tv Bloomberg Surveillance Bloomberg October 19, 2018 4:00am-7:00am EDT
"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. francine: headwinds in china. expectedes more than after regulators say the chief risks are under control. vtp bund spread widens to the most in a while and president trump says reporter jamal khashoggi is likely dead and warned of reprisals. ♪
hello, everyone, and welcome to "bloomberg surveillance." i am francine lacqua here in london through your is what the markets are doing and stoxx 600 the much flat. higher futures across europe, pretty much the same in asia. some stocks are down, some stocks are up. we are looking at earnings, the trade war. if you look at china, the most in about two years. don't get me wrong, growth is still 6.5% higher, and a lot of regulators came in and said -- and saiddp and they will support gdp. at 30.21 against the dollar. coming up, speak with the chief executive of marlborough. the interview is in 20 minutes.
we will speak to the chief executive of mueller mintz a little bit later. after treasury secretary steve mnuchin pulled out of the iyadh.gs in r trump warned that the consequences of the killing would be very severe. pres. trump: we are waiting for some investigation and waiting for the results, and we will have them very soon, and i think we will be making a very strong statement, but we are waiting thethe result of about investigation. >> st. louis fed president james bullard has asked for a change to the rule that is the weak link between unemployment and
inflation, the aging population, and low expectations. optimism that the fed could hike beyond the so-called "neutral rate." >> do you think will be able to follow a gradually increasing path for that period of time before moving into historic territory? -- what thetical practical points are. leaders attack as a it is unprecedented and it is that at 2.4%. they have given italy's government until monday to explain the obvious deviation from the rules. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am juliette saly. this is bloomberg. francine?
francine: juliette, thank you so much. gdp improved by 6.5% in china compared to 6.6% from a bloomberg survey. that has weakened after government data. the economy has faced increasing headwinds with new trade tensions and that has made the stock market pretty confident. black, us now is jeff and china economy editor. officials are trying to prop up the markets. saying it could get out of control. jeff: yep. at the head of the central bank, regulator, -- the stocks regulator, and others all try to shore up confidence.
we do not know if there is any state money going in there, but it seems like a concerted effort to put us under what has been a real slump and confidence over recent months. to trade warnd insight, and there is no boost in confidence to come. ff, retail sales not too bad, construction was not too great, give us a sense of where the weakness es were. at the minute, it is a pretty stable picture. investment has slowed to a record low levels, and that is obviously a concern for growth going forward. consumers are event less confident than they used to be. they are stable, but cards, shall we say,
because the impact of the trade war have not gone through. having said that, the stimulus has gone through the middle of the year, and as that feeds in, we should see a more clear picture through the early of the year. francine: jeff, thank you so chiefjeff black, editor on hong kong. jeremy and lucy, thank you so much for joining us. jeremy: good morning. francine: overall, should we ignore china, should we be constructed on china? lucy: we cannot ignore it. the slowdown we have seen have been not surprising. we have had a period between a it hasll of the risk and to much of a negative impact.
we now have the trade impact. so it is not surprising that it is going down, but -- and the shape of that slowdown could actually lead to the rebalancing that is required longer-term, but it does increase the uncertainty for china but also for trading partners in the middle east. francine: the other question would really want to know is if financial concerns would get out of hand. should we worry about it? jeremy: i think we should worry. it is something we will continue to monitor, and quite rightly so are assuming as we that the financial market regulators are providing enough liquidity -- we saw that in terms of the loans earlier in the week, providing the stimulus down the track, then i think we should not enough to really be worried about the structural
issues in china, at least for the foreseeable future, the next 12, 18 months, the outlook is constructive. we do not necessarily think that will have a material impact on the underlying growth trajectory, and overall, i think they are voicing their level best to make sure conditions look relatively stable. i think it is important that the chinese authorities have mentioned they do not want to use the currency as a weapon, but i think we should imply or expect it, either. honestly, i think we will see it moving back lower, and that is due to the u.s. dollar having its own structural corrections in 2019, but i think it does provide some medium round value, we can and will see it moving slightly lower. see some fairly
reasonable degrees of appreciation in the chinese currency in the next 12 months. francine: lucy, the impact on the china slowdown has huge implications for emerging markets. what will that be? lucy: emerging markets have been thebiggest vixen so far of trade tension, and that is what we can expect particularly in the region, so that is the case, that until we get some amelioration of that environment. francine: are we going to be stuck with it for the next 20 years? lucy: we have not seen the full impact, and that is what we're looking at in the corporate season. and then growth as we go into the beginning of next year. impact, really see that we will not see where it will be. francine: thank you so much, lucy macdonald and jeremy
million estimated from aig. initial estimates time to hurricane michael are about $300 billion to $500 million. those forecasts are calculated before taxes and reinsurance. businessweek" report about chinese hacking says they have seen evidence of u.s. hacking. businessweek" described how china intelligence services used subcontractors to plant malicious kits in the companies' motherboards. eps came in at $.58 compared to forecasts of $.54. paypal says it is making progress toward monetizing venmo a popular mobile payment service,. that is the bloomberg business flash.
francine: thank you, julia. the u.s. president warned a very severe consequences for the killing of jamal khashoggi. pres. trump: we are waiting for some investigations and waiting for some results, and we will have the very soon. and i think we will be making a statement, a very strong statement. but we are waiting for the result of an investigation. francine: that is after u.s. treasury secretary steve mnuchin canceled his trip to the so-called apples in the desert -- davos in the desert conference in saudi arabia. now is jodi schneider, bloomberg's senior international editor in hong kong. president'so the comments tell us that the president is coming under from his own congress? jodi: i think it shows there is increasing pressure on president trump to take a stance on the saudi government given the now
two-week disappearance of mr. khashoggi. i think it is not just members of the other party, the democrats, it is members of the own party that are critical of hassteps the administration taken in seeming to believe the denials of the saudi government and taking a more wait and see approach, so there is more criticism coming from congress, and the president is changing somewhat. athough this has been complicated situation, as the saudis have been the linchpin of his middle east strategy, and it is something he has had to struggle with and will continue to struggle with. there is pressure to do things sales cancel those arm to saudi arabia, which the president has reiterated he does not want to do.
di, the business deals between the two countries, are we thinking of sanctions? will congress actually force the administration to go hard on the saudi government? jodi: there are several options. some of them are really more often. one would be -- optic. what would be to dismiss the saudi diplomats who were in the u.s. another would be to push for a resolution that the u.n. condemning the actions of the saudi government. add another would be more sanctions on the saudi government, but the president would need to sign that legislation, and the largest one -- thely canceling president says there are $110 billion in arms sales to the saudis. president trump has said is that happens, it will be a loss of u.s. jobs, and that contracts
will go to other governments like russia or china. he has made clear he does not want to do that. there may be increasing pressure from congress to do so, depending on what these investigations show. di, thank you so much, jodi schneider, bloomberg international editor. we're back with lucy macdonald, allianz global investors cio. lucy, it is frankly upsetting the whole community. how does it impact stocks? mds is arms, this is deals, also showing up in silicon valley. lucy: yes. those businesses are being impacted come essentially through oil price, through the saudi fund and interest in silicon valley. as far as sanctions are concerned, there are indications that there will be none, because of the influence between the governments.
we think that the oil price has had a little boost, but in fact the data is going the other way. has been greater sufficiency of the u.s. and oil, so oil probably not a major factor. silicon valley is an interesting one. have billions in the division find, but that is -- fund, but that is likely to change. the impact is unlikely to be that much. does it push away the saudi aramco ipo? it is very difficult for investors to come in. lucy: yes, we have written that off anyway. francine: does that impact petro dollars? a potential impact on things prices, there are
i can come in that are reliant on the petrodollar, so if we see the oil price spike, that will have an impact on the dollar. and it will haven't negative impact on those who are oil importers. marketre the real dynamics released particular stories, if there is a float to the oil price. what i think is more surprising in a quite interesting is when we had the stretches in oil last weekend, there was not a really material impact in terms of the short-term price. perhaps markets relatively relaxed at this point, it probably that makes the assumption that markets are assuming any sanctions or penalties or the penalization of saudi arabia from the u.s. will be relatively limited. it will be much more of a sort of high-level sort of criticism rather than any specific factors, which can have a severe macroeconomic impact. francine: jeremy and lucy, thank you so much. lucy macdonald from allianz global investors and jeremy stretch from cibc stay with us.
i have jeremy stretch of cibc and lucy macdonald allianz global investors with us. lucy, it really depends. lucy: yes, the expectations are we are still seeing topline growth and not too much impact on margins yet from either import costs or from rising wage caosts. next you will be better, without any doubt, because you do not have the impact of trade, taxes, and he will have a greater impact from tariffs. know, looking at, whether it is doing better or worse, any area that you travel, impacts from tariffs and higher fuel costs, then you see some impacts. the automobile has been hit by a
slowdown in china. than other areas it really does depend. china certainly has been a negative impact and what we have seen so far. those are areas that we are looking at. in luxury to some extent -- francine: because of china. what about the u.s. impact? the u.s. economy is fine. lucy: it is fine so far. we want aussies too much of an impact of tariffs and this quarter --we will not seem too much of an impact of tariffs in this quarter. it will begin to have more of an impact. the last we have spent 18 muslim currencies, jeremy, and because of the lasting-market route, week, the pain of volatility is being shifted around a lot more. what happened? jeremy: you are absolutely
right. we have seen these markets, but in fact be fx market has been rather sidelined, which is rather unusual. we are anticipating a slowdown to really start to build in terms of the u.s. i think we will see the dynamic, which will have an impact in terms of earnings growth. i think it will also have an impact on the fed. we are anticipating a slower pace of growth, and that is mostly the dollar under pressure. all right, jeremy, lucy, thank you so much. lucy macdonald of allianz global and jeremy stretch of cibc. both stay with us. you can catch an exclusive interview at 3:30 p.m. london time. this is bloomberg. ♪ time. this is bloomberg. ♪
bloomberg universe. donald trump's decision to pull -- i have never heard of $1 yoga pants, but there you go. haslett is going on a van of eslaol and diesel cars -- t is calling for a total band of 2021. and diesel cars by pressure is mounted on italy is the eu issues a warning of its draft budgetary donald trump going on very severe consequences of the killing journalists jamal khashoggi. here is juliette saly. juliette: president trump says it is likely that journalist jamal khashoggi is dead. this is after steve mnuchin pulled out of the davos in the
desert in riyadh. ump warns that the consequences of the killing would be very severe. we are waiting for some investigation and waiting for the results, and we will have the very soon, and i think we will making a statement, a very strong statement, but we of aniting for the result investigation. juliette: italy's fight with the eu. european leaders attacked plans unprecedented and said the draft budget cannot stay at 2.4%. they have given italy leaders until monday to explain the obvious deviation. china's economic growth slowed more than expected in the third quarter. 6.5% from ad from year earlier compared to 6.6% from a bloomberg survey. stabilizeg efforts to
the economy and region' reach is growth target. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am juliette saly. this is bloomberg. francine? francine: thank you so much, juliette. boasts somel 3 of the best technology, but there is a major flaw in the car's design that is hurting tesla's profit margin. bloomberg's ed ludlow reports. a city you would associate with building cars at a massive scale. an engineering warehouse north of the city, we found a man who tears them apart, piece by piece. his latest project -- tesla's model 3. monroe and associates does quite a bit of engineering work,
mostly in benchmarking the vehicle. 3'sthey tore down two model a chevy volt.t to tesla is ahead of the game in all areas but one. complex, body is too expensive, heavy, and difficult to build. lot ofthis car have a good features and if you back once, and i am standing in front of the worst one right now. this is the recent ipo, tesla has problems. the body in white and enclosures that go along with that are not designed for manufacturability. they do not do a good job at count, the weights are too high, the bodies are much too stiff. wheel wells turned nine parts and what would normally be one part in a traditional car. it is incredible. i mean, it just goes on and on,
and in many cases, the design is so poor that i am surprised no one caught it long before it goes into production. ed: the model 3 has a sticker price of about $60,000, according to munro. he estimates it would cost $34,000 to build, a profit margin of 30%. but there is a catch. it would cost them us to build if it were built at a traditional car factory. put the model 3 is built where they have 3000 employees and robots. sandy: based on what i know people disappear from the factory, and that would have to happen after the strength of a lot of the robots. this product been built in a conventional ford, toyota, whoever kind of plant, this
thing would have been a brilliant design. it would have entered the marketplace and unbelievable fashion. they could have clobbered everybody. no one would have been able to catch up. theaccording to munro, electric motor is the best. every dollar in every kilo counts. $734esla motor is with 74 kilos.ght of the chevy volt motor is more --sitive at 836 dollars and most expensive at $836 and waved the most at 51 kilos. musk has previously said in response to the firm's analysis that tesla's processes have gotten more expensive since then -- more efficient since then. musk should go
back and redesign. at stake -- cost and higher margin, something investors are watching very closely. ed ludlow, bloomberg news, detroit. 13% ine: revenue rose the third quarter, and the company has boosted its fourth-quarter outlook. amongst the biggest -- venmo, its global mobile payment service. still with us are jeremy stretch of cibc and lucy macdonald of allianz global. jeremy: they track quite closely the surge in e-commerce, and they have clearly been the beneficiary of this. the gold rush.of there are much a part. francine: are we going to see
much more of services being put at square, is it going to come under attack? is partlargely back in of it, paypal is really trying to expand outside of the u.s. we saw them acquire i vessel, the swedish-based machine. they are trying to get into more brick-and-mortar locations. not something we know over here because in the u.k. commute easily transfer money back and forth. in the u.s., that is not the case. dinner, when a "i will they ussay venmo you." debitre adding a venmo card, so you put money with
venmo, and you can transfer it to your debit card. that is the way to avoid a transaction fee. it seems like as we shop online and differently, potentially, we can see that significantly grow. lucy: it can. payments.gital i think the whole industry has been very exciting. it has been growing very quickly , but there is a bit of a lack of profit , but there is a bit of a lack of profit for many of these companies. i think there will be a consolidation. so this might be by the larger, traditional to get some of the expertise, and bring it
in-house. that is where we begin to see that from. francine: hacking must be the biggest concerns for these companies, right? ok, as you say, the profitability issue is one thing. is the lower, less regulated, this is quite heavily regulated and therefore harder to crack. webb,ne: thank you, alex lucy macdonald from allianz global, and jeremy stretch from cnbc. -- cibc. this is bloomberg. ♪ bloomberg. ♪
surveillance." i am francine lacqua here in london. let's take a look at this morning's papers, where brexit takes center stage. giving theresa-- may the cold shoulder. that is on the front page of "the times." anger from some of the prime minister's proposals to extend the transition period. the eu helped push may to avoid a no deal. spoke late yesterday afternoon after the announcement that theresa may was considering a plan to extend the transition period. >> there are a few but considerable outstanding issues in relation to the northern irish backstop are committed to working with the commission and eu leaders to resolve the us as quickly as possible. we have a lot of hard work
ahead. there will be more difficult moments. convinced we will secure a good deal in the interest of the u.k. and of the european union. we have asked our negotiators to achieve an agreement. i have asked to reconvene the council on brexit is it wednesday negotiators decided that the rest have been laid. >> we do not have the solution or, for example, we still have to deal with the irish situation. there is no easy answer to this. completely be separated from the question of what the relationship is going to look like in the future. >> this prolongation of the transition period is not the best idea that the u.k. has had,
but i think it is giving us some prepare the future relation in the best way possible. francine: those are some of the voices speaking yesterday afternoon. what does this mean for markets and investors? allianz globalof investors and jeremy stretch of cibc are still with us. jeremy: i think it depends on the resolution of the process. in the short term, we can expect volatility to remain relatively elevated. the headlines, theresa may trying to unify the party. unfortunately, they are in opposition of her plan, so it will affect leadership yet again. internationalthe investors looking from an outside perspective, is their conviction that it is a scenario
that there will be inherent political risks? baseline assumption, baseline conviction, although it is not a necessarily deep conviction, is that there will be a resolution or at least work for terms that there will not be a hard brexit deal or some fear, and i think that will allow it to recover over the short, but i think it will start to be corrected. next year,le part of we should be looking at sterling and installer at $1.40 rather than $1.30. francine: what happens if the u.k. crashes inadvertently? jeremy: then we have to look at what we had like a 2016. he question is -- would re-creating that same sort of magnitude? i think probably not, but we can in valuation under
that sort of crash out scenario, because ultimately, the u.k. will be able to reprice in itself, and to reprice itself by parity would be way to do that. francine: lucy, do you own some access in the u.k.? international. lucy: we have some exposure but not really an enormous amount and very little in anything domestic. so i completely agree. i think the bad news is priced in, it is underweight as a whole, and so any progress will be likely, however, that is not the only issue. also lurking are concerns about anticapitalist, no potential government, and you have a late cycle economy with a very intrepid consumer. so even if you sought that out, it does not mean you will suddenly get it.
francine: thank you both you want to remind you of the question of the day. you can log onto the bloomberg terminal to be part of the conversation. funding breaking out across the globe, while serving marketsdo to the -- libor -- what will the surging libor due to the markets? lucy and jeremy stay with us. coming up, the italian government will not back down off of their 2.4% deficit target. we will ask our experts how this is affecting the market. this is bloomberg. ♪ the market. this is bloomberg. ♪
francine: economics, finance, and politics, this is "bloomberg surveillance." i am francine lacqua here in london. let's get straight to the bloomberg business flash with juliette saly. expects to report third-quarter catastrophe losses between $1.5 billion and $1.7 disasters.m national initial estimates for losses tied to hurricane michael are about $300 million to $500 million.
those forecasts are calculated before taxes and net of reinsurance. "bloomberg that businessweek" has targeted chinese hacking has said no u.s. agency has found attacked hardware. "bloomberg businessweek" described how the chinese company used subcontractors to plant malicious chips in the moderate voice. -- in the motherboards. revenue rose 14% to $3.68 billion for paypal. it is making progress toward the popularenmo, mobile payment service. that is the bloomberg business flash, francine jury francine: thank you so much, julia. -- francine. francine: thank you so much, juliette. bund yield spread
reached is fin white as level since 2013. -- widest level since 2013. >> we have been open and constructive dialogue, citing some different valuations on our economic policy. lucy macdonald from allianz global investors and him are stillom cibc with us. when you look at italian assets, is the spread widens, it makes them less profitable. ut inevitably, there has to be some sort of compromise, because there is no other alternative. so they have to come to some sort of deal, but in the meantime, there is still
uncertainty in europe. francine: right, but i do not really want to say he is wrong, but brussels seems to be a little more safe, and these are campaign promises. lucy: they are continually breaking rules, and they want to break rules, but that is not unheard of. it will come down to compromise, and it has to. francine: do you think it puts a stake the european project once again? lucy: it cannot be allowed to fail. it needs to be good. francine: what does this mean for europe? jeremy: i think what is interesting as we have not necessarily seen the euro material index to the degree you might have expected if you see it threatening the integrity of the euro. there are politics here. sylvain he is playing an interesting game ahead of the lvini is playing an
interesting game ahead of the elections. i suspect there will be some degree of compromise here. market the interpretation from evaluation of the euro, if we do see that to resolution and we do see some degree of, is not compromised, an idea which allows both sides to come out, trade negotiations and other spheres, that will allow the euro to focus more on the fundamental story, which is constructive. i think we have the opportunity for the euro to appreciate in the next 12 months. francine: what about german political instability? jeremy: there are political risks in the eurozone. in a sense, i think we are in the endgame for angela merkel's regime. how long before we reach a subtle transition -- of course you have to remember she came into power after an internal
fraction in her party. i think that will be the result is time around. i would have thought it would be months rather than anything shorter than that. even if the elections are in the next couple of weeks, for the grand coalition, i am not sure we will see an implosion of that at this stage, but it may be the case as we see a political transition becoming rather close to the european elections next may. francine: lucy, would you like to see that right now? lucy: i do not think there has been a nearly driven by a big slowdown in china. the consumption is relatively europe, it ishin some of the industrials that are is reallyosed, and it under threat, less exposed also, but there is quite interesting
industrial tech within europe, which is no much more undervalued because of those concerns. francine: thank you both for joining us for the hour, lucy macdonald allianz global investors, and jeremy stretch, head of fx strategy at cibc. thank you both for joining us this morning. speaking, we will be with soren skou, ceo of molar mosque -- moller-maersk. this is a picture for your markets. stoxx 600 down 0.4%. this is bloomberg. ♪ this is bloomberg. ♪
expected on worsening trade tensions. stocks rally after regulators say they will keep expansion under control. widen.d spreads president trump says jamal khashoggi is likely to and warns of reprisal. treasury secretary steven mnuchin withdraws from donna's in the desert. tom keene in new york. we look at geopolitics, the week that was, brexit, and china. tom: a real mystery that gdp. 2019 iferesting into they stay at the 6% level. how globalow economics will react if we see a 5% print on china gdp. we are not there yet. it is something to be considered. francine: you are right. what is also to be considered is
regulators and authorities and china saying that whatever happens they will prevent it financial meltdown. for first word news in new york city, taylor riggs. taylor: china's economic growth slowed more than expected in the third quarter. the government admits what it calls the severe international situation is having an impact. 6.5% from yeare ago, the slowest pace since 2009. industrial output came up short. top financial officials moved to shore up officials from the banking and insurance regulator said abnormal fluctuations in the market do not reflect the country's economic fundamentals. chinese stocks have fallen this year to a four-year low. saudi arabia reportedly may blame a top intelligence official close to crown prince mohammad bin salman for the killing of jamal khashoggi,
which could provide a plausible explanation for the killing and deflect blame from the crown prince. he has been the subject of enormous international backlash. british prime minister theresa may is gambling on a goes slow approach to revive talks on brexit. eu believek. and there is merit to keeping the country inside the bloc for withr to resolve issues the customs union between ireland and the u.k. 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 taylor riggs. this is bloomberg. tom: thanks so much. just one board for me this morning. quiet markets. negative yields in europe in a moment. twos and tends spread nowhere in a week.
number an extraordinary over the last week. week.fter this brent crude under $80 a barrel. francine: this is similar to what i have. stocks in europe on a downside. figure outry to where that leaves oil and the dollar much study. , they are acks little concerned about china gdp, but we had that positive news as france regulators vowed to keep risks under control. something to think about for europeans is persistent negative yields. this is a chart i pulled out months and months ago. the 10-year germany held and two-year chairman yield. yield and the two-year german yield.
francine: the bavarian election was significant because it gave everyone the idea that angela merkel was more fragile than thought. the data did not come out as expected. italy also plays into the general anxiousness over europe. this is what i am looking at. we have to spend time looking at that german yelled and the troubles of europe. looking at gdp in china. this index, chinese gdp and monthly gdp estimate. they are tracking. are stable.hings we will push both of our charts out on social media. for more analysis, we are joined --the silliest cannot guess vasileios gkionakis. welcome to the shop. what did it mean that chinese
gdp was below estimates but still at 6.5%. warning financial risk that they still have under control. relativelyhole it is positive news for markets that are warning for a soft landing. the evidence so far, our analysis shows we are heading for a soft landing and authorities have been successful in that respect. if you look at a host of other numbers because they will also get the fixed asset investment, retail sales, industrial investment, they are broadly in line. that appears to be slowing, bottoming out. on the whole, i take it to mean we are being faced with a
relatively stable chinese growth environment. on top of that, you have a number of reassurance steps being taken by the authorities to ensure that financial risk doesn't get out of control. i don't think we are headed for a major crisis. francine: what does renminbi do from here? our central scenario is that it stays stable from here. the authorities have been very stability,ure fx meaning they would not like the basket to start converging towards new lows. whether we crossed seven or not is not the big question. the big question is whether we cross seven in a sustainable way or do a dollar china run up to seven and converge lower. our central scenario is to stabilize around where we are now. if we see a sustainable break above the seven level, this will
have severe repercussions for the rest of the global market and emerging-market currencies. tom: is it a good time to speculate in foreign-exchange? i look at your research at realrd odier, i see quiet. that is not the best time to speculate. is there opportunity to be had into next year? definitely opportunity into next year. the way we see things is we think the dollar has really ran by thiseally been hyped fiscal stimulus implemented in the u.s. there is global trade, political uncertainty, concern about chinese growth, and these things seem to be offsetting each other. that is why you see tight ranges. and somee towards 2019
of these risks are subsiding, what will come out on the surface is we have ill-timed fiscal stimulus in the u.s., which will lead to higher inflation, compressing u.s. rates and lower dollar. from the medium-term perspective, i think the dollar goes lower. is it a rate analysis are capital flow analysis? >> i think it is both, to be honest. you look at how much the rate is priced in the u.s. relative to what is parsed into the rest of the world, a number of other countries have strong economic fundamentals, and the rates pricing is not fair. it is a flow analysis. if you look at the last 10 years, international investment in the u.s. has moved to unprecedented level. the u.s. has been enacted for capital flows. as of 2019, that is becoming more evident that this fiscal
stimulus was ill-timed. it will not lead to increasing potential growth. are going tomiums increase. i think we will see outflows from the u.s. francine: outflows that lead to fed hike? think steel will maintain a haven status. it will take years until this notion disappears. i think the flow is going to be gradual. i don't think it will put the fed hikes into question. timeine: is 2020 crunch because it is the end of the tax cuts? >> we are talking about 2019. francine: i hear that recession could hit in 2020, which is close. >> that is a fair scenario.
in 2019, a slowdown but no major downturn. what happens in 2020 will depend on how far the fed goods and to what extent -- goes in to what extent the flaring up of risk we see becomes systemic. from a purely statistical perspective, as you move further outcome the probability of recession increases because the cycle is already extremely mature. francine: thank you. vasileios gkionakis stays with us. in the meantime, you can continue watching "bloomberg surveillance." tom's charts. he has a good one looking at the german yelled. i have an ok one looking at chinese gdp. you can do that by looking at the number terminal. you can take the chart, use the chart, change the chart. this is bloomberg. ♪ ♪
taylor: this is "bloomberg surveillance." i am taylor riggs. american international group expects to report third-quarter losses of up to $1.7 billion due to natural disasters. hurricane florence in the u.s. and typhoons in asia caused billions in losses. is an encouraging sign for venlo, the popular mobile payments app that has yet to make a profit. paypal says it has reversed the trend of losses in venmo. tesla is now taking orders for a
shorter range version of its model three electric car, $45,000,3,000 -- about $3000 less than its original model three. there is still no sign of the $30,000 model three tesla promised. tom: thank you. we need to get perspective on what we have seen this week from saudi arabia, washington, and turkey. benjamin harvey has been in charge of our operations for bloomberg news in turkey since time began. incredible with perspective. what is the next step for mr. erdogan in this crisis? >> i think the turks have presented some evidence to the u.s. at this point, i think they are waiting for the trump administration to come up with and sort of response
ramp up the pressure on saudi arabia. tom: walk us through what mr. erdogan and his government would like to accomplish. i don't understand what their goal is with washington and president trump, and i don't understand the relationship with the royalty of saudi arabia. what does turkey want to accomplish? >> turkey has a very complex relationship with saudi arabia. on many issues, they are on opposite sides of the spectrum. particularly over the approach to the muslim brotherhood. turkey has become the base for the muslim brotherhood. saudi arabia sees them as a major security threat regionally and domestically. i think the turks are on the same page as lindsey graham, the republican senator. they want to pull the carpet out from under mohammad bin salman, the ascended crown prince in
saudi arabia. two tom's question, is there anything turkey is actually trying to achieve? turkey and saudi have not been the best of friends, but can they gain something out of this? >> i think they can. the speculation among the diplomatic community is that the turks have some sort of concrete evidence that this happened, whether that is audio or video recording, and they are using this as leverage. they want to get something out of saudi arabia. they would like for kings salman in saudi arabia to pick someone else. also speculation that the evidence they have would be difficult to release because it could mean they would have to sources, and even that they were monitoring the saudi consulate. understandingan
within the western media that the turks have had legitimate access to the consulate? >> no. they think that perhaps the saudi consulate was bugged. there has been talk about audio and video. there was a story that was leaked that was saying this could have come from an apple watch. that story has been debunked. the one option left is that they had access inside the saudi consulate. francine: thank you so much. still with us, vasileios gkionakis. the investigation is ongoing. the details are horrific and extremely grisly, which prompted this international reaction. this goes to oil, petro currencies. how real is the implication longer-term? >> let me say there is
definitely a risk that things could escalate because we could end up with the u.s. imposing andtions on saudi arabia saudi arabia potentially retaliating by reducing the supply of oil, and therefore you are getting a clear supply-side shock to oil prices, in which case you are getting a bad inflation filter through and hitting real consumers because that is nothing more than a tax. there is another angle that is quite interesting. rightseems to be a rift now between congress and washington, meaning a lot of people in congress seem to believe trump is being too favorable to saudi arabia. francine: like they did with russia? >> absolutely. this will be interesting to watch. you have the midterm elections, difference between trump and
washington on saudi arabia. this could increase tension. tom: what do we do with the dollar? i believe you published dollar stability. which way is the surprise, strong dollar or weak dollar? >> the main scenario is stability for the next year months. these risks will loom. as they subside, i think dollar goes lower. on a medium-term basis, we are bearish on the dollar. this is predicated on the fact that not a lot is being priced into the other major currencies in terms of monetary policies and real rates, but also the fact that i go back to this, we have the most extraordinary fiscal policy in the modern astory of the u.s. we have huge increase in the fiscal deficit when the economy is operating at full employment.
we have not seen anything similar to that if you look back over 30 or 40 years. this is found to have implications on inflation. there is the deficit that we will enjoy next year. mr. vasileios gkionakis will continue with us. we are thrilled to bring with -- investor formats, ts, time tohorma speak of the american death and deficit. this is bloomberg. ♪ rg. ♪
francine: this is "bloomberg surveillance." paypal is reported earnings that exceeded analyst expectations. revenue rising 14% in the third quarter, also boosting fourth quarter outlook. paypal says it is making progress on monetizing venmo. i am looking at the market, about 6% higher. what are they doing right? >> i think they are doing really well on mobile transactions, online transactions, although which is there sweet spot. the economy in the u.s. is doing well, so that tends to help. as of payments company, a lot of the stress activity in the economy as a whole. they are trying to move into the in-store experience, offering
customers, retailers on the channel possibilities. with walmart to offer paypal in-store. i think you will see more of those deals going forward. francine: what are the weaknesses in paypal? how many rivals do they have wanting to do the same thing? >> it is a competitive space, payments. it is one of the better companies in that space. there are others out there. you have a company here in europe based in the netherlands. they are doing extremely well. they famously displaced paypal as the main online payments processor for ebay. ebay had been a big account or paypal, at one point owned paypal. that was a big loss for paypal. with testlso eating -- they areth
olderompeting with other companies. hey the analyst expectations, so they seem to be executing well. francine: thank you. one of our bloomberg experts with comes to technology. coming up next, and given daily -- kevin daly, economic director for central europe. we will talk to him about the opportunities out there in the market. this is bloomberg. ♪ ♪
growth slowed more than expected in the third quarter. gdp rose 6.5% from year ago. the government of knowledge what it calls a severe international situation. chinese stocks rose after the country's top financial officials moved to shore up confidence. the government is tried to prevent the biggest selloff since 2015 from affecting the economy. one of the most popular politicians in taiwan says the island must except its status as upon a great power game. the mayor of taipei is a possible presidential candidate. this china-u.s. conflict is going to be a trend for the next 15 years. there is no such thing as cross strait relations. the taiwan issue is just a part of the tensions between the u.s. and china. government facing off with european union over its government. the prime minister failed to convince fellow eu leaders that italy should be allowed to block
fiscal rulebook. the eu commission sent a letter to rome calling it spending plan success of an asking for nation. back here in the u.s., president trump raise montana congressman who body summed a reporter for asking him a question at a rally in montana. the president celebrated the episode as he introduced forte.sman greinke a the congressman was sentenced to do community service and attend anger management classes for the attack. who wants to be a mega millionaire? the jackpot just hit $970 million for tonight's drawings, making it the second-largest u.s. lottery pool ever. the odds of winning may be daunting, 303 million to one. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. i am taylor riggs. this is bloomberg. thank you.
the million-dollar or trillion dollar question when you when the water -- when you when the lottery, do you still show up at work the next day? it has been a techie or for emerging markets. 16%.wing more than the ongoing trade war. against this backdrop, our next guest says there has been a prospectseration in and asset prices across the middle east and africa. joining me now is kevin daly. , gkionakis.his welcome to the program. how difficult is it going to be for a lot of these developing nations? >> we have seen a big deterioration this year affecting these economies. first, the weakening and external demand. global growth has slowed by more than a percent and a half from
below four.o we've seen a tightening of financial conditions. the third is oil prices. oil prices have risen 30%. this is fantastic for exporters, but for en aggregates, it is quite negative. fourth, the tariffs and the risk of a trade war. the combination of these four factors on our estimates are in the process slowing me em growth . francine: what happens to dollar? if dollar goes up, this hurts emerging markets? >> you are right. a lot of the pain that emerging markets have faced the sheer has been related -- this year has been related to the dollar in the reprisal of the u.s. rate prospects, hiking financial conditions that we have seen.
the crucial question going forward is to what extent is ? there i think there is more room for optimism. we have already seen quite a growthslowdown in the em already. i think em asset markets as a whole have discounted a lot of the bad news. going forward, for the asset classes as a whole, we think the risks are broadly balanced. tom: i want you to fuld and year jeff for his work on oil and what you see him to john the research note. -- i want to bring into the full, jeff and this work on oil and what you see him in the research note. the massive depreciation of ruby, you get a wrigley -- really ugly price for the people of india. the spread has widened dramatically between dollar-based oil and ruby-based
oil. when does you embrace because of oil prices or sustain high oil prices? >> tom, you raise a great point. it is one we emphasize a lot in although ih that think horizon oil prices seen as positive for em's, in aggregate we see it as negative, especially for countries like india and within my own area seen the likes of turkey it is very painful. i think some of that adjustment is still taking place. a lot of the adjustment has already taken place. you have seen growth slowed markedly. tom: this is really important. is this a year over junior -- year-over-year change for you change and adjust and the moveon or is there a real issue of a chronic level change that affects the society? us, we think most of the
adjustments in oil prices is now behind us. i think it is true the reason why i argue the risks are balanced going forward, presume there are no new negative shocks in the system or if oil prices were to rise significantly further from where they are now, then i think that would bring additional pain. at that is not what jeff is forecasting. that is not what our commodities team is forecasting. francine: what is your take on turkey? >> we remain very cautious of the turkish acids that have improved with the news over pastor brunson and the better environment with the u.s., you boost to given a turkish assets. in our view, we expect inflation , currently 24.5%, we think it ratesise to 30% in q1 and are going to have to rise
significantly further. we think the risks are skewed. francine: will they rise significantly? --we don't think they will we think or ultimately, they will do so reluctantly, but they will be forced to do so by the dynamics in inflation going forward. we remain pretty cautious about turkish assets. tom: kevin, i want to switch to russia. i saw a photograph of mr. putin in a car driving the leader of egypt the other day. s it a front to economy? how does that play into ruble dynamics? the mystery of where russia lays into all of this. exception toan this more challenging environment i talked about, obviously, for russia, the huge percent rise in oil prices we have seen this year is fantastic for the economy. we're in that context, the clear
significante is tightening of the sanctions going forward. but to our minds, russian assets are pricing all but the worst sanctions scenarios. given this boost from oil prices and given where russian assets are pricing out, we are onatively constructive russia, and the ruble in particular. kevino you agree with that ruble can be good here? >> i think so. i think there are number of positive dynamics going on. i think kevin clearly mentioned the fact that we are seeing quite a significant rally in oil prices. let me say from historical perspective, because of the em route we have seen, there's been a decoupling between dollar, ruble, and oil prices. there are solid fundamentals and russia and most importantly of
all, we are talking about a very credible central bank. for example, in the region, if you compare that with the turkey, this is miles away in terms of credibility. i think on the whole, there is prospect for the ruble to depreciate in a think we are quite constructive and russian assets in general. francine: let's talk about south africa. we spoke to 1 -- actually, the expert two days ago. or do south africa go from here? we were among the optimists in south africa this year. on the back of the victory last or there would be a boost to growth. i think what we have seen in reality is political dividend has not come true. meanwhile, the rise in oil prices, in the context of a broader determination and self
africa's of trade come the slowdown in global growth, how dominated the positive news on politics in terms of driving growth weaker. said, we think the rand is exceptionally weak at these levels. it is below our us to its dust estimates. below our estimates. we are going forward. francine: do is just rates does interest rates have to rise? on thate at a consensus and we think that rates will stay on hold from here and ultimately the next move in rates is going to be down. tom: is more conversation, kevin daly with his with goldman sachs. thank you. and vasileios gkionakis as well. this is a treat. nobel prize winner paul romer of stanford will join us. paul romer are coming up in the
taylor: let's get the bloomberg business flash. inres of dow dupont premarket trading, cut the asset value of its agricultural business by $4.6 billion less than nine was before a scheduled spinoff. the charge reflects weaker demand for seeds and pesticide since last year's merger between dow and dupont. new york state officials made
part of the $60 billion merger and in sure at now. the justice department has already given its ok as long as it gets rid of its medicare part b business. new york regulators say they want evidence the merger will not drive up prices. a team a manufacturing analyst spent thousands of hours singapore tesla model three piece by piece. the conclusion, tesla has the technology of any electric car but it is wasting that with poor design and bloated manufacturing. >> i think really and truly in thead the whole world palm of their hand, but am fortunate, because they did not go in benchmark other car companies or did not ask maybe enough questions about robotics and whatnot, they basically lost that competitive edge. they can gain it back, but it is not going to be easy and it is going to be semi-expensive.
taylor: and that is your bloomberg business flash. francine: volvo reported third-quarter earnings that beat estimates. this is the truck maker volvo. they expect more demand for truck in north america next year . bank of america merrill lynch struck a more negative tone earlier this week, predicting the global truck architect will take a turn for the worst. does this spell trouble for volvo gekko joining us from stockholm from our next guest. where do you see truck demand going? our trade demand starting to take a toll? >> we said in our quarter reports a day we are guiding -- first guidance for 2019, we see a solid demand in north america where gutting up a proximally 5% from already good levels in north america and also europe will continue to be a good
levels. we are guiding down that a little bit, but really on high and good levels also for 2019. francine: talking a little about the news that we found out because of a faulty emissions part, exactly how many tracks are you expecting to recall? >> first of all, we're not talking about the recalls. what we have said is we have a potential degradation of a component during the lifecycle. so that is not at delivery, but over the lifecycle. at the moment we are investigating the magnitude of that together with the authorities. knowine: how soon will you the scale of the problem and what is your hunch right now? the potential population, but the important that it to frame it could have aware entire situation over the lifecycle and
reduce the actions on those vehicles. that is progressing well. we will come back when we have the population defined. francine: i don't -- i understand and respect that, do you have an estimated cost how much it would take to actually replace the component or whether you are worried about fines? >> first of all, we are not worried about fines due to the fact that we have discovered this in our internal monitoring processes of the fleet rolling out. we have proactively inform the authorities about this. allhis is in line with rules and regulations. when it comes to the population and the possible cost of that, we will come back when we have defined the population. it is progressing in good order together with authorities and customers. francine: so to your knowledge,
have a systems that your trucks have in place present to them from exceeding limits of, for example, patches and oxide -- that vision oxide? >> we are monitoring that and we have detected this degrading. and we will take actions for the vehicles that need to have this to speak.actions, so that is the whole idea with the whole system. francine: thank you so much, chief executive of volvo ab. in about 40 minutes from now. this is "bloomberg." ♪
the political drama played out in the markets with the 10 year bund your spread reading -- which in its widest level since 2013. still with us to discuss all of this is vasileios gkionakis. does this start hurting the euro? >> as a matter of fact, i will take it slightly different view on that one. based on our analysis, what we've seen is the correlation of the bund spread has been exceptionally high during the summer months when we started sing the initial explosion in the spreads. over the past two or three weeks, the correlation is still there but it has started marginally,fall nothing extremely meaningful, but it has started falling. we think this tells us a number of things. first of all, initially, the market, apart from the italian list, started pricing and risk into the euro. that, our view has been, yes, italy does pose risk
predominantly due to politics, but not so much in terms of economic risk. at the same time, that does not pose a systemic list. -- systemic risk. we think the market seems to have started pricing out a bit. that, as i was saying before because we have risks, italianot risks is likely to stay with us for the next month, a few months or so. it will likely prove to be a tactical hazard for the euro. it is unlikely to deliver a sustainable blow largely because it is not really a systemic risk. it is not similar to what happened back in 2012, 2014. tom: on foreign exchange, would you please explain the effect of chronic negative interest rates? all, the issueof
is that we don't have negative interest rates in just one country, but we have them in a number of countries. i think that is largely because there is the potential there has been a structural break into how the whole market transmits prices into inflation pressures. within all that, what has actually played out of the past couple of years is apparently, the u.s. has been one of the few economies, major economies has started converging toward positive rates. the 10 year right now i'm a we're talking about one percentage point of positive real yield in the u.s. it has definitely played in the dollar's favor. but this has been the result of unconventional more time policies. -- maritime policies. although negative rates had a
negative impact on major currencies against the dollar, we think moving toward more conventional policies and therefore real rates are going to start normalizing in developed world. this will apply some dollar weakness going forward. tom: but what is going to normalize is kicking the can down the road. there's no evidence that is going to change in europe, is there? the answer is to move the canon to 2019, right? >> right. there is an element of truth in that but let me say a few things. back go four or five years , it wasn't just italy, he was irelandspain, portugal, in the eurozone. a number of these issues have actually been addressed. spain has implemented structural reforms and now it is growing really fast.
portugal, it has brought its house in order. italy right now is more of a political situation, although growth is coming back to italy. ireland, definitely moved forward. i agree with you there are a number of hurdles going forward, but at the same time, we should not discount the fact a lot of progress has been made. ecb is about to stop asset purchases. tom: we have to leave it there. vasileios gkionakis, thank you so much. coming up in the next hour, looking for to this, ambassador hormats will join us from kissinger associates and saudi arabia. much more, robert hormats on his china and your debt. this is "bloomberg." ♪
more negative yield. bank of england governor mark carney in new york. he speaks at noon. i have an instinct for diplomacy. in this hour, robert hormats on pompeo and a saudi response. the mystery of the midterm elections. america ever more divided. good morning, everyone, this is "bloomberg surveillance." i am tom keene. in london, francine lacqua. i am shocked. in the last hour, we were brexit-free. that is un-american. give me an update on brexit. francine: the we can update, they're trying to figure out what happens to the pound in the eventuality of a no deal. i would caution the markets, caution people a lot of copy has been written in the media about the eu and the u.k. coming closer together and finding a solution for the irish border. wehave been here before and
take a step forward and two steps back. this time we can't be optimistic but just be cautious. -- this time we can be optimistic, but just be cautious. tom: we will see. here is taylor riggs. taylor: china's economic growth slowed more than expected in the third quarter. the government admits what it calls the severe international situation is having an impact. china's gdp rose 6.5% from a year ago. that is the slowest pace since 2000 nine. retail sales do better than expected, but industrial output came up short. hours afterina rose top financial officials moved to banking confidence the and insurance regulators had abnormal fluctuations in the market don't reflect the country's economic fundamentals. the central bank says it is looking for ways to ease company's financing problems. chinese stocks have fallen this year to a four-year low. reportedly may blame top intelligence official fore to mohammad bin salman
the killing of jamarcus show view. according to "the new york times," that could provide a plausible expiration for the killing and deflect blame from the crown prince. he has been subject to enormous international backlash since the disappearance. theresa may is gambling on a go slow approach to revive brexit negotiations. both the u.k. and the european union now believe there is merit in keeping the country inside it block for longer after formally leaves. that would give negotiators or time to resolve the biggest obstacle, that is how to avoid customs checks at the border of ireland and the u.k. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. i am taylor riggs. this is bloomberg. tom: thank you. quiet markets out there. i noticed the german two-year yield ever more negative. the euro really coming back, and
the story of the week is maybe a weaker euro. isncine: what i'm looking at a similar board to yours, but european stocks are actually falling on the earnings outlook. oil is gaining. italian assets are dropping after the eu revved up chris's above the draft budget. watch out for all of this. tom: to kevin cirilli in washington. i'm going to take a few minutes here, kevin come on the midterm elections. we look at minnesota and pennsylvania, ohio. nate silver is pretty adamant this is over. if you look at the odds of a win in the house for the democrats, a win in the senate for that the republicans. is it over or can there be tension to the election day? i think in terms of the trend we're seeing, there is not been, as of now, a major element is
the justice capital cap formation hearings that is really jolted -- confirmation capital thatustice is really jolted them. these polls are expensive. they are very nuanced. they are very hard to calculate in the sense of the house raise because they're so nuanced. the second, more broadly weaking, it really does -- semi-correct when record, but it comes out to just to exactly is going to vote. this is -- the house raise is so much more localized than the presidential cycle and even the state cycle. tom: i want to bring up a fascinating op-ed. i think his book is really interesting, whatever your politics. this needs extra nation -- he goes on to talk about this odd word.
kevin, is the ambivalence and uncertainty out there for democrats still? >> absolutely. who is leading the democratic party? look no further than senator ted cruz in texas to see how that piece you just read has impacted the texas race. if you read the interview anderday from heidi cruz off to all of that tense relationship they have with the terms, now president trump is campaigning, don jr. is campaigning in texas and so far they have been able to thwart off a rising democratic star in beto o'rourke.
francine: what will determine if people come out and vote, whether the base is energized? people coming out? or purely weather? >> it is always a little bit of weather but i think in terms of getting out the vote, from the democratic perspective, you've seen democrats specifically in a waye female vote that we also saw the last cycle that candidly did not work for them, despite hillary clinton winning the popular vote. focusing on the suburbs. they are focusing on the 30 plus house district that they have to flip in order to take back control of the house. that is why you are seeing so much of this specific targeted voting in ohio, yes, florida, and i would pay special attention to the suburbs of tallahassee specifically to see if they're able to be successful in doing that. tom: kevin cirilli, thank you for the briefing, as always.
i have been anticipating this for days since we have learned the news from a consulate in turkey. robert hormats of kissinger associates in their vice chair that barely describes his public service to the nation on economics and on international relations. the store hormats -- mr. hormats. bob, the news flow is extraordinary. peel away the politics. your recent service to president obama, your service to republicans decades ago. what is the needed foreign policy projection of the united states right now? >> several things. one, consistency. consistency in terms of message, consistency in terms of -- tom: are we seeing that the secretary of state? >> i think he is trying to create a measure of consistency. i think he understands the importance of it. ps tricks and the capabilities of the state department -- he
has strengthened the capabilities of the state department. the other is, we have been a strong power since world war ii in part because of our own strength and in part because of our alliances. we need to really strengthen the confidence our allies have in us and the texture in the institution of framework of our alliances in asia, with europe, and other parts of the world. that has been frayed by some of the rhetoric and actions in washington. tom: how does any state department adapt and adjust to dealing with authoritarian regimes? we can color it as a royal family or mr. burda one --erdogan in turkey, but from democracy to a conversation of authoritarian nation? >> interesting question. there are some relationships that our values centered and interest centered. i would say europe is in that category, japan is in that
category where our values and interests are by large the same. then there are some countries, and we had this during the cold war and we're having it now, where our values are vastly different. but we have common interests, for instance, strategic areas of the world, middle east being an example, but other parts of the world also. so when we do that, we have to keep our eye on what our values are, but also understand from time to time, our values, at least for the moment, get put aside in terms of pursuing very key american interest in the region. we realize there's a contradiction. it we have been working on such contradictions, as long as we're clear about the, since the cold war. with usountries working that shared an interest in our outcome in the cold war but did not have the shared interest. francine: there is rift between commerce a president trump. are we going to see sanctions on
saudi arabia depending on the investigation? i think it depends a lot on the investigation and how the outcome is framed, with the outcome is and how it is seen. congress clearly has very strong views on this issue as members on both sides of the aisle have evidenced. thequestion is, what outcome of the investigation is and what does congress decide to do? with respect to russia, with an the president has close relations with putin but the congress has taken matters into its own hands and instituted strong sanctions against russia, for instance. francine: but how can we be so sure depending on the investigation this was a real thorough investigation and that we are actually getting to the bottom of what happened? >> that is the question. the question is the outcome and is it credible gekko i think the congress will be asking a lot of tough questions. they've indicated they will be, asking them of members of the administration and doing investigation using american intelligence capabilities to find out what they know and what
-- we have not seen all of the evidence, but there is a lot of evidence that apparently the turks have. it has to be an outcome that is credible and the process has to be credible also to get a meaningful result. tom: have you ever stood in the hallways of the oval office shouting and yelling profanities at someone? we have the reports here, did i buy the white house, bolton going after kelly, kelly going after bolton. it is a mess. what does that do to the execution of a foreign policy to have people screaming in the hallways? some fairly tough conversations in the oval office. tom: i bet you have. >> nothing quite like this, or at least the way it is described. i don't know what is going on, but it does create a lot of uncertainty when you see these two top-level people arguing over something fundamental like the question of borders and immigration. tom: francine? francine: bob hormats days of
executives report their quarter losses up to 1.7 billion dollars because of natural disasters. hurricane florence in the u.s. and thai foods in asia caused billions in losses. it is estimated hurricane 500ael may have cost up to million dollars. encouraging sign for venmo, popular mobile payment at that has yet to make a profit. paypal is reported better-than-expected earnings in the third quarter and says it has reversed the trend of mounting losses in venmo. paypal also boosted its fourth-quarter revenue outlook. and that is your bloomberg business flash. you so much. with us, robert hormats with kissinger associates. the continued bull market. gabriela santos joins us. wonderful to have you with us. one thing we have seen is a shift from the growth of the market over to value. what do you see within the
synthesis of all of your strategies and jpmorgan? are we going to shift from a growth, big revenue-centric view over to value or is a premature? >> when you look within value, there's a bit of a push and pull in their between the sectors that make up the value styles. you of certain sectors that are very interest-rate-sensitive like utilities. those are probably not going to do well over the next 12 months. you have something like things in financials overall -- tom: why the banks? >> there is some concern about how much credit volume really is picking up. i think there's some concern around that interest margins. have we peaked or not? for thist results season, the banks are looking very good. that should be a factor within value that should do well. tom: in your world, and we saw this with the oppenheimer transaction funds yesterday, raging debate about passive
versus active manager. the banks are the banks, but selected banks -- i think mr. dimon runs it. selected banks are doing quite well. is it a time for active management in this supposed shift from growth to value them or do i just keep buying amazon? >> we think there is a place for both. you cannot access management, strategy stab more tactical shifts for example to lower the cost of the overall portfolio, but if you think about where we are in the cycle, we're pretty -- probably later cycle in the u.s. that is the time you want to have the component of active management. you want to be picking quality companies and be rarely -- very aware of your risks. as a management should do well. francine: to worry more about risks in the forefront in 18 months on the u.s. economy? are we risking a possible recession? >> we do think this pace of 3% or so of growth we have seen for a few quarters, that should
begin to fade and the second half of 2019. what we're really talking about ,s a deceleration to a normal long run pace of growth. we consider that to be around 2%. it is a deceleration, not a recession. but it makes the economy a little more vulnerable to any sort of external shock once you have that deceleration. we are not calling for a recession, but a deceleration. tom: gabriela santos. we will do china with robert hormats. robert hormats, on-q to win a nobel prize. couldnot sure, but he easily win a nobel prize. this morning, a conversation with paul romer. growth, productivity. paul romer in the 7:00 hour. this is "bloomberg." ♪
days. tom: are you on the same page on the authoritarian newness of the communist party? >> we will see. we haven't done it yet. tom: where are you on the president and the new regime and the length of statement that he is made? >> i think with the chinese are trying to do with the administration in china is trying to do on the foreign policy site is take a much more activist, much more globalist approach, with president xi has been the leader of. domestically, there try to regenerate a certain amount of growth as the economy weakens a little. they're trying to spruce up the growth and give it a little more umpoh. xi's leadership is domestic from an economic point of view into this much more proactive foreign policy posture. i don't know where roach comes out, but i'm sure we will work our relationship -- tom: they may not be on speaking terms. >> we get along very well.
francine: speaking terms for now. >> that is the good thing about this. tom and i,t is like we're mostly on speaking terms. what is a mean for growth? need to does china stimulate internally and how much does that take away for the surrounding emerging markets? >> that is an interesting question. trying to do two things. they are trying to deleverage. there's a lot of leverage, particularly in the various provinces and local governments. they want to deleverage that. on the other hand, they want to put new investment into the economy in some of the sectors where there are capacity constraints. this is a tough balancing. real estate is overheated in some areas. overheated ing is some areas. i think they're kind of get more money in the corporate side. i think that china get more money back into the private companies that really are producing a lot of new jobs.
one of the things we tend to forget in the u.s. is the impact of a weaker chinese economy if it continues to weaken is not we export less to china but it does not grow as much, but a lot of our markets and other parts of the world depend heavily on the china markets. what is going on between the u.s. and china to the extended adversely affects growth in china it's as both bilaterally and in terms of our weakened the sales and other parts of the world. this is a consequential thing for us as well as for china. francine: gabriela, how does this affect markets? are we underestimating the deep shift china's going through? >> we have seen this affect sentiment toward emerging markets as a whole. we're seeing much weaker performance than we were expecting going into this year where we had good growth momentum but we certainly have seen sentiment impacted. something that we have been thinking a lot about are a lot
of stimulus measures china has put in place over the past few months. it has been targeted. it is been credit not overall, but toward small medium sized companies. it has been, for example, tax cuts for individuals to continue stimulating the consumer side. so maybe that helps offset in large part some of the tariffs that have been put in place by the u.s. it would be important to start seeing this be true the data later to help sentiment a lot for emerging markets. tom: i'm going to show a chart of the day on the chinese stock market. we will do that in a bit. robert hormats with us and gabriela santos as well. you need a chart to be smart. there it is. still a from bloomberg. ♪
not raining and the sun is out. that theresa may, the k prime minister, will host a conference call with 120 business leaders. we understand the chief will be onof several the conference call. i guess that will be to talk about contingency plan and talk about, i guess, what she has done so far in speaking to you leaders and maybe some of the progress on what they are expecting and hoping to have after brexit. we will keep an eye on that. in the meantime, let's get straight to the bloomberg first word news. in china, economic growth slowed more than expected in the third quarter. gdp rose 6.5% from a year ago. the government acknowledged what it calls the severe international situation. chinese stocks rose after the country's top financial officials moved to shore up confidence. the government is try to prevent the biggest selloff its 2015
from infecting the economy. one of the most popular politicians in taiwan says the island must accept its status as upon integrate power game. the mayor of taipei is a possible presidential candidate. this china-u.s. conflict is going to be a trend for the next 15 years. there is no such thing as cross strait relations. the taiwan issue is just a part of the tensions between the u.s. and china. taylor: president trump praised the montana congressman who body send a reporter for asking him a question. at a rally in montana, the president celebrated the episode. the congressman was sentenced to do community service and attend anger management classes for the attack. who wants to be a mega millionaire? millionpot just hit 970 dollars for tonight strong, making it the second-largest u.s. lottery pool ever. the odds of winning are
daunting, 303 million to one. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. i am taylor riggs. this is bloomberg. time for the cfa moment. we're going to steer clear of dust you know i care what honeywell does. come out with a press release. there is the earnings and all that. bring up the screen if you good. this is the -- this is what the pros on bloomberg see when somebody puts out a press release across bloomberg. this is not news. this is the actual propaganda from honeywell. gabriela santos, organic sales 7%, operated gdp income margin of 40 points.
what is stunning to me is the tax effect, the trump textile of free cash flow at 51%. this is an example of the tangible corporate affect of this tax legislation. >> and we have seen that. in the seen an overall markets. we are seeing earnings growth in the third quarter. we think it will come in about 20% year-over-year. that is far above what one would expect in the 10th year of an economic expansion when margin start to come under pressure, when really you're supposed to be relying on your revenue growth. company have in the market overall. it is important to remember that should fade come 2019. professor hormats, do you look at the tax bill as a one-off? >> yes. it is certainly a big boost, but it is not recurring. it is not a recurring boost. you will see big improvements now on the base of this.
the other thing to bear in mind, corporate revenues are up but corporate tax payments to the federal government are down. the notion this is going to pay for itself in terms of better fiscal outlook down the road -- tom: wait, wait. this is really important. youought i heard, that was falling off your chair? >> i think there's been this notion if you cut taxes, the tax cuts will pay for themselves in added revenue paid to the federal government. we are seeing clearly, at least for the moment, that is not the case for corporations. the fact is, not only is this a one-time thing -- and i think it is a good boost for companies to take advantage of it and hb is a great -- honeywell is a great company -- but if you look at the federal government's
position, it is going have larger and larger differences down the road, it will look somewhat down the road. tom: let's go to something simpler like italy. francine: very simple. fightoves are off in the with the eu, checking rooms spending proud land -- spending plan of rome. the political drama played out in the markets with the 10 year bund yield spread reaching its widest level since 2013. , kevin joins us from rome. who will give in first? the fight can't go on forever. >> its camps, but your big commission has been very specific with its numbers and the italian government has been equally strong about maintaining its own position. so right now it is a bit too early to say who will blink first on this one.
francine: but the concern is this is speaking to promises they pledged in their campaign. you have an uneasy coalition were you have two parties promise different things of the budget is a mishmash of this. yes, that is correct. for instance, the five-star movement, a partner in the government, is opposed to a part of a tax amnesty that it has caused a huge struggle within the government. and there will be a special italian cabinet meeting on that tomorrow. they will try to work out their differences. meanwhile, the dispute with the eu goes on. , kevin, if the eu does not back down, will italian citizens start turning anti-european? >> well, there is some anti-eu summit -- sentiment as shown by the polls. the italian banking association wants dialogue with
the eu and he says the widening spread will hurt italian , fairly and companies strong words, and it remains to be seen whether the government will he him. tom: very good, kevin. thank you. with us from rome with real leadership in our economic coverage of rome. providing leadership to the solidity of europe has been a lifelong study for robert hormats as well and he is with us today with kissinger associates. it is so long now from dr. kissinger's book "diplomacy," yet that is what is needed. itemember early in his book, seems like ancient history. can we get back to that feeling of a better good in europe after the elections in bavaria and the tumult we see in italy right now? >> this is a big challenge. you have divisions of virtually all over europe in terms of polarization of politics,
extreme parties are doing a lot better in many parts of europe. the old europe and what is known as the new europe. and in germany, the bavarian elections, very disturbing when you look at the divisions that are creeping up in germany. adverse to the tenure of angela merkel and her party. what is needed i think is, first of all, the u.s. to come out and understand and help americans understand, europe is very important to us for economic and for security and for political reasons, but also help europeans understand that we share -- this goes back to the value issue -- common values and get back to those common values as well as stronger security -- tom: the idea of a divide between the periphery and the dominant italy and the germanic thought, every interview we do is the same. to themans must give way
fiscal realities of europe. do you see any indication germany will see to some sort of debt workout? >> the problem now is angela merkel did a lot of this when she worked with greece and the other countries, portugal, spain, greece, and italy, and ireland a couple of years ago. the problem now is german politics are changing and there's a lot more xenophobia creeping into the german politics today that makes it much more difficult for angel a merkel, even if she wanted to come in to play the sort of bailout role in the guiding den mother of europe role does she was able to so successfully play. she did a great job. the question is, will politics enable her to do that in the future? i think it will probably be difficult for that to happen. francine: you touch a crucial point, bob, basically, immigration. that is leading to the decline of the partner in the angela merkel coalition. does immigration to europe apart
unless they find a solution? is the solution possible within the eurozone? >> the precipitating factor in causing lots of these divisions that i spoke of in countries like germany, france. brexit was very focused on immigration. too, andnother park, that is there are a number of groups in europe as well as the u.s. that are concerned about additional globalization. on top of that in europe, it is europeanization. there are fewer and fewer of good dish advocates. you get the immigration issue plus is anti-europe, anti-brussels, anti- globalization issue that is creeping up and working in the same direction as the anti-immigration xenophobia. this presents a problem internally and for countries working in the european context
and a problem for countries working across the atlantic. this is a challenge for europe, but they need to see washington is developing a stronger relationship with them and encouraging europe to get back to -- and ourselves to get back to the common values that hold europe together or have held europe together, and hold the atlantic alliance together. this is going to be a critical message for american leaders and european leaders. macron talks about this and merkel, but others are not able to do this. francine: how should they deal with brexit? isending on how the deal brexit, this will be the kind of blueprint of where europe goes. be adon't know if it would blueprint. it depends one way or another. if they make a good deal and things work out and the differences are narrowed, then i think it can help stabilize things. if in fact there is a very big rupture, maybe that will be used
-- useful in preventing other countries from trying to do the same thing, but it will surly create a lot of instability in the region. my worry is how they play this will have a big impact on internal politics in europe. it has to be played well or it can be very disruptive. francine: bob horowitz, thank you so much, and gabriela santos . coming up next, we speak with soren skou. that is coming up shortly. we will talk about trade. we will talk about the china-u.s. tensions. this is "bloomberg." ♪
let's get the bloomberg business flash. manufacturing analysts just been thousands of our stirring apart a tesla model 3 piece by piece. the conclusion, tesla has the best technology of any electric car, but it is wasting met with poor design and manufacturing. >> i think that really and truly in thead the whole world palm of their hand, but unfortunately, because they did not go and benchmark other car companies or did not ask maybe enough questions about robotics and whatnot, they basically lost that competitive edge. they can gain it back, but it is not going to be easy and it is going to be semi-expensive. taylor: and that is your bloomberg business flash. tom: thank you. with their interview of the day on trade, dynamics of the world economy, there is better to speak to than the chief executive officer of
moving things around oceans. the chief executive officer of --soren skou joins us this morning. wonderful to have you with us. i want to start with a very simple question. has the pulse of our oceans like you do. how is business? well, global trade will grow around somewhere between 3% and 4% in terms of volume terms this year, so business is as expected. i think the key message from me is that we are not seeing a dramatic impact on global volume from the current rate. tom: you're the expert at putting containers on ships and moving them around. i want to talk about sustainability in a moment and the risk you face. but as president trump -- is president trump your major risk?
this trade war between the u.s. and china, you have to adapt and adjust to that. how will you do that? right now what is going on on the ground is actually imports to the u.s. are booming, both because the u.s. economy is doing very good but also because i believe many importers, retailers in the u.s. are buying tariffhead of possible hikes. that will have another set of the coin sometime next year. exports from u.s. to china has already fallen quite alive. we are seeing some impact in that market will stop but overall, at the global level, impact is not really significant at this point in time. francine: in august, you warned against a potential trade war. ryu feeling more pessimistic or more optimistic?
-- are you feeling more pessimistic or optimistic? >> it is hard to be too optimistic at this point. obviously, there are very difficult negotiations ongoing still ahead of us. it is very difficult for me, for us to judge where this is going. i take some comfort in the fact that the u.s. has been able to reach a new agreement with canada and mexico. hopefully, that will also be a sign that at the end of the day, compromises will be made on both sides to move us forward. francine: if there is a breakdown in trade relations between the u.s. and china, what does it mean for the global supply chain? is there going to be a parallel global supply chain? is it different countries trading with each other or the same people excluding china and the u.s.? >> i think the practicalities of this is that most of what the
u.s. import from china, they actually don't make in the u.s. anymore. therefore, the first thing that will happen is if tariffs go up a lot, the u.s. by outgoing u.s. importer will start by more in indonesia and southeast asia in bangladesh and so one. so i do believe the first step will be a reconfiguration of the global supply chains. want to congratulate you on your 2017 annual report. for any of you that want to be students of logistics of trade and moving stuff around, the in a report is truly an act of god. bring up this statement from the chief executive officer. it is the usual statement, companies can no longer stay on the sidelines when it comes to global issues. what we are and will be for our side -- i get it. then you have one number, 43% reduction in co2 in the last 10 years.
what you people do is a major polluter. how do you get the rest of the industry to catch up with your moment to? -- momentum? >> the first thing we do is communicate around what we're doing. i think it is importantly , we burn a lot of fossil fuel. a lot. of course we also move almost 20% of the global trade, so it is not that strange. save, youuel we can know, is not only a contribution to less global warming, but even more so a contribution to less those thatere now, actually kill people today. so i think we have a real good reason for wanting to do something. it also happens to be good business. a lot of our customers are interested.
and for every fuel we don't consume, we're saving money. tom: you put it out front. in and a brutal 2017 always dangerous business. you had seven employees lose their lives. i want you to tell us what a ceo does about safety when he loses seven employees. what are you actively doing to make an incredibly dangerous business safer? >> what we have been doing on the safety front this year is we have done a major study of our airports over the last 10 years. momentum in terms of reducing accidents. in the last two or three years, we plateaued. that has led us to agree to completely new approach in terms of how we go about this.
is to talkdo as ceo about it, communicate about it, to make my people understand, our people understand that it is ok to stop operations if they are unsafe. that is a choice that every employee should have. automationhere is going in the shipping industry? >> i think the biggest immediate opportunity is probably in the ports, container terminals. of course, we're also working with technology on the ships that automate things, but it is hard to imagine we would operate big ships without people anytime in the future, in the near or medium term future. so the opportunities in the ports where we can get better productivity and also make the ports a safer place to work. tom: thank you so much.
greatly appreciated, soren skou. right now with all of what we have covered through the hour, i want to give time to gabriela santos of jpmorgan to explain to me and ambassador hormats the rollover once again in the chinese stock market. bring up a chart, if you would, anthony. i am sorry, it is a long chart. the second derivative is not pretty. steve roach and robert hormats have fought against the gloom on china for years. and wrote said, no, no, no. are they wrong right now? are we finally going to get a hard landing? >> we do not expect a hard landing. the chineseely what government has put in place to combat any sort of deleveraging, deceleration that was happening earlier in the year and any sort of negative impact from tariffs going into 2019. one important thing we would mention about the domestic indices in china like the
shanghai composite, is that they don't generally trade on fundamentals. really, they're driven at this point by domestic retail investors. so it is all about sentiment and momentum. what we need to see here wraps -- what werhaps is a need to start seeing perhaps today, is a turn in sentiment. you did jim o'neill teach logarithms? >> i learned them in college a few years ago. tom: on the right side is an ugly second derivative. you logarithms? he can't distribute the new communist party theme to industry. that is interesting. i don't the key gets down to the second derivatives. i think what we're going to be sing, and let's go back to your original question, is the ionomy has enough resilience think to overcome this downturn.
a slight downturn. it is not even a very big one, but it does make a difference. theyther benefit is that are diversifying. this is an economy that is diversifying. they make all lot of high in technology items. that is part of their quest to .e a dominant all of those things will enhance productivity over the medium-term. the government is trying to put resources into the sectors. so i'm not overly concerned -- if they can continue to deleverage a move capital into the most productive parts of the economy, they may not grow as rapidly as they did four or five years ago but i still think -- if you look at diversification, what could be the biggest mistake? is it doing too fast or too slow? think they have understood they have to do it more rapidly, in part because they don't want to be as dependent on the rest of the world for certain high tide
knology items that could get cut off. and in part because the key 2025nt of this china program, made in china 2025, they want to be dominant force , aai, quantum computing whole range of things. they see this as their economic future. they are moving rapidly. they know some of the money will be used and all of the companies they invest in won't succeed, but if they put enough in with willscientists they probably dominate a lot of those or at least play key role. tom: thank you so much. what an interesting week it has been. we continue. this is "bloomberg." ♪
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international situation. china's third-quarter gdp disappoints and leaders intervene to stop the deepest equity selloff. italy, beware the spread. investors flee from -- industrial indigestion. honeywell delivers on organic growth. >> welcome to bloomberg daybreak. i'm david westbrook -- i am david westin with alix steel. better than estimated 16.5 earnings since $1.12. world's is one of the dig is oil services company's and it missed in the top and bottom line. they earned about $.43 a share. it is about the commentary for this company. is it going to be offshore or in the u.s.?