guy: david demands. u.k. prime minister david cameron lays out how he would deal with brussels. a two-week-old government. allyean austerity loses an . the deflation threat. fresh evidence of a chinese slowdown emerges. as inflation continues to decline, the question for investors -- when will the people's bank of china act again? good morning. welcome to "countdown."

on guy johnson. butill focus on the brexit first, up to speed with what is happening in the market story. ahn: we are seeing the selloff continue in asia today. the benchmark index at the lowest level it has been in a month. betweentually slung gains and losses be -- and losses throughout the day. we have data this morning showing that japan recorded a trade surplus for the 15th consecutive month in september. we're seeing a lack of clear direction as there are concerns of the rate hike next month, the possibility of that happening, not to mention a deepening slowdown in china. 4/10 of a percent lower today. we had data this morning showing

that home loans grew 2% month on month, which was more than expected. estimates were that it would remain flat. expanded losses, down 1.4%. now down for the fourth consecutive session led by utilities and health care. we saw some choppy trading in china. the shanghai composite is currently down 3/10 of a percent. four consecutive days of rallies in china, but the hung sent index also trading down 1.3%. data out this morning showing that consumer prices grew less than expected, 1.3% in october, slowing from the previous month. the 44th consecutive month of declines in china. there are concerns that demand

is slowing their. currencies in asia. the korean won currently looks unchanged, but they weekend so much in the past sessions. have been declining for four consecutive days. 26 at the moment. let's take you through the japanese yen. the lowest level it has been in three months. unchanged at the moment. many things are looking very flat. weakening for six consecutive sessions. the kiwi dollar also unchanged at the moment. imf just saying that the kiwi dollar is overvalued. one more thing to tell you about the chinese renminbi -- authorities have weakened the yuan for a sixth consecutive

session. currently, 36.03. guy: thank you very much from hong kong. let's find out more about the inflation story. chief joinsbureau us now. the factory gates story has been ongoing for 44 months now. the details of that slowing cpi number and how that will impact policy. >> it does open the door a little bit to further easing. in the past, they had cited low inflation for easing such as rate cuts. we are anticipating this will give them a little more room if they want to do that. time, loan growth has been stabilized a little bit.

we are still seeing the effects of a drop in commodity prices from last year, so maybe not quite as bad as it looks. we will see producer prices up a little bit in the time -- in the months to come. guy: how long are these numbers going to continue to decline? talking about the base effect, the oil price, and the other commodities price stories. when does that start to impact in china? >> that will come in the next couple of months. is a broader issue here about the conversations people are having about these numbers. below numbers coming in what were worse than what economists estimated. the numbers were worse than expected. these numbers today also worse than expected which suggests that economists continue to

underestimate the depth of china's slowdown. that is cause for concern and we are all waiting to see what the government will do there. it seems like they have more room for easing. interest rates still quite high. they do have quite a lot of room to act. thank you for the update. for more, we're joined by douglas morrison. he is the head of asia research. the latest data, what does it tell us? >> every morning, you see more dismal chinese data. >> opened up the door for further loosening in china. i think we also need to put in context what it tells us about the demand environment. basket ise cpi

heavily determined by food prices, particularly pork prices. over the past 15 months, we have had one of the largest pork culls in china, the equivalent pork production in the u.s. and canada combined. while indicative of the underlying demand environment, it isn't necessarily to do it the consumer. it is more to do with rolling up of supplies. not necessarily a change in the demand environment but basically revealing of it. guy: the idea at the moment is to migrate the chinese economy away from a supply sort of side economy into a demand economy. >> it's sort of goes against what we are seeing from the consumer side, particularly in certain areas. you are actually seeing some relative strength from the chinese consumer at the moment.

we will see on wednesday when all that comes through in the largest ever retail data. we have got, for the first time --history, tertiary gp tertiary gdp cap for a greater portion then primary and secondary combined in china. we need to put these cpi numbers in the proper context for what they are actually telling us. they are driven by food prices and we have had big structural supply-side changes. i think what it tells us is they should have acted further earlier. i think that is certainly the case and the market reaction has shown us that. there has been minimal reaction. they have been behind the curve. the point to make on that is, potentially, anything that comes from that may have a greater impact than in the past.

that signals that potentially, any further loosening might get contraction on the ground. guy: they can do less and get a bigger bang for their buck or do they still have to do an awful lot? >> we have to see how it comes through. a huge amount of change of the monetary side in the past two or three months. how much they need to do, i'm not sure. had a long way to go in terms of rrr cuts. that would be the equivalent of half the entire balance sheet coming back into the chinese market. we think that actually happens. once policy action happens, how quickly does that impact the economic data? lack as is obviously a there is in any other economy. inflationary impact or loosening

is slightly different in china compared to the western world. in china, the majority of lending is done from the supply-side. actually, when you stimulate loan demand, it is potentially this inflationary rather -- and -inflationary.s we have seen in steel dumping that we saw last month, and that is interesting from the demand side as well. guy: i was talking to a fairly senior member of the steel community. he doesn't see it happening very quickly. recent that i think is fascinating on steel -- it is probably one of the most important questions. it looks like that exports in china have normalized again from last month.

either there has been an increase in chinese steel demand or there has been a mitigation from what we're hearing on the ground. pressure that is -- capacity is getting close as far as we can see. guy: you're going to come back a little bit later and we will talk about japan and what is happening there. first, we will talk about what is happening with david cameron today. he is going to send out the u.k. demands on eu membership later this morning. be toughest is thought to the welfare rule. in a speech at 9:00 u.k. time, the prime minister's expected to say this. there will be those who say,

here and elsewhere, that we are embarked on a mission impossible . let's get our brussels bureau chief. what kind of reaction are we going to get one of these list of demands finally arrive? >> the list is eagerly awaited by the rest of the eu leaders. they know the broad outlines of what cameron has said, that he is going to be asking for, and they wanted to see the details. especially on immigration and immigrants and the welfare issue which seemed to be one of the trickiest ones. they are going to be looking for the details of just how cameras going to try to make that work. they are looking forward to the summit in december, and that is

when they are going to have their first chance to really sit down with the details on paper. guy: how much of this is going to require treaty change? that looks like being a major problem for certain governments. going to be actual changes in the letter of the law with the eu? jones: cameron and the others want to avoid that if they can. the migrant issue is shaping up, i don't know how they put this through. somehow apply it to u.k. citizens at the same time that you applied to people coming from other eu countries. the idea here is to avoid treaty changes if at all possible.

it is going to be in the details to see if that is possible or not. everyone will way get together to be able to really talk about this and we will see how it shapes up in terms of that. guy: we've talked about some of the more difficult elements. how much of this is easy? there is a lot made in london and the u.k. of this ever closer union idea. give us a sense of how easy that is going to be to circle navigates -- to circumnavigate. is their language in brussels where they will make it a little more palatable? how easy are some of the other bits to fix? jones: i don't think any of them are easy. the whole idea of the eu, since its inception, is to grow closer together, to have more coordination, cooperation, more binding rules that apply to all

of the members of the eu. this pullback that cameron is trying to negotiate is something that is going to be tricky. there isn't any language right now that they can just slap in and say, this is the way we will do it. we have to see what cameron says onay in terms of the details how he is going to set out on these four points. none of them are easy. has ahe european union record of solving problems. is due tominister speak at 9:00 this morning, u.k. time. you can see that here live on "countdown" as it happens. bigill speak to a series of business leaders as well. first up, we will speak to stephen holiday. time.s 7:30 u.k.

a little later on today, i will be speaking to the vodafone ceo. we will talk about his business, but i will be interested to hear what his take is on what is happening with britain and the eu. back a couple of minutes. ♪

guy: six: drinking and wanted, 6:19 in london. producer prices fell by nearly 6%. the 44th consecutive monthly decline. poisedwing coalition is to vote the portuguese prime

minister's governments out of power today. 10 year yields to a four-month high. the spending cuts from the bailout may now be rolled back. david cameron unveiled a list of demands for changes to the u.k. relationship with europe. four major areas -- protection of rights, increase economic competitiveness within the eu, greater powers for national parliament, and restricting welfare rights for non-u.k. citizens. it is all of it achievable? we wait and we will find out the reaction later from brussels. lawrence is with us for the next hour. good morning.

>> at this stage, it barely is. as well as not quite knowing what the negotiation will be, we also don't really know what the deadline is for the referendum either. in the meantime, economic news continues to come out and that influences markets on a day-to-day basis as we wait to get closer to the brexit issue in itself. guy: when it starts to get priced in, how do you think it will get priced in? as the data gets more understandable, how will the market react? is there any precedent? laurence: the scotland referendum, what does it do? as the boat gets nearer, the market begins to price a bunch risk scenarios. with scotland, it wasn't clear what the risk scenarios are. when i think market, i mean the stock market, the currency market, and the bond markets.

a were fairly muted in how they acted. if i may say, at the risk of spoiling your morning show, i guess you're going to see a bunch of people on both sides of the debate this morning explaining why most business people seem to think at some way a brexit would be bad. but there is a local group of people in business and finance to think that brexit would be a good thing. it is not as if we're trying to discount something that has an unmitigated one-way response. clearly saw this very in the inflation record -- in the inflation report, is way beyond the control of the bank of england or policymakers at the treasury. something that is within the sphere of influence of those people. how do you think their actions will be taken by the market? a kind ofhere is

dynamic process at work. laurence: for me, as we get , ther to devote itself question will be mostly about fdi and inward investment. i suppose, if confidence that you are going to see -- i'm sorry, if confidence diminishes about the strength of inflows -- guy: do you think the bank of england will be saying, we're starting to see fdi flow, we need to think -- we need to take some remedial action? that is a very familiar problem for bank of england policymakers. inflation up and growth, which puts inflation down. will we get there around the brexit debate.

i think it is too early to know. there is uncertainty about where the uncertainty really starts. guy: where is the u.k. now? if you are trying to find out how the gilt curve is structured, what are the defining influences that are putting us where we are in terms of prices? laurence: first of all, what we had seen from the governor of the bank of england is a move towards raising policy rates after this great long period. i think the markets firmly believe that the more likely the fed is to lift off, the more likely the bank of england is to lift off. significant bearing on when the market. everybody read that

inflation report as being very dovish. you didn't. laurence: less so. guy: we thought that it was more balanced than people give it credit for. the thing about central-bank policy statements generally is that people can read into it what they like to see. the market was price for more hawkish numbers. i think people extrapolated that must've been a one way dovish conference. we thought it was compatible with a rate rise. the other thing, for the u.k., is the balance between fiscal and monetary policy. goal policymakers -- fiscal policy makers and monetary policymakers work closely together. if you think about the u.s. and the eurozone, that doesn't

happen. the single monetary policy maker and lots of fiscal policy makers. in the u.s., it doesn't happen very well because the fiscal policymaking is very contentious and hard to move forward. if you had an economy that is going sufficiently strongly to take some policy tightening, and you had more debt to gdp than you wanted, would you tighten more with fiscal policy or with monetary policy? fiscal tightening would seem it would solve slightly more problems than monetary policy. what happens if we see a slightly looser policy formulation from the treasury? does that change the mix? laurence: it does. fiscal policy moves slowly, but the tighter fiscal policy, the less work monetary policy has to

do. up next, japanese prime minister shinzo abe says he will cut corporation tax more than planned. ♪ we live in a pick and choose world.

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guy: london and the poppy. big day for the u.k. here are the stories you need to know this morning. david cameron will deliver his list of demands for the u.k. relationship with europe. in a letter to eu president, they prime minister will demand reform in four key areas. rights for eu countries, increased economic protection within the eu, greater powers for national parliaments, and restriction of welfare rights for nonresidents.

producer price index in china fell by nearly 6%, marking the 44th consecutive month of decline. volkswagen is to get u.s. owners of diesel cars $1000. the news comes as the credit rating was reduced to bbb+ from a. a long list. let's get a market check. where are we this morning as we head towards the european opener? questions have some breaking news before i get to the asian market. set at 16-20 range euros per share. that is at 188 million shares.

that comes after we got third-quarter profit increases. let me take you to the asian markets. we have been seeing these continue the global slide in stocks. we have seen the hung saying drop the most in a week today and we have the shanghai composite pretty much flat. now down about 6/10 of a percent. disappointing inflation data out of china. factory gate deflation extending a record stretch to 44 months. we have seen an impact not just stocks, but also industrial metals. zinc is leaving at the moment. that hit a 2009 low.

guy: thank you very much, indeed. let's talk about japan. the current account was in a surplus in september for the 15th consecutive month. the weaker yen helped boost income from overseas. walk us through what sounds like an economic news. but the japanese economy is continuing to struggle. >> that's right. while the surplus would seem to be good economic news, that means that companies are accumulating for well. they are benefiting from the week yen and the low oil prices and increased tourism. that number is not necessarily going back into the economy.

administrationis are really pushing companies hard to reinvest that money in the economy. that hasn't necessarily happened yet. guy: a bit of inflation would certainly be music to the ears of policy makers in the japanese government and the bank of japan. what are we going to see from japanese culprits -- japanese corporates? -- jodi: the abe administration is trying to employ any tools at their disposal to get them to do so. one of the things prime minister all day has announced in recent days is that even deeper corporate tax cuts that have been previously -- that had been previously envisioned.

they were looking to get the corporate tax rate below. they suggested it could be another 0.8% decrease in addition to the already several points decline that he has already announced. they are trying to push that along. guy: the holy grail here is higher inflation. they have been throwing everything at this tribe to get it to stick. -- trying to get it to stick. give me a sense of what the believe is in tokyo. when does that happen? when do we start to see some of the quality delivering on objectives? jodi: that is a huge question. the bank of japan would have us believe that they are on the path to do that. said after not

going ahead and further easing at the last policy meeting, that we are on track -- on track and we will be disinflation goals. but they are moving the timetable further to do that. that is the whole question. is that money going to come back into the economy? we haven't really seen it yet. guy: thank you for the update. of rate strategy at bnp paribas. it rejoins us. douglas, levied up with you. when this policy start to deliver on higher inflation? douglas: what we have to the pine -- what we have to define japan -- china has gone down the route of trying to open it does become demand to. we're in an absolutely private prime -- and actually period for japan in terms of

tourism, the weaker yen. still, we are not seeing trends in inflation improving. the inflation is on improving and that is purely because of wage inflation. wage inflation is not coming through because they need to go down employment reform and start cutting jobs. in a japanese political framework, that is very difficult. i think we're in a very interesting -- one of our point out that is potentially in japan's favor. guy: that will help with the margin. you think it is at least underpriced now. laurence: on the one sort of fast i'll level, that is -- sort know that level, we is going to push of headline inflation everywhere. headline inflation itself has an effect on inflation psychology.

we saw in the u.s., that inflation expectations in the michigan survey have reached new lows. but headline inflation just printed zero. it is going to be printing 1.6% in the first quarter. it will feel like a big acceleration and it may feel to consumers like inflation is coming back. we have heard ecb president mario draghi talking about this. veryee that number and the low number that we have around the world is used as a basis for wage negotiation. does that start to change the dynamic? japan isthe dynamic in very different from wage negotiations anywhere else in the world. the way the structure in terms of these huge wage negotiations.

the transmission mechanism is very different. >> we are reaching more or less full employment. i guess we're seeing headlines going up. but even on the court inflation rate, we're going to see it moved to 1.6. next year, another consumption tax hike which tends to bring forward a little consumption. i know that the revival of japanese inflation is the dog that never barks, i understand that. but how people's perceptions will change might affect the chance of success. douglas: i would argue it is all to do with expectations. you did see a bit of front-end moving on demand but the net impact following that was actually negative. you didn't see a net-net through that period.

that peters away. i think we're in a worrying time. they only have 70 bullets they can fire and we are down at tax cuts and selling assets. they have had an opportunity to do that and it hasn't yet come through. the wage the negotiation is over the next -- over the last few years. the americans will do the right thing after they tried everything else. will they try everything else and finally get around to the most prolific -- the most difficult legal thing they can do, which is to start to reform structurally? douglas: i think the problem that we have on this is that this is a democratic economy that has dealt with a deflationary environment for over a single generation. it is changing that perception to a more inflationary mindset is a very difficult thing to achieve. it is not a straight line.

the difficulty of that right now, i think. , you believe inflation is underpriced. how underpriced is it? this is going to be a big turn to make it perceptions are going to become reality. your view is that the market is underpricing inflation. i must say, if i were looking for a place where inflation was going to accelerate, i don't think i would start in japan. -- there is a lot of things that is going to keep japan lagging. elsewhere, in the economies that are more prone to positive inflation, or at least that can remember it, there is a sort of a alignment of the stars coming

where it will look like inflation is getting stronger. and i eventhe u.s. point to a limited extent to the eurozone. it is more to do with where is our starting zone now -- starting point now. there is a headline base effect. going on in the u.s. in terms of the jobs market where we are getting to see unemployment printing. -- wage pressure has lagged undoubtably. it looks like there may be some time that wage pressure will continue to pick up. core inflation the u.s., in goods it is weak, in core inflation. to the extent that inflation is -- in by expectations

betweene prints you see now and june will make you less certain that inflation is coming back. guy: do we need to lower the equilibrium rate in about what level of employment causes ?inflation and wage growth -- causes inflation and wage growth? it hasn't created a big wage push yet, indeed. this is what people like to call the phillips curve, the relationship between the level of employment and the level of inflation. indeed, there is this great notion that the phillips curve doesn't exist anymore or it is flat or inverted. what i would say is this.

people judge these matters on the basis of the evidence they have in front of them. the evidence that they have had in front of them throughout the has financial crisis period been that changes in unemployment do not make big changes to difference in wages. the difference is a dragon that has not been slain. of course, when unemployment has been well above whatever that .s, of course we have had the devaluation. that, i think, is what has caused inflationary expectations to go lower and lower. the news that comes forward will look less supportive. i am not talking about inflation going out of control, i'm talking about, we're pricing the lowest level of breakeven inflation that we haven't pricing on a 10 year level. guy: it is a starting point.

thank you so much for your time this morning. let's talk about another subject 22 focus on. downgrading volkswagens credit rating by 2 notches. an offer by the u.s. but -- authored by the company to compensate u.s. beetle owners with $1000 worth of gift cards and vouchers. hans nichols has more from berlin. what came out of yesterday's board meeting? they it appears that papered over their differences. coming into this meeting, there have been some whiffs of tension between the councils and management. coming out of the meeting, they to try toe going strike the right balance between cost savings and investments. a lifetime to your cost savings,

you think specifically job cuts. there was nothing specific on job cuts but at the same time, there was nothing leaving job cuts off the table. theias mueller says, "in current situation, we must make decisions that factoring economic just as much as employment. i attached great importance -- for thelified support direction management is taking. "the workforce stands behind the company." they got two bits of bad news yesterday. , a two the downgrade notch downgrade. movies and standard and poor's have them above that. the other is from the auto regulator here in germany, we 2t news that the fix to the liter diesel engine are going to affect some five hundred

thousand cars and requires some significant reengineering. this isn't going to be as simple as a software swap out. guy: talk me through this $1000. how is that going to work? hans: if you are in the states and have a two liter engine, you get a $500 prepaid visa card. you don't forfeit any of your claims to sue the company. you also get 500 and vouchers at a volkswagen store. two u.s. senators have called this insulted in court -- insultingly inadequate. clearly, you see from capitol hill, pretty strong criticisms that this is not going to be enough and that volkswagen should have offered more. guy: i'm going to check out what the vw storied america looks like and what you can acquire for your $500.

the global head of strategy is with us from bnp paribas. portuguese government voted out of office from a strongly left-leaning group of three or four parties. how is that going to be read in frankfurt by the ecb? it is not quite an end to austerity, just a less austere regime. when we talk about a left-wing coalition, left-wing but not extremely left-wing, i think. we obviously need to see more details of the policy program but that seems to be how it looks. if we look at the market reaction, they haven't cheated. there is an expectation that the ecb is going to do more and a lien on the kind of reaction you will have. there is an

interesting thing about the ecb, is that the ecb has rules about the credit rating of sovereign that they can buy in the qe program. the reason it can by portugal under the strict interpretation is because of one agency which still have a triple b, whereas the other agencies have below that level. i think that agency will publish on friday. that agency is unlikely, i think, to move extremely quickly as a political response to a political change. that,worth remembering from the point of view of the ecb, and less it gives itself a way, its rules would make it difficult to keep buying bonds in qe if portugal got a downgrade from one more agents the. -- one more agency.

i think as the market demonstrates, there is a risk premium but hardly anything calamitous. guy: thank you. they marks one year since ruble was unshackled for the first time in post-soviet history. walk us through the size and scalable we're talking about. >> the russian has fallen about 30% over the last year. that makes it the second worse performer among large emerging market currencies. actually, the brazilian reality only worse performer. the worst performing currency in europe. you may remember, late last year, there was a joke going 2015, vladimir putin will turn 63, the ruble

will hit 63, and the price of oil will go to 63. as we know, the price of oil went to 63 last year, a lot earlier than many people were anticipating. vladimir putin just turned 63 last month. the ruble today is around 64 to the dollar. it has actually become a quite bitter reality. on the other side, inflation has nearly doubled over the past year to 16.4%. that is a 13 year high. , at is encouraging for some least for the governor of russia's central bank is that it has come down just a tad over the past couple of months. thateason for that is imports that be repriced as a result of the devaluations of the ruble back in january. there is nothing particularly good happening when it comes to

the strength of the ruble, i guess you could say. guy: when you talk to guys in the steel industry, they talk about how there are companies that have really been saved by the ruble story. in general, it is a commodity story, and exporter stories. you look at profit margins for the oil producers and you see that they have largely remained intact. the reason for that is that they are selling their commodities and their costs are largely in rubles. price, thehe oil less the government gets, the more they get to hold onto. again, if you look at russian incomes, there has long been a relationship between the price of oil and russians salaries. ever since russia floated the ruble, there has been a very tight connection. the average russian is earning about 10 barrels of oil a month. i.e., when the price of oil is barrel,- is at $100 a

they are getting $1000 a month, right now they are getting about $500. guy: the reason hacking highlighted the challenges companies face. it is suggested that 90% of firms do not believe there's cyber security needs -- cyber security meets their needs. let's get more. 90% of companies don't believe that what they are doing meets their needs? that is an alarming number. >> quite staggering and quite worrying in many ways. many other ways, it is not startling because the pace of change in cyber security is such that it is very difficult to design an approach that does meet the needs of trying to tackle the attacks. guy: our decisions being made at the boardroom level? our survey would suggest

that board rooms are much more involved in determining cyber security strategy and they were 30 years ago, but it is probably still something with just one or two individuals rather than the entire board. guy: is the half-life of the story accelerating? is it be going -- is it going to become harder not easier to deal with this problem? it will bek increasingly more difficult to deal with the problem. there is so much investment into the attacks. the attacks are so much more sophisticated. i think we're going to see more headlines then fewer as the months and years go on. guy: where does the bigger threat lies -- where is the biggest threat lie? what are the biggest unknown unknowns or the biggest known unknowns? unknowns are that the cyber criminals are very sophisticated and are trying out

new attacks all the time, so it is quite difficult to stay ahead of that and predict what is going to happen next. we have to predict the trend to try to get ahead of it rather than trying to chase the trends we know about? guy: what is the inflation rate like in this industry. what is it costing to deal with this? if i hire somebody, how much was i paying him two years ago, how much i paying him or her now? ken: i can't give you the exact rates, but the skills shortage is such that it is really difficult to find really good people. there is a lot of competition out there to find the really good people. governments, organizations, even criminals are competing for the best experts. guy: how is that affect the evolution of this story? this is an arms race. how does that reflect back into how it is going to evolve? ken: there has to be a turning

point where we get ahead of the problem. today, as we see the breaches, we try to contain them. what we have to do is try to predict what those breaches are going to look like in the future and then design a mechanism for how we detect, how we contain, how we prevent it in the future. if it's big corporations? is it renumeration always we think of remuneration? i think it is about the intellectual model of, how do i outthink the attackers? guy: for a 14-year-old kid, does remuneration have any impact? ken: probably not. it is the bragging rights. guy: thank you very much, indeed for bringing this to us. coming up next hour, we will break down the brexit story.

we'll talk to some big business leaders. vodafone numbers break at the top of the hour. stay tuned. another guitar of "countdown." ♪

guy: davis demands. u.k. prime minister cameron lays out how he wants to change britain's relationship with brussels. it is the end of austerity. portugal's town is poised to oust a 2 --week-old government. and the deflation threat. fresh evidence of a chinese slowdown emerges as inflation continues to decline. the question for investors -- when will the people's bank of china act again? good morning. welcome to "countdown."

away from ther start of european equity market trade. let me show you what the bloomberg terminal is telling us about how we inc. that start is going to look this morning. looks like it is going to be a positive open for the european market. euro stocks of by about -- up by about .5%. the brexit story front and center. what is happening next in portugal? breaking numbers beginning to emerge from photo found it -- from vodafone. it is very dependent, this business, on what happens in the rest of europe. let's get a breakdown of what these numbers look like. >> they just drop here. 28.6%.alf ebitda we'rethe organic service are looking at. the estimate was .8%. it has come in at 1.2%. a very clear beat.

this is the money that vodafone gets from customer plans and traffic on its network. this is the third consecutive gain in sales after the company actually had a few years of dwindling sales. three years, to be specific. is this to do with a recovery in europe? that is what happened in the first quarter. this is the second quarter we are looking at now. that is what the struggle was for vodafone over the past few years. a clear beat. of course, vodafone, the asset swap with liberty global fell through at the end of september. i am looking through some of the other numbers. coming in atitda 5.8 billion pounds. the organic service revenue is the clear number we want to look at. the stock has fallen 2.9 cents year to date, trailing the telecoms index. we will see if this number pushes it higher. drama,little late

speaking to vodafone's ceo. we will put it out for you a little bit later in the day. we will also be talking to the national group boss very soon, steven holliday. the headline statement is that the company is going to start that process for its u.k. guest distribution business -- gas distribution business. what form it will take, we do not know. is it one big sale? are they going to break it up? will they distribute it differently? we will answer those questions with him in a few minutes time. in the meantime, let's get back to the brexit story peter david cameron set out his demands on european union mentorship. he is due to publish a letter which he is going to send to the eu president and ask for changes in 4 key areas, the toughest of which will be tighter welfare rules. that might be resisted by many

countries in eastern europe. let's get the details on how this is going to be received. our brussels bureau chief is standing by. we had been waiting for this. this is kind of a starting gun being fired in a process that could take it while but may produce some results by the end of the year. >> that is the hope. the hope is that the next eu summit meeting in december, in brussels, that they make some good progress on the negotiations over the demands about a renegotiation of the u.k.'s relationship with the eu. they talked about it in october and they asked cameron to put it in writing. they wanted the demands in writing. the other eu leaders are going to be looking at the details to see just exactly how far cameron wants to push it in terms of trying to renegotiate how the u.k. fits in with the eu. guy: does any of this require

treaty change? jones: at this point, they are hoping not to go to treaty change. the way that it sounds, what cameron has had about what he is thinking about in terms of welfare payments, welfare agile -- eligibility, and migrants from other countries coming into the u.k., that is technically illegal under the treaty as it stands now. if they push forward with something like that, i think he will have to see some kind of treaty change. it is all in the details. some of the other points as well, depending on how much the u.k. is trying to claw back in terms of responsibilities from brussels, from the eu, we have to see the details to see if it can be done under the current treaty or if we are going to have to think about a treaty change. if you are talking about treaty change, the process becomes a -- a lotmessy be guy: more messy. guy: good to see you.

let's bring in david lee. he is senior analyst at global risk. good morning. what do you make of the list as is? how achievable is it? does it meet expectations? where is it in what we thought we were going to be getting? had to set himself as a financial target at the end of the year. it has got to be not too ambitious, so achievable, but it cannot be too bland either. guy: do you think he is achieving that? david: there were a lot of suggestions that the list might be too bland. the way it is starting to look now, there is some substantial stuff in there. this idea of restricting benefits, it is becoming a little bit clearer.

guy: who is he talking to when he is sending this letter? who is he trying to communicate with? what are the constituencies here that need to be dealt with and how are they going to be go with differently from this letter? his primary constituency is his own right-wing and the people who might switch sides. of course, he is talking to the eu. he is primarily talking to his potential allies in the eu. saying, these things, these things can be done. guy: i listened to him over the last hour or so and he sounds slightly more positive about eu membership. david: i think he does. that athat suggests

reasonable amount of work has gone on behind the scenes. they talk about the ever closer union. i suspect that there is some language of a different variety on a hard drive somewhere in brussels that that can be replaced with. cameron is more optimistic than we thought he might be. guy: this is the question that i asked jones. do you think any of this requires treaty change? it is this idea of access to benefits that strikes me as being the most problematic on that front. david: i very much agree with jones on that front. while it may eventually require treaty change, it is probably slightly down the road. we will probably have phasing periods, a gradual approach to this. which thise a way in

could be spun out into a natural treaty change. guy: i think the last two answers that you have given have maybe -- if there were an earlier referendum rather than a -- r referendum this issue that, behind the scenes, maybe progress has been made. do you think he is trying to avoid the yesterday, which is the hecklers that could maybe change the debate? does that work for him if he is campaigning? they've it: i think cameron wants to get on with governing. the biggest obstacle to him governing is the referendum that will dominate all the media, all the political atmosphere. he just wants to do his job. go? when do you think we david: given the discussions that have been around in the last weekend, i think june of

next year. talk was, the original that he wanted to do it in may. that has been ruled out. referendum a june before the summer is highly possible. guy: so many risks surrounding that. french elections, other stuff happening. if you were to look at the seemsry of the story, it significantly less likely. -- : david: you have french elections, so it could be the second half of the campaign. , it cameron's point of view would be much more beneficial to get it done in 2016 than otherwise. guy: we need to talk about one other element of that. remember, we are going to bring you the prime minister's speech as he lays it out here on

bloomberg. but we were talking about politics elsewhere within the union. spain heading to the polls next month. the one person hoping to be prime minister is rivera, the leader of the pro-market party. in an interview with bloomberg, he stressed the need for political and institutional reform in his country. have eight ore nine years of a fiscal crisis. it is not just an economic crisis, it is not a political crisis. it is the trust of the people in the politicians. i know that it is not easy. catalan, the -- situation is very difficult. the situation with the corruption, institutions, our democracy. probably lots of people think

the solution is to leave spain. the solution is not to leave. it is to reform spain. guy: here is a young upstart regionout of a catalan which has been at war with itself and at war with madrid. yet what he has achieved has been dramatic. how do you handicap the spanish election now? david: it is very difficult. it is pretty impressive the way it is going to break down. it is going to be a four-way race. we have the traditional opposition. rivera, we have just seen. overwhelmingthe gaining force. i think their message is slightly more sustainable in the long term with more people to appeal to. guy: is it going to be a

positive outcome that we are going to see in madrid? what is happening in portugal at the moment, this breakdown of politics, what we thought was going to be the established story, are we going to see a more positive story emerging from madrid? david: spain has no tradition of coalition government. i would say this is pretty unprecedented. rivera has the potential to work with either the people's party or the socialists. it is now looking like it is more likely he will work with the people's party. that will have a sense of stability, but also a sense that he is going to want to get the message on reforming the state, taking hard measures against politicians who possibly have false -- faults in the

past. it is probably a positive direction. guy: how long does that carry on for? the u.k. had a limited history of coalition government. a very stable one. is it possible that we could see the same thing in madrid? david: i think it is. be consensual and build things, not tear them down. coalition, i do think it would be sustainable. guy: nice to see you, david. inflationhina's undershoot. slow consumer prices open the way for the world largest economy to step on the monetary gas pedal. we step on the numbers. and we have a big guest lineup

for you throughout the day. a little later on, we will speak to vodafone's coo. he will join me around lunchtime. in a few minutes, we will be talking to national grid ceo steven holliday. he has just published numbers and he is going to be selling off some of the business. how is he going to do it? we will ask him that question. we will also ask both of them their views on where britain stands with its eu membership as david cameron prepares to publish his letter a little bit later on this morning. we are down a fraction. that is how london looks this morning, a little bit great the-- gray. we will take a break and see you in a moment.

guy: 7:18 in london. european markets pointing higher

this morning. these are the stories you need to know could david cameron will deliver his list of demands for changes to the uk's relationship with europe. the british prime minister will demand reform in four major areas. rights of non-eurozone countries, increased economic incentives within the eu, greater powers for parliament, and crucially, restricted welfare rights for non-u.k. citizens. vodafone rose more than estimated as markets in europe recovered. service revenue rose 1.2% in the second quarter throughout september. it was a worry that germany could slow this business down. i will be speaking to the ceo, the long-standing ceo of this business. we will bring you that interview a little bit later on. cabin crew union has rejected an offer from a one-off

payment of 3000 euros to flight for annts in exchange end to their walkout. it makes the walkout the longest in history. the ufo union was brought in to try to avoid a prolonged walkout. the producer price index fell by nearly 6%. the data signals that policy makers may need to act again to ease deflationary pressures. how our markets in asia? let's find out. shery ahn is standing by with the details. trading across markets in asia with the benchmark index falling the lowest in a month. the shanghai composite swinging between gains and losses on the session about half a dozen times. you mentioned those inflation numbers out, concerns over the

state of the economy seem to have outweighed the speculation that authorities will just do more and boost stimulus to support the economy. the hang seng index also falling 1.5%, declining for the fourth consecutive session. was a market swinging between gains and losses between the session but it did manage to hang onto those gains. we had current account data out of japan showing that trade 15thus, for the consecutive month, rose in october. kospi also -- declining for a fourth consecutive session. i want to show you what the korean won is doing. it fell to a one-month low earlier in the session. it is currently unchanged at the ,001.56.trading at 1

it has been losing ground because exporters are selling dollars to pay bills at the end of the year. there is speculation of that happening so the korean won has been moving. at japanese yen now trading a three-month low. currently unchanged. it has been weakening for seven consecutive sessions. and the chinese yuan, authorities in china weakened the yuan reference rate for a sixth consecutive day. that is the longest run we have seen of them acting with the yuan since march. back to you. thank you very much indeed. that is how the markets are taking this story. let's get more with the consumer inflation data that we saw. extending that streak of record readings on the downside. nic joins us now.

let's start with the cpi. walk us through the implications of what we learned this morning. the number this morning is about half of what the chinese government says it wants for inflation and is distorted a little bit by food prices. specifically pork prices. but when the government has eased before, cutting interest rates, allowing banks to lend more money, it is specifically andd inflation as a concern a reason why it was easing. another core reading on inflation does open the door a bit for the government, does give them more room as they look to these and -- ease in the future. info -- inflation rates of 4.5% in china. compare that to the u.s. they do have a lot of room. this will add impetus to the government to ease a bit as it looks to meet its growth target

for 7% by the end of the year. which it look like -- it looks like it may not meet. they still have a lot of work to do to hit that number. guy: the instant reaction to this from a western perspective is you cut rates. you try to push monetary policy to make consumers may be a little bit more active. the problem is, there is a lot of policy action in china with the commercial sector. capacity andore you may end up with a deflationary impetus rather than inflationary impetus. policymaking is a little hard to gauge here. k: i think it is very difficult to gauge. we have looked at a string of numbers coming out lately. they continue to surprise to the downside. the numbers are worse and worse than people expect. however, this time, there is a silver lining. prices, at the producer

it was 5.9% fall, so pretty large. a lot of that is the base effect . commodities prices a year ago started to fall right about now. we are expecting to see that work through the system. next month, it may not be so bad. that sort of eases pressure on the government. such concerne is about the reliability of a lot of this data. it is difficult to gauge the state of the chinese economy at all. what we do know is that loan growth is stabilizing. there are encouraging factors there. some economists say that today's numbers, at the same time, reduce pressure. specifically that ppi number three they are going to let that base effect work through the system for the next couple of months and make the decision after the new year. economistsou talk to , what is the current thinking about projected policy?

nick: there is no question that they have a lot of room to ease the -- to ease. they have shown no reluctance against doing so. the 4.5 number, there is so much room for the government to take action if it needs to. the thing that we are seeing is that this is a government that likes to get its hands dirty and it is not afraid to take action. they are not going to take a wait and see approach. as soon as the stock market plunged, you saw massive intervention. you saw the yuan devaluation. they have shown themselves to be fairly interventionist. we are all waiting to see. you are watching it in real-time. they do not hold off. they like to get in and intervene. we are expecting to see several more moves in the coming months. guy: always a pleasure viewed as for the analysis. cameron dicingid

with the brexit? we will speak to the largest distributor of oil and petrol stations. see you in a moment. ♪

guy: good morning. it is 7:30 here in london. we are half an hour away from the start of european equity trading. let's talk about one of the companies that will be in focus this morning. national grid is to start a process for a potential sale in the majority state of the gas distribution business. could start process in 2015. joining us for more on this is the company's ceo, steven holliday. good morning to you, sir. thank you for taking the time to talk to us. can you explain a little bit on how this process is going to work in terms of -- are you just

going to sell the whole state? is it going to be done bits? we had a strong set of results for the first half. operating profit is up 14.8%. dividend is growing. we have invested 1.9 billion pounds across our business is in the u.s. and the u.k. in the first half. that is a 22% increase from last year. you are absolutely right. we have announced the beginning of a process to sell a majority stake in our u.k. gas distribution businesses. that will take a year. we are selling a stake in all four of the networks. we on four of the eight networks in the u.k. we are selling a majority state in the combined for networks. guy: is that going to go to a series of buyers, one buyer? how do you think the process will work? steven: today is literally the

start of the process. through the to take whole of 2016 and probably close in early 2017. i will not speculate on the outcome. literally, today is just the beginning of the process. guy: you say a majority stake. why hang onto some of it? steven: that is a good question. consistently, over the years, after we connect people to their energy, as we look at the finances of this business, we aim -- we aim to create a 5%-7% growth in assets, fund a dividend, and have a balance sheet that can find these hugely important investments. gas distribution in the u.k. is a mature business. readjusting the portfolio moves the company towards the higher end of its growth targets for the future. it is not just about today. it is thinking about the mix of assets that we have got into the future. this is the right step to take at this moment. do you think the price

will be in total? i know you will not give us an exact number because this is a negotiation, but what do you think? steven: today is just the beginning of the process. we clearly need to create the right value through this process. it is about getting the shape of the portfolio across the u.k. and the u.s. in the right position for the longer-term future. that is why we are starting this process today. guy: we saw a national morning last week for the need for extra power capacity in the u.k. in your mind, how do we incentivize the building of more capacity? how does that work? the mechanisms we have had thus far do not seem to be delivering. steven: we know this winter is tighter than last winter. i also know we are taking great effort to make sure that we can balance supply and demand when the demand is as high as it is

during the course of this winter. there are mechanisms in place. incentivized construction and , andables in great britain the capacity market should incentivize new gas generators to be built. there will be another auction in december of this year. people are hosting that will incentivized some new plants to be built in the next few years. guy: the key word there was should. has not done that. it should do that, but many argue that it hasn't. should we rethink it? steven: we need to re--- we need to see how this auction goes. decided it was the right level of capacity. there is a level being set for the auction for 2019. after that, everyone will stand is the auction

process incentivizing construction for the new generation? guy: does it matter to your business whether the u.k. is a member of the eu or not? matters to our business is the integration of energy markets. extensive businesses in europe. the most important of which, it keeps prices of energy as low as possible for u.k. consumers and adds to the security of supply. being part of an integrated energy market is what matters to the national grid and customers in the u.k. guy: so that is a yes, it does matter. am i sensing that it will be better to stay within? steven: whatever the arrangements are, whether we are in or out, we do not lose the benefits of an integrated energy market. guy: right. congratulations on the numbers. thank you for your time this

morning. we will leave you there. u.k. businessth and speak to the largest distributor of oil and u.k. petrol stations. it is the company that does a whole myriad of different things. results out this morning. me isn sitting next to fairly proud of what has been delivered. plus 26.1% operating line. you might be on the ftse 100 very soon. it is a name people are going to learn. what do i need to learn from today's results? what are you telling investors? >> we have had a pretty strong set of results. it is driven by very good, strong, double-digit organic growth across the business. that has been helped further by the completion of two very large acquisitions that we completed in the first half. one of those was in france and the other was a petrol retail

business that we bought. and the number two player in the lpg market that we bought from shell. guy: you are a conglomerate in many senses of the word. all of the to put businesses together, petrol es going ton, xbox john lewis, what is the overall sense on the consumer economy right now? tommy: clearly, we have had a good time in the business in the first half. we have seen some mixed things there. parts of our technology business were weaker. we talked about weaker demand for things like smartphones and tablets. that is perhaps more to do with the sector and the cycle of where the sector is at the moment than it is to do with the u.k. economy. we find the u.k. economy a good place to do business over the next six months. we feel pretty good about where things are.

presumably lower petrol prices favor your business. it is about elasticity of demand. lower petrol prices mean people use more of it. do you drive further or not? i am wondering how that works. tommy: it does not have a dramatic impact on the business, but if you asked if we preferred low oil prices or high oil prices, we prefer low oil prices from an affordability point of view. it is not dramatic when prices are higher. it does not impact the profitability in the short-term, but we would prefer lower oil prices. guy: is there a limit to it? tommy: there is a limit to everything. what it dries more than anything else is discipline. we are focused on the returns and capital in the business. it is an inquisitive group. that is very important. you can grow your business and

your earnings if you have a strong balance sheet. we have kept the balance sheet very strong. we have been finding opportunities and hopefully we continue to do that. guy: you talked about the acquisitions you have made. clearly, opportunity in some of the bits of the oil companies. does the benefit story continue? think it does. no guarantees, no promises, but we think, where oil prices are at the moment, everyone is aware that we have positioned ourselves as a good partner. we have bought assets from exxon mobil, shell, chevron, bp, total. hopefully we have positioned ourselves as a good partner when they want to do them -- that kind of thing. if we can find the right opportunities, we will continue to grow our other businesses as well. there more

opportunities in the health-care sector? i was listening to some reports on the nhs. from a former regulator talking about the idea that we are going to change the funding structure of the nhs. do you worry you will end up seeing caps? tommy: from our perspective, if you look at the thread running across a lot of businesses, sales, marketing, and distribution, we have our largest business selling into the gp sector in the u.k. we do sell products into the nhs. but we have small market shares at the moment any health care business. there is plenty of scope within that business. guy: quite a business in france. the u.k. is potentially talk about leaving the eu. when you think about acquisitions, does the brexit risk factor into your thinking? tommy: not really.

we are not exporting products. we operate within national boundaries. if thatt think brexit, were to happen, we do not think it has a material impact the in fact, we are pretty confident. 60% of our business is in the u.k. still be guy: it does not matter either way. tommy: not really. guy: interesting. dcc chiefg, -- breen, executive officer. vodafone has been estimates. 1.2% in thenue rose second quarter through september. limited is now behind them. limited global talks are done. i guess they are looking forward to trying to figure out what vodafone now needs to do. in withng the gaps operational capabilities the

major challenge now? vodafone is increasingly focusing on shaping its mobile network. end byll be coming to an march, 2016. if you look at it on the broadband side, vodafone has connections to 62 million houses across europe. they have some sufficient capability. of course, there will be some single acquisition opportunities, but bear in mind their credit ratings as well. the management mentioned they bbb+d to stay within the rating. within is a big story the sector. there was a hope that that would

bring topline and bottom-line benefit. is that working? >> if you look at today's results, it is bringing revenue growth. not forget, europe is lagging behind when it comes to 4g penetration. it is only about 20% of the customer base. up, we willer goes expect more stabilization and probably growth. to see you. thank you very much indeed for running us through the details and the background stories rounding the vodafone numbers. we will be talking to vodafone a little bit later on. i will be talking to his chief -- to its chief executive. good morning. what do you make of what european companies have said about the state of the economy?

i think it is feeding through to the corporate sector. we have to understand the nature of the economy. the ideaody's mind is that we have not quite got back to normal yet. normal isinking that what it was like before the recession. you need to think of that as abnormal. that is abnormally fast growth. not just in the u.s., but other countries as well. it is harder for companies to get back to this special performance. bottom-line growth is going to be slower. guy: what does that mean for my equity market holdings? if i have impressions based on the precrisis era of what equities can deliver, is that misplaced? in the backyou have of your mind that in a good year, you're going to make 20% and a bad year, you are going to make 10%, yes. that is misplaced. you are probably going to make something like 7%, 8%. that is not very exciting. you could make that return in a

few weeks, a couple of months, and the rest of the year might just be volatility. it is a lot better than you will get out of bond markets. it is just not going to feel quite as exciting. guy: you talk about volatility. it sounds like it could be quite exciting. it could be quite bouncy. you love volatility. it gives you something to talk about. you are an investor. think we are going to see a little volatility around. one of the things that is conjured to volatility is the liquidity that has been added into the system. it is sort of forgotten about now, but it is still sloshing around in the united states and the u.k. and europe and japan. i think that is potentially destabilizing the financial markets. market ready for fed

tightening? richard: i think it will be not exactly welcomed, but understood. i think the market reaction after the fed failed to tighten in september tells you that. the fed slightly unnerved markets by not moving in september. it will unearth markets even more if it does not move next time around. guy: 68 percent probability of a move. that, --o deliver on if they do not deliver on that, it creates a bigger story than if they go. richard: it is likely that they will move. all the excuses that they have been bringing forward not to move have begun to disappear or diminish. if you look forward, it is important they do move. the american economy is going quite nicely. it has reasonable momentum. they have interest rates left at emergency levels. we have to start normalizing monetary policy.

if we hit a bump in the road, what are they going to do? they cannot get much effect cutting interest rates from here. qe, but therere is already massive qe in the system. it is not going to help adding a few billion more in liquidity. i think they need to start edging interest rates up to have a little bit of insurance in the system. guy: we are going to carry on the conversation. richard jeffrey is going to be with us as we count down to the european market open. vodafone being one of the stocks to watch. the numbers ahead of expectations. we will look at it and all the other companies that are reporting this morning. ♪

guy: nine minutes away from the start of european equity market trading. what stocks do we need to watch out for this morning?

>> i am starting with vodafone. there has been a slew of earnings today, but this is the one i am focusing on. second-largest mobilephone company by customers. it reported second-quarter service revenue that rose one point 2% and that was better than expected. that service revenue is the money vodafone gets from customers on its network. they got a boost from rebounding markets in europe. europe has been a challenge for the company over the past two years. we are seeing a recovery then. there has been a lot of changes, shuffles to the management team. the ceo committing billions in new network spending in the past year as well. looks like that is paying off. this stock has been called higher off the back of today's earnings. the biggest wealth manager, julius peppers.

volatile market in the summer restrained client activity. mention i just want to shares due to be -- to begin trading in amsterdam on november 20. guy: some of the companies you need to be focusing on this morning. richard jeffrey is still with us. the earnings season is disappointing in some ways. europe looks like it is muddling through. there is a lot built in in terms of expectations of where growth goes. do i want to be owning the vodafone's of this world? do i want to go further down the food chain? richard: i think we want to be exposed further down the food chain. mid and small caps are going to outperform. at the moment, there are some interesting valuations around. big caps have not performed so well.

it is the small and midsized section of the market that is going to benefit from the sort of growth we expect to see. you were talking earlier about disappointing growth around the world. that global growth is disappointing because of what is happening in developing and emerging economies. asian manufacturers, commodity producers. they are the ones struggling in this new growth environment. what we want to be exposed to is more western growth. i think you get the best exposure through the mid caps. guy: do you worry that the political story is going to be a net negative for european equities? we have the brexit story front and center today with david cameron p then you get into 2016. seeish elections, we could a referendum, then we get to 2017, french and german elections. when you overlay that on top of the growth story, do you worry

it could detract from it? a slight amount. we are always in the middle of a political cycle. we have the american elections. time, you will be talking about the return of the u.k. elections. issue ishat brexit interesting. it potentially causes uncertainty. all political events can have macroeconomic implications. we always need to watch them. we are watching what happens in southern europe at the moment to see if that is destabilizing. it would bethink better if we got the referendum in the u.k. out of the way from a profit point of view? richard: the quicker the uncertainty can be resolved, the better it will be for financial markets. but i think, at the same time, if there is going to be a renegotiation and we bring forward the timing of a referendum and make it solid, it makes the renegotiation harder to take place. what we are looking for is a

renegotiation which benefits the whole of europe. very much for your time this morning. richard jeffrey joining us. let me give you a quick heads up on how we think european equity markets are going to open. london looks like it will open around .5%. vodafone and national grid are two companies you want to watch out for today. later on this morning, i will be speaking with the ceo of vodafone. we will play that interview for you a little bit later on. lots to talk to him about. viewll get a brexit brexit from him as well. have a great day. trading is about to start in european equities. see you tomorrow. ♪

jonathan: good morning and a warm welcome to on the move. i am manus cranny come in for jonathan ferro. moments to go before the start of european trading. looks like we might get a reprieve in the markets. how long? headlines. the world's second-largest wireless carrier beats estimates . raises its outlook. china adds to the global deflation threat. fresh evidence of a slowdown emerges as inflation continues to decline. no mission is impossible. my minister david cameron prepares to unveil his four

points negotiations with the eu membership at stake. those are the burning issues for markets to deal with as we get the start of trading under way. it looks like european equity markets got a little bit of a bounce. we lost a little less than 1%. let's see if we've got that rebound. a little asia after bit of a choppy trade overall. we open up the european equity markets. have a look at what is happening. ftse 100 up when 2%. .2%. of focus -- up a lot of focus on u.k. about -- still waiting for the dax. just under .3% higher. a bit of a rebound.