>> it is the 68th anniversary, and there is another nuclear blast. signs of stabilization. while priceses, remain muted. draghi's delay. the ecb president says his policies need more time to work, rather than be expended. and a big moment. it is time for fixed income investors to prepare for rising inflation.tes and

inflation. welcome to "countdown." happy friday. nejra: i'm nejra cehic. manus: and i manus cranny. we will get to the geopolitics of north korea and south korea at the moment. but have a look at the bond markets. are we reaching a capitulation point for building up to one in the bond market? by 2%.ond yields, up we want to look at the japanese bond yields for capitulation. here of the global bond yields. cracks are beginning to appear. draghi, did not even discussed quantitive easing. mark carney says the bank of england is not trigger-happy. you can see the beginning of a movement. what are we focusing on the jgb

market? because of the correlation. the correlation between the jgb market and the rest of the market. i think the other thing you can see as well, the 30 year spread. we will hear more from jeffrey gundlach later in the show, saying, this is a warning. more on that i look of it later. nejra: that is a great chart. the question is, is japan's bond route going to seep into the world? the let's bring up the risk rdadar. i will start with fx and the korean yuan. you can see the dollar increasing against the yuan, up .7%. weaker yuan after its games yesterday after a nuclear weapons test in north korea. even though the south korean central bank stayed its hand on rates, it seems to be the geopolitical risks that are

driving the moves in the currency today. theing at asian stocks, index has followed the most in a month, down .6%. of course, european stocks fell yesterday after draghi -- well, to some extent, disappointed the market. the euro hit a two week high, up just .1%, but we did see it gain yesterday. finally, i wanted to bring up wti crude there. it is down .9%. oil, really trimming its weekly gain. although we have that u.s. stockpile slump, the biggest in 17 years. perhaps investors see that as a bit of a one off. manus: many of those imports are getting demolished because of the tropical storm in the caribbean. let's get to the bloomberg first word news. reporter: north korea conducted its fifth nation test on the

anniversary of the nation's founding. could lead to the nation's self-destruction. on is fallingti 0.8% from one year earlier. d for asumer data climbe 1.7% increase. jeffrey gundlach says it is time for fixed income investors to prepare for rising interest rates and inflation. it is recommend that they move money into the cac. they called it a "big, big moment." rates might not rise in the near term, he thinks now is the beginning of something and people are supposed to be defensive. the u.s. federal reserve has urged congress to prohibit banki ng, rather than lend money.

several recommendations were issued by u.s. banking regulators. another was a limits after lawmakers accused goldman sachs of seizing unfair advantages on metal and energy markets in recent years. ceobank of monte pasche has agreed to step down to attract new investors to attract new investors. he will stay in the position until they find a successor. the european union's finance ministers need to schedule annexed or meeting to prepare for the inevitable negotiation's with the u.k. so says the finance minister, schelling. can bemmends it left to the leaders of germany, france, and italy. will today, schelling

present the request. global news 24 hours a day, powered by 2600 journalists in more than 120 countries around the world. you can find more stories that the bloomberg on top . this is bloomberg. nejra: we just got some headlines crossing the bloomberg here. obama, saying he will come full allies in coming days -- he will consult allies in coming days on north korea. andas spoken with abe korea. obama was briefed on north korea at the white house. s coming toment there on the bloomberg. manus: it is interesting how this nuclear launch has been taken. this is a moment north korea decided to act. let's get into the markets now. there has been a market reaction in the korean yuan. take us through the asian session. to be honest, the

investors in a asia have largely priced in the north korea variable already. inry time analysts invest korea, they take in the north korea risk. isare losing 1.5%, but it not a huge move from earlier in the day after the bok left the rates unchanged at 1.25%. in south korea, they are moving some defense stocks. others are falling a little bit because they were in overbought territory earlier in the week. tech, rising almost 20% -- victek rising almost 20%. take a look at the shanghai composite. it is unchanged after we had some data showing that factory deflation had eased and consumer prices were also subdued. the hang seng though, positive territory, gaining 1%.

we had some news from authorities that they are letting these insurers invest in hong kong stocks through the shanghai trading link, giving a boost to the stock market there. we can see the asx down .8%. ikkei was a negative territory all morning, before turning positive, gaining .2%. that is despite the japanese yen surging today and getting stronger because of that risk off sentiment across asia today as the benchmark index declines for a second consecutive day. manus: thank you very much. let's return to our north korean story, our top story this morning. it was confirmed north korea carried out a nuclear test. it conducted this in the north of the countryside. the force of the blast set off an artificial earthquake with a magnitude of 5.3. nejra: for more, and a sharp

joins us -- andy sharp joins us from tokyo. what is north korea claiming? reporter: the north koreans just announced 30 minutes ago that it managed to detonate a nuclear warhead in the test. it says it now has the ability to mount these warheads onto rockets. in other words, they can produced militarized nuclear arms. if true, that means they can fit it onto rockets and tie it further, putting potentially a wider range of countries at risk of an attack. manus: to what extent, and i say this with a certain amount of brevity. to what extent can we believe them. it is still a little bit too early in terms of credibility of these claims. do you 100% believe them? >> absolutely.

the fourth test they conducted in january, the north koreans claimed to have produced hydrogen bombs. in those we spolke to countries all around the world said, "no, this was not a hydrogen test." "north korea's claims don't stand up." for now, it is a little bit early to say whether they have produced a militarized weapon, that we should definitely have a heavy dose of skepticism around their claims. nejra: what are the implications around the wider region? we are seeing japanese stocks swing between game anins and losses. what are the implications? >> basically, how do we stop north korea, you know, continuing to fire missiles? they fired three last week.

how do we stop this? china.get is clearly on china is the only official ally of pyongyang in the region. enacta will probably tougher sanctions. it also depends on whether china can turn the screw on north korea. otherwise, we don't see any particular way, or any method, of slowing down what seems to be an accelerated program of missile and nuclear tests. manus: it certainly is heightening the tensions. just a recap. obama has been on the tape. has left thema region and says he will consult with allies with regards to north korea's actions. he has pretty solidified

commitment of the u.s. to the asian area. japan abe's is in separate calls, being fully briefed on the matter. nejra: let's just start with this story, of course. we can see a selloff in the yuan, though this was one of the highest -- a 15 month high yesterday. is this an overreaction, given we often get these sort of tests coming out? >> idle think it is an overreaction -- i don't think it is an overreaction. although, manus is right. we don't have the final details about this test yet. nevertheless, it is the next stage alone of stories. this has been going along for five to 10 years. the interesting thing to me is the lack of reaction we are getting in the markets of raw. you can just say people are used

to these things happening in north korea, but nevertheless, it is still a major issue. munemarket has become im to geopolitics overall. look to the last 12 months, look at what was happening on the turkishand syrian border. look at the lack of reaction to the events in paris. this market has become so heavily focused on yield seeking, that everything else has become blocked. manus: this is where the correlation coefficients between bonds and equities, those correlations are heading levels we have not seen for many years. the question on many people's the politicals of reaction on the equities. is thision to you is, outside korea?

or is this again, concerned about central banks not back in molitor policy? policy?acking monetary >> absolutely the second one. army going to see that ecb make an additional move, loosen up its rules with regards to further bond purchases? is the bank of england going to make that next move? all of these things that have driven this bond rally continue to drive it. we can argue whether it is crazy . this seems like a black hole of negative rates, but that is what is driving it. equities from currencies to commodities are on the back of that. manus: the cross market contagion index, we were looking at this. it is at the highest since 2008. the question they posture this morning is, are we in panic or bubble territory, or is something else in play?

you are not in panic mode, as an fx man, are you? >> it rings a huge amount of alarm bells, because it looks like any major carry trade over the last 10 years. of,ou are looking in terms the volatility in the foreign exchange markets, there is a huge collapse taking place there hvery rapidly. but we are not back at those levels where we were back in the summer of 2014. we need to go even further back to 1997 and 1998. we are getting there. when we get to those levels, that is usually a huge warning sign. for those people who think this is a bubble, or something askin kin to a bubble, i totally agree. from the foreign exchange

market, we are not quite getting those signals. nejra: you also talk about the fact that selling volatility has become an harri inherent part of yields. the question now is whether yields have fallen. when will we see this inflection point when yields start to raise? what impact will that have, not just on volatility? >> so, we talked a little bit earlier about the topic of the jgb market. i thought that was fascinating. nejra: i will bring that up later. manus: go on. when the back to 2013, fed first started to talk about the possibility of asset purchases. there was a huge bubble in the jgb markets. the bank of japan intervened in the jgb market. when push comes to shove, do you believe central banks are about

to allow world bond markets to collapse? possibly not. but one thing has to take the strain, the foreign exchange. they have to bring cash to buy those bonds. that is where it will make itself felt. that is where the rise of volatility will come. ultimately, it all comes down to the fed and currencies. nejra: simon derrick stays with us. manus: let's get you set up. with the7:45 industrial data out of france and that 9:30, it is july trade balance numbers for the u.k. and in the u.s. we get wholesale inventor is at 3:00 p.m. manus: coming up, mario draghi says more time, rather than more stimulus, is what europe needs. nejra: at 6:40 we are live in milan as monte pasche ousts its

ceo. manus: the ceo of aviva tells bloomberg what he does not think the brexit. london from being one of the major financial hubs. nejra: we are bringing you all the news, analysis, and conversations about britain leaving the eu. that is that 9:30. this is bloomberg. ♪

manus: let's look at the hang seng. 24,186.ending up, 6:21 here in london. nejra: mario draghi says officials will study options to ensure the quantitive easing

program does not run out of bonds to buy. >> the governing council tasked the relative committees to evaluate the options to ensure as most implementation of our purchase problem. the risk to the euro growth outlook remains tilted to the downside. this assessment is broadly reflected in the september 2016 ecb staff projections for the euro area, which forced the annual real gdp increasing by in 2016 016, by 1.6% and by 1.6% in 2018. we discussed the broad macroeconomic projections, but we did not discuss anything else. for the time being, the changes

are not substantial as to warrant a decision to act. look at alles will the options that might be used to redesign the program. "wes: he said the words, did not discuss anything else." they did not discuss the qe. if you want to have a look at 34.s, #btb we did not discuss more qe. [laughter] is a slowing tape nowadays. he is going very slow, indeed. if you look at the foreign

exchange perspective, remember the course of the last two days, ecb days have become just about the most important thing there is. he he has got a problem if disappoints the market and creates incredible volatility since the euro is soaring. he knowso come along, he is going to have to do something. the board knows they will have to loosen the terms of the bond purchases before we get to march because we are going to run out of bonds. we all understand that, but he did not want to go. we still don't know what the northern fed is going to do, what the boj is going to do, and what the bank of england is going to do. so, he had to keep his powder dry yesterday. he did ae same time,

rather good job. possibly, the is what he spoke so slowly. if the worst get is the move up in the yield curve, that is not a bad job. nejra: we saw the reaction in the yield curve in the u.s. that brings me onto the fed. we are of course, obsessed with wirp here. manus: wirp, wirp, wirp. [laughter] nejra: exactly. >> my guess is the next time the fed tightens is when we are below 50, maybe 45 or 48. they will say, we cannot be replaced by this wirp function. manus: there you go. nejra: i was just going to say. gundlach, saying it is time to get defensive with bond. i want to ask you about a nuace, because this rising yield he is talking about, will it come from

or will itish fed, be about fiscal policy coming borrow u.s. needing to from the and more supply coming into the market, pushing those yields higher? >> i don't know if it will come from the fed. frome not that far the top of the cycle. this is a fed a becomes more dovish by the start of the day. if you go back to the start of the year, we were going to hike four times this year and now we are still wondering when the one hike is going to come. when we started the process in may of 2013, we are still talking about it three years later. i am not certain that is what is going to burst. that is a really good question. i don't know. other than the fact that we are in a world where people can sell bonds, not in the u.s., but can sell bonds in europe.

say thate, i have to feels a lot like restoration. manus: simon derrick, joining us. more to come with daybreak. this is bloomberg. ♪

nejra: you are looking at a beautiful shot there of tokyo's imperial palace, live. the geopolitical risk has been sparked by the news out of north korea. we can see a weaker dollar and a stronger yen, the reversal from yesterday. manus: it is on your bloomberg. it is "daybreak." you can take a look at some of the top stories. ngis particular, you leader, and i am being very careful with my words. north korea we understand, carried out its fifth nuclear test on the 68th anniversary of

the finding of the state of north korea. that coincides, as i said, the size of the blast was tankan kilotrons. the image we are showing here, they are calling it an act of medical recklessness. we know obama has been on the phone with many of the asian leaders at this stage. nejra: we can see a selloff in the market with the korean yuan. asche hasof monte p ousted viola. he is trying to attract new investors to avoid a bailout. we will be talking more about this just shortly. with sergio down monti. ubs offered potentially, some capital. that was blown away.

we will see what happens on that next. focusing onreak," the u.s. federal reserve, urging congress to prohibit merchant banking. manus: asian stocks have fallen by the most in a month. central banks are starting to question the benefit of further monetary easing. ryan chilcote goes a little bit deeper into the markets. ryan: good morning. ryanas you said, the asian pacic index is down by 0.5%. do note, it had a great little rally before the close. nevertheless, the biggest one-day decline in more than a month. of course, tech is part of the problem. cks are helping to lead the decline after apple shares show their biggest decline since june. the other big concern is monetary, perhaps central banks around the world are cooling on

the idea of more stimulus and efficacy of that stimulus. those are your asian stocks right there. a quick look at the currencies. this is the wcrs function. it ranks your world currencies. this is looking at their performance today. i want to start at the bottom, where we have the south korean yuan, asia's worst-performing currency today. obviously, that report that north korea has now detonated its fifth nuclear test, pushing the yuan down. i've got to tell you that the paris in equity market is also the worst-performing stock market in asia as well. the euro, up to, it rose after draghi spoke yesterday. again, it is all about monetary policy. are we continuing to get the stimulus going forward? and quickly, oil is interesting. check this out. it reaches a recent high before

beginning to decline. i have my trend channel shown you the biggest one-month rise. we learned at 4:00 p.m. yesterday that inventories in the u.s. fell by 14.5 million barrels, the biggest drop since 1999. then, the markets that, "that is because they had a big storm in the gulf of mexico." that meant some of the output was shut out. some of the ships that were bringing in parts of crude onto american shores could not get there. no big deal. we think the glut will continue. so, you can see the oil markets shrugging off u.s. inventories. back to you. nejra: ryan, thank you. the pboc might be under less pressure to add more stimulus after the lattice data out of china. -- after the latest data out of china. we are now being joined out of shanghai, the company's global

head of emerging markets research. can we get your reaction first to this data out of china today? >> certainly. it was a good one. it was a reversal of what we saw in july. however, it is just one data point. we have to wait for more data from august just to see how consolidated this current recovery is. we will say it is tentatively positive news, but we are trying to hold back, not getting overly excited about it. manus: luis, we have seen for an exchange reserves dropping $16 billion in china, the lowest since 2011. does this light the torch of concern again in terms of contagion from china and the fx reserve story? of reserves issue

has a lot to do with the story that is -- it is certainly not over. general,he chinese in are trying to move to a more market-based determination of exchange rates. so, you know, they cannot have that many targets. the fx reserves are going to be the result, a reflection of whatever happens in the end to the exchange rates. our expectation is the exchange rate is going to have a weakening. we are expecting, we are looking 6.75 by the end of the year. the current account surplus is increasing. that suggests the visitor rves should be

increasing, but they are not. that means they will be pressure on capital outflows. there are many moving parts here, that are reflected here. there is going to be less focus on that. there will be more tolerance for weakness in the currency in the months ahead. nejra: this weakness that you talk about, and your call therefore 6.75 by year end, will this be driven by the pboc, or do you see it coming because of a fed rate hike and a stronger dollar, or even, dare i say, the hikes we have seen recently? >> well, we are expecting the fed to hike in december. this, we think is going to generate an uptick in the dollar against other reserve currencies, possibly.

certainly, against emerging-market currencies. we think the pboc is going to use the uptick in the dollar to renminbieaken the against the dollar. we have seen the pboc taking advantage of dollar strength against other currencies to weaken their own currency against the dollar. so, this is what is being embedded within the projections we have of 6.75. manus: let's talk about the emerging markets. you are the head of emerging-market research. give us a sense of what you are seeing. in terms of equity, currency, and bond exposure, where the biggest flows you are seeing? -- where are the biggest

flows you are seeing? >> we are seeing emerging markets increasing. we have spent three years of constant downgrades of em growth projections. ir the last four months, would say, we have not only downgraded, but we have started to upgrade. some of them of course, some of the upgrades are coming in countries where we have seen growth dynamics, like brazil and russia. i would say, they are savoring some of this higher-yielding credits, which are on the mend, like brazil. including even, some money coming into you know, countries like turkey, or even places like south africa. this is partly, again, the

stabilization momentum for e.m., but also be search for yield. low yields are pushing money back into e.m. happy there is something better coming from the fundamental side. nejra: luis oganes, jpmorgan's global head of emerging-market research. thank you. manus: let's talk about italy now. the bank of monte pasche has ousted viola. italy is trying to avoid a bailout. we are now joined from milan. look, is this a huge surprise. hasbank of monte pasche been battered from a variety of directions. are we surprised. is it going to hurt the plan to

save them from a bailout? >> i would say, 80% to 90% surprised. if you remember, back at the end of august, after the news came out that mr. viola was under investigation by prosecutors in relation to basically, the previous management's handling of derivative transactions, the bank came out and strongly supported them. there was a statement from the chairman of the bank, saying they had complete confidence in them and they did not expect any change in his position. less than one month later, he is gone. as you mentioned, at the top of the segment, i think investors probably, are being asked to fund yet another big capital increase. i think they would prefer a change in management. clearly, we are into september now and there is a big question whether they will be

able to pull this off, particularly, a stock sale. the possibility the investors, and the italian government, would prefer a new chief executive guide the bank through this turnaround operation. thea: italy's treasury says bank's situation is under control. but is it, dan? >> they certainly moved very quickly to make that point late yesterday after the news came out. there is no question that the bank is probably, you know, the wills directors board have a meeting to make a nomination in the next week. the leading candidate so far i s the head of bank of america merrill lynch in italy. also had a stint at the bank of monte

paschi. final think they want to let this vacuum exist for too long. -- i don't think they want this vacuum to exist for too long. manus: they are not the only bank considering coming back from our capital. there was discussion overnight that unicredit is considering the sale of pioneer investment. again, there is still a big capital gulf in italy, is in sn't there? indeed. is, unicredit also changed ceo's in the last couple months. john pierre has been moving -- been movinghas very quickly to plug the capital gap between 5 billion euros and 10 billion euros. he have got several transactions already underway.

proposals have already been made during his brief tenure. these are the two out of the top four banks in italy 10 need to raise capital, with monte paschi being the serious case because they did not pass the european's stress tests, the most recent ones in july. nejra: thank you. we just got more breaking lines on north korea. basically, south korea and japan are two pursue further steps against -- are to pursue further steps against north korea. manus: obama tells abe that the u.s. is committed to japan's security. you can see this mounting reaction to what we understand is the fifth warhead test from north korea. and again, the political

reaction is coming hard and fast, in terms of the propensity of north korea. nejra: the koran yuan is still the -- the korean yuan is to the worst-performing currency. the eu good heard of self by attacking london to get ahead. thes: we will have more on nuclear test and reaction from global leaders. nejra: plus, draghi's delay. he says central bankers are evaluating options for its purchase program. this is bloomberg. ♪

morningt is 1:48 in the in new york. the dollar index is down. it is a little bit softer at this stage. the inflation is on its way back.

says they could be at a turning point in the market. let's get to the bloomberg business flash. samsung has been dealt a fresh blow of global recall. leaders sayn s caution should be exercised. many planes have now been recalled due to fears about planes catching fire and exploding. apple announced the iphone 7 with much fanfare, but opening sales numbers did not impress. they say the newer models will sell out before the first customer preorder. it is holding back a key metric used by some investors to gauge the success of an iphone launch. hasceo of monte paschi

agreed to step down, leaving the the in the midst of process of trying to attract more investors to avoid a bailout. he will remain until the company finds a successor. that is your bloomberg business flash. nejra: philip hammond has warned the eu that it will suffer if it to seize power from writtbritain before it leaves the eu. >> to seize power to break it ot pursuit of some hypothetical national advantage would be a huge mistake for the european partners to follow. i genuinely believe that london delivers not only for the u.k., but for the european union as well.

francine: britain's government needs to deliver more clarity. profits andased ,aised its dividends last month a maktou francine asked if thee overall contingency plan. >> i think it is entirely appropriate they have not invoked article 50 yet. we need to take some time. we need to take a deep breath and sort out what the plan is. we don't have to sort out all the answers, but the answers are going to be different for different industries. and i'm impressed. the fact that we have got a new prime minister and people in place creates some kind of certainty and markets crave certainty, don't they? francine: are you worried that london will start being one of

the capitals of the world? >> not at all. for us, it does not make much difference. greatk london has got laws. it is a great place to live. it is a great financial hub. trying to unwind all of that is a pretty tall order. nejra: you can see the entire interview with marc wilson in the latest edition of "leaders with lacqua." messed upearly just your title. we are on brexit and the pound. aviva, not worried about the u.k. losing its center of excellence in terms of the financial markets. philip hammond was also on the tape yesterday and he sounded quite restrained. we are getting close to a level that might make a difference in the willingness of markets to

lend to us. should we readjust our position of the fiscal reset that is june? >> actually, i quite like a chancellor that comes out and makes these comments. saying, we will borrow as much money as we possibly can. chancellorhis is a it was trying to keep his podium. perhaps he does not want to send too many negative s ignals. whole, do i still think he will have an expansionary policy? yes, i do. june,sty he laid it out in it seems to be the way we will go. there have been folks trading in london since 1890. i think we will still be doing it in a few years.

nejra: what does all of this mean for your take on sterling? we have got a chart here, showing volatility in sterling, one month versus the one year. you can see both, you know, coming down. we were talking about volatility earlier being at lows. >> the collapse in volatility back to earlier levels. suddenly, i think the way sterling has behaved throughout this has been entirely rational. it has moved to reflect the economic circumstances. there has never been a panic. about sterling behaving in a logical fashion, and it continues to do so. so, what do we know realistically? will probably hike

at some point in the not too distant future, even if it is only once. the bank of england will probably ease. will probably hike at some point in the noteven wi manus: even after the backslap ping the team got? >> he was saying, look at what needs to be done. we will be cutting again before year end. i do think the likelihood is we points. up to 10 basis we have a relatively loose fiscal stance from the chancellor. we will have a weaker pound, but a collapse? probably no. nejra: what does that mean for gilts and gilt spreads? >> a great question. the chancellor has been reasonably prudent. so, i suspect you will continue to see those spreads continuing to narrow. manus: you have talked about volatility. if you look into what is

happening with sterling, this is the rally. if you look at it, you have got the new zealand dollar rallying. look at that, good old sterling. is that overdone? >> yes, i tend to think it is, actually. for me, there seems to be a lot of optimism building about the economy. in the same way we were overly pessimistic going into the summer, i think there is slightly too much optimism. we don't know how things will play out. i think we have to be printed and cautious, and i think that is what mark carney was telling us. we need to look beyond the short-term stories. so, yes, do tend to think we have been slightly too optimistic. thaknksimon derrick, you. we have gone from the ecb, to th

e fed, to the think of england. manus: we have tensions over north korea and next, we will get more of an international reaction from that particular blast. more of that to come on "countdown." ♪

manus: testing times on the 60th anniversary of north korea's founding. the state says it has carried out another nuclear blast. signs of stabilization. inflation eases the least in two years. draghi's delay. the ecb president says his policies need more time to work rather than being expanded. and a big, big moment. jeffrey says it is time for fixed income investors to prepare for rising interest rates and higher inflation.

welcome to "countdown." i'm manus cranny. nejra: and i'm nejra cehic. happy friday. let's look at how equity futures are opening up. we are looking pretty much flat on the euro stock 50, the tax, the cac 40. dekes futures off by just 0.1%. you can see where we might see the market open when it does. looking really quite subdued and pretty much flat. manus: after draghi's comments yesterday, so a bit of a dip in the stoxx 600. you've got north korea launching a missile test this morning. let's talk about dana crossing the bloomberg now. this is the trade data for germany. the trade balance comes in at 90.5 billion euros.

exports collapsed. they drop by 2.6%. 0.7%.s also drop by this is a substantial drop in the trade balance. this is all part of the warnings from christine lagarde and the economists at the g-20, talking about global trade. july exports fall 2.6%. the market was looking for a rise of 0.4%. these are pretty damning numbers for germany. whether that is brexit or global trade or china, perhaps we will break that down in a little more context. exports fall 2.6%. nejra: breaking news from j.d. weatherspoon as well. items coming in at 80.6 million pounds. the estimate was 72.7. we've got a beat. full-year revenue in line. bang in line with the estimate.

we wanted to watch if there would be any comment on brexit. not seeing any at the moment. weatherspoon does see slightly improved trading. we will be speaking to j.d. weatherspoon's founder later this morning. he will join us for "on the move " at 7:35 u.k. time. manus: we've got stocks, korean currency moving. we've got msci on the move. the korean won down. north korea launching its fifth and biggest ever nuclear test. the bank of korea leaves rates unchanged. , we are stillfic up 2% on the week. let's bear that in mind. the correlation though is very high between what happens in the bond markets, the equity+++

of course, citigroup's economic surprises for europe drop below zero. that dropped away. no discussion on the extension of quantitative easing. nymex crude at the bottom of your screen down 0.8%. the weekly gain, bank inventories drop the most since 1999, but that is dia data. brent just a little bit lower. nejra: we are seeing the bond markets open up now across europe area still waiting for gilts. we are seeking a shift in yield. the bund yield up one basis point. spain up six basis points. italy's up seven basis points. we did see bond yields move higher pretty much across the spectrum yesterday after mario draghi disappointed the markets somewhat, not by not doing anything, but by saying they didn't even discuss expanding. yous: the top line is that

look at the aussie rate, the jgb, we will talk much more about that. let's get to rosalind chin with your bloomberg first word news. good morning. rosalind: north korea has confirmed it has conducted its fifth nuclear test. the explosions comes on the 68th anniversary of the nation's founding. the south korean president has condemned the latest provocations and warned the actions would lead to its self-destruction. china's factory gauge for distillation eased -- for deflation eased. consumer prices rose the least in almost a year, climbing just 1.3%. gundlach says it is time for fixed income investors to prepare for rising interest rates and higher inflation. the cio recommends they reduce

the duration of their position, move money into cash, and protect against volatility. moment,it a, quote, big gundlach says that he thinks now is the beginning of something and people are supposed to be defensive. the u.s. federal reserve has urged congress to prohibit emergent banking in which firms buy stake in companies rather than lend them money. was limits on physical commodities after lawmakers accused goldman sachs of seizing unfair advantages in recent years. has agreed to ascii to step down from the italian lender. he leaves the bank in a plan to bolster the balance sheet and attract new investors. in 58-year-old will stay position until the company finds a successor.

the european union finance ministers need to schedule an extra meeting to prepare for negotiations with the u.k. over its to archer. find -- theaussie austrian finance minister. left tons this can't be the leaders of germany, france, and italy. global news 24 is a day powered by more than 2600 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . i'm rosalind chin. nejra: thanks so much. now let's check in on the markets in asia. shery ahn is standing by. shery: we are seeing risk off sentiment across the board in asia, with the benchmark index declining for a second consecutive day. we had disappointment over the ecb. a lot to digest. not to mention north korea.

the nikkei was gaining earlier in the session, but closed unchanged. giving up those gains with a stronger yen. the kospi index down 1.3%. the fact is that every time we have a north korea nuclear test, it makes headlines. but investors in the korean peninsula mostly have factored in the north korea variable. we see that in the kospi after those headlines broke. we are seeing a rather steady kospi index. even at the end, we're seeing it clawback some of those losses. the korean won also weakening. the big news out of asia today is what is happening in hong kong. we're seeing mainland cash flooding the markets. authorities now allowing insurers to buy into hong kong stocks through the shanghai connect. we're seeing the hang seng index

at a one-year high. shery ahn, thank you very much. north korea has confirmed that it carried out a nuclear test. it says that it has the ability to mount warheads on the rockets. nejra: the explosion was detonated in the north of the country. south korea has condemned the action. eoul bureauur sou chief peter pae joins us. how significant is this? peter: if it is true, and we have to give it a caveat because they claimed this before, but if it is true, it would be a significant leap forward for their nuclear ambitions. what this means is they can mount a nuclear warhead on a missile and launch that. as we know from a few days ago, they launched three ballistic missiles that traveled 1000

kilometers and fell into japan's hair defense zone. it is a pretty significant development if true. manus: and what is it going to do within the geography in terms of tensions? we've heard obama communicating with abe, with south korea, etc., support for japan, in the region. this is a real test of global tension, isn't it? peter: very much so. test, ae fourth nuclear significant amount of sanctions were imposed on the country. clearly that has not kept north korea from continuing to develop nuclear weaponry. the next question is really, what will china do? made the statement about their concern with north korea's nuclear development,

calling for de-nuclearization. the question is, how much would they put their teeth to what they say in terms of sanctions china would impose on north korea? that of folks should know north korea is heavily dependent on china for its assistance right now. nejra: bloomberg's peter pae in seoul. thank you so much. manus: joining us on set is stephen isaacs, chairman of the investment committee at our fund capital. we had this conversation with our last guest on the foreign exchange markets. politics risks are less inflicting pain on the market than they typically have in the past. nejra: because of central banks. stephen: central banks are appointed by politicians. the whole direction of travel is created by the political process. it was unexpected political

risks, namely brexit, its populism which is spreading around the world, which i think investors should be focusing on. in terms of likely fiscal changes in government approaches, that is a very powerful impact that investors should be noting. nejra: noting in what sense? i'm going to bring this question that i put the simon derrick's. i asked, this uptick that we might see in you, in treasuries, is this going to be driven by expectations of a fed hiking cycle, or more fiscal stimulus and therefore more borrowing and more supply in the market? are you saying it is the fiscal side that is going to drive that or is there another way investors should be positioning? stephen: we've had a more than 30-year bull market in bonds. this is a very long-term process. that is driven by two factors.

first, globalization, the disappearance of inflation. politicians, central banks, all of us could be relaxed and cut interest rates and do extraordinary things. i think unfortunately globalization is now retreating. see it in brexit, the u.s. political cycle, and i think that takes a lot of the certainty out of the forecast where inflation will be. secondly, the personalities involved, who is going to be in power and their commitment using fiscal policy as monetary policy becomes exhausted, is something we need to note. i think there will be a big change in the fiscal equation going forward. manus: from a political point of view, you've got the german elections, the french elections, and there is this assumption that we may see a push to the right in those political nuances. what did that do for the fiscal

consideration? if we move tentatively to the right in the court of europe? stephen: old-fashioned left and right -- manus: you're going to say that doesn't exist? stephen: it doesn't exist anymore. in the u.s., republican i'm notts have been -- sure what that equation means any longer. france,y in europe, in once the terrible terrorist acts took place, the french have been pretty clear, saying, we are intending to spend a lot more on defense and security. that is what has happened. that is the big story. it is populism versus traditional politicians. nejra: on that point about the u.s., about republicans being more profligate than democrats, you think trump is going to win the u.s. election and he's going to be more keen than hillary to build up debt to do what he needs to do.

stephen: my call on trump is very simple. my wife, hello, darling. good morning. life is imitating art. 12 years ago, barack obama was an obscure illinois senator, but there was a program where we had a tall, gravelly voiced african-american president acting very impressively. to take in some ways away people's concern about whether an african-american could be president. trump'sare in 2016, position -- the apprentice. 20 million people watching the program. his whole personal brand, the art of the deal, the donald, is the character and that has given him a huge advantage. nejra: how do you position for this as an investor? stephen: i think this is really

about the debt markets. i think there's going to be a complete change in the fiscal equation going forward. trump calls himself a debt guy. he uses that word three times. what trump is most likely to do is to seriously crank up infrastructure spending, slash corporate taxes, probably simplify the tax code, and maybe basis, the-term supply can even up the debt equation. but in the first two or three years, it will lead to an explosion in debt issuance. bond yields are at record lows. we are already in overheated territory. what investors need to do is very carefully look at their portfolios. they have benefited largely from the reduction in yields across a big swath of equities. we are talking about consumer utilities, any company

that had a stable dividend yield. those companies become incredibly expensive, very highly valued. you have to completely change your portfolio. you want to be in defense, financials, infrastructure related businesses that will benefit from a fiscal boost. manus: hold some of those thoughts. gundlach has been on the bloomberg. stephen isaacs stays with us. saysxt, the ecb president the central bank is evaluating options for the purchase program. we look at what is next for the eurozone. this is bloomberg. ♪

nejra: you are watching "countdown." welcome back. it is looking beautiful in london. sterling up 0.2%.

1.3312. ftse futures slightly on the downside. manus: let's get across to the business flash. christine, good day. >> thanks, manus. samsung has been dealt a fresh blow amid the global recall of its new smartphone. u.s. aviation regulators say the owners should exercise caution when taking the device on planes. all handsets which were shipped following its launch have been recalled due to fears the battery can catch fire and explode. apple announced the iphone seven with much fanfare but says it won't be doing the same with opening weekend sales numbers. the company insists supply will govern the results and that new models will sell out even before the first customer preorders. by not releasing numbers, apple is holding back a key metric used by some investors to gauge the success of a launch. haso monte dei paschi's ceo

agreed to step down. he leaves the bank in the midst of a plan to bolster the balance sheet and attract new investors. he will stay in the position until the company can find a successor. that is your bloomberg business flash. nejra: christine harvey in hong kong, thank you. manus: ecb president mario draghi says officials will study options to ensure their quantitative easing program doesn't run out of bonds to buy. being, thetime changes are not substantial as to warrant a decision to act. is stillephen isaacs with us. i want to get your take. , they'veok at the ecb

got to contend with slowing growth, inflation still far from their target, but they've got this issue of scarcity of bonds to buy, which is perhaps why they are holding off. about the limits of japan's monetary policy. do you think the ecb has that problem to contend with, perhaps on an equal scale? stephen: everybody's got this problem. 2%,ou are at 5%, you cut to you know that you are going to put a lot of petrol in the tank. you know that will filter through to consumer spending and so forth. flat, which we are in 10-year bund yields, what on earth do you do? you destroy your banks. that means they are hardly likely to lend. this is the real issue, that we are at these levels and everybody is finding it extremely difficult. one draghi said yesterday is

nothing. if he cuts rates more, is that good for the economy, bad for the economy, does it mean people save more, save less? these are questions we just don't know. i think there is a little bit of politics as well. german politics in particular. we've got elections next year. jens weidmann, the bundesbank head, has been rumbling away in the background about this issue of scarcity about the composition of bond buying program. that might have played a part. manus: hold that thought. the probability of a rate hike in the united states stands at according to wirp 28%. there's one rather famous well-known investor who has a warning for the market. it is mr. gundlach. >> my guess is the next time the is tightens will be when it

45, 48, and they say, we cannot be replaced by this function. isus: stephen isaacs chairman of the investment committee at al hunt capital. it is a heavy warning. basically saying they might do it in the near term, but get ready. this is a big moment of getting ready for structural change in the markets. would central banks let another taper tantrum take place? stephen: i agree with him. no way they are going to hike in september. let's remember that yellen is a democrat appointee. clinton will be having a fit if there's even a concept of a rate hike and some sort of blowup in the stock market before a presidential election. the general concept that we are at 5% unemployment, inflation taking up, one of your chart --

manus: i will pull that up. stephen: those are the big issues. see,: this is what we 1.51%. stephen: i'm less concerned about where the fund rate is going. i'm more concerned about where the bond market is going. the curve has become completely flat. there's huge movement in longer dated treasuries and kilts. what are we need to do is to see some sort of normalized curve. we are going to see carnage in the bond market. , rate hikes in the next couple years, i don't think they are going to do a dramatic tightening, but will the bond market do the work for them? yes. that is my concern. nejra: stephen isaacs, chairman of the investment committee at outlined capital. thank you for joining us. manus: that is it from nejra and i.

"countdown" is done for the week. up next is "on the move." you've got guy johnson and caroline hyde. nejra: this is bloomberg. ♪

guy: welcome to "on the move." we are counting you down to the european open. i'm guy johnson. caroline hyde is in berlin. here is what we are watching. the yen jumps as south korean stocks sink as the north detonates a nuclear device. is draghi done? are central banks looking increasingly like they are out of bullets? why is the bond markets focused on the speech monday? and, viola, the ousted ceo of n