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tv   Bloomberg Surveillance  Bloomberg  October 15, 2018 4:00am-7:00am EDT

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>> saudi pushes back against trumps threat. anyone dollars a barrel. we get numbers from goldman sachs and morgan stanley this week. -- brexit withpe the italian budget. this week's biggest risk. ♪ >> hello and welcome to bloomberg surveillance.
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these are your markets with a little bit of caution. 600 down 0.2%. a combination of trade concerns with geopolitics. brexit -- the outlooks seen the little uncertain. it is a bigwig for the brexit talks and the pound is 131.30. it is getting a of the lift to these oil prices. they would actually retaliate and measure. it is about $80 a barrel. we hear from the bank of japan governor about bond yields and the qe exit created you don't want to miss that interview. welcome, juliette saly. trump threatens to impose another round of terrorists on china.
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u.s. politics is a bigger problem than ratcheting involved from the 2016 election. he does not want to push the biggest economy into a depression. he is vowing severe punishment if the kingdom's length to the disappearance of the washington post journalist. he said it would be bullish to threaten arms sales because that would allow russia or china to swoop in. the kingdom where will tell you against any measures. the brexit stalemate deepens after a weekend of intensive negotiations. union keeping the milestone after failing to break the deadlock. eu leaders meet on wednesday for their summit that is hoping to finalize it. isna's central bank preparing for the worst case scenario on the economy according to pboc governor.
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he told bloomberg he is considering a range of risks towards the dollar but added the currency is that at a reasonable and equilibrium level. he said the trade war with america is a lose lose situation. days, the last few country's all felt the impact. think they have to realize the significance of the impact of the trade tensions so the whole together and seeks a constructive solution. exite first sign of an will be bond yields, not acid urges. bloomberg, he talked about what it would look like.
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discuss exiting from exceeding policy change the target the operating target and interest-rate. >> global news 24 hours a day on air and on tictoc on twitter. i'm juliette saly. >> thank you. the european asian equities falling weekend mornings on the fragility of the global system. treasuries higher as oil has climbed as rationed tensions.
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now on the action in the markets is mark cudmore. first of all, what is the market latching onto? there seems to be geopolitical concern and trade were concerned. i think one of the problems this morning is there are so many different catalysts and each one would not be detrimental. storyve the saudi arabia -- the german political story. the hangover of equities last week and the turmoil. overall, there is a negative mood that is making people higher risk. most important in the case of expectwhich he case, you it to be quite optimistic. the problem is a very large risk and detrimental. marketsems emerging
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have a little bit of a comeback in terms of the position. yes, i think easing in the .ollar has helped the yield on the dollar is the combo. the third part has been the rally in oil. i know it is big visible in the saudi arabia story. oilhave the dollar yield in and that is providing some relief for emerging markets and that is going to continue. i don't think you need all the dollar yield but if two out of three, overall, they should do ok. more differentiation needed. spurat is going to treasuries today? overall, the equity second and.
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it is on friday which will provide short-term relief but as long as they are on the back and youen what shield have a lot of supply redemption coming up in europe and some of that money may shift to the europe and treasuries overall have a little bit of a bid this week. >> thank you. market sentiment joining us for the hour. the head of fx strategy. we are seeing quite a lot of movement inequities. was relatively calm. how do you explain this? >> what we are seeing is risk off sentiment. friend -- theme markets moving towards the yen and they have not moved to the dollar because if we go back to february, we have seen a big selloff in emerging markets.
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we have lost that risk on, risk off the that has been dominant. we saw emerging markets selloff and the u.s. equities doing quite well until recently. we have seen this correction. dollar,han going to the it has been going into the more traditional parts which is the yen. whether that continues depends on u.s. equity. -- if dollar is no longer we were to -- >> i would argue if the dollar is a safe haven, the current account deficit. it certainly has been the haven of choice because you have this strong u.s. growth story. the question now is whether or -- it is a little correction in the bull market and that is why i think this , results from the
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stocks that will be important because if they continue to be good, it will be difficult there's still sell u.s. stock. what we see is is the blip in the bull run so if they carry us on over the next month, the dollar will move on. >> if we go back to the fed, this is the market thinking the fed will hike rates because of the strong economy. if we do have a blip in the economy, but it not mean we have hikes. >> i think the market is convinced we will have hikes. the question is when will the u.s. economy slow. -- will it be recession in the next future. that is difficult with the economic data we are seeing now. recession in the foreseeable future. if we get to the end of next year and the markets focus on
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the bearish scenario, we can be looking at a completely different set of parameters. >> where do we go from here? havingink if we carry on more of this risk off sentiment -- u.s. stock reports continue to be good, i think the dollar can continue. corrects thank you so much, jane foley. opportunitiesding with brexit negotiations or italian budgets. ask jane. >> i think i would choose -- italy. threat.'s saudi a severe punishment if it is linked to the journalist.
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this is bloomberg. ♪
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♪ >> this is bloomberg surveillance. ncince: a lid of it delayed because of some technical concerns. it is important today after the elections in bavaria. this ability of the local coalition. we will go to the bloomberg didn't just flash with juliette saly. tte: jamie dimon with the latest corporate leader to drop out of saudi arabia's davos cal
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l. kashcomes off of jamaal oggi. steven mnuchin and is also looking for taking conferences. sears has filed b bankruptcy, months america's biggest retailers, collapsed. soldeo and his hedge fund about $2.5 billion in september. the result the multiple attempts to keep the chain of float. habi has delayed plans for the ipo of the spanish oil company. told it shouldes go ahead and the listing could be the biggest ipo in a decade and that is the bloomberg business flash. francine: the clock is ticking for saudi arabia to tell the trump administration of what
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happened to jamal khashoggi. has been denial as unattainable. saudi shots are trading low with oil prices up. president trump threatening punishment behind his disappearance. stake ands a lot at maybe especially so because this man was a reporter. you will be surprised -- something really terrible and disgusting about that if that were the case. we are going to get to the bottom of it and there will be severe punishment. isncine: joining us now anchor of bloomberg markets middle east. european countries have come out and asked for detailed response from the saudi's. what has been the response? quite on theas saudi side. unusually so.
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-- the minister was quick to respond, back with information. we finally got a response from the saudi's basically saying they will respond to any punitive measures with stronger measures. are ine denying they possession of any information that would give them detail of where exactly the saudi journalist is at the moment. francine: markets sold off quite heavily. at orre investors looking is there still an investigation -- will be here the politicians talk about this? the domestic conversation has been one where saudi arabia as the upper hand. that could include perhaps using their oil resources as some kind of weapon. you have toseen --
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go back to the 1970's. you look at the market in the last two days -- quite a bit of losses. down 7% in yesterday's trade. coming back in the current session but watch the forwards. the very important risk metrics. this is the expectation of currency traders as the saudi reality will trade 12 months from now and it is back up to levels we have not seen since 2015. that shows you investors are repricing risk beyond equities and we have that up on the screen as well. have any do you insight into where the investigation takes place? active investigation done by the saudi and turkish authorities? this point, we don't have any clarity on the timeline. we understand the saudi king has been talking to the turkish protestant.
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they pretty much a said what they have been saying in any state which is the ties are called but no clarity in the investigation and that is the key answer that investors are they areor because trying to bring in capital over the last couple of years. this puts at risk a lot of the achievements that have been done. francine: thank you. anchor of bloomberg markets middle east. several companies including bloomberg has full out of the future investment into initiative. this was a conference that was due to happen that is still ongoing next week. oil has extended gains as saudi arabia is threatening to threaten. for more, we're joined by our cheap energy correspondent. great to speak to you.
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we are hearing some pretty harsh words from president trump and they say with a will retaliate back. retaliation that we have been seeing over the last 48 from is more extraordinary sunday where they highlighted they would retaliate against any measures and they highlighted the role in the global economy. they did not mention oil but everyone in the oil market breeds oil. riches to putil political pressure on the united states. i doubt they will go down that road. it will be the first time since 1973 since the oil embargo that the saudi's go that way and i think it would be extraordinary.
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certainly, it would push more and more the global economy to renewals. francine: let me bring it to my chart. the correlation between oil and saudi production because the king kingmaker between opec. we heard a lot of traders say they are worried about oil going to $100 -- does it make it like? javier: if the saudi's were to make oil -- they don't have to impose an embargo. they need to go easy with theuction -- not upsetting exports or a significant chunk. a lot of reduction. want to tools if they see prices going up to $100. we have the oil and confidence going up. oil executives and it will trade than are seeing cracks in the other side of the asian. emerging markets are suffering
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not just because of the oil price. means therend that is an increase will demand that we expected in 2019 and that is bad news for the 70's. francine: we have seen president trump saying they should do more. will this intensified because of what happens, the disappearance of khasoggi? javier: the oil market -- politics at been always with the t politics -- but polloc are the center. yes, we are going to see more politics in the united states. one thing that is clearly coming congress will allow the u.s. to sue opec for acting as a cartel. i think what is happening in saudi arabia and that threat, the passage of opec is a was guaranteed. francine: we need to look at the
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sentence and u.s. policies. thank you. makes us smarter on the markets. he stays with us. she will be talking about us because the bank of japan governor's with a change of bond yields will signal the start of the next it. he spoke to kathleen hays in the foods of interview on the sidelines of the imf world bank meetings. negotiations, concluded with mexico agreeing to the conclusion. and japan, the u.s. will continue negotiating discussions -- discussing trade agreement. not trade war. chinaetween the u.s. and rising.
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retaliated.ready so, among those trade issues, this u.s. china conflict is most difficult and most serious. trade, conflict of tend to make will negative but on both sides -- eventually, u.s. and china would agreement.mise the yen, which has been weakening a bit. how important is that trend, which could continue with dollar stronger trade warl in terms of
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hitting the target? >> exchange rate -- in the short affected byld be interest rate differential -- that is true. -- inflationun differential. originally in the short-term, it affects exchange rate. thing is thattant -- the fundamentals. i think the current exchange hopeiguration -- i exchange rate stability maintains -- it the bank of japan
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governor speaking to kathleen hays. let's talk about the outlook for japan with james. we were talking about the fact haven.n is a how much is it a haven and in control of governor kuroda? >> it depends how badly the stresses in the market. the external stresses, it seems they respected by the fact have a policy in the bank of japan that the yen will rally. that said, impacting the situation this year, since february, the dollar/yen has been higher on the fact the u.s. dollar, the u.s. growth story was sucking to the u.s. dollar. leaving the yen softer on the back. it is in accommodative policy. to up months now as to when the bank of japan will step back from that. there have been some tweaks this
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bank of japanventur is still on the 10 year. francine: willits gell back more? >> i think it is important to look back at the 31st. the interesting part maybe the 30 year. are they going to allow that part of the curve to steepen elite of it? francine: thank you so much, jane foley. next, after weeks of tension between brussels, the italian government going to hand of populist governments of the coalition.we will talk political risk next. this is bloomberg. ♪
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francine: economics, finance, politics. this is "bloomberg surveillance." let's check in on what is trending. the world 500 richest people
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earn $63 billion in a single day. on bloomberg.com, it is all about brexit as a stalemate deepens. most read stories on the bloomberg terminal over the past oilhours, in third place, rises as saudi arabia planned to hit back on many possible sanctions. while president trump has threatened to impose another round of tariffs on china. juliette: donald trump has threatened to impose another round of tariffs on china. the president told cbs that china meddling in u.s. politics a bigger problem than russia meddling in the 2016 elections.
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he has vowed said their punishment if saudi arabia is linked to the disappearance of the washington post journalist. he also said it would be fullest to strap arms sales to the country because that would allow russia or china to sweep in. saudi said the kingdom will retaliate against any measures. the brexit stalemate has deepened after a weekend of intense negotiations. bloomberg sources say the u.k. and european union are on course to meet the key milestone after failing to break the deadlock. eu leaders meet in brussels on wednesday. angela merkel faces a new round of coalition turbulence after a major election setback. -- merkel's political party is shutting support.
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time is a central bank is planning for a worst-case scenario on the economy. he told bloomberg he is considering a range of risk , but added that the currency is at a reasonable and equilibrium level. he also said the trade or whether america is a lose lose situation. few days, i have talked to more than a dozen countries. they all felt the negative impact on their economy. realize the have to significant negative impact on the trade tensions so that the whole world should work together to seek a constructive solution.
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juliet: 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. i'm juliette saly. this is bloomberg. francine: it is deadline day for adlai to present its draft budget to the european commission. eu leaders have double down on their promise. what does this mean for a italian markets and the euro? a will talk about the euro in second. what do you think will be in the budget? i don't think the italian government will back down from what we saw this far. there could be some cosmetics,
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but it is likely they will come back on that. there is very little room. ,f they come back on that there will be not much left to do what they promised to the electorate. francine: what does it mean going forward? is there a secret plan to also take it to the euro? i think it is difficult to avoid, a fight with the european commission. target. on a 2.4 if they are right or wrong, that is another issue. francine: why is it a fight? the rule is 3%. this is a finance minister that to.two bosses to answer
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jane: italy is a highly indebted country. that is what the eu commission says. country with a large amount of debt is supposed to be reducing the budget in order to get a handle on the debt. i think the issue is that they are not doing that. also, where's the structural reform? if you don't have a, that is what you're going to raise the productivity. it is about the long-term solutions this government has not put in place. are campaignse promises, how does the euro take this? jane: it hasn't taken to this quite well. we have seen populism rising in other parts of europe.
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there are the european parliamentary elections last spring. if we look back at 2014, those elections already brought a movement toward the balance. you could argue this was a signal of what was to happen in the national elections. those elections are going to be interesting. that could really change this way potentially of the european parliament as well. there is an awful lot to watch. the market is like any movement away from prudence and reform. francine: are we going to see fresh elections in italy? vinit were the salafi government on its own, what would that look like? luigi: elections are coming next year, european elections.
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there is also a chance there could be political elections. i would not rule that out. francine: if we do have a fresh italian elections, matteo sell alvini would probably get a majority. luigi: i would say so. party.ould be junior i think salvini will dictate the agenda. francine: do you worry about a downgrade? do because i think agencies will do what we are all doing. we checked the numbers and it is difficult to see these numbers. on top of that, this budget is not tackling the structural issues that italy has. to be honest, this is not something that was tackled by previous governments.
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previous governments did not indulge. the primary budget, directed by the cycle deteriorated under previous governments by 2.5 percentage points. previous governments have enough the dividends. eaten up the dividends. are, wesay that chances -- for thet is not banking system, this could be a major problem. francine: thank you so much. stay with us. plenty coming up as angela merkel's political partners
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suffer losses, will that mean for her tenure? later today, we will also speak to the microsoft ceo. this is bloomberg. ♪
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francine: this is "bloomberg surveillance." angela merkel's a sister party in the dropped to a historic low in the states regional vote. projections by the party on course for its worst results since 1950. the setback raises questions about markle's ability to stay on as chancellor. is the former deputy
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leader of the democratic union. us.ael, thanks for joining what this a result in bavaria mean for the stability of the german government? michael: it is a disastrous result for the christian social in bavaria is called csu. even worse, with the social democrats lost even more, and are now down to 9.7, which is nothing almost and is a terrible situation for the grand coalition in germany. there seems to be discussion here on what kind of reasons we have. -- of the reasons could be one has to say it is a very
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difficult situation, but csu can party,e the leading including the other so-called independent party, which is only this independent party plus csu is already able to form a coalition. situation is not too bad at all if you add all parts together. francine: what this it mean for the stability? can the chancellor survive this? michael: i think so. there is no other choice at the moment at all. on the other hand, it is actually not the chancellor who is in question, it is the bavarian people. interior has a , thee bit of problems
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bavarian leader will definitely have problems. the question is will the csc is to let him run as the leader? we will have to see because that is unclear. francine: how likely is it that the social democrats will leave the government now or later? michael: we have another regional election on october 28. if that is an indication for the result, that i'm quite sure things are going to change. prior to the state election, i don't think there will be any greater reaction because m inybody is just cal order not to make too much trouble to the parties. francine: does it actually changes some of the policies? and to thosernment
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social democrats changes some of their rhetoric or how they say things to get more votes? i think the social democrats really have to change. they underestimate the situation with the migrants. particularly in bavaria, this is one of the reasons we have such bad results. we have to see what is what do happen in hessen, if that is the same thing. it is definitely going to be a game changer in germany. francine: thank you so much. let's get back to luigi and jane. how much it does this have an impact on euro? we talk about italy and look at the spread between german and italian yields and german is not
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as stable as it was a couple of years ago. jane: i think as long as markle remains at the helm, the euro will keep it in its side. somell come to an end at point. as long as that is not imminent, i think we avoid a large amount of volatility caused by this event. at some point in the foreseeable future, this is going to become much more of a market development for the euro. it is destabilizing. francine: who comes after merkel? jane: that is the question. oft question is the cause potential anxiety and a cause of uncertainty for the euro. who comes next? what sort of party comes next? how have the impacts of the last few years been. if you go back to the immigration and 2015 and say this is the beginning of the end of markle. -- merkle.
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there is a change. certainly a change at for. foot. that is an unsettling thing for the euro. talk of: had is this immigration change the fabric of europe? luigi: it does change. i think the combination of worsening economy and immigration are definitely factors, which is behind the rising instability in the eurozone. i think this is something that is not going to be, is going to be with us for quite some time. , their isd of salvini the notion that after the european elections, the euro could look different. a different europe may have a
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different tie on italy. francine: overall, the two are connected if immigration is not dealt with in a way the citizens think is suitable for them, they're going to keep on electing populists that may not push through reforms? luigi: absolutely. feeltalian population abandoned by the europeans because they were left alone for .uite some time to some extent, this is not -- frankly, ihe don't think this is over. francine: what happens to the
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pound? if it weren't for brexit negotiations, the pound be showing an edge. they pay has problems of its own. with respect to sterling, it can only go up or down. the chances are certainly looking at the headlines we have had today, is that there is disappointment. that doesn't look as if there is a deal to speak on on northern island. the summit -- ireland. the summit may not even go ahead unless they deem on wednesday that sufficient progress has happened on the irish border. there a significant chance of the u.k. crashing out? a think the sooner march 2019 is without a deal, there has got to be a significant probability of that happening. even if there is a deal, is
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parliament going to back theresa may? parties have said they will only -- the tory party is deeply split. there has got to be a decent probability are there will be no deal. francine: thank you both for joining us. week for bigg banks. will geopolitical risks and concerns over growth impact results? next.cuss that this is bloomberg. ♪
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francine: economics, finance, politics. this is "bloomberg surveillance." on to the u.s. and big banks there are expected to drive markets after a wild week. wall street lenders have hit earnings forecasts so far, but it hasn't been enough to clear
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surging concerns by investors. joining us now is keith campbell. i thank you so much for joining us. what do we know about what we are going to hear from bank of america and goldman sachs? america is of attached to the u.s. consumer. like citigroup, i think we are going to see a bit more flavor with of the u.s. consumer and economy. despite these markets, the stoxx didn't get much of a boost, but the executives don't say they are experiencing higher credit impairments really. everything is going fairly well for credit cards, for the u.s. consumer in trumps economy. they are not losing jobs. the tone of comments from people
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like jamie dimon was very positive, yet jpmorgan ended the day a little bit down. francine: when you look at current market volatility, is it reflected in these figures? if they are on the right side to bet on this, wouldn't be positive for their earnings? keith: the ones that are the most exposed to volatility, goldman sachs, the investment bank at morgan stanley, they will be seeing a lot more of what a bank looks like in a market that has volatility back. after the first few quarters of this year things went very flat. when you look at these reports for third quarter, you wonder if it is ancient history. francine: thank you so much for joining us. keep is in charge of all of our finance editing here and london. there is a new incoming chief executive at goldman sachs. it will be interesting to have him talk on that conference
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call. surveillance" continues in the next hour. tom keene joins me. i'm looking at the markets.there is a little bit of pressure overall in the markets. the pound is declining. oil is up. is of our main the stories the standoff between the u.s. and saudi arabia as growing tensions between america and saudi arabia adding to a list of investor concerns that is driving up the price of oil. am also looking at pound weakening as a brexit deal is hanging in the balance. this is bloomberg. ♪
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the rift widens as
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saudi pushes back against trump's threat. brent johnson back at $81 a barrel. big banks it continue to try to lower. discord in europe. this is "bloomberg surveillance." london,cine lacqua in tom keene in new york. we have a lot of news coming out. and i you want to talk about a royal pregnancy. that is also on our radar. there is the italian budget and bavarian elections. tom: i was fascinated with the results in southern germany. it is a real statement about populism in europe, isn't it?
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francine: it certainly is. we also spoke with michael who is one of the experts on german politics. we will get to that shortly. let's get to taylor riggs. taylor: saudi arabia is warming it will retaliate for any punitive measures over the disappearance of the journalists. be availed a political tool. president trump has said the u.s. could take action. >> when the president warns, people should take him at his word. obviously, he is very serious. i'm not going to get ahead of the curve. he will decide with the appropriate actions are, is indy we find out that saudi's were
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involved. taylor: meanwhile, president trump took a much on on two fronts. the president threatened to impose another round of tariffsts on beijing -- on beijing. >> they are down 32% in four months, which is 1929. that.t want i want them to negotiate a fair deal with us. i want them to open their markets. taylor: the president also said that chinese meddling in politics is more important than russian interfering in the 2016 elections. bloomberg has learned that talks ended in a stalemate yesterday. there is a risk of a no deal summit next month. negotiators have not been able to break the impact over the irish border. the head of the bank of japan says the country's economy will be able to handle the two
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percentage point increase in the sales tax set for next october. the next impact could be only of the last 3% increase in 2014. economye sure that the will bel employment well managed. taylor: prince harry and meghan markle are expecting a child. they just arrived in sydney for a 16 day tour of china and the south pacific. global news, 24 hours a day, on
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air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. riggs, this is bloomberg. tom: thanks so much. the markets are still moving down even a we went up on friday. down futures right now are -180. you see it in the curve. a lot of turning. there is the dow close on friday. we are a little south of that right now. stronger yen blows through 112. renminbi at 6.93. weaker.ally francine: what i'm looking at is stocks selloff in asia. u.s. equity futures also pointing to a slower start. there is growing tensions
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between america and saudi arabia. prices.driving up oil i'm looking at pound weakening as a brexit deal hangs in the balance. tom: let me go to the bloomberg right now. a little monday perspective of where we are. here is the previous february. we did not get to the bear 22,000.down we are nowhere near the correction point here. remember those ugly days. there is a lot bounce on friday. that gives you a perspective distant from a correction. francine: what i am looking at is the price of oil. i think that is significant because if you look at the global oil market, it is already being squeezed by sanctions on iran. for the moment, they are veiled
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threats from saudi arabia, but it has boosted the price of oil, which was already moving toward $100. the correlation between oil and saudi production, that is no surprise. i will push it out on social media. let's get back to our top story. is ticking for saudi arabia to explain what happened to the journalist within its consulate in istanbul. president trump says there will be severe punishment for those behind his disappearance. >> there is a lot at stake. maybe so because this man was a reporter. you'll be surprised to hear me is somethingre really terrible and disgusting about that if that is the case. we are going to get to the bottom of it, and it will be severe punishment. more, yousef joins us from dubai.
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what do we know about the ongoing investigation? are turkish authorities going to release the video or the audio they say they have? why can they not? where are we? as you pointed out, they are in possession of these files, but there are considerations the on did clarity for the public -- beyond clarity for the public. will the public think that consulates are being bugged? also the more serious threat of are you going to get my pushback? the investigation is still ongoing. king wastand the saudi speaking with the turkish president and the last 24 hours. nothing new just yet. equities andsaw saudi yesterday fall from 5% to 6%. is there anything they can do to reassure investors at this point? yousef: the timing couldn't be
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worse. years,last two to three the saudi's have a doing everything they can to lure in capital from around the world. a lot of firms from around the world bought into that story. now, the government is going to have to send a clear message as to how this is going to get thelved and answer some of clear calls for details on what exactly went down that day and the lack of forthcoming this from the saudi government, the delay in response in responding has troubled quite a few investors. tom: i want to ask you two things. first of all, mr. dimon has backed out. what is the state of the aramco deal? yousef: at this point, we understand from the crown prince that the saudi aramco ipo is still on for 2020 or 2021. been of the work that has
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done is now at risk in terms of trying to shore up investor confidence. to have a going domestic component and international component. the international component would be in question. finally, who is going to show up at davos in the desert? is anybody still going to attend? there are still quite a few people going. the numbers growing of those who aren't going. you have the likes of softbank. event at thisarge point in time. not everybody has canceled just yet. there could be more to follow in footsteps. it is definitely a setback in terms of trying to shore up investor confidence around. those in the desert. francine: thank you so much.
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several companies have pulled out of this conference. that is the conference due to take place next week in riyadh. this is what i am looking at overall. a little bit of pressure on stocks worldwide. coming up on "bloomberg we speak to the former ambassador to saudi arabia. this is bloomberg. ♪
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taylor: this is "bloomberg surveillance." it was once america's biggest retailer, now sears has collapsed into bankruptcy. the company filed for chapter 11
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protection listing more than $10 billion in debt. the biggest and shareholder step down immediately as ceo. sears and kmart plan to stay in business from the help of more than $600 million in new loans. there was a big merger in the defense industry. the new company will have a market value of more than $33 billion. they are known for communications and electronics. they get more than two thirds of their revenue from the u.s. government. japan's softbank resumed its slump following another 7% in tokyo.about $20 billion has been wiped off the market value since shares hit their peak earlier this year. part of that is glued to the global technology selloff plus, saudi arabia is under
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pressure from the disappearance of a saudi journalist. that is your bloomberg business flash. francine: thank you so much. time as a central bank is a preparing for a worst-case scenario on the economy according to the pboc governor. he told bloomberg he is considering a range of risks toward the yuan, but added that the currency is at a reasonable and equilibrium level. he also said the trade war war with america is a lose lose situation. it seems there are quite a lot of risk events. we were just talking about saudi arabia and the impact we could have on the oil price. is it almost like a perfect storm? >> it feels that way. chinese macro situation has been deteriorating for a year at least. i think the market is still under appreciating the amount of which it has slowed.
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i think they are going to manage it very carefully. they don't want to get out of control, but the way the macro is having, they need to be able to break through the threshold. francine: what are the chances of it not causing broader dislocation? rupert: we have seen the ability to manage a slowdown and to appreciate the currency so far without fallout. there is a broader understanding of markets that a weaker currency is an important part of the macro response to the slowdown. i think the problem is it has been a psychological threshold that is the defendant for a long time. i think they are trying to shift the markets perception. tom: when do we see trade impacts?
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rupert: i think in china, the slowdown in the economy so far has been overwhelmingly to do with credit tightening and macro policy in china. i don't think we are yet seeing a direct impact of this trade conflict. i think that will start to come through in the quarters ahead. i think the scale of that is going to be small compared to these other macro factors. i think the impact is very small and other dm economies. ethic one of the issues that has come through -- i think one of the issues that has come through, one is the u.s.-china conflict is starting to force people to re-examine some of the earnings outlooks for tech companies and other stocks that are very embedded in china. tom: again, i love the idea of last week.
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what are we going to see in the next week or next month? when does this begin to filter into our viewers and listeners lives? anert: i think that is important question.from an investor's point of view, the issue is we have had a big unwind, the macro outlook has not dramatically changed, but i think people need to be reassessing earnings outlooks. for the economy as a whole, the big question is really in the u.s. we have had this period of almost unprecedented upside surprises and the u.s. economy. fiscal stimulus has been very persistent. i think we are reaching the peak of the fiscal stimulus and entering at period with tightening central policy where we should expect to see growth momentum in the u.s. roll over. that is why we have rupert
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here to recover from the cocktails over the weekend. mr. harrison with blackrock. coming up, i'm looking forward to this discontent. it can only be joseph of columbia university. i will ask him about the president and our globalization and our discontent. this is bloomberg. ♪
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francine: this is "bloomberg surveillance." let's talk about the price of oil. it is clear from when you hear president trump actually talking, that there was a veiled threat of hurting the saudi's when it came to sanctions.it seems that saudi arabia is running out of time to explain to the trump administration what happened to the missing journalist within its consulate in turkey. let's get back to rupert harrison of blackrock. is this going back to the price of oil? is it just went to push on the price of oil even higher? rupert: i think this situation definitely merits of premier in the price of oil. a think it also speaks to this underlying fragility of the middle east and saudi strategy. what this shows us is that there
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are tensions in this region that are so shallow below the surface. unexpected events like this can create a problematic situation. the saudi strategy that has been bought into by a lot of people , we have beenld talking about how it is fragile .nd vulnerable the regime in saudi is vulnerable to instability, but then something like this makes you realize there are alsl sorts of instability. francine: what does it mean for investors? rupert: it merits of risk premium, particularly in the price of oil. there are other reasons to think that the oil price is going to find it difficult to hit $100. of course, that cannot go out
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the window if you get serious disruption on the supply side. francine: let me bring you over to my charts. surprised that the high price of oil currently has indented? rupert: we are. i think that is quite to happen. i think we are going to see an -- forg markets and saudi to start using supply as a tool for foreign policy is a high hurdle. that is a big step for them to take. the kind of language we have seen is making people nervous, but i think it is still a very big hurdle. tom: the british have a really interesting past within the persian gulf, within the middle east. where does that stand right now?
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my first trip to divide, i found it -- dubai, i found it remarkable the exit of the british from the region. where does the british stand with their relations? frankly, i think the u.k. is no longer a major player in that region. as think it. is all about the relationship with the u.s. are some very important commercial relationships, particularly on the arms aside. i think one of the interesting things has been the inward investment, particularly from qatar into the u.k. that has been nothing the u.k. governments have been promoting for years now. i think there are questions beginning to arise as to when does the money actually show up, and how sustainable is it to rely on this region? tom: we will continue and talk
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about an event full -- event tful discussion over the weekend. a stunning election in bavaria as well. much more to talk about. underscoring the distinction between these different banks. fred cannon joining us. stay with us from london and new york. eyes on washington. this is bloomberg. ♪
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tom: bloomberg surveillance. good morning. chill in newr a york. tumnal over the
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weekend, which was good to say. francine: bringing out the coats. let us check out what is trending. people as stocks dipped. brexit as the stalemate deepens. a weekend of negotiations failed to resolve issues such as the irish border. our most read stories, and third place oil rises as saudi arabia vows to hit back against sanctions. softbank has lost $90 billion this year. u.s. president donald trump has threatened to impose another round of tariffs on china. let us get to the first word news. taylor: saudi arabia is running out of time to explain to the u.s. what happened to them all pressure on you.
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-- happen to jamal khashoggi. it denies any involvement in his disappearance. the u.s. punishment could involve sanctions or downgrade in diplomatic relations. tosident trump is reluctant cancel a arms sale to the saudi spirit president trump is hinting that jim mattis may be planning to quit. news thatent told cbs mattis may leave. mattis has been on the defense since he was critical of the president and private. there is tension between the u.s. and turkey, despite the release of that american pastor. trump welcomed interim brunson to the white house after a turkish court freed him after two years of detention. turkey. is unhappy that bought a russian missile-defense system.
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china is preparing for a worst-case scenario on the economy. the pboc governor said he is considering a wide range of risks involving the currency. level ofroaching the seven per dollar. it has fallen more than 11% against the dollar. he calls the exchange rate relatively stable. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is "bloomberg." francine: thank you. brexit talks have ended in a stalemate again. a weekend of negotiations have failed to break the deadlock, leaving little hope or time for resolution before a summit wednesday. the meeting is one they had hoped to use to finalize the divorce. still with us is rupert harrison of blackrock. we keep hearing rumors.
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where are we? do we bide our time? do you follow low by blow? rupert: what we are seeing is a familiar game of brinkmanship which should be familiar to people who have followed previous negotiations. the summit this week is not the last chance. everybody knows there is more time. this can get pushed into november or december. that is the main barrier to getting a deal this week. on the other side of the break and, the shape of a deal is obvious. we are not miles apart. there are issues around the time limiting of the u.k. staying in a customs union and there are issues around regulatory barriers between northern ireland and the rest of the u.k.
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these are small margins in the bigger scheme of things. no one has the incentive to make that final climb down to make this week work. francine: is there any doubt in your mind we will get a deal that will be ok and be signed off by parliament? rupert: there is some doubt. there could be miscalculation on either side. we will get a deal. impossible we see tomorrow, theresa may make a last-minute trip to brussels to tie this down. at this stage, it looks unlikely. i think we are going to get a tense summit. deutsche bank published moments ago, you have not seen a blistering and cautious note on brexit. i love what they said.
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solving for the unsolvable in terms of the irish border. like medumb americans have a cursory knowledge of the irish border. is it unsolvable? no, i do not think it is unsolvable. there is a solution which involves the u.k. conceding some kind of regulatory barrier in the irish sea. there are regulatory barriers for food and agriculture. there are regulatory checks. e.u. side, this is going to require acceptance that this requires the u.k. to remain in a customs union if necessary. both sides will say this is never going to be needed. we are going to negotiate this trade deal that is going to make it unnecessary. it is solvable. , there aret to have
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three parties, there is the democratic unionists, there is the u.k. government and the e.u. side. multidimensional brinkmanship that a solution is there. tom: can the irish bring down the government? bring down the may government? rupert: they can. i doubt they will. there has been talk about the dup voting against the key budget votes. be athat would not confidence issue for the government. only a specific confidence motion can count as a confidence vote for the government. to get to that stage where they are looking at collapsing the government is unlikely.
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masters at playing negotiations to the 11th hour, squeezing out every drop of compromise and look like they have squeezed out every drop of compromise and that is what is going on. question this is our of the day which i like. when you look at trading opportunities this week, is it brexit negotiations, german politics, or the italian budget? rupert: the brexit is a key driver for u.k. assets, particularly sterling and gilt. , i haveian situation changed my view. optimistic that the withnment wanted a row brussels but not with the global market. , it is difficult
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to see this budget situation resolved in a way that satisfies markets. francine: we will talk about that next. rupert harrison stays with us. we will be talking about italy and the budget and what we saw over the weekend for the elections in bavaria. coming up, galaxy digital chief executive at 2:00 p.m. they will be talking dollar. this is "bloomberg." ♪
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francine: this is bloomberg surveillance. tom and francine from london and new york. trade tensions are hitting global growth.
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governor was amongst the voices calling for the u.s. and china to settle differences urgently. he told bloomberg how he thinks washington's issues will play out. >> as you know, the nafta renegotiation has been coal concluded, with canada and mexico agreeing. with e.u. and japan, the u.s. will continue discussions, discussing with trade agreement and in that sense, there is not trade war. chinaetween the u.s. and and china retaliated in response to the unilateral tariffs. , thisthose trade issues
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u.s.-china conflict is most difficult and the most serious. in a trade conflict or make war will tend to ,egative impact on both sides if they would make a compromise agreement. the yen, which has been weakening, how important is that could continue with dollar stronger, trade war angst in helping to hit the target? >> the exchange rate in the byrt run could be affected
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interest rate differentials, that is true. in the long run, interest-rate differential. but, in the short run, there are many factors which affect the exchange rate. thing to havetant in your mind is that exchange rates should reflect fundamentals. i think the current exchange , euro-yen are not out of fundamentals. stabilityhange-rate will be maintained. francine: that was the bank of japan governor kuroda speaking to bloomberg. rupert harrison of blackrock still with us. where weconversation
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talked about some of his policies and the targets he was having in place. you are bullish on japan and japanese equities. rupert: if you look around the world at developed markets, japan stands out. we do not see fundamentals changing. vulnerable, toe the nsa risk off haven. world,u look across the that can remain the case for a long time. i think the domestic nominal demand seems robust. that thisot a bank yield targeting is in place. the adjustment was in order to keep the basic strategy in place against critics.
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combine that with corporate governor's reforms. this looks like a positive story. francine: when you look at tensions on the market and the equity selloff and the fact that got a bid, and yen does this mean the dollar is no longer a haven? it will act as a haven in extreme risk off scenarios. and dollar safe haven assets are 85% of global safe haven assets. the dollar will benefit. on a medium-term, i find it her do see the dollar getting stronger because the growth momentum is going to drive it and we are going to see u.s. strength weakening relative to the rest of the world because it cannot stay at these levels. look at these levels, it is about a market reaction.
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when you synthesize, you are you at doing this, when synthesize of the last three days, what is rupert harrison's conclusion? of this is apart reaction to yield. i do not see that going much further. who thinkother people we're heading to 4% u.s. 10 year. i do not think the market can sustain that. we have seen an unwind of momentum trade, profit taking. none of that should make you reassess your outlook. the things that are making me reassess my outlook, this u.s.-china tension is here to say -- tuesday. that is going to affect cyclical stocks. this issue around u.s. growth makes me cautious, more cautious in general about the outlook for global growth but not concerned
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about yields. in growth and quality late cycle. last five days, has blackrock made profound changes? have you made changes in your allocation or your view to 2019? rupert: no, not dramatically. we have not seen people take big changes. people see it as volatility that you have to look through. when you get a selloff in markets, that creates opportunities where you can find growth stories that are intact that are not undermined by changes, particularly this tension. looking into 2019, the issue is the disconnect
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between tightening monetary policy in the u.s. which is insensitive to these developments. growth, less sensitive to to em.- less sensitive i do not think we are calling it a recession but momentum is going to be a story for 2019. signs youelp-wanted see in windows around new york are back to 2006. mr. harrison with us this morning. let me tell you about a brief. you can do this worldwide on bloomberg radio, coast to coast, sirius xm. karen moskow, nathan hager, they do it. stay with us. this is bloomberg surveillance. ♪
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tom: breaking news on the story on saudi arabia. francine lacqua and tom keene in london and new york paired the saudi -- new york. orders anking internal probe of the khashoggi
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case. for those of you just waking up to the news, james dimon of jpmorgan will not attend their meeting. steve schwarzman a blackstone, not sure where he stands. we begin to go to the royal family response to this murder believed to be in the consulate istanbul. francine: we are treating it as a disappearance. a lot of partners have pulled out, including bloomberg. the story is, according to a saudi official, saudi arabia has begun this investigation into the disappearance of this journalist. this could have wide-ranging implications. whether this is enough to appease the trump administration who has been talking tough on this disappearance, asking questions to be answered. let us go straight to yousef gamal el-din.
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what was happening previous to this? is weighing in, saying you guys need to look into this. it be a real investigation and will there be repercussions? >> it is important to point out there has been a shift in position on the story. clearown prince made it that you are looking at a member of the family that has left the consulate. the journalists had left the premises. they are saying we will make an investigation and if evidence warrants, there could be consequences. part is that the prosecutor has been asked to expedite this. you are looking at a disclosure of additional details before the end of the week. we try to reach out to the
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government for comment. we have not gotten response. when i look at the news now,here, the delicacies what was the pressure on saudi arabia? it come from the trump administration, the business world, or internally? yousef: it appears to have come from all sides. compelled itt felt had to move in that the lack of a clear response was going to lead to a deeper vortex that pulls them down a hill and pushes them off the cliff. it is not a row they wanted to go down. move of opening up the possibility of some investigation. an admission anything happened but it is no longer an exclusion. i understand it is ongoing.
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i think within the article, which i skimmed quickly, there is a debate about murdered dered,nt, non-mur non-incident. what is the language? yousef: it is referred to as an incident. it is not an admission of guilt. come tormation has light in the conversations between the saudi king and the turkish president that has convinced the saudi's, let us look into this in more detail and see what unfolded. moment, they the are looking into the disappearance of a prominent journalist. there were allegations of his murder by saudi authorities. that is what they are looking into. thank you for the update.
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he joins us from dubai. thank you to our guest host, rupert harrison of blackrock. coming up, carl weinberg, high frequency economics chief economist. we will talk about relations between the u.s. and saudi. carl weinberg, in a couple of minutes. we look at italy and elections in bavaria. what does that mean for the german government? this is bloomberg. ♪
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"activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. after a friday bounds,
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equity markets attempt to stabilize. all eyes on china. carl weinberg of high frequency economics. eyes, 22 days all on until the midterm election. can the kavanaugh surge continue for republicans? democrats get the turnout to win and win big. miss davos inwill the desert. important breaking news by bloomberg moments ago. morning, live from our world headquarters in new york, i'm tom keene with francine lacqua in london. i want to talk about the bavarian elections. what a signal and bombshell for all of continental europe. francine: we had some great guests reacting about what this means for stability of the german government, what it means for angela merkel and who could
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replace her if she gets weaker. this goes to the heart of the matter of what europe is facing with immigration. the social democrats need to address immigration concerns or they will lose more votes. green advances and the far right advancing and bavaria. important breaking news from bloomberg this morning. francine: we found out that saudi arabia has begun an investigation into the disappearance of this journalist in the consulate. dubai is yousef gamal el-din. reporters have been able to speak to saudi officials who are saying there is an investigation into the disappearance of the show be. we could have they've -- of khas hoggi.
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we could have the findings by the end of this week. yousef: it is a remarkable transformation. the saudi crown prince made it clear it was his understanding that he had left the consulate istanbul. in istanbul. a conversation between the king and the turkish president in the last 24 hours has yielded information that gives them enough information to open this case. we reached out for comment. this, globalty of leaders were pushing for a quick resolution, is that they could have answers by the end of the week. clear,e: just to make it this is by no means an admission of wrongdoing. yousef: absolutely not. this is an admission of it is worth a second look based on the
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information the saudi government got from the turkish government. it is not an admission of guilt. in the past, they were saying he had left the consulate. they are taking a closer look at it with consequences if evidence emerges. tom: what is the likelihood that the corporate davos in the desert event is canceled? are we there? a lot of people thinking about that now. tom, the story of recent months of saudi arabia is one of ambition and of not moving away from target. as far as officials will be concerned, it is to persevere. you look at foreign policy over the last few months, what happened with canada, what is going on with yemen, there is a level of insistence from the government. that you arene
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either on board or not but this event is going forward. the bigger picture at the beginning of this process was to diversify away from oil and bring in foreign capital. tom: thank you so much. with this important breaking news. companies, including bloomberg, have pulled out of the future investment initiative event as media partners. with so much going on, we need to speak with kevin cirilli. the news flow is extraordinary. tohink i have got to migrate saudi and mattis and to the elections. we have this breaking news on saudi arabia. from where you sit, was this byernal investigation caused demands from the trump administration? kevin: no, it was caused by demands from the senate republicans putting pressure on the trump administration.
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senator bob corker, lindsey graham, prominent senators in the party, at the crux of republican orthodoxy in terms of foreign policy, urging the administration to take a tough stance against the saudis. lindsey graham saying there would be hell to pay if the saudis were responsible. it comes at a time when virtually every democrat voted against that commitment, only a fraction of which has been paid to the saudi's over the next 10 years that the administration announced last year. have those same senators, including the , causingan senators the republicans to take a second look. the bottom-line is that this presents a challenge. it presents a challenge for this new regime in saudi arabia at a time when they had pushed
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forth a successful appearance. general mattis has a kuwait liberation award from long ago. does the administration need the secretary of defense to continue , given unrest in the persian gulf? kevin: they need him. if it is not the middle east, there is what is happening with europe and russia. the question that comes from a financial standpoint, will secretary mnuchin go to the desert? they are still scheduled to attend. the bloomberg audience knows the international components. the mainstreamn press, this issue of a ,ashington post contributor which is what jamal khashoggi was, this issue of the media and
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of the saudi human rights record is getting chatter inside the mainstream press. presidentdoes the recalibrate because we are so close to midterms? kevin: that is a great point. storyms of how this impacts the president abbas risk criticism of fake news. when i interviewed mark warner last week, he told me he believes what other democrats are telling me which is that the criticism against the media gives other world leaders free reign. as far warner did not go as to connect all of those. argument of the left of the criticism of the media will give other world leaders a pass to do this. republicans disagree with that and many could make the case there's a difference between
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tweeting fake news and the allegations against the saudis. tom: kevin cirilli, thank you so much. but theicipated second-largest shareholder moving from one person to a -- moving from 1% to 8%. he will do everything in his power to block this. he publishes an open letter of his dissent to michael dell. there are complications here. what you need to know is mr. ic ahn wants the option to be able to cash out. please stay with us. this is "bloomberg." ♪
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taylor: this is bloomberg surveillance. i'm taylor riggs. let us get your business flash. it was once america positive is biggest retailer. sears has collapsed into bankruptcy. the company filed for chapter 11 with more than $10 million in debt. sears biggest shareholder, eddie lampert, stepped down immediately as ceo. sears and it's kmart stores plan to stay in business with help from more than $600 million in new loans. there is a big merger in the defense industry. harris and l3 technologies have agreed to combine to become the sixth largest defense contractor in the u.s. the company will have a market value of more than $33 billion. they are known for communications and electronics. they get more than two thirds of
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their revenue from the u.s. government. japan's softbank resumed its slump, falling 7% in tokyo. $20 billion has been wiped off the company's market value since shares hit their peak earlier this year. part of that is due to the global technology selloff as saudi arabia is under pressure over the disappearance of a journalist. the saudi's are the biggest outside investor in softbank's vision fund. that is your bloomberg business flash. tom: thanks. terrific news flow including the news of a saudi investigation into the disappearance of mr. khashoggi. a lot of news on sears and dell. markets, it is the perfect time to speak to an international economist, someone who has done work about your markets.
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he is carl weinberg of high frequency economics. -- back, carlpark weinberg goes to the yield. page four or page five of a weinberg note always campuses yield. what does yield tell you now? carl: the fed is hiking rates and that is putting upward pressure on yields. a good bidng europe on bonds, other than italian bonds. rise ineeing a general yields which tells us there is concern about inflation driven by oil and that ties into your story about saudi arabia. tom: let us go to hr. this is the way -- go to a chart. this is yields back 60 years. 10%, 11%, 12%. down we go. have we broken trend? carl: not yet.
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we will not. fed tightening will push up yields over time. looking for an inverted yield curve in the near term. in europe, we are not seeing it. in germany, we are seeing yields with a four handle and we have issues that keep demand for bonds is strong. missed the lower german two-year yield. it is ever more negative off the bavarian elections. thing youit is a good have people in london that bring you up to date. it seems like a perfect storm because you have these risk events like the bavarian election, the italian budget, what we saw with the fed.
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could create something that could turn ugly. carl: i think you are right. there is a safe haven flow into bonds. there are fundamentals and european bonds that are supportive. thate talking about bunds are in short supply. the government is running a surplus. in germany, the headline is above target but the core is below target. across europe, the inflation has not been met. the ecb is going to keep inflation lower longer than the market expects. bunds are the benchmark. variations of spreads against those, particularly italian bonds. to bebonds are going lower with them, particularly the french. it is not a negative one and in the case of germany, it might be positive. if angela merkel and
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the coalition is weaken further, what does it mean for the stability of german politics? we still have a few years to go. the economics are more important than domestic politics. the economy is faltering, the third quarter could print a downturn in gdp. longer-term, as we get into next , we are going to see new income out of brexit. everybody worries about england. we have got companies moving to germany, banks moving. moreis more jobs and revenue for the government so they can spend on the social programs and buy votes from the general population and keep their budget surplus intact. tom: one of the great hallmarks of your work is you are involved in debt work for trouble
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governments. one of the things francine and i have seen is this continued in ncensit and's -- intransige of europe to work out its debts. why is it so hard to work out bad debt? carl: it is a long process. you look at what the europeans have done and they have kicked the can down the road. markets?they clearing greece did not fail. it came close. cyprus did not fail. italy will not fail. they're dealing with it in firefighting mode. they feel they have to get to a crisis before they can fix it.
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italy, i do not think they are going to get to a crisis. they are managing to do what they have to do. tom: you are very undisco ntented. carl: you look at italy. markets have gotten to hysterical about italy. with 130% of gdp debt, another percentage point or two is not going to break them. tom: this is too much good news from carl weinberg. on discontent, we will go to the export, joseph stiglitz will join us of columbia university and we will get an update on globalism, on globalization, on our level of discontent. the eleven o'clock hour. this is "bloomberg." ♪
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tom: bloomberg surveillance. francine lacqua in london, i'm tom keene in new york. , we have seen all sorts of different takes on this as mr. lampert's experience -- experiment of kmart to steers -- sears. the appropriate path for sears? should they have been put out of their misery years ago? see, sales have been
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declining for more than 10 years, for 15 years. iconiclly the ,epartments have fallen away where kenmore is, craftsman is. over $14 billion in 2009. they were less than $6 billion last year. it is a decline. brand no longer has as much resonance as it used to. tom: do we blame amazon? >> i do not think you can just blame amazon. amazon is not strong and major appliances. it is home depot and lowe's that have picked up market share in that area. tom: thank you so much. greatly appreciate it.
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as we look at the retail landscape, part of that is banking. we get a brief on banking as we moved to bank of america. we are honored to have with us carl weinberg and frederick cannon joins us. under to have you with us today. how is retail banking -- honored to have you with us today. how is retail banking? where is the state of retail in america? frederick: retail is strong but it is transforming banking rapidly. the consumer is healthy, deposits are still flowing. we have a healthy consumer today. that piece of the economy has been solid. traditional banks maintain a retail dominance or can these new technologies affect how mr. dimon thinks? frederick: they change the way
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they think. millions are spending on technology. they are adopting this technology. this industry is not being disrupted so much as adopting them. francine: does it make the difference between the kind of banks that will succeed and the ones that will not? frederick: that is difficult to say. in europe, we are seeing more disruption of the banking system than in the u.s. these big banks are depth in closely. we are not seeing the major changes in terms of the structure here. in europe, it is a different animal. within retail banking, there are the big banks, the regionals. mania, is scale one of the outcomes of this retail banking environment? frederick: in retail banking.
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most of those small and mid-cap banks are focused on commercial real estate. we do not see economies of scale. tom: what do super regionals do? there have got to be cost savings to do modern retail banking, right? frederick: has to be. we are only down about 10% of branches. a 10% decline in the number of branches. most people think that should be 30% to 40%. tom: we will come back and talk about bank of america. carl weinberg with us as well. terrific news flow today. 2:00 p.m. bitcoin,
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tom: bloomberg surveillance. francine lacqua in london. i'm tom keene in new york. dow futures, -100. right now, here is taylor riggs.
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has openeddi arabia an investigation into the disappearance of journalists jamaal khashoggi. saudi official tells bloomberg people could be held accountable. the information because of information received from turkish authorities. turkish officials have said a saudi team member murdered khashoggi. president trump is hinting james mattis may be planning to quit. the present told cbs news that mattis mainly. mattis has been on the defensive as they portrayed him of being critical of the president in private. there is tension between the u.s. and turkey, despite the release of that american pastor. president trump welcomed andrew brunson to the white house after a turkish court freed him after two years of detention. the u.s. is unhappy that turkey bought a russian missile-defense system.
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it has criticized turkey for jailing other americans. is preparing for a worst-case scenario on the economy. the people's bank of china government tells bloomberg he is considering a wide range of risks involving the currency. the yuan is approaching the psychologically important level of seven per dollar. it has fallen more than 9% against the dollar. he calls the exchange rate relatively stable. carl icahn has come out against dell's plan to return to the public market. icahn argues the transaction undervalues shares that track it the 22 billion dollar proposal calls for the computer maker to buy out the tracking stock before listing its shares on the stock exchange. -- global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.
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i'm taylor riggs. this is "bloomberg." francine: thank you. rags and talks have ended in a stalemate again. a weekend -- brexit talks of ended in a still made again. -- ended in a stalemate again. that they had one hoped to finalize the divorce. joining us now is the bloomberg brexit editor. she is the outstanding writer of our brexit bulletin. can we read a lot into it? noises have been we are working toward a deal. saying had jeremy hunt we are working toward a deal. there are obstacles. we thought yesterday afternoon that things were looking up and withtep back the dinner
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leaders wednesday night is even more interesting. negotiations are paused until the summit. andave gotten this far throw to the leaders and see if they can make headway. negotiations all do tend to go down to the wire. untile heard this will go january. inre is going to be a summit november. they were reporting at the weekend that they november summit could turn into a no deal summit which would send a strong message. it is up in the air. francine: do we have a broad idea of what the deal could look like? >> the really thorny issue is the irish border. it has been a looking like what the solution would be, keeping the u.k. within the e.u. customs
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regime indefinitely. you could say that is good news for companies. companies have been wanting that. a comes with uncertainty and the fight is between the u.k., it has got to be time, we cannot be shackled. , if it is notying open-ended, it is not a guarantee. you would not take out an insurance policy that expired. that is where the fight is, on the time limit. tom: carl weinberg with us. i have not seen as blistering a note on brexit from anybody. you say stagnation fear, reduced wages are going to be here and agony. how do they get there? are looking forward to
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a hard brexit in march. we do not believe that the political system can deliver what the voters wanted two years ago. we are expecting brexit will be hard which means the change will be sudden. closing the border is almost certain to happen and there will be a shortage of labor in the u.k. the will drive wages up, it will cause inflation. drive wages up, it will cause inflation. lation. get a stagfal francine: what would a hard brexit mean? would we look at a constitutional crisis? there are lots of veterans in parliament looking at what happens when you get into limbo.
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referendumd second see that chaos as there opportunity to force a motion which would bring about the second referendum and that is one of the weapons the theresa may is supplying. -- is going to be deploying. it is messy. sides, there is this thought that if it looks like we ,re going for a no deal brexit there is talk you would get a bare-bones agreement to make sure of basic things. thatcrimony would be such even a deal like that would be hard to thrash out. your central forecast is what, a hard brexit? carl: pound gets a pounding. difficult for
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britain to finance its current account deficit, with investors worried about the economic future, about finances. all questions remain on the table and get amplified. i like the use of the word acrimony. i think that is what we will see. there is a constitutional crisis in britain. the government cannot deliver what the people demanded. the referendum is unclear. tom: there is a parliamentary ballet. we have been besting classing covering this trying to stay out newspaperious politics of the united kingdom. kingdomle of the united and the global economy as well, are they going to move into this recession? the: in the long run,
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hypothesis of brexit may or may not be true. tom: what is the long run? carl: three or four years down the road. the transition is going to be painful. more painful if it happens in a hard way. there may be a crisis of getting planes to europe. they will work that out. they may not be able to work out the irish border issues. that may outlive this short-term negotiation debate. at the end of the day, if you look at the picture, britain is a small part of the world. if the economy suffers, the economic impact of a downturn in britain, it is a small part of trade, of europe's economic relationships. the bigger picture is the benefits to europe are substantial. companies have talked about moving across the channel. of those jobs in the banking
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industry and the tax revenue it generates is going to go to europe. europe is going to get a positive kick out of this. francine: a lot of jobs may go to new york. carl weinberg of high frequency economics sticks around. emma thomas in charge of our brexit coverage. we've also got frederick cannon. we await the bank of america results, coming up shortly. this is "bloomberg." ♪
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tom: bloomberg surveillance.
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francine lacqua in london, i'm tom keene in new york. carl weinberg and frederick cannon with us. what is the bank of america distinction? what is the distinctive feature your team sees now? bank has turned itself around after a -- tom: 18 mergers. frederick: we finally got there and you look today and the bank investors are looking for the number one, i want a u.s. bank. today, it is bank of america. retail network. if you look across the country, if you want to look at a branch network, with a full range of consumer and financial, that is bank of america. tom: does jpmorgan want to be there? does jamie dimon want to go after that part of the business?
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frederick: nobody is going to reinvest in that today. they're trying to do it with technology. they are competitive but they do not have that legacy network that bank of america does. -- what will you be looking for in bank of america? one of the things we look for is net interest income. where do you expect that? frederick: we want to see stability. net interest margins of banks have been under pressure because of moves in libor. if they can come in with reasonable loan growth, 1% to 3%, people will feel pretty good. loan growth has been something that has been disappointing into the quarter. expectations have been reduced. francine: if you look at the cost of bad loans, they were all seeing a healthy consumer.
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any reason to believe it would be different if you are a bank of america customer? , it would be a surprise coming out of bank of america. credit continues to be excellent. tom: what is bank of america's constraints? jpmorgan, excellence. citigroup and bank of america, they lead. .- lag what is the urgency to get that vector moving up? frederick: operating leverage, getting some growth, topline growth, and keeping expenses to 1% or 2% of growth. jpmorgan is 221 roughly, tangible book. frederick: right. tom: where is bank of america? frederick: we are around 117.
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tom: can you go long bank of america. that those tangible book ratios consolidate? frederick: it is driven by profitability. compared toyour roe your priced to book their it -- book. deutsche bank is never going to have the price to book. tom: can we work with the script? bank haveamerican some ford of agreement which germany to bring american best practices to deutsche bank? it is whispered about. i know you're not doing this. you have been doing this for years. frederick: we have seen some of that in the u.k. they're disrupting the big banks in the u.k. we're starting to see that
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transition. in terms of deutsche bank, the structure of banking in europe is different. they have all the mortgages are on the balance sheets. whenine: talk to me about, you look at bank unit, what are you expecting bank of america to report? it is different to jpmorgan. frederick: i do not think anybody has high expectations. the markets were great in the third quarter. equity is probably better. tom: you wanted to jump in. carl: a broad question about capital adequacy in european banks. any concerns on your part? frederick: as long as regulators want them to have capital, they have it. tom: is the government the put? carl: are they far enough over
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the hurdles. bank lending is low. frederick: -- think lending is slow. the u.s.: lending in and globally tends to be demand driven, not supply driven. we welcome you as we await bank of america earnings. carl weinberg with us and frederick cannon where they do research. i have got about three ways to go. charge cards, jpmorgan has made a splash with this airline mileage card. everybody seems to be chasing them. our cards profitable? frederick: they are a profit center. the spread you get is positive. thataccounting change comes is going to hit the credit cards. jpmorgan's reserves could go up
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20% to 30%. francine: we have not talked about trade wars. is that a positive? you have volatility in the markets for banks or do they banksecause the bigger big have these organizations they need to cater for? frederick: trade wars are not good for the economy. a couple of things about financials, there is not a lot of trade of financial services. and we hear about brexit excluding financial services. direct effects are limited. we have agriculture oriented small banks they could be hit from trade wars. we cannot say it is good. look, let men you bring in carl, when you look at
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treasuries this has an impact on a lot of banks. are we going to see a flatter yield curve? think the yield curve is not going to invert. a risingoking for yield curve, staying where it is now, maybe steepening a bit. inflation could surprise and if it does, that would steepen the curve. francine: how will that change in the next months? are you expecting the fed to continue hiking? the basic idea is that what we are seeing in terms of the tightening coming from the decline in equity markets is not enough to derail the fed heard -- fed. the stock market is up 30%. a gives them something to think
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about. it is not going to change our outlook. you to put on a note with your team and title it scale. what does scale mean in banking? frederick: we have transformed the industry. those top banks dominate. driven in consumer banking. there are many individuals who choose of those wide banks with the products they have. to, it does is it gets gives those big banks the ability to invest but keep costs under control and drive operating leverage. that makes midsize banks challenging. we look to these bank of america earnings, talk
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to me about thin tech. are we going to see big financials been displaced by smaller players? frederick: my short answer is no. jpmorgan is spending $9 billion a year on financial technology. we're are starting to see these , they are buying them or invest in technology. we see the industry more like in termsare industry of being able to incorporate new technologies in companies rather than being displaced. tom: let me do a chart. we are normalized. banks, right back to 2007. bank of america, citigroup, they lag, bank of america, a lift up
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2017. there is jpmorgan. eight years why ago, 10 years ago that got us to jpmorgan excellence? lot of it has to do with the dilution that took place at big banks during the crisis. you have to look back during that time. if you diluted your shareholders -- if you look at those charts, a tremendous amount has to do with that. and wellsd citigroup fargo. are you gung ho on citigroup? frederick: we are positive on citigroup. tom: but you like bank of america. frederick: we prefer bank of america. tom: when do they get beyond dilution? frederick: you cannot ever get over dilution.
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francine: if we come back to the market reaction we have had, talk to me about how you think the pipelines are going. you are an economist but the that there are so many risks could mean ipo will be pulled. carl: we are focusing on europe. we are concerned about growth in europe. we're looking at industrial production numbers that came out last week. the august number was good. june and july were down. we're headed for a negative quarter of industrial production . that means a negative quarter on gdp. what does that do to m&a? what does that do to equity markets? it could go either way but it is not the most positive thing. growth worries me regardless of how britain plays itself out.
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there are clouds out there that could affect banking activity. francine: do you agree with that and do you think that some of the banking activity may be postponed if we get market volatility? frederick: volatility is not good for deals. one of the challenges is the .uyer stocks they have been underperforming and that is a factor that is putting a dampening on deal activity. how long can the u.s. economy go it alone? carl: we have been doing it for a while. there is no limit to how much further it can continue. much longerk, how can china continue to grow faster than the rest of the world? every country is a different situation and faces different constraints. for the moment, the u.s. looks positive.
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francine: let me jump in. we are getting those figures. that earning per share is $.66. equity trading seems to be in line. what are you looking at? tom: i am looking at their press release. frederick cannon, brian moynihan talks about responsible growth. that sounds like you wrote it for him. this is not social growth. this is trying to allocate capital places where we can generate capital leverage. what is responsible growth? in growth investing where you can earn above your cost of capital. if you can do that, you should continue to grow. that needs to be a long-term perspective.
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you have to take into account your future credit costs. 4%, net incomef up 31%. loans increased 2%. over global markets, equities up 3% and cyclicals down. we will have more of these headlines from bank of america. fred cannon, thank you so much. and, carl weinberg, thank you as well. this is "bloomberg." ♪
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america. rises 6%, interest earnings and focus this week. talks on ice, time is running out to reach a deal before wednesday's summit before they face a three-pronged attack. deserters, more wall street leaders back away from saudi arabia, president trump weighs action against the gulf nation as an internal probe is weighed into the disappearance of a journalist. bloomberg: to " daybreak." you said it, no dramatics, but at the topline the revenue beat slightly. nice.gs-per-share simply >> breaking it down, this one .ame in a bit light equities in line, trading in line, i was interested in the

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