range of issues like how to reduce corruption, how to improve financial systems. workere is one set of focused around practical questions, policy questions, and another area of experimental economics which is testing underlying economic theories. increasingly, theories coming from psychology as well and other parts of social sciences. part of the future will be integrating in these practically oriented studies that are often trying to come up with solutions to address real-world problems with greater and deeper understanding of the underlying theory. what achael spence, thrill to have you. michael kremer has olivier

blanchard disorganization and has a paper called "elephants." fit in modern economics and the criticism of i.s. lm, rader economics, fit that in the world of michael kremer. michael s.: my take on this is what is extraordinarily important work. let me put it this way -- there is a growing recognition that the macro economic view of the world misses important things, as is sometimes described in missing economic process in a multidimensional way. one important class of dimensions of process is whether you are proceeding with rising inequality and leaving people or not. michael and his colleagues have created an evidence-based way of

understanding what those problems and challenges are, and dealing with them with policies that are using evidence designed to work. i just think it is a breakthrough. applied: how can it be to western society? michael k.: there is many cases in which this is being applied not just to the problems of developing countries but developed societies as well. let me just give one example. paper i from a small was involved in. one of the problems our society faces is all sorts of cleavages. records from large state universities, and the state university assigned roommates randomly. students randomly

assigned african-american roommates and we saw there change socially over time. it looks like there was a growth from that, and that as a result that has been found in many different contexts, that exposing people to each other can generally, theoretically you can imagine this exacerbating social tensions, or creating more empathy. it looks like typically what happens is it improves relations between groups. that is one example that suggests there is other contexts that we can take advantage of that. congratulations, the 2019 nobel prize in economics winner. riksbankalk to the governor shortly. this is bloomberg.

♪

"surveillance."

francine lacqua in london monitoring brexit. we are looking for a headline out of washington on turkey. we begin the imf and world bank meetings. governor is with us there is this riksbank prize in honor of alfred nobel. or arehave any guidance you in the process of selecting the nobel prize winner? stefan: that would probably not work. this is completely handled by the royal academy of sciences. we put up our money. tom: bring us up to speed on what madame lagarde's biggest

challenge will be. you were on the sidelines, removed from the ecb. what will be the challenge for the new president. stefan: ed is not really for me to pass judgment -- it is not really for me to pass judgment, but monetary policy come at the macro picture, and they have to pass on that side. struggling through various issues with the european banking sector, because the european banking sector has a hard time restructuring itself. that has been going on for more than 10 years or so. francine: there is a huge debate about the interplay between monetary policy. how difficult is it to be a central banker? iefan: hard to tell because have not been a central banker during a different age.

when we are discussing the macro picture, we are discussing a serious recession. it is during a serious recession fiscal policy will have to come into play. francine: we are talking about trade and trade turmoil. how do you interpret the trade tensions? stefan: it is very difficult for me to pass judgment, but coming from a small open economy with imports exports being a big part of gdp, this matters to us. we can only watch from the sidelines. we are free traders. that is how we make a living, and a trade is a bad thing. the swedish bank has a wonderful heritage of fighting crisis with courage. we harken back to the early 1990's when you did original

action on policy. i read close to the kind of crisis you faced dutch are we close to the kind of crisis -- are we close to that kind of crisis? stefan: no, and maybe it oversimplifies to say the following. in the early 1990's, the rest of the world was ok and we were definitely not ok. there were all sorts of issues outside of the swedish economy but in an economic sense we were pretty much ok. circumstances are quite different. tom: tell me about the divide between economists and commercial bankers. we have an experiment of negative rates and low nominal rates. what is the impact on commercial banking in sweden? far, the swedish banking sector has been and continues to be profitable

because they have a cost level which is lower than other parts of europe. despite the low rates, this has not really dramatically affected our banks. francine: we keep on talking about some kind of fiscal monetary policy do well coming together. what would that look like? telln: it is impossible to . it depends on what is going on in the global and swedish economy. if things were to really go wrong in terms of what happens to the economy, how do you go about putting money in the hands of those who are most likely to spend it and spend it isediately, and whether that monetary policy or fiscal policy or some combination, it depends on the circumstances and what you need to do. francine: our politicians more aware of what they need to do to

step in? stefan: keep in mind that we have had an incredibly good run for years, so that does not seem to be an issue for today, but there is more awareness than five or 10 years ago because we have had negative policy rates since 2015. it is obvious if you have to go negative, there is a limit to how negative you can go. tom: he is the governor of the riksbank, stefan think this -- ves. we continue an extraordinary set of conversations, james bullard of the st. louis fed. this is bloomberg. ♪

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slowdown, the state of too big to fail banking. we hear jp morgan, goldman sachs, citigroup, and wells fargo. the president may be under delivers on "big sanctions" against turkey. erdogan establishes his army on both sides of the border, damascus allies with the kurds. we go in search of a new regime. a conversation with james bullard. this is bloomberg "surveillance." in our world headquarters in new york and london. there is governor carney with a brexit no deal headline, beginning to model the idea of rates close to zero in a downturn. francine: i think there has been a dramatic shift in the last to fivef weeks, four

weeks in what the boe has been telling markets. in the past, if they would say there is a shock to the system and if inflation were to go up because of pound weakness, that would mean they would probably have to hike rates and that could potentially put an extra shock on the economy. governor carney is saying the downturn could bring a rate close to zero. intimatee is trying to the boe would do whatever it deal or the case of no a downturn brought on by no deal. bullardthis hour, james will join us in london with francine. we consider the imf and world bank meetings with geeta gopi slowdown.clearer

chief executive offer dutch officer, the , wanders -- officer out to begin that study. good conversations. viviana: president donald trump promised big sanctions on turkey. in theory, the penalties turned out to be less than what was demanded. the u.s. was raising tariffs on turkish steel, halting talks to a trade deal. the u.s. is calling for a ceased fire -- cease-fire, not a turkish withdrawal. the european union says brexit talks may need to continue after the summit that begins on thursday. the telegraph reports a deal is taking shape and there is a potential solution to the northern irish border problem. there is another sign chinese

domestic woes are a drag on the economy. anding output growth falling raw material prices from a year ago. china's price index falling 1.2% from a year ago. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: let me get right to the data check. there is a turn to the market -- churn to the market. futures up 14 points, curve steepening. oil south by almost 2%. vicks 14.07. sterling, i will let francine comment on. , five point 90.

-- 5.90. francine: european stocks up. i am looking at investors figuring out what third-quarter earnings mean, and what the trade dispute means for their portfolio. the pound is fluctuating as michel barnier insisted that a deal is possible this week, although it is getting more difficult. crude oil is down, gold a touchup. tom: mr. erdogan writing in "the on isiseet journal," and the rekindling of isis as a potentiality in the middle east. i want to look at a chart that spans the length of mr. erdogan's tenure in turkey, over to 2002 and remark-ish -- remarkable turkish stability.

greatgo with a depreciation and valuation to this important moment for turkey. hamade joins riad us. you are so encompassing, i want to give you an open question. what are you focused on in dubai? are focused on very much the geopolitics of this. we are focused on, will there be more sanctions? well congress forced president trump to impose more sanctions on turkey? particularly the u.s., there is europe in play. not necessarily waiting for governments to take action, they giante are putting this factory on hold as we monitor the situation. this is significant for turkey.

on anoyment figures today adjusted basis, in on a record level. tom: i understand there is different zeitgeist, rushing voidy isu.s. void, how the void now? if empty is that vacuum that when constituencies are trying to fill? riad: it is pretty major, because for the longest time, for several years now this alliance between the kurds and u.s. has cap the assad regime at bay in terms of the north of syria. number two, it clamped down on the islamic state and entered the caliphate, which is now open for play. , because yousy now have turkish forces from the

forces from the west and south. it is getting very crowded in that region. we will see what that means going forward, although i personally don't think we will see direct arms confrontation between the syrian assad forces and turkey. francine: how is president trump going to deal with this? what is the significance of the american sanctioned -- sanctions? riad: i refer you to what the lira did today, it appreciated. that suggests investors are saying they were light. i don't think these sanctions on their around will get president erdogan to change the direction. the americans did not ask for a withdrawal, all they said was cease-fire and let's talk.

president trump has been consistent in saying he doesn't want american troops involved in middle east wars. , ands said that before consistently after this turkish incursion. it is not just president trump. you mentioned earlier, you have congress. you have almost bipartisan support for being tougher on turkey as regards to this operation. tom: wonderful to see you in ournbul, riata mate running -- riata mate running -- riad amade running our coverage. kevin cirilli, we are thrilled he could join us. i want to go to frank brunei in "the new york times." lli, it is airi

morning mess read that is direct. it is the time to discover how directly they can explain the parts of their biography and records that cry out for explanation. the distinguished senator kerry of nebraska, if a democratic candidate welts under the warm attention and criticism of another democrat, they will not be able to stand up to trump, to make sure there's no premature coronation. that is the goal. --m going to be the bad guy who is going to be the bad guy in the room at the debates? kevin: the lower tier candidates.

of strategists will be looking for, will anyone take on the front, former vice president joe biden? his campaign circulated a letter to other campaigns in which he says, you are not a democrat if you take on hunter biden or raise the attack the trump administration has lodged. we are also anticipating we will hear directly from hunter biden later today. he has been at the center of this controversy, and speaks out in an interview with abc news. senator bernie sanders will be facing some questions about his biography. this will be a crowded field, the most crowded debate stage in the history of democratic debates. the window of opportunity for the candidates to make their cases is even smaller than it was at the first few debates. talk tome -- francine: me about ohio. they have voted for the winning presidential candidate every time since 1944 with one exception. ohio. it is ohio, ohio,

it is crucial to the swing state for republicans and democrats to win 1600 pennsylvania avenue. it is battle ground zero for the trade policy of this administration. look no further than right around this area where a gm plant was shut down, so you hear the populist pitch of these candidates to argue the president's trade policies have not served working-class americans. the president was able to win ohio. talking to republican operatives , they have the full lay of the land and are fully prepared to win it back. the polls have indicated this state has turned slightly more red and could be difficult for democrats to win, but will not let it out of their sight given the electoral cloud. francine: is this a win or die debate for joe biden? kevin: i don't think it is.

he has the money and name recognition and he will be in this for a long time. the biden campaign is preparing for a marathon campaign. you could have this go on until super tuesday, after the iowa caucuses and new hampshire primaries. the more candidates that continue to stay in this race, the more divided the electorate means thiss -- that could go on for a long time. tom: in ohio, they are going to women,out our men, our our soldiers at risk and the abandonment of northern syria. how will these candidates play turkey? in regardsey play it to a president and a lot of americans who say, why are we fighting these endless wars? kevin: i will keep this quick.

thet and foremost, expect president -- candidates to attack the president's rhetorical approach how he has communicated with uncertainty. look for biden and elizabeth warren to say they would be more steady in their approach as commander-in-chief. warren has to clear the commander-in-chief hurl -- hurdle because people are not used to her on the foreign stage. the last point i would make as there will be a libertine in dutch libertarian leaning democrat, until see you. --tulsee gabbard. she has a lot more in common with rand paul than these other democrats. tom: kevin cirilli, our chief foci -- ohio correspondent.

we will have continuing coverage, david westin at 12:00 noon on radio and tv. then we moved to the actual debate tonight. this is bloomberg. ♪

♪ coming up shortly, an exclusive conversation with james bullard, st. louis fed president. he was saying moments ago at a bloomberg conference that u.s. policymakers are facing too low inflation and a greater risk of slowdown. that is 6:30 a.m. new york. tom: there will be banking

coverage. basak will join us later. we are thrilled to give you some perspective on executing forward. you can do that with fred cannon , global head of research of kbw. he has been in the trenches of managing the message at banks, including bank of america. you are one guy on wall street who has actually been on the dark side, managing the message forward. how do these banks manage the message forward to execute labor reduction, job cuts? fred: it is a little bit early for that, but one thing about very low interest rates is one thing u.s. banks can do that european and japanese banks cannot do is manage expenses. dog and we walk by

all of manhattan and whenever we walk by a bank i look to see if there is anyone in a branch. there is no one in there. is this a quarter where they say the retail bank experiment is over and we need to change? fred: they are not there yet. tom: that is your second answer. fred: the fundamental belief is that retail branches still matter. the old line from wells fargo was we don't want fewer branches, we want smaller branches. there is a continued belief those retail branches are important. we well see over time, reductions. 8% to 10% ofown the total branches in the united states. what do you think that should be, 25%, 30%? francine: we talk about

geopolitics and uncertainty and around the world, how does that translate for's? is the ipo pipeline drying up? fred: the volatility that we have seen with ipo's being pulled, that is a factor. volatility in rates and what is going on with libor and the movement in the repo rate, we are seeing those volatility hit banks. the volatility this quarter we do not view as good volatility. we view it as problematic. a lot of people were not able to make loans at that elevated rate we saw with the repo. tom: the 10 year yield in five basis points. china really going right after the tariffs. they want to remove tariffs on $50 billion of imports.

help me with the international expansion. deutsche bank was saying, we are going to cut, cut, but expand in asia. all the international banking is there, right? fred: it is, but banks have struggled to make money. it is great, but making money is a whole story -- different thing. tom: a phone call about .ightsizing nobody can profit in asia, what will the some of these calls be? fred: be careful on expenses. i don't think we will hear major new initiatives this quarter. we will hear more about the fact of market share globally. the big u.s. banks are picking up global market share. francine: thank you so much, fred cannon stays with us.

bank earnings kickoff this morning with reports from jp morgan. ,reaking news out of china saying they want the u.s. to on $50 billion of imports that should come into play. we will look at china and geopolitical risk around the world, this is bloomberg. ♪

♪ francine: this is bloomberg

"surveillance." tom and francine from london and new york. breaking news out of china. we understand china says they will struggle by $60 billion of buy $60 struggle to billion of agricultural goods with $50 billion of tariffs. weight.puts a ,e are seeing the bond market closed yesterday in the united states. back to friday, and we are in the vicinity of the beginning of friday's trading. 1.52 a key level. 1.68% on the 10 year yield. you sum this up not only with

the geopolitics of turkey, but governor carney's comments were really something. francine: they were something, but what is weighing on the market is this china news. analysisok at a lot of , the condition china is putting in place highlights how far apart washington and beijing remain. tom: no question about that. next, our exclusive conversation with james bullard, of the st. louis fed. we will talk about currencies and brexit. this is bloomberg. ♪

from the couldn't be prouders to the wait did we just win-ners. everyone uses their phone differently. that's why xfinity mobile let's you design your own data. now you can share it between lines. mix with unlimited, and switch it up at anytime so you only pay for what you need. it's a different kind of wireless network

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president donald trump to remove tariffs on chinese products. the chinese are said to be willing to buy more u.s. farm goods but will not come near the $50 billion -- million dollars donald trump has talked about. the president to increase tariffs -- sanctions on turkey. they are increasing tariffs on turkish steel. mike pence is going to turkey to demand a cease-fire. preparing forigs the world's longest flight, qantas will test a nonstop from new york to sydney, lasting almost 20 hours. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado.

this is bloomberg. francine: we are looking at a little bit of a shift when it comes to the markets. becausea headline hurt it highlights how far apart the u.s. and china remain on trade. welcome all of you worldwide and coast-to-coast, an important conversation on economics, not with nobel prize winners, but much more on the future of monetary economics. he is james bullard, st. louis fed president, and we are thrilled he joins us at the 2019 monetary and financial policy conference. i will cut right to the chase. you changed the economic dialogue a number of years ago with the request we find regime change. are we at that moment where there is literally a regime

change in the economics where the fed has to shift the way it does business? europe,ard: i think for the ecb is facing a difficult situation, so you might look at that as a crossroads, so to speak, of monetary policy. for the u.s., generally speaking we are in good shape. we face some downside risk from the trade war and i have tried to encourage the committee to take action, which we have, to mitigate those risks and keep us on an even keel in the u.s. tom: what is the urgency of the next few meetings? some houses are saying one and done. are we too focused on the next one meeting versus the what if's of december 11 and into 2020? mr. bullard: i think we will go

on a meeting by meeting basis. the committee has taken to moves, and if you look at my remarks this morning, we have moved a lot in the last year. if we were sitting here a year ago, we would be talking about the fed raising rates in 2019, not lowering rates. during january, february, we said we were taking the interest rate hikes off the table and then we started talking about reducing rates. in shift in monetary policy the u.s. has been quite dramatic , 120 5, 135 basis points, not just the 50 basis points we have had. we need to take stock of where we are and also consider additional insurance in the meetings ahead. francine: should the fed be more aggressive given the risks to

the economy? mr. bullard: if you buy the argument i just made, we have been pretty aggressive. you would think that would take a while for things to have an impact on hard data in the u.s. i would expect those kinds of effects to come online during the second half of 2019, the first half of 2020, and you are seeing that in housing markets where refinancing activity and other things have picked up. francine: you dissented for the half-point cut. do you still think we need a half-point cut? mr. bullard: i would like to do more, but do not want to prejudge the meeting. let's get to the meeting and make a decision. tom: our michael mckee enjoys being in the press conference and the long and invariable lag is when he asks a question and does not get a chairman like cancer.

what is the efficacy -- like answer. what is the efficacy -- the coffee is better in london then st. louis or new york. mr. bullard: it is a palace over here. you should move. tom: we have considered. seriously, michael mckee has asked and asked the simple question -- what is the efficacy of rate cuts with an economy that is doing pretty well or pretty darn good or solid? what is the good we can get out of these rate cuts? mr. bullard: these always have impacts on the margin. that is the way monetary policy works. to those who would say the u.s. economy is doing pretty well, i would agree in that consumption looks strong and labor markets look good, but those are lagging

indicators. you have to look forward and think about the risks that might lie ahead. financial markets are a great place to look at what might happen going forward. that is why i have tried to bring some financial signals to greater prominence in monetary discussions. tom: let me get some in the academic side of that. we talked to michael spence. can mina -- monetary policy assuage a trade war? can you fix the agony and pain of a trade war? mr. bullard: i got this question earlier today also. obviously, we cannot do anything directly about trade, but we have our mandate to maintain high employment and low inflation. we are trying to do the best we can to take on board what is going on with the trade war and

risks to the global and u.s. economy, and conduct monetary policy that will help us meet our objectives. we have been meeting -- we certainly have a great labor market, but the inflation side has been somewhat weak. we have been below target and expectations remain below target. i would like to re-center expectations back at 2%. read on: what is your global growth and trade negotiations, are things getting better or worse? mr. bullard: we are seeing day-to-day, tit-for-tat, which is a normal part of any negotiating situation. that is what the game theory tells you will happen. we cannot react day today because that would create more uncertainty around trade and monetary policy. what we can do is take on board the idea that the 50 year or 75

year consensus about the u.s. pushing toward more trade liberalization has broken down, and we have more trade uncertainty, and businesses have to take that uncertainty on board and devise business strategies that cope with the high degree of uncertainty that exists. francine: i know you don't want to talk too much about the next meeting, but the fomc is talking about when to end its insurance rate cuts. should we be looking for a change and language to indicate after this meeting that the bar is higher for extra cuts? mr. bullard: i would leave that to the chair. that is what he gets paid the big bucks to do. we will see where the committee comes down. we use language changes and have in the past, but whether anything will be brewing, i don't know. tom: a conversation with james

bullard. you know what the dots look like. sort of an ugly chart. dakota hudson does not have a dot. and are the bullard dot we done with the dots? mr. bullard: we have talked before, i am not really a fan of this dot plot, but we are stuck with it. we are trying to give the best indication we can of what we think might happen over the forecast horizon. i do not think that dot plot reflects the true degree of uncertainty that exists. scenario is that we do this insurance now but that the economy grows pretty well and labor markets continue to be strong in 2020 and 2021, and

maybe we are able to take these rate cuts back in the future. that is what happened in the 1990's, so i hope that is what happens. on the other hand, i want it lower now because i think we want to take out insurance against these risks and the idea that the trade war might morph into something more serious for the u.s. economy. tom: every conversation i have from the youngest market economist to the manager of the imf, people are talking about confidence and the will to move forward. what is the state of business confidence in the st. louis district? mr. bullard: certainly for agriculture and many fracturing especially, and some other businesses -- manufacturing especially, and some other businesses, they express trade issues. that is a major concern.

conditions fors domestic facing businesses remain good, and they are cautiously optimistic going forward, but they are concerned about the trade policy issue. francine: this is a very tom keene question. there is debate on whether current fed policy is slightly contractionary, slightly stimulative, or slightly neutral. which is it? mr. bullard: we are at neutral and might be able to get to slightly accommodative soon. that is because i have a lower so-called r-star than other people have. i would say the neutral policy rate as somewhat lower for made them what it would be for other people. francine: how behind the curve is the fed? mr. bullard: i don't know if we are behind the curve.

we did take a lot of action over the last year as i was describing, so we have taken on board the idea that risks have been brewing. whether we have it exactly right, you never know, but i hope we are right on track. francine: james bullard joining the st. louis fed president. and we have michael mckee fred cannon. how alone is jim bullard? every president and governor is different. larry meyer talked about this. how alone is jim bullard? michael: he is not alone. others think the fed should be on hold or cutting rates. where will they be at the end of

the month? you go back to an interview i did with rob kaplan, we have had the jobs report and the key indicators for the month. what could change your mind? he said the trade negotiations. if there were some evidence that things were going to be improving, then the fed might hold. at this point, given the headlines we are seeing, i think jim bullard will be in the majority. tom: extreme to our audience, there are 12 -- explained to our audience, there are 12 presidents. he said his r-star is lower. presidented is each given his district? is he talking that midwest regional book? michael: they are all talking their book in terms of what they see in their district. mary daly will be looking at the

impact of the tech sector, asia trade in china on tech. jim bullard has to worry about the farm impact. a great slide that showed the impact of the retaliatory tariffs, like a straight line that runs down the middle of the country. they will be looking for the impact on the agriculture sector. francine: the fed and their main concern, how should they rate trade and the trade negotiations? are reading the same headlines we are. there isake a while if an agreement, for it to filter into business confidence, and for companies to start spending again. until there is something on paper that everything that everyone can believe will not be walked back, the fed is in the same position as all the ceos

making their plans on uncertainty, which is you hold back. the fed being the only game in town is inclined to cut rates even if they don't think it will have a major impact, just to have an effect on the margins. francine: if you look at the trade concern, the fact that we had a partial deal that is more uncertain, how does that impact fed policy? yelena: it does not remove uncertainty. it complicates things. you hear one thing on friday and another today. it means business sentiment will remain depressed and the only game in town will be the consumer game. we are looking at growth concentrated in the consumer sector and businesses will not engage. tot means the fed will have adjust to support the economy at the margin.

tom: which is a better indicator, the dots? is anyone thrilled about the dots? yelena: there is a lot of dispersion when you look at the september dot plot, but what matters is who was at the bottom in favor of a rate cut. our analysis of the dot plot suggests powell is in that group. tom: we have fred cannon with us. out to 2022 say normal. managing for a successful dot plot or are they hunkering down like all the different predictions? fred: in general, they are managing toward normalization, but that is a real risk. we have seen that in europe where year after year the banks

plan on normalization that never plays out. the u.s. banks will have to addressed. -- adjust. francine: how? fred: lower net income over an extended time, so they need to address their cost structures and seats francine: francine:. does that mean layoffs? fred: i would certainly think so at some point forward. francine: when you look at the transmission rate of fed policy, is it effective in the u.s.? michael: the system works, put it that way. whether we are getting benefit out of the rate cuts is hard to assess. it is hard to see how it makes a difference because we do not have an aggregate demand problem. we have a confidence problem. any industry holds back and doesn't invest, it is kind of to be in's -- expected.

we are all in this holding pattern. fred is right about the banks going forward. wheree in a situation r-star growth will be slower so interest rates will be slower. it will change the banking model a little bit. tom: we are thrilled michael mckee is with us, fred cannon, and jelena from bloomberg. me go to you, let on this r-star. that is fancy talk for the guests of the economic glide path and that is what all of this debate is about as we are rationalizing 2% growth? michael: it is an easy way of saying the neutral rate is growing and economists like to use fancy language. because the economy and

population growth have slowed and productivity has slowed, the potential growth rate is slower said the neutral rate is lower with inflation lower as well. tom: the rationalization of the new terminal rate of our economy, of our interest rates. yelena: it is also the unemployment rate. potential, thee unemployment rate will go down. tom: it is a lagging statistic. yelena: you can see what will happen in the future, if you see productivity growth and population growth. that will help the economy in the long term, but right now we are talking about whether the unemployment rate will go up or down. if we grow below 2%, that will mean recession risk. francine: do you agree? inflation expectations continue to move lower.

does the fed continue to ease? michael: there is a whole argument that is what they need to do and a question of whether they will be successful because they had interest rates at zero 47 years and inflation did not go up. with inflation expectations going down, people expect lower inflation and that affects the growth rate. interest rates will be set at a lower level which means when you go into a recession they have less ammunition to get us out. they do not want inflation expectations to slow below two. francine: talk to me about the labor market and what the consumer does. we are just getting some breaking news. morgan,dlines out on jp thank you so much for joining us. fred cannon with us. revenues up 8.1%.

tangible common equity 18%. i am going to go to fred cannon. basak will give us more. 12%sed to be 10, 11, tangible common equity. it is positively swiss like. fred: there is a lot of capital, and that is the good news about the banks. there is pressure on earnings, but balance sheets are solid and capital return is strong. we expect payout ratios to be about 3.4% this year, double the s&p and bonds. with a niceo in, left on jp morgan, do you maintain a buy? cautiousare somewhat

on banks. see one orile we can two banks producing good numbers like we see with jp morgan, overall there is downward pressure. tom: i just got out the wonderful detail and i thank jp morgan for doing a bang up job on this, book per-share value up 8%. there is a slew of other numbers. mr. dimon says, we are record third quarter with strong performance in dcm and ecm. these are superb numbers. sonali: they are pretty good, but the 18% return on tangible equities is down from a quarter below. it is a big number, so now we are parsing who is doing better or worse. .heir numbers are mixed equities are below expectations,

which is not a great sign given jp morgan wants to be the leader in that business, but fixed income is better than expected. underwriting. people will want to hear commentary around what is going on and the exposure to wework. francine: i am sending tom back to cfa level one. equities worse than expected, fic sales better than expected. what does that tell less about the health of the bank? sonali: mixed on trading. the third quarter is still lagging and volatility has risen. does that mean investors are stifled or going back into the fray and looking to make money where there are dislocations? the commentary moving ahead is important.

interest rate expectations as lower than in the second quarter. jamie dimons outlook for the rest of the year in terms of their money to make -- their ability to make money on loans is important. upncine: how do they stack to competitors in the u.s.? fred: very well, particularly in the capital markets. we cannot always get a great read across from jp morgan to other institutions. we will get goldman sachs and that will be key. tom: operating income, here is how you build a skyscraper on billion, $36$34 billion, and then they explode to $41 billion. bloomberg has modeled out where they will be running apple like $45 billion. i see a bank growing well above

nominal gdp. are they stifled by the ability to buy regional banks or our day organically are they organically expanding? fred: the opportunity to b other banks is long gone. we are seeing good return on tangible equity, it may be lower but good. for, how longking can these banks sustain profitability? tom: digital banking, i don't know if it is in the statement, but give us what the bloomberg team says about their deployment of capital versus others? sonali: jp morgan spends 10 billion dollars annually on technology, growing their physical and digital branches. their average total loans are flat, so without the ability to buy a regional bank, they have

to invest in digital capabilities to bring more people in. tom: with futures up nine, jp morgan up 1.3% as well. we will get that information to you. fred cannon and sonali vasek will have a busy morning as we see goldman sachs, and wells fargo. will the new guy beyond wells fargo? sonali: not today. tom: we are looking at governor carney's effect in london and watching turkey. pinath in the 10:00 hour. this is bloomberg. ♪

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designed to save you money. switch and save up to $400 a year on your wireless bill. plus, get $250 back when you buy an eligible phone. that's simple. easy. awesome. call, click, or visit a store today. ♪ >> inflation remain below

target. i'd like to re-center inflation and inflation expectations back at our 2% target. i think that would be a great outcome. alix: the dove stays dovish. st. louis fed president james bullard stays behind inflation expectations. jp morgan delivers a solid beat from fixed revenue, while equities trading mrs.. -- while equities trading misses. welcome to global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. -- welcome to "bloomberg tuesday, on this october 15. a real push and pull here between the micro and the macro. you get a readthrough on u.s. growth, as well as bank earnings. euro-dollar modestlyea