francine: president trump says the u.s. will increase tariffs on china if a phase one deal falters. also, he says in jay powell is hurting the u.s. economy. in the 3g capital is set to make a bid for a lift unit at the burger king-owner looks to the burger- as king-owner looks to diversify. ♪ welcome to "bloomberg surveillance." these are your markets. the euro stoxx 600 down 0.4%.

president trump talking about trade gave us an insight into the u.s. and china in terms of negotiations. a lot of focus is on what is happening in hong kong with heightened tensions playing their part in a selloff. the u.s. 10 year yield is at 1.1010. euro-dollar at coming up, we speak to a bank chief executive a little bit later on. let's get straight to bloomberg first word news here in london. 3g capital is said to have submitted a bid for an elevator business. that comes as a surprise with 3g having made a name for itself buying food giants. they understand the elevator unit could fetch more than 15 billion euros. they are still debating a minority or majority stake. >> hong kong has announced a

suspension of all schools in the city. this as the security chief warns of unthinkable consequences if violence continues. early commuters packed on to the first trains amidst calls to impede rush-hour traffic. the international energy agency says global oil demand will likely plateau around the year 2030. it says the current growth rate of 1% will hold for the next five years. but they see lower demand growth in the 2030's once the use of oil-based fuels in passenger cars has peaked. in lebanon, the president has sparked public anger by calling on demonstrators to go home. his comments saw a new surge of unrest which claimed the first death. he urged to stop being negative, warning that if protests continue, lebanon could die. protesters reacted across the country, restating demands for the removal of corrupt leaders. new delhi is choking once again. the air quality reading rose above 400 on tuesday, eight times the internationally

accepted safe level. wind is blowing from the northwest have brought smoke from burning fields in nearby states, pressuring the government to find a solution. world health organization data last year showed india had the 10 most polluted cities in the world. global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine? francine: thanks, sebastian. president trump has renewed his assault on the fed, saying policymakers are hurting the economy. speaking at the economic club in new york, he also made the case for negative interest rates, saying the u.s. is at a competitive disadvantage because the fed has failed to follow other central banks. >> we are competing against these other countries nonetheless. the federal reserve does not let us play at that game. it puts us at a competitive

disadvantage to other countries. i did this despite a near record number of rate increases and quantitative tightening by the federal reserve since i won the election. it increases -- eight increases in total, which were far too fast an increase, and to slow a decrease. -- too slow a decrease. many are getting paid when they pay off alone. who has ever heard of such a thing? give me some of that. i want some of that money. our federal reserve does not let us do it. [applause] thank you, thank you. the smart people are clapping. anna: the other big issue -- francine: the other big issue the fed has to contend with is the world trade war.

joining us are our guests. when you speak to any bank chief executive, they say negative rates are killing me and the u.s. has an unfair advantage. does the rhetoric from president trump put pressure on the fed or do they ignore? processing.l trever: i am almost speechless at the banality of this idea that america is at a competitive disadvantage that its economy is so strong it doesn't have to have negative interest rates. the whole room must've been full of people saying, this guy does not understand the very basics of what he is talking about. francine: sick so the fed ignores -- so the fed ignores? trevor: the fed ignores. likeine: it seems to be 2020 elections. u.s. andou look at the

their relation with china, a lot of two and fro, you do this and i do that. the new norm we find is long-term. even if we find short-term resolution to the tariffs, it will be this back and forth between these countries. francine: will we have some kind of resolution? will the chinese economy withstand this two steps backward one step forward? catherine: the long-term situation is simplistically make america great again versus made in china. you have these two economies competing in high-end, value manufacturing sectors. this is not going to change anytime soon. francine: what does it mean for investors and markets? trevor: the important thing is we are insight of the 2020 election. we think we are at the cusp

where nasty trump turns into nice trump as far as the markets are concerned. six months ago, it was almost in his interest to cut up a rough on trade and sheriff's. -- tariffs. a reason they cut was the uncertainty emanating from the white house. he has managed to get rate cuts just when he needs them. we are at the cusp where he starts to cheerlead the stock market. we have had a few treats -- tweets about giving all-time highs as though he is this beneficial grandfather. i think we will see more of that. so i think the phase i trade deal is about trump being able to pivot. francine: what does china do in all of this? the pboc is there. they have not put all the stimulus in place they had a couple of years ago. can they manage the economy? catherine: it is key to manage it.

do-, the word that comes up the most is stability -- a high-frequency search, the where the comes up the most is stability. they are trying to tweak fiscally and monetarily. consumer underpin the and see the cycle turn. we still have to gain this volatility because of the new norm regarding the relationship. francine: let me bring you to my chart. to be go to this -- go to cash in this environment? margins seem to be reversing and falling. trevor: we are almost maximum positive equities. at theiness cycle is right moment when growth is starting to pick up. the housing market is strong, leading indicators are rising. we think it is a positive outlook.

profit margins may have peaked, but that can happen a long time before a recession. what we are looking at is three mini-cycles.les -- each time, you had central banks step in stimulus. we think this expansion will run a bit further. negativeot be too because of the peaking of margins. we are at the moment where if we see dips caused by geopolitical stress, we are likely to buy rather than sell into the selloff. agree?e: do you a lotine: what is likely -- is a pivot away from developed into em, specifically chinese. what is important to remember is the glue growing -- growing

influence of the chinese equity investor. historically, they were very momentum driven. time, especially as receipt reforms to the chinese pension system, we will get focus on the total return strategy. bias of aave the home domestic investor base android think minority shareholders. that is ultimately good for foreign investors. but looking at valuations, chinese versus u.s. equities, because global foot follows are so heavily underweight asia and china, you could see a pivot back towards our region. francine: thank you both for joining us. catherine and trevor both stay with us. in the meantime, these are high pictures of venice the second highest tide ever has hit the city after heavy rains. we were looking at pictures

yesterday with people in wellington boots. coming up, we speak to the san francisco fed president at 7:30 p.m. yucatan. -- u.k. time. this is bloomberg. ♪

francine: economics, finance, politics this is "bloomberg surveillance." let's get more on the markets and how they are being affected. so with us is catherine from fidelity and trevor from royal london asset management.

we were talking about market functions and how the trade war impacts central banks. when will we see a recession? are we going to see a bottoming and a this trend normalization of interest rates in the next two years or is that too late? catherine: that's a tricky question, but definitely we are on a downward trend. central banks are clearly monitoring the space. , thewe look at china policies they are doing, it is to revive domestic sentiment which has faltered because of the headwinds of the relationship as well as debt. it is such a big issue. the costs were so high people were not reinvesting so it needs that cycle to kick in. francine: what are you expecting

in the next couple of months? is there something in the market that will provide good value? trevor: well, i think we are at the point where people are starting to look for guidance. value stocks, industrials are starting to get better guidance. a friend was at a conference and every manufacture said they thought inventories would be rebuilt and they were expecting a pickup. i think that kind of value stock run will probably carry on. but if the economy is firming up, you will get growth sectors like tech doing well. francine: the worry about liquidity? trevor: in what sense? francine: as we saw in the repo of something worry scary markets? trevor: you can always get something happening which can result in a lack of liquidity. a lot of institutions tend to

stop trading to try and leave a gap so we don't have to get involved when markets are thin. generally speaking, i don't think liquidity is bad. if we saw tightening of interest rates, you would start to worry but now we have had easing. it is looking better again. francine: where d.c. opportunity in 2020? catherine: i agree with trevor. value sectors. across the world, level values have not been as attractive the mid 70's. if you have companies where the fundamentals are attractive, going back to my point about the crowded trade, what is going to be the catalyst for a reversion? so catalyst stocks in china are looking attractive and mid-cap names. foreigners have shied away when we saw the almighty rally and dip. both pockets looking interesting.

francine: what do you do with europe? i have had people coming in saying europe can only recover. today, i look at the spanish stocks. trevor: spain has got a special situation with the elections. we are constructive about europe. we are all over european equities in our global funds. european retail sales are among the strongest in the world. sings --ust starting starting to see things like sentiment in germany improve. europe is looking reasonably priced. japan is looking good. the dog that did not bark was drive.es tax i wondering if at some stage we get extra stimulus from china. i take what catherine said on board, they are trying to be micro. but the riots in hong kong are

deftly a sign of this slowdown china has been experiencing. at some point, you wonder if there is extra stimulus coming because of that. francine: catherine, fidelity investment director and trevor greeted from royal london asset management. up next, we talk trade and growth with the oecd secretary-general. that's up shortly. this is bloomberg. ♪

francine: this is "bloomberg surveillance." ratcheting upp is the pressure on china by warning he will potentially raise tariffs if trade talks fail. he said in new york, beijing is desperate to reach an accord with that will only happen if it is good for the u.s.. joining us from the oecd is the secretary-general of the oecd, joining us in paris that you for joining us. what do you see the global economy going through next year? we are not forecasting a recession, but we see slower growth. one year ago, we were forecasting almost 4% growth for 2019 and 2020.

2.9%,e are forecasting meaning we have shaved off more than 1% of the world's growth. that is mostly because of trade tensions because of decisions on tariffs and duties. this trade war and the uncertainty it creates. uncertainty is the greatest enemy of growth because it stifles investment. investment was growing at 5% but now it is barely 1%. trade was at 5.5%, now it is negative. in a very we are serious situation, caused mainly by these uncertainties related to the trade tensions. francine: overall, is confidence improving? with confidence it is a trend that will be here to stay? confidence is like a

roller coaster. one day, it looks like we may have an agreement and then it goes up and the stock market sores -- soars. then there's a statement suggesting the agreement is not so imminent and it goes down like a lead balloon. so it means confidence is very vulnerable, brittle. it is subject to any statement, any comment. ,here are no fundamentals here basically because the fundamentals themselves are not in place and so many things could go wrong. the downside risk is still very high. francine: what could go wrong in europe? are you worried germany is still resisting calls for more fiscal stimulus? the question of europe is really a matter of coordinating

economic policy better, because there is an element of coordination to the european commission. there is the question of the biggest economy, germany, whether it can be more expansionary, more stimulative by going into even the small deficit that is allowed under the german constitution that would involve about 12 billion or something beyond the balanced-budget. a number of is that countries also have room because they are paying less interest on their debt. that creates some room without affecting their fiscal positions. some, like the netherlands, have some room in their fiscal be mildlynd can expansionary without losing control of debt to move in the

right direction. but there are also regulatory issues and issues of finishing what i would call the big market s like energy and telecom, and of course, the banking union. the latest signals from the minister of finance from germany is that germany may consider positively the creation of a system. francine: thank you for joining us. he is the secretary-general of the oecd, joining us at paris. coming up, a chief executive interview. ♪ here, it all starts with a simple...

hello! -hi! how can i help? a data plan for everyone. everyone? everyone. let's send to everyone! [ camera clicking ] wifi up there? -ahhh. sure, why not? how'd he get out?! a camera might figure it out. that was easy! glad i could help. at xfinity, we're here to make life simple. easy. awesome. so come ask, shop, discover at your xfinity store today. francine: substantial threat. president trump says the u.s. will increase tariffs on china.

stocks stumble. the u.s. president also lays into jay powell, and 3g capital is set to make a whopper bid for -- for the lyft unit. it afternoon and good evening if you are watching from asia. i'm francine lacqua. this is "bloomberg surveillance ." we are getting data out of the u.k.. this is inflation from october, that inflation rate falling 1.5%. we were forecasting a 1.6%. falling to 1.6%. apologies for that. let's go to first word news with sebastian. sebastian: president trump is ratcheting up pressure on china saying that he will ratchet up -- he will increase

tariffs if they do not reach a deal. he also said it is hurting the economy by not deploying negative rates. pres. trump: it is going to 15% very soon. i tell this to larry and everybody. if we don't make a deal, we will substantially raise those tariffs. they will be raised very substantially. that is going to be true for other countries that mistreat us, too because we have been mistreated by so many countries. sebastian: the secured issue -- earlier commuters packed onto the first trains to impede rush-hour traffic in a show of anger over police tactics and hong kong. elon musk says tesla will round out its global manufacturing network with a factory in berlin. the electric car boss said the german plant is set in europe, and will build both factories and vehicles.

union leader has named a new chairman. he joined the board in 2015, having previously held the ceo position. the announcement extended the revamp of -- the international energy says global oil demand will laterally plateau around 2030. it says the current growth rate of 1% will hold for the next five years but the iea says low demand growth in the 2013 will happen once the use of auto-based fuels has picked. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am120 countries, sebastian salek, and this is bloomberg. francine: a new target has been outlined for 2019 to 2023. the italian investment bank is planning to distribute as much -- as much asuros

2.5 billion euros. it is also looking at opportunities to speed up growth. i am glad to be joined by alberto nagel, who joins us from milan. thank you for joining us on "bloomberg surveillance. talk to me more about m&a. what are you looking at and what is it for? alberto: good morning, francine. thank you for having us today. plan whered to the we want to have a bigger proportion of revenue in the capital business, so m a day -- our weste can expand management activity in the activity in cid. francine: but how much do you need acquisitions, and is the industry and the sector ready and ripe for consolidation? or is it something you need to

get a better deal or support regulation was the echo support regulation wise? it is quite an important number in terms of growth. we do need m&a to accomplish our can -- the system is changing in italy because, as youy big. the vast majority is -- with italian families that used to keep a lot of -- with the below zero, new product and new service model is needed, and investing in technology, adding advisor, is

the best way to go in this business. but there can be also opportunity in terms of m&a, in particular in distribution, management, a deal to that can be of certain size. target is not there, but it will come in the next 18 months. look at: when you wealth management, is it too much of a competitive market, a competitive segment? because you have so many rivals focusing on wealth management. alberto: i don't think it is too crowded. first of all because of the size and because of the fact that two thirds of the market, of the $4 trillion that i mentioned, is not managed today. so we have plenty of room to service and to serve italian inily in a better way, and

the segment there are only italian players, we do not have a lot of international competitors. market, anda big space for everybody. francine: your shareholding structure has radically changed .ith the exit of unicredit how will that relationship evolve in the future? what has mr. delvecchio told you that he needs from medial bangka -- from mediobanca. credibility ofe it was not a proposition that was valued. that we have added in order means that the bank is doing well. in doing the plan, we speak to

our conviction that there is a 70% return in three years of our stock. so we stick to these kinds of facts, but we are open to listening to any kind of session of the shareholder and to discuss the future of the bank. francine: he has been pretty critical in the past. have you been in touch with him? are you more on the same page now? alberto: as i said, we go on with our strategy. isthink that our strategy , and whyg shareholders we think it is something every investor needs. francine: what is your take on the investment bank of medial mediobanca?

are you still bullish on investment banking in europe? alberto: investment banking in general, you need to be hawkish. you really need to right size your model and be present where you can make money and have return. so this is possible if you keep under control your cost base and your cost of risk. the level and the quality of assets in the bank. mediobanca, the approach in investment banking -- it is proving to be the right one, so we will go along with the strategy we have had in the last few years, expanding into m&a, large, mid-cap markets, possibly doing the transactions. thispproach of entrepreneurial firm is the same

of mediobanca. think financial boutiques will outperform their bigger rivals as the european banking industry is under pressure? yes, i think the talents that you sometimes find are of better quality compared to some brackets. hire more of the talents that are there. francine: you had a pretty generous dividend appointment yesterday, saying that you are promising writing dividends and growing wealth management. what do you need for the european economy to do to deliver your strategy echo alberto: we don't -- your strategy? alberto: we don't need much. it is not much geared to gdp expansion or contraction because

we have a mix of businesslike consumer, and weight rely on steady cash flow that is coming. onare not match gear development of gdp, gdp or is going down, we will have a bit less of a management fee or a banking fee in terms of investment banking fee. the rest of the group, as i said, we feel the gap because it is cyclical. for ane: tha nagel, joining us exclusive conversation from milan. this is a huge company and gives us a good idea of where tensions with china is going if you look at the third quarter income, $23.8 billion -- 23.8

billion you on. this city has been hit by the highest tide in 50 years. the mayor says he will declare a state of emergency. he says the tide, which reached 187 centimeters, have a lasting impact on the city. we will have plenty more from the markets from venice and the trade war. this is bloomberg. ♪

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

let's get to the bloomberg business with sebastian salek. elon musk says tesla will have a factory in berlin. the company has relied on a single facility in california. to clean aanting chinese factory near shanghai. submitted ton elevated business. -- move comes as a surprise bloomberg understands the elevator unit could fetch more than 15 billion euros. allison has been named as a new chairman of a union. position.p -- ceo the announcement extends a -- local meeting hong kong say alibaba has one approval to -- the south china

morning post says hk exchanges and clearing has given the green light to the move. alibaba is proceeding with what could be the largest stock -- a pilot project is ending where it sold its product on the worksite to the company says the decision is part of the focus on more direct relations with consumers, and investing with other retailers and platforms peered marquee as they will continue to use amazon web services. and that is the bloomberg business flash. back to you. francine: coming up, looking for investors will be looking for confirmation that he sees the economy on solid of enough growth. we will bring you the very latest. this is bloomberg.

francine: economics, finance,

politics. this is "bloomberg surveillance ." here is what you should be watching out for today. at 2:30 p.m. london time, we get u.s. cpi data. jerome powell speaks in front of congress or this evening, turkish president erdogan will meet with president trump your there is no denying that when it comes to business the future relies on artificial intelligence. ai plays a role in most businesses, from banking, to manufacturing, health care, and retail. joining me is the chief software provider c3. ai. thank you for joining us on "bloomberg surveillance peter: looking at the landscape for ai and europe, how does it compare to the u.s. and china? >> i think the u.s. and europe are progressing at equal rates at applying ai at massive scale. energy,arly with

manufacturing, financial services, oil and gas. this is a rapidly growing market , and we do not do business in china, but we do a very large amount of business with companies in europe, like the leaders in applying ai, energy efficiency, clean energy, smart cities, climate change, with organizations like -- and now in kosherg, led by isabel in paris, and then in amsterdam. so i think these are three global leaders in ai that are changing everything about the energy equation and the climate equation. francine: when you look at the strict privacy rules, is it a setback when building ai tools? privacy is an and very --

is a very important issue when we get into ai, and i think europe is leading the charge there. they are ahead of the united states, and of course way ahead of china, where i don't think they have any respect for privacy at all. seeing ins that we are think are very innovative, they are very important. they are a first step. but i think these issues related to personal privacy and data security are critically important going forward, and government needs to play a role in regulating these problems. thecine: how do you see digital transformation changing a lot of the industries in the next few years? i know you are a very well-known author on this topic. industry that still

has to be disrupted in ways that we cannot even imagine at the moment? at the we look information technology industry at large, it has grown to about a $50 billion business in 1980, to $3.5 trillion business today globally. and it will be a trillion dollars or $9 trillion in five years -- it will be $8 trillion or $9 trillion in 10 years. it is about the application of a -- of microsoft seppi ws, big data, and this new phenomenon called artificial intelligence, where we are going to change everything. about the way we design and manufacture products and services, provide government services, and bring enormous cost efficiency and social benefit to virtually every value transportation, aerospace, communications, oil and gas, utilities, what have

you. francine: what does that mean for the displaced workers? whose job is it to retrain those workers and make sure they still have a livelihood once ai takes over? tom: well, i think that jobs will change just like with the introduction of every technology, when we moved from the horse and buggy to the automobile, when we moved from the preindustrial era to the -- you know, to the industrial revolution or at some jobs were eliminated, but 100 times more jobs were created. i think it is going to be the same thing with agile transformation. some jobs will change. every job, 100r new jobs will be created. tom siebel, thank you so much for joining us. now let's bring an exclusive interview.

we caught up with the unicredit chief executive yesterday. i started by asking him about his banking unit in europe. >> that is a very important question. actually, we need to define what is a banking union. we need to complete a banking union, and some people would say we need to have a european deposition scheme. it is a bit technical. for me, a banking union means we are a banking sector, which is seen by the european sector. the second example, in the u.s., when you speak to a u.s. investor, you are going to say i will invest in a u.s. bank. speaking to the same investor, what he is going to say, invest in a german bank, and italian bank, for me, the banking union, it is about making sure we have a strong european banking sector. why?

because we want to extract capital for investors to buy into -- to give banks the resources to work in the economy. in europe, it is 70% of the jobs. it is important that the banks -- francine: but if you don't need this deposits came, if you create a european trend, you have that bank that could drive in the u.s. >> the banking market in europe is more fragmented than in the u.s. it is smaller than jp morgan. so of course, there is an impact. why? the u.s. market is one single market. with no borders basically and the same language and the same rule. in europe it is a bit different. there are 27 markets in the euro zone, so what is important is to make sure that we have more

unification of rules and that the banks look the same when you look at them from the outside. it is an important parameter but not sufficient when we make sure that the banking sector is completely uniform. francine: that was the unicredit chief executive. you can catch the full interview in an upcoming episode of "leaders with lacqua." the executive director of the iea will talk about people and where they see that coming. that will be coming up. this is bloomberg. ♪ everyone uses their phone differently.

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switch and save up to four hundred dollars a year on your wireless bill. and save even more when you bring your own phone and upgraded your network. that's simple, easy, awesome. click, call or visit a store today. francine: a substantial threat. president trump says the u.s.

will increase tariffs on china. show me the money. the u.s. president lays into jay powell, saying he is hurting the u.s. economy by not using negative rates. good morning, good afternoon, and good evening, everyone. this is "bloomberg surveillance ." i am francine lacqua in london. tom keene is in new york. we talk about european banks and consolidation. we focus on the jay powell testimony. only testimony on the hill. america's focuses today on the hearings of these her on capitol hill on the impeachment of a president. francine: first let's get straight to the blumberg first word news in london with leigh-ann gerrans. leigh-ann: a warning today from hong kong officials and chinese

state media. they both say there will be consequences if violence continues. protest disrupted traffic across the city for a third straight day, and for the first time the government is now closing public schools. americans get their first look at witness testimony against president trump. that is also today are the house intelligence committee begins public hearings in the impeachment inquiry. diplomat ine ukraine, william taylor, tells lawmakers that the administration withheld aid to ukraine over political investigations. wall street bond traders will be watching fed chairman jerome powell in the impeachment hearings today. powell's appearance before moreess has joined -- has potential to move the markets. investors are looking for confirmation that powell plans to pull interest rate hikes, and that is next month. noble greenhouse kaz pollution -- gas pollution rose for the second year in a row. according to the international

energy agency, that puts the world on track for further 2040.ses through the iea says the solution is for governments to take radical action. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more i am120 countries, leigh-ann gerrans. this is bloomberg. tom: equities, bonds, currencies, commodities. a five-week lift in the market since october. futures -15, dow futures negative 1.15. the curve flattening and yields in as well. the vix at a 12 handle. we go to 13.44. again, the curve flattening, three months compared to the 10-year spread. i put the dollar up there because i did not know what else to put up. francine: i put the dollar up

there, too. but i wanted to. you look at the stoxx sliding. investors figuring out what happens next in trade, so they are trying to digest donald trump's latest position on trade. trevor he -- treasury yields dropping. most government bonds in europe are up with u.s. notes. president trump is ratcheting up pressure on china. economic -- at the economic club of new york, he says beijing is desperate to reach an accord, but that will only happen if it is good for the u.s. the president did say talks are progressing well, but that he would raise tariffs on any country causing problems for the u.s. morgan us now is the jp share of global research. thank you both for joining us. trade concerns are still there. they do not seem to be budging.

it does not even look like we could get a deal. if we get a phase i deal, what happens to the economy? is it already placed in? economic't take our forecast off a phase one deal. i think we will get a phase one deal because i don't think trump wants a tariff increase right before the holiday shopping season. i think this will be delayed. you will not get rid of the terror threat, but the question is, will they rollback the -- of the tariff threat, but the question is, will they rollback the tariffs? francine: it is quite difficult to call. >> i think it is. that we do not expect a rollback either. that is probably more or less what the market is discounting. the chinesecan provide leadership here, or are they in a reactive mode to the president? >> i don't think they are in a

reactive mode. they have been holding off on the rhetoric. they are prepared that this is going in for the long haul. it is a great power struggle, not just it out -- not just about a set of terrace. both sides want to do something that is mutually beneficial for them, so it is tit-for-tat. goodswill purchase more if they see there is a delay in tariffs. tom: i got a chart of the year, joyce. they be we will toss it up later. it is a five-standard deviation move on customs collections in the united states. what is wrong with the president backing it off to two or three standard deviations? that is still an abrupt change in policy, isn't it? tariffst is, but the have worked, brought people to the table to discuss issues that had not been making progress for a long period of time. i think he is looking at this and saying that the market has not actually moved that much.

it continues to move higher, even as these tariffs have been in place. i think looking at the larger agenda beyond the tariffs as well. francine: what is the market worried about? is it all trade? is it because the central bank policy could be a mistake? >> it is interesting. the markets moved higher even as you have had these tariffs. but at the same time you have by thee cuts by the fed, much morel -- it is limited, and therefore i think it makes these talks even more crucial. francine: we also had president trump talking at length about negative rates and how the u.s. economy would benefit from negative rates. is there any benefit for any part in the u.s. that goes negative? joyce: you basically have a supplied -- a supply-side shock. i think they are hitting the

limits with monetary policy. you still have 23 central banks that are easing in total, 70% of the global economy. but we are facing a supplied shy -- a supply side shock that is basically about protectionism. francine: how many clients want to go? >> there is an awful lot of uncertainty. cautiouslyeen positioned for most of the year. ,hether they are fully invested going into more of a defensive style until relatively recently. if they have more cash, etc., if there ceos have not done as much investment as they would have done. all of these things have created uncertainty. i totally agree it is a shock. it is one that has materialized over a period of time. i am unconvinced that negative rates would ease the situation further from here. tom: sharon, with a set of challenges, i will call them geo

economic challenges, do you raise your cash level? : what i raise my cash level? i think at the moment there is a lot of incentive on both sides to draw back a little bit, not necessarily to rollback completely the terrace but not to escalate further from here. i think the growth implications are becoming a little bit clearer. we have had some smoothing. there is limited opportunity from here. i think there are incentives on both sides to pull that back. if i am looking from here, probably not a huge increase in cash. i already think there is peak uncertainty at the moment and that could come down a little bit. tom: joyce, are equities just a wonderful competition for where yields are now? with your call, do you just assume a longer for lower environment that supports equities? ofce: we have put a charge 3200 on the equity market back in the summer, the middle of 2020, and we stick about that

right now. we have this disconnect, that top down tings are looking good but bottoms up it is not looking good with respect to sentiment and cap and spending. i thinkourth quarter, you are still going to see negative prints come out, and i think i the first quarter of next year, you are getting to the peak period of a lot of the growth forecasts, the downward forecast. tom: we will continue. joyce chang with us from jp morgan, and sharon bell of goldman sachs. it will be a most interesting day, particularly in washington. one part of that is the discussion of chairman powell before the joint it and then our kathleen hays, in conversation with the president of the san francisco fed, mary daly. that is always most interesting. then francine and i will put in our floaty's because we are going to venice. francine: the mayor of venice is saying that he would declare a

state of emergency as the second highest tide ever recorded in the italian city, following heavy rains. looking at st. mark's basilica in venice, you see incredible pictures we have never seen before, the tide reaching 100 87 centimeters. the mayor saying it will have a lasting impact on the city. ♪

>> corporate profitability is not improving, and the rates are extending every day that the s&p goes up a little bit, you are moving further away from the trend. >> so what are you buying?

>> nothing. cash and gold. good luck. tom: friday afternoon, get out of the market, get out of market, get out of the market. we will now rip up the script. we can do that with joyce p -- with joyce chang. and sharon bell. i want to get philosophical because the guy that we just heard his classic doom and gloom. i am in gold, not in the market. anddo you day to day goldman sachs stay committed to the equity market? sharon: in some ways it has been doom and gloom this year. economic growth has deteriorated through the year. globally things come in weaker than expected. yet the equity markets are doing ok. there are two things going on here. we don't have the kind of economic embellishments -- imbalances. the other thing is, equity compared to other asset classes

offer you a reasonably good yield. are paying aeurope reasonable dividend. that is attractive when you have zero on bonds. tom: joyce, the heart of the matter is mr. to good represents a huge body of the public that over a great bull market over the chart that i showed yesterday of a giant bull market, i signal it off of 1942, folks. what i call the guadalcanal low. the bottom line is there is always somebody out there saying get out of joyce chang's world. confidencestay with in the western capitalistic system. we have a chart that you would love that shows the armageddonists have lost consum. we have hfects. the earnings are on the upside now. it is little bit.

it was a surprise compared to expectations. that is in the face of all the central bank easing. 70% of the global economy easing, you have been able to keep a global market rally there. the question is whether you will see growth numbers come back more strongly, and whether that corporate profitability, margin marginssure -- compression will come back. francine: thank you for bringing this to my attention. looking at corporate margins, they have picked an are following. what does that tell you about the health of america? -- have peaked and are falling. what does that tell you about the health of america? joyce: those are issues that are probably out further, just given the amount of easing that has been into place, and the fact that you had this figure and eyes global downturn that is probably reaching its peak right now but in the first quarter

could have stabilized. will geopolitical risks come back. there will be more risks associated with the 2020 u.s. elections for the markets to focus on. i do not think it will be linear here. will it be the same in europe? sharon: i don't think we have the same focus on elections in europe. are phenomenal margins. the tech companies in particular have seen those margins increase a lot in these years, and europe does not have that kind of tech exposure. you are not at full employment in europe with higher wage pressure. having said that, if the u.s. suffers, the u.s. equity markets come down on the basis of highways, lower margins, all of that, then europe would suffer as well. tom: i am in a perky mood today. let's get sharon bell in

trouble. is the aramco dividend an equivalent to a european oil company dividend? is the dividend as proposed anything like the royal dutch youl shall dividend that live on every 90 days? i agree in some ways that europe does live a lot on its dividend. if i look back at 10, 15 years, most of the returns you get have been dividends. tom: it is stunning. sharon: absolutely, it is stunning. in the u.s., a lot of the returns are buybacks. it is kind of cash return for investors from ceo's, from the corporate's. they deliver that cash delivery year in and year out. in europe, that is one thing i do regard as extremely important to the market. francine: thank you both. joyce chang and sharon bell, both staying with us. coming up, an exquisite conversation with unicredit's

chief executive. tom: most interesting as well. a good conversation on the equity markets. on the dash to year end we are in that mood. wednesday evening into thursday, hong kong, it has been an extraordinary stream of news out of hong kong. most of it centered on a chinese university of hong kong. this is bloomberg. stay with us. ♪

leigh-ann: this is "bloomberg surveillance," i'm leigh-ann gerrans spirit tesla will build an electric car factory not far from the birthplace of the internal combustion engine. elon musk says he will be setting up shop in berlin. the facility will make both cars and factories. it will not be running in till 2021. 3g capital is eyeing a new frontier. bloomberg has learned it is among those who have submitted -- for elevator units per the best known foris buying food giants such as kraft and burger king. that is your bloomberg business flash. francine: we spoke with the executive,hief jean-pierre mustier.

to makeis important is sure that we have more unification of rules and that the banks look the same when you look at the bank from the outside. parameter buttant not sufficient to make sure that the banking sector is completely uniform. francine: we are back with joyce chang of j.p. morgan and sharon bell of goldman sachs. sharon, when you look at financial stocks across the board in europe, do they need consolidation? what needs to happen for that to take hold? sharon: i think they would need those things if they want to be more profitable and to perform well. this would be transformational in europe if it were to happen. buts,are lots of ifs and but there was progress recently on paper, the first time that germany has acknowledged what criteria they would need to consider. a banking unit across europe. it would take time to come through, but absolutely i think

it would be superpowerful. it would make cross-border merge banks, european banks, profitable. francine: i don't know if it is banks going back to their primary function, which is a transmission mechanism, or if we are looking at ice being profitable in europe. joyce: there are a number of things. sharon has mentioned them, but there is also the smaller banks, how you deal with the npl's. searching-- there is going on about this topic. i think growth has come down so much, there are more concerns about banks' profitability. tom: the chief executive -- francine: the chief executive was saying that profits are higher and we need that to happen before we get a real risk consolidation. sharon: well, maybe. i am not sure i completely agree with that because i do think you need to see come as joyce was

saying, a cleaning about -- a cleaning up of the balance sheets european banks. i think some cleanup, but obviously in some ways, cheaper banks are more attractive from a consolidation perspective. i think it will create value, it is more a case of when it happens. and in what terms. i do think one of the big catalysts it is what we have been talking about come interest rates going negative in europe. quite punitive and painful for the banks. we know it is difficult for them to go any lower and to stimulate the economy. this could be big for the banks and profitability, and for the whole of europe. thatdo you assume, joyce, we do not get another leg down an important interest rates? is this it, or could they drive -- in lower interest rates? is this it, or could they drive

lower? banks, theyentral are easing lower. of ayou have had more slowdown, as well. i think you are kidding things on the developed country side. we could go maybe another 10 basis points by the ecb, but there is not much more we can do. you have the monetary union or a -- do you need a fun -- do you need a monetary union or a fiscal union? tom: stay with us in london. in new york, this is bloomberg. good morning. ♪ whether you're out here on lte.

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xfinity mobile. click, call or visit a store today. francine: this is bloomberg "surveillance. and chineseficials state media warn of consequences as a third straight day of

protests disrupted traffic across the city. they will close public schools. joining us from hong kong is ian marlowe. wast getting worse than it and what happens next? a foreigner a far, it is hard to see how this ends. iain: we have seen unprecedented levels of violence since last friday when a student passed away after falling from a parking garage with police dispersal operations nearby. and aty has been on edge lot of memorials and protests have gone out of hand. since mondayt days where a protester was shot monday morning, we have seen disruptions in the commute, lunchtime rallies with tear gas being shot off in front of

luxury stores, pretty dramatic workers of office workers participating in protests. it is getting worse. we have campuses closing down. scenesere some dramatic of police trying to storm into the chinese university of hong kong. some protesters using slingshots and throwing molotov cocktails at cops who were drenching the campus in teargas. away,henzhen is 16 miles maybe 30, i can't remember now. there has got to be some form of response by chinese military at some point. are we near that point? iain: it is hard to say. definitely in recent days, it has looked like the police have been caught off guard, caught unawares, or where there is escalation.

china from the beginning has been pushing this narrative that the hong kong police have their full support, and the government has said they do not need support from the mainland. there was an answer to a lawmaker's question and parliament that they are looking at supplementing the police force. tom: may i respectfully suggest that that is the great mystery for so many in america, the relationship of the different with thef hong kong chinese mainland police. is there a linkage? iain: not really. there is a people's liberation army garrison stationed in hong kong, but those military officers have not been involved in the protests. there are the people's armed police, the mainland equivalent of a police force that looks at domestic disturbances, public

order, and that sort of thing. experts have said it would be less dramatic to have the people's liberation army garrison in hong kong come out and start helping with protests rather than mainland police officers. at the moment, neither of those have been fully considered. tom: day after day, extraordinary. thank you for your coverage from bloomberg news and bloomberg media. here is leigh-ann gerrans. leigh-anne: good morning. impeachment inquiry of president trump goes public today. two witnesses will answer questions. democrats and republicans will make vastly different arguments. democrats say republicans -- the president pressured ukraine and republicans say it is just an attempt to take down the president.

hillary clinton will not rule out a third race for the white house. she says she has no plans to run now, but told the bbcin australa reprieve from bushfires that have threatened the largest city. battlingers are still more than 70 blazes in australia's eastern seaboard. 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 leigh-ann gerrans. this is bloomberg. tom: thank you so much. it will be most interesting today to listen to chairman powell. yesterday as predicted, the president of the united states addressed the fed at the economic club of new york. >> we are competing against

these other countries, and the federal reserve does not let us play at that game. it puts us at a competitive disadvantage to other countries. i did this despite a near record number of rate increases and quantitative tightening by the federal reserve since i won the election, eight increases in total which in my opinion were far too fast and increase and far too slow a decrease. now, many are getting paid when they pay off their loan, known as negative interest. who heard of such a thing? give me such of -- some of that. give me some of that money. our federal reserve does not let us do it. [applause] thank you. the smart people are clapping. microeconomics and

macro economics of the president of the united states. we will drive forward this conversation. perhaps chairman powell will respond, i doubt it. respond, i doubt it. michael mckee at bloomberg economics. right now, a chart with joyce chang and sharon bell. ,his is an extraordinary chart the inflation-adjusted federal funds target rate. we have rolled back over. the yellow circle would be vice-chairman stanley fischer in an ultra accommodative moment and we are halfway back. how accommodative are we as we listen to the chairman? joyce: with the interest rate cuts and monetary policy when the threat is global financial stability, that is not where we are at. we are talking about is a -- confidencentent --

and sentiment. we are definitely in an environment that is lower for longer. there are concerns that the growth story and uncertainty and the geopolitical ripple will still be with us even if we see a reprieve on phase one. i don't think it will address the underlying concerns. ,om: bring up the chart again and this is the inflation-adjusted fed funds target rate. many would say that means buy and own equities. can you suggest lower for longer also means an underpinning to european equities? sharon: for sure. beencuts have genuinely helpful. ,conomies have weakened earnings estimates have been

coming down. there have been lots of geopolitical tensions and the trade war risks. they have been housed and offset by the easing of policy from the fed and others. that has been helpful. whether that will be helpful from here, i am more doubtful about. i am not surprised central banks want to pause for a period of time. let's see the results in terms of growth. ateconomy like the u.s. close to full employment, dangerous to cut rates. francine: what level do european equities need? sharon: it is a bit like interest rates. the euro has fallen this year versus the dollar and has not helped european earnings. politicalrs is the situation globally, more stability, less risk, more

confidence in the trade environment, those things will help. those are the things that are needed to induce better earnings growth. francine: what will happen in europe? will we get to cyclical recovery because it cannot get worse, or can it? joyce: i don't know if it can get much worse but it is not getting better. germany is half a percent growth this year and next year half a because they.4 don't have as many holidays. with the euro continuing to be an issuing currency, the dollar the investing currency, the focus will be on what is the growth outlook for major european economies like germany and italy? herei look at the movement and all that we have seen on

monetary policy. are we working on a court theory theory,hey make -- core or are they making it up as they go along? will see aink you rotation in the debate and 2020 to fiscal policy. you are hitting the limits with monetary policy. you could see more easing from emerging market central banks. there is a saying in china that when two elephants fight, the grass suffers. 86% of the german economy is trade and you have seen fallout in latin america which is commodity dependent. you will see the u.s.-china relationship being the key one the global market and economy focuses on. tom: a headline out of hong kong, not on violence but on the limitation of education. the chinese university of hong

kong since 1963 has been an ,mportant academic institution greatly affiliated with yale university in america. the chinese university of hong kong will end their semester early. this is bloomberg. ♪

♪ this as bloomberg "surveillance," tom and francine from london and new york. the world energy agency says there are deep disparities in the energy system and global oil demands are said to plateau

around 2030 as opec plus continues further cuts. saudi aramco is said to be the biggest ipo ever. ,e are joined by stuart wallace and still with us is joyce chang of jp morgan. of the saudi aramco prospectus that peaks 2035. areart: very few people predicting oil growth demand will keep going forever but it is somewhere in the 2050 range, probably bunched up around 2040. francine: cannot change quickly? stewart: quite rapidly. fore was not good news anyone in the report as far as but demandising,

will peak soon and renewables is not growing fast enough. all of that suggests there will be increased pressure for people to hit their paris climate targets, and you will have to be a movement in renewables. tom: does the vector of oil demand affect aramco at all, or are they at the margin? stuart: no, very much central. if you are an investor looking at aramco, if you are thinking long term, this has to be a big consideration. the saudi's have always said the last barrel of oil will certainly been -- be pumped on their land. in a scenario when you are part of opec and having to do most of the heavy lifting to keep that organization afloat, and on the other hand trying to generate enough cash to keep the

dividends for your investors, you find yourself in a difficult position. tom: the hydrocarbon view of jp morgan? really atare looking what happens at the opec meeting. thenoose bought -- news by saudi minister could put -- have we iraq and seen a peak in u.s. shale production? as we get more concerns on the environment and consolidation in that industry, these are some of the things we have been looking out with respect to the outlook for energy. francine: what does peak demand for oil mean for the economy? is it displaced workers? are we able to measure this transformational shift in our economy? joyce: the u.s. had the largest increase in energy production of

any single country of any single year, so i do not think that is a sustainable trend. see moreprobably consolidation of smaller players and environmental considerations and regulation will come into play as well. there have been a couple of things that have been surprising. the geopolitical risk has not led to big spikes in oil prices that we have historically seen. the other one is you have seen the u.s. liquefied national -- natural gas, the non-shale taking a role that makes them comfortable easing sanctions. francine: do you see peak oil differently and does the election in 2020 matter? stuart: yes on both counts. in terms of the energy mess -- makes, they are at a turning point. there are global concerns that

there were not 20 and 30 years ago. that is number one. in terms of the election, enormously important. if you are china and relying on the rest of the world to supply just about everything you tradee, trade routes and wars and sanctions are in are mostly important to you. thankne: stuart wallace, you, and we will be back with joyce chang. in the next hour, we speak with the iea executive director. that is coming up in about 40 minutes from now. tom: venice, it is extraordinary today. these images are looking out andnd to the adriatic sea there is six inches of romantic water in the winter. it is more like three feet. , i images we had before

believe these are from costello to the last as you look out from saint marcos square. lower, 10be a little inches, a foot and a half, floods of a record level. this is bloomberg. ♪

♪ is bloombergis "surveillance." i am leanne garros. it is all over between nike and amazon. they will quit selling clothing and sneakers on the amazon of the, after the hiring former chief executive officer, signaling the company is going more aggressively after e-commerce sales. apple plans to introduce a macbook pro laptop with the largest screen and revamped keyboard that could happy as early as today. it is the first update since it

was redesigned three years ago. the price is expected to be about the same, $2400. tom: i am so glad you did the macbook pro. this is more interesting than the iphone. the macbook pro has been a disaster. keyboard has been their biggest train wreck in years and i guess they will turn it around today. your now, you have got favorite research piece of the summer, it may be your favorite book. mine was talking about the migration to lower interest rates and negative rates. topping that was joyce chang at jp morgan with a call on chinese growth with an extrapolation well below 6%. give us the why of that. how does china get down to shockingly low and inappropriate

economic growth? joyce: over the next decade, we see china going to about 4.5% , twoh, materially lower percentage points lower from last year. every 1% off of china's growth takes about .4% off of global growth. what are the constraints? there are japanese asian aspects, a high debt burden. you are running a double-digit fiscal deficit including government financing vehicles. their current credit growth, 70% is used to pay the existing debt service and that points to interest rates that have to go lower. growth is going lower as you have had the peak of the labor force. you have the need to reform the state owned enterprises. i know you took that one

course in macro economics where you had to look at the malleability and fungibility of the isl m function. functiona have an islm to work with if they see growth come down? joyce: china has a lot of things. they have more time. they have the capital controls, a record level of savings compared to other countries at the corporate and household level, and they own the banking system. there are a lot of things they can do to manage the system. trade, it ist the the drag of the state owned enterprises. francine: what does below 6% growth mean for china -- for the rest of the world? joyce: europe has the most open economy, germany in particular on trade. this is where we see germany looking at growth that is sub 1%

next year. you have the emerging markets hit by a slowdown in china. if you look at latin america where we have had protests and unrest, it is pretty much 1-1, everyone percentage decline is one -- every one percentage decline is 1% off in latin america. francine: joining us will be michael shaoul. we will look at the markets and some of the dollar dynamics. we have not talked about brexit yet. that is surprising. this is bloomberg. ♪

♪ this morning, after a five-week surge in stocks, a pause. there is a mystery to the outcome of the trade war.

will tariffs be removed? chairman powell will take questions on the hill. democrats and republicans will ask separate questions at impeachment hearings. erdogan and trump, simply meeting. this is bloomberg "surveillance." francine lacqua from london. we have to be moved by the day after day sense of the protests in hong kong. francine: schools in hong kong shut for the first time as the protest continues. the once again feels like second straight week. we have two people in critical condition and the chinese state media have warned of consequences if the violence continues. traffic see the stopped , indicating what we have heard from our team in hong kong about the inconvenience for people

going about their tasks. the chinese university in hong kong has ended their semester. leigh-ann: a warning today from hong kong officials and chinese state media. they say there will be consequences if violence continues. protests interrupted traffic across the city for the third day and for the first time, the government is closing public schools. americans get a first look at witness testimony against president trump today. the house intelligence committee begins public hearings in the impeachment inquiry. first up, william taylor. wall street bond traders will be watching fed chairman jerome powell and the impeachment hearings today, but powell's appearance probably has more potential to move the markets.

investors are looking for confirmation powell plans to pause interest rate hikes next month. gases rose forse a second year in arroyo. according to the international energy agency, that puts the world on track for further increases through 2040. governments the needs to take radical action. 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 leigh-ann gerrans. this is bloomberg. tom: equities, bonds, currencies, commodities. we have a straight up move of early october, five weeks, and today one of those pauses, a correlated pause with yield spreads as well. the vix out to 13.36. yen strength. francine: you look at u.s.

equity futures, they are retreating. also retreating, investors trying to figure out what president trump's comments on trade mean, what happens in hong kong, and what the unrest means. euro-dollar,at 1.1013. florida of clearwater -- clearwater, florida, 14,000 employees, we will have much more on this, but within the presser that is coming out, the tech data will be allowed to solicit alternative acquisition deposes. let me show the outlook off of chairman powell. these rate cuts have really bought the inflation adjusted fed funds target rate halfway back to stan fischer.

halfway back to an era of ultra accommodative. joining us in washington, kevin cirilli. we have eight things to talk about, but i must go to the meeting of mr. trump and mr. erdogan. the editorial post of the board said the only one who wants this meeting is mr. trump. is that on the edge of true? kevin: i think it is. they are similar in their rhetorical approaches on how they communicate, no doubt this will be an opportunity for the president to react in real time to the impeachment hearings. this editorial in "the washington post," these are some of the many crosscurrents between putin, erdogan, and trump. the decline of our efforts, turkey's wish to play a more

prominent role. askey will send back those missiles.00 russian i guess mr. erdogan is playing to the home divided audience. who is president trump playing to this afternoon? kevin: senator lindsey graham. he has to assure the hawks on capitol hill like lindsey graham and marco rubio that he has a plan, that the trump doctrine is working, and there must be an opportunity for them to continue forward. no doubt, the state department is under intense scrutiny and the backdrop to all of this is that these hearings begin on capitol hill in a few hours. francine: overall, do people in the republican party just focus on the impeachment or do they

push back against what president trump said on negative rates? kevin: that is a great question. find anyt been able to republicans aggressively hitting the president or breaking with the president as it relates to impeachment. as it relates to the economic policies, that is a different story. with regard to these impeachment hearings, the president plans to watch several parts of it. ,he white house has set up tapping into a top treasury department individual who ushered in the proposals regarding the tax issues. he will be working to set up the response for the white house. tom: an eventful day in washington. beginning our year ahead , we stronger with

michael shaoul. he writes a cute lee detailed detailedays -- cutely notes, always on the terminal. i want to get to the china salinity in a moment, but i want to start with the great debate of, do i stay in u.s. equities or can i finally go international? some people are suggesting whispers of shift where i can finally have a more international exposure. do you agree? michael: i do. it looks pretty good and it is still well below where it was at beginning of 2018. this is a persico rotation. of cyclical rotations of the s&p but has helped other indexes. francine: what do you see in corporate processes -- profits

and what does that mean for margins? michael: corporate profits did not get worse this quarter and that was a big surprise. people were looking hard at corporate earnings for evidence we were teetering into a global recession. what you did see is corporate guidance is beginning to shift. this is the first quarter in three or four that corporate guidance was not much lower looking ahead. i am pretty bullish about cyclical earnings in the u.s. and outside. we have reached a turning point. tom: much more to talk about, michael shaoul, a really sophisticated note on the financial construction of the chinese banking and monetary system. this morning, chairman powell, michael mckee leading our coverage, carl riccadonna will stop by as well. we finished strong with mary daly and the san francisco fed.

a conversation. this is bloomberg. ♪

looking at live pictures of venice. venice is suffering its second-highest tide on record, threatening its fragile lagoon and renaissance buildings. we are looking at pictures of

inside one of these palaces. to declares prepared a state of emergency and says climate change is menacing the city. wednesday and thursday, very high tide and on friday, venice, exceptionally high. these are extraordinary images of record floods in venice. michael shaoul with us right now. joining us, alicia levine as well. withyou changed your view this equity rally? have you adjusted from d ny mellon from an october 2 a yes, we have.? lookingw time to start

globally for equity exposure. if you look at european equities and emerging-market equities, the valuations are lower than in the u.s. all the capital came to the u.s. over the last several years and it is time to look locally to the extent that there is any stabilization in the fundamental outlook. tom: what kind of equities are best risk reward? do you want to buy the big orinance in the philippines be more aggressive and find something less well-known? michael: in my view, these turning points, you want to go to where the first money will go. when large institutions sit down and say, we don't own much outside of the u.s., we should own something, you will see index driven flows. whether they do the ms ci level or different indexes, japan ends

up positioned quite well if this rotation has legs. it has an index with a lot of global trade components. i would start with the nikkei and broaden out. francine: where do you see value? a lot of people are saying we should go to cash. alicia: we have to keep the risk box in the box. ae world will always be dangerous place so geopolitical risk feels heightened. if you look at the u.k. and equity flows out of the u.k., there has been a massive outflow for three years since the brexit vote. it is an interesting time to express optimism in the u.k. francine: brave. alicia: but you have to be brave when it has been undervalued and the outflows are so extreme. you see capital moving back into the pound but not the equity

market. europe as well has been a place of pessimism and where investors felt comfortable avoiding. this is the place to go. ,0 year annualized returns emerging markets have only returned 4.6% over the last 10 years. 13.5%.u.s., it is if you think about that gap in valuation, it feels like a time to shift. francine: this is on the premise that we do not have a no deal brexit? the odds have been diminished but not taken away. outcomes are on the table because you could have a change of control with the election. any certainty at all would be beneficial for assets, because the fallout in the u.k. is because of the uncertainty and no one knows where it is going. withmichael shaoul had fun

edward hyman yesterday, busting his chops. you mentioned for china, there monetary dynamics. tell us about the global dynamics of money. is it true we are up to our eyeballs in money and one of the driving forces is it has to find a warm place? in 2014, 2015,e and 2016, and you had quite a big withdrawal of money. the federal reserve voluntarily shrank its balance sheet and china had a shrinkage. that is why 2018 started to be a difficult time in cyclical equities. we have had a big switch around since the summer. the chinese have stabilized the balance sheet, done monetary easing, and the big turning point is the fed realizing the balance sheet was too small and

the money markets were starting to require additional funding. tom: the stock market looks out from that. the future andt present rate cuts? michael: it is more about the balance sheet. i think the fed is on hold. it will not do more in terms of interest rates, but we are back in a world of an expanding fed balance sheet. it reminds me of the beginning of qe2 in 2010. you had a very powerful six month period in global equities. francine: when you look at global equities, is there something else that seems undervalued apart from the u.k.? in generallicals have taken it on the chin for the last 18 months. if you look at their performance globally, the trade war started march 1, 2018 and since that

time, cyclicals globally have underperformed compared to staples. -- the question is whether the fundamental data follow. if they do not, you get a trade because you have reversion to the mean. the more evidence we have that it is not just a trade but a stabilization that could run for a while, that expresses optimism about the global economy. francine: alicia levine and michael shaoul both stay with us. coming up, more of our exclusive conversation with the unicredit chief executive who shares his take on the negative rates and if a european banking union as possible in our lifetime. >> what is important is to make rules and theore banks look the same when we look at them from the outside.

not sufficient to make sure the banking sector is completely uniform. ♪

francine: this is bloomberg "surveillance," tom and francine from london and new york. as bank executives complain negative rates are hurting the economy, i sat down with unicredit chief executive to discuss the impact of the tiered system. helped the rates

european economy to stay at a relatively modest level of growth, so the provision of banks were going down. the banks have been having a decent performance. now they are low on negative for longer and it might have a negative impact on banks. francine: we are back with alicia of levine and michael shaoul -- alicia levine and michael shaoul. when you look at the european banking sector, we are waiting for a consolidation. what needs to happen for cross-border mergers? alicia: it is a regulatory issue. there has to be some sort of impetus for it. i suspect the ecb will be involved. i think christine lagarde will be part of the impetus for this to happen because we cannot have different banking systems with one central banks in an age of negative rates where it affects

them differently depending on what is on their balance sheets, which need to be cleaned up as well. francine: when you have a consolidated europe in terms of banking system, is there value or do you need to clear the markets? alicia: the first thing that needs to happen is the balance sheets have not been unpacked fully, which is part of what we are seeing, why there is so much underperformance. opportunity and an investing you need to go where it feels most uncomfortable when you sense a positive change coming. about am thunderstruck the equalization in europe and monetary policy, that these will be easy glide paths. says who in lisbon? if we get a normalization of relative flows, doesn't there have to be an abruptness

somewhere to the system? michael: you mean, do things have to get abruptly worse? tom: there has to be an abrupt shock to the system to get back to normal. like one big free lunch banking union. michael: it has been bumbling along this cycle. if you simply looked at employment data, the u.s. has good -- has a good cycle. if you look at gdp growth, the u.s. had a mediocre cycle. europe has the ability to carry on along its current path and i don't see a debt crisis in the immediate horizon. tom: negative interest rates in switzerland and germany. we have much more coming up. an important interview having to do with hydrocarbons, stuart wallace with us in the last hour talking about opec.

fatih birol will join us, with an update on demand and supply. today as we get ready for jerome powell at 11:00 , and of course kevin cirilli saying these impeachment hearings with a real mystery of how it is happening. dow futures -118. in hong kong, continued unrest. this is bloomberg. good morning. ♪

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academics in the schools. describe the chinese university in hong kong and what has occurred. thene: this has become battleground between protesters and police officers, with the fiercest clashes that went on throughout the morning this morning. we continue to see teargas being fired and we saw a third day of this, a gathering where people gathered at universities, the central business district, to interrupt the commute and stop rush-hour traffic. we saw entire lines on the subway shut down due to vandalism, and the secondary schools and kindergartens have canceled classes for thursday. the universities have canceled some of them, and they are evacuating chinese mainland and taiwanese students.

flashpoint atthat these universities, something we have not seen in the last five months since these demonstrations began. francine: hong kong has seen violent days since june, but this week seems to be a turning point. are people still behind the protesters, or is there resentment? yvonne: i think there is a bit of both. what led to this latest flareup was the 21-year-old student that was dead last week, one of the first deaths linked to these demonstrations. he was trying to escape a car park when police were dispersing crowds, and the fact that these protests are escalating and happening in broad daylight in the heart of the city shows that there is no offramp in this flareup. you have to wonder how beijing treats this.

they have been restrained on their response. we have heard a lot of rhetoric in the last 12 hours or so, and still you hear the hong kong government confident in its ability to contain the chaos. it does embolden the china hawks in beijing as well, and the times is issuing a warning that beijing could intervene militarily. we have not seen anything of the like. carrie lam got a fresh nod from beijing last week. tom: thank you so much. right now with our first word news. leigh-ann: the house's impeachment inquiry of president goes public today. two witnesses will answer questions from the house intelligence committee. democrats and republicans will make vastly different arguments. democrats say the president

pressured the ukraine to investigate a political rival and republicans say it is an attempt to take down a president. in australia, sydney has a reprieve on brushfires. the threat level is very high. are battling 70 blazes along the eastern seaboard. apple plans to release the macbook pro with a larger screen and new keyboard as early as today. the price is expected to be about the same as the current model, $2400. 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 leigh-ann gerrans. this is bloomberg. francine: the international energy agency released their

world outlook today and says there are deep disparities in the world energy system. oil demand is said to plateau around 2030 as opec plus implements more cuts and saudi aramco is said to be the biggest ipo ever. joining us is fatih birol. oil, couldok at peak it come sooner than 2030 or could it be postponed if the world changes in terms of growth? fatih: thank you very much. it can go either way. we think the current government , the oil technology demand will peak in the next 10 years or so, and the total global oil demand will plateau around 2030 and stay more or

less stable. but it can go either way. if the governments take much stronger clean, efficient technologies, push much stronger, we may very well see that the peak can happen earlier. at the same time, if the policies of the governments go in the other direction, we may see the peak come later. when you look at the newspapers or televisions, talking about the car manufacturing sector, the talk is electric cars, you may think. that is not the case. manufacturinge sector is the suv's. 18% ofyear 2000, only the total cars sold in the world were suvs. came to 42%,is 18%

42% of all cars sold in the world are suvs. oil.uvs, you need more if these trends continue, we may see different oil demands. in europe, china, even , sor parts of the world lots of uncertainty, but our base case assumption is plateauing around 2030, global oil demand growth. onncine: does it all depend energy policy in the u.s., and that will be dictated on who wins in 2020? definitely, depends on the united states but china and other countries. government policies are critical here. we have seen many government

policies have an impact on the consumption and production of energy. today, the major impact of the shale revolution is basically a government policy of the united states by pushing the research and development, providing tax credits and the market design. we now see the global shale oil production is huge, the bulk of it coming from the united states. , in the next 10 years about 85% of the oil production growth will come from the united states only. opec russia -- opec plus russia, the share of opec plus russia in global oil production was about 2030, around will come --

35% or so. big downside which will limit the ability of those countries to manage the oil markets and give shape to the global oil prices. francine: it looks like opec plus is not interested in cutting production deeper next year. what will that mean for the market? is there a danger of another glut? here. three factors one is on the production side, gained significant amount of oil from the united states, from ,orway, canada, brazil, guyana a significant amount of oil coming. second, the global economy is not doing well and the econ -- demand would be rather weak.

it is important what opec plus russia does. price riskect any for consumers. when we look at this year, prices will be around $50, despite opec and other countries wanting to push the price up. unprecedented will of the geopolitical developments. to 0.3 four venezuela and others. tom: thank you so much. wall streetews, " journal" article on google. they report google will link with citigroup and a small credit union at stanford university to provide banking and checking services. the key question in the article

is google does not want to be an adversary to banking technology and they want to participate. this is bloomberg. ♪

♪ morning, everyone, bloomberg "surveillance" from london and new york. i want to do a single best chart very simply, with all the turmoil in hong kong. there are the protests in hong kong as well and there is a domestic unrest across all of china. i want to go to the domestic part, the nonfinancial part of china with a single best chart, the extraordinary, unprecedented blowout in pork.

this is something we covered before. the circle is 30 days ago and we have blown out. we are up x number of standard deviations. michael shaoul and alicia levine with us. michael shaoul has done a terrific job of slicing and dicing financial china. the buttressing of a financial business within a totalitarian regime with a domestic challenge is extraordinary. give us the fragility after your study of the chinese financial system. michael: i think the chinese have engineered a slowdown in their credit system. which president xi took over life presidency was the point that pboc -- shadow banking. they have done a lot to bolster

the general bank loan system and allowed corporate bonds to take place. china has almost two financial situations. if you are a favored borrower, you are in pretty good shape. tom: in your study, do they -- do they have financial creative destruction in their system? michael: they have people they like and people they don't like. it is a more brutal system. i don't think it is that official. economy of the chinese decelerated violently last year. there is no sign yet that they have stopped restricting shadow banking. francine: when you look at china , if china goes badly or china grows less then maybe the 5.5%

that is expected, it will hurt the rest of the world. where do you see it first? alicia: growth is fairly slowing and that is why we are optimistic on a trade deal because the u.s. and china are hurting. farmshurt first, but the are hurting here and trump needs the farm states. the thing about china, you never hear about an unemployment rate. all the supply chains are moving . you have to wonder what is going on with the domestic economy and domestic demand, which should be affected, and permanently, because those supply chains that moved on not be coming back should there be a deal. that is a risk that we do not have sufficient insight on what is going on with the working population. potential unrest. dealine: if we see a trade , on whose terms will it be, the

u.s. or china? michael: a little bit of both. keep.s. will be able to tariffs in place that seemed unimaginable 18 months ago and it does not look like the chinese will give way on something like intellectual property. it would be an agreement on both sides to stand still, recognition that neither side is able to win this trade war at the first attempt, and start again late 2020, beginning of 2021. tom: what do you do with investment if there is not a true bond market to participate in? michael: i think the chinese have a split monetary system. the part of the monetary system that is generous benefits large-cap chinese equities. the corporate bond market is wide open to them. you are in a situation where the equity market is better positioned than a lot of privately funded firms.

the chinese equity market is still investable at this point. francine: thank you so much, michael shaoul joining us this morning. alicia levine stays with us. later today, guy johnson and vonnie quinn speak with the chief executive of qantas airways as the flag carrier targets a direct flight from london to sydney by 2020. this is bloomberg. ♪

♪ this is bloomberg "surveillance." let's get your bloomberg business flash. causingg protests are more problems for cathay pacific. they issued their second profit warning in more than a month. profits will be significantly lower in the second half than the first. travel was down 35% last month. the brazilian american private

equity firm 3g capital is among those who have submitted bills -- bids for the sin group -- thyssenkrupp. that is your bloomberg business flash. francine: 3g is just one of many pp's offers.ssenkru levine.still is alicia thank you for staying with us. if you look at deals and what people are going after, private equity is front and center. what are they looking for? >> pretty much everything. they are looking for large deals because there is so much capital they need to deploy. around 2 trillion they have in

dry powder. cyclee went into this m&a it was only about 700 billion, so they have ramped up the amount of money they have. and eight is perfect for them. -- any carveout is perfect for them. francine: what is the most interesting deal for them? ed: it would be the largest leveraged buyer in history. if you look at the numbers people were throwing around, j.p. morgan said around $75 a share, in the region of $85 billion to take private. it is one of those deals that people are skeptical can it get done? what we have to see is if the borrower is of good credit and if the asset is seen as a good asset, there is so much opportunity to lend, so much

appetite for big deals. a deal of this size would basis stand show for kkr but they need billions to make it work. francine: investors are going to private equity because they are looking for yield? ed: you have such a strong strategic and the market -- the number has really come down and the carveouts and smaller deals, strategic's show up there. the other thing is all of the money areour lending princ as principles -- ipals. francine: is this money that does not go to markets? alicia: i am surprised, given what the public market has done to the valuations of these companies was so much private capital. this is a curious thing because

the public markets are telling you that with full information, no one will be the greater full to buy these valuations. hard to believe that higher credit will have that much of a bid 10 years into the cycle after so much free money. if there is no inflection in the cyclicality of the global economy, this could be the canary in the coal mine. michael: the difficulty -- ed: the difficulty is they have to deploy the money or give it back. this is really noteworthy for 3g and the elevator, it is a departure in terms of sector. 3g also never show up in auctions. it is one of their hallmarks. they do tight, unilateral deals with just one party and they are showing up to an auction that is overcrowded. it is kind of a sign of where we are at, not only are we seeing

big transactions executed or people going after them, but we are seeing sponsors do thing 3gt they would have said -- would have said five years ago they would never show up at an office -- auction. francine: do they need to diversify or is it such a good asset? ed: it is more of the former than the latter. francine: what you need to get right is your call on inflation and dollar. alicia: the dollar has broken through the 200 day moving average on the downside, which suggests that even though there is probably a bid somewhere for the dollar because of the safety issues, you are moving flat to downward on the dollar which is positive for global risk assets. convinced there is no inflation in the system and this is how everybody is wrong. let's look to china and food

prices over the last two months. core cpi in america is 2.4%. to ignore signs of nascent inflation globally could be a big mistake because that is how this whole thing is wrong. francine: alicia levine, bny mellon chief strategist with us and ed hammond. stay with us for coverage of jay powell's testimony before congress starting at 11:00 a.m. in new york, and hours later we speak with mary daly, federal reserve of san francisco president. ♪

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is reached, and on any other country who mistreats the u.s. hong kong shuts down. schools closed, meetings fallled, banks like hsbc as protests rage. crawlys demand slows to a after 2025 and stays bullish on u.s. shale production. we speak to a skeptic, scotch field of pioneer natural skeptic, scott sheffield of pioneer natural resources. welcome to "bloomberg daybreak." if you haven't left your house, it is really, really cold. in the market, a little selloff here. down 0.4%. now what? is this a reversal, a rush into havens, or are we just taking a pause? treasury yields, as well as bonds in eur