♪ >> good morning, welcome, you are watching "bloomberg markets." i am guy johnson, i am along with caroline hyde. here's what we're watching. manufactured inflation, chinese ppi turns volatile for the first time since 2012, is it just a blip. chemical experiment, china is said to line a combination between kim china and another company. what does this experiment with

enterprises mean for investors? tough talk. the eu president said in a brexit -- any brexit will be paid for by britain's. plus, the prime minister think she can have cake and eat it. and we talked to a ceo in about 15 minutes. caroline: we are less than a half-hour from the european owner. we could see a bounce back from features. today, futures signal an update. about 4/10 of a percent. a risk appetite coming out on the back of those numbers from china. is it something here to stay? guy: let's talk a little bit about what is happening with the stories. let's get a first word news. -- go to first world news. isphiladelphia fed president

uncertainty -- making an argument for delaying the rate increase. will be al banker voter's ear says he is worried about potential policies that would have distorted effects, depending on the outcome of the vote. he did support a rate hike in september. scotland's first minister says she will publish a draft scottish and referendum deal next week if she feels her nation's interests are not being protected during the brexit. negotiations the publication of the bill does not mean a eminent vote. -- eminent vote. they say the question of independence had been settled in 2014. singapore's economy contracted sharply in the third quarter. it is a sign it is struggling in the face of a global slowdown. gdp fell 4.1% from the previous three months. a big mess after estimates were

made it zero change. growth has been under pressure since last year because of weaker trade and lower energy prices. to mournis beginning the world laura -- longest reigning monarch. the king died at 88. they said his son would take the throne. he was a symbol of unity. ill for years, making limited public appearances and spending most of his time in the hospital. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. caroline: china has seen their first inflation analyst five years. ppi rose. it is the first gain since jay were 2012. -- since january 2012. what did they tell us actually?

unexpected. it had been trending in this direction. it shows they are making progress on the capacity side of things, cutting back on spare capacity and -- in the coal sector, particularly. noting the ppi is so important for profits and their expansion plans. it is so important for the debt story in china. that is obviously one of the big drivers in growth. it is a positive. we are in fairly marginal territory. there will need to be significant work done going forward to make sure it is sustained. you have to highlight the steel sector. that is a tougher task than cleaning up the coal sector. that is probably where the challenge lies. guy: so much -- how much of this is supply and demand? >> there is a base, the commodity price has an impact.

that is why they are not completely out of the woods with coal. they are attacking coal mines. neededw is there is more to be done. the steel sector is more complicated. it is more political, especially heading towards next year. it is probably not the environment where you want to shoot down steel. -- they're preaching for reform, we have seen progress. we have seen ppi heading in the right direction. fantasy of that will keep going in the year ahead. us is rick,ining the cio at state street global advisors, he helps manage $2.3 trillion in assets. little --at very there is little risk of a hard landing in china. what about yesterday? >> mixed messages, that is the

point. there is a chance for hard landing, but we think it is looking like a soft landing. they do need to reduce capacity. there is some evidence of capacity shrinkage, but more to be done. if you look at the fiscal and monetary stimulus, the weakening of the currency, household income growth, it points to a softer landing. guy: how much more stay capacity could be taken out? what are the applications? -- implications? rick: it is interesting about the merger between the chemical giant. about pricesalked increasing, people have also asked about capacity. there is more to do. there imf this weekend was a talk in latin america and prices stabilizing in terms of commodities. maybe there is some evidence that some overcapacity in areas has already disappeared. caroline: what about the demand side.

we're talking about capacity going out, but at what point will we see government actions to be leading from the demand, domestic demand. rick: exports depend on the rest of the world. we have relatively subdued demand growth everywhere. the u.s. economy is doing ok. i guess you could say within europe, germany is a hotspot. it will not make up for the need to really crank up the exports. we need the rest of the world to grow. there is much -- not much evidence. there was angst about that of the imf. the need for fiscal stimulus, combined around the world. guy: what if u.s. conservatives -- consumers slow down? rick: that could be the right tail event. the slowdown would be a serious issue for china. there are some all bits of evidence of concern in the u.s. housing would be one. if you look at wage growth, when you look at the fact that the gdp is shifting in a sense from earnings.

we have concerns about where they will come from in the u.s., more to the man in the street. it looks less likely that we will have a consumer slowdown. , the cio at state street, staying with us. talk to axt, we will ceo from paris. you do not want to miss that. china is said to plan a megamerger. -- what does that mean in terms of enterprises, experiments? really, the question is what does it mean for investors? the eu president says theresa may needs to wake up, she cannot have her cake and eat it. those stories and more coming up. this is bloomberg. ♪

♪ guy: welcome back, the first edition of "hello tomorrow." begins today. francine lacqua is there. francine: thank you. i am very pleased to say our first guest here of the day launching the hello tomorrow conference is jean-laurent bonnafe.

it is uncertain times, innovation is one thing a lot of politicians and business leaders want to point to to create jobs and growth. how are you doing this? jean-laurent bonnafe: as you know, this is a rapidly changing world. it is based on technology. there is a lot coming in any sector. for us, as a bank, customers. ideally we need to know, to understand the future, and how to deliver better bank for the customers and what will stand out. francine: what do they need? jean-laurent bonnafe: they need financing. they need to be close to us. they need to be close to their partners. they need to be open globally. you have one nice idea in a country, you need to move the idea in many countries. it is a race. you cannot just say, i have decided this, let's fix it and

grow it locally. you have to grow fast rapidly. global bank is good at that. francine: do you think that banks are as close to their customers as they were 20-30 years ago? this is important for startups that are here at the conference today. jean-laurent bonnafe: not all banks have that, but i think our bank is doing quite a good job with innovation centers throughout europe, asia, and the u.s.. we have a platform that is striking technology. butre trying to be close, it is difficult because entrepreneurs ideas are volatile. sometimes they go so fast, you cannot follow it. you have to try. francine: what sets you apart? jean-laurent bonnafe: a global approach. being good at sectors. technology. we understand technology. we believe we are closer to the

mindset of new entrepreneurs. for our own business we need new angles. we need newcomers. there faster. -- they are faster. it is like pharmaceutical companies, they need biotech. we are the same situation. francine: on that fact, is it a legacy? is it southern u have been working on for years? jean-laurent bonnafe: we have a diversified model. some partners, retailers, the energy sector. we very much are exposed to technological moves, newcomers. it is a variety of the ecosystem pushing us. francine: what does that mean for the industry? do you think the banking industry should be more

technologically focused. at the end of the day that would be the difference between winning or losing? jean-laurent bonnafe: no choice. francine: it is the way that we live our lives and lead our lives? jean-laurent bonnafe: you need to deliver a better bank. to do that you need to understand your customer better. to understand your customer you have to be good at these things, this is technology. francine: how to use the two millennials? the 20-year-olds? they probably have different expectations for their bank. jean-laurent bonnafe: specialized entry points. they will not join the bank as a customer, like a regular small company. special entry points, platforms. they are running out of time. you have to understand, fast. they would never visit the bank physically. you have to have it on the internet.

it is a totally new approach. francine: what does that mean -- we talk often about the european sector over banking in europe, possible consolidation -- does that have an impact? jean-laurent bonnafe: the old approach will have to concentrate. this is the way it is. this is the old industry. we have to move towards something new. digital, distance, relevant. you can change rapidly. this is a universe that will never stabilize. it is moving. every two years there is something they. -- new. of time: use the a lot with innovators, it seems the u.s. does it differently. they scale up. uber.is why we have ove why is the u.s. -- europe behind? because oft bonnafe:

local legislation and languages and a number of factors -- when you are in the u.s. you have a good idea, you have the ecosystem, you can leverage. when you are in europe it is more difficult. this is one of the challenges for us. we need to build that huge european domestic market. francine: thank you for joining us on bloomberg tv. i am going to send it back to you in the studio. we have plenty of more great interviews coming up. we speak to a manual mark cohen -- emmanuelle home. guy: looking forward to it. francine lacqua speaking exclusively to the ceo of bnp. minutes away from the european market open. up next we will look at today's trading. singin to planning a major -- merger.

this is bloomberg. ♪

♪ caroline: 10 minutes from the market open. >> thank you. merge sinoanning to

chem with kim china. details of the deal are not immediately clear. bloomberg is being told it is subject to change. kim china had earlier agreed -- chem china had earlier agreed to buy syngenta. the government body did not respond for a common. honda is recalling civic sedans in the u.s. to deal with a parking brake problem. faulty software may prevent application of the break immediately after the ignition is turned off. honda says the work will be free. no accidents or injuries have been reported due to the fault. owners will be informed from the beginning of next month. 3000-4000 jobs in the next three years. the ceo is looking to bring cost down as he focuses on reinvention in the slumping

demand for the markets for personal computers and printers. hp has about 50,000 employees. went downy's shares 1.8% following. samsung has warned the overheating phone crisis will cost an extra $3 billion over the next two quarters. to expandhey hope sales of the galaxy s seven and average to compensate. they're doubling the recall in the u.s. to almost 2 million devices. samsung already cut their third-quarter operating profit by $2.3 billion after ending production. volkswagen is still reeling from last year's scandal, losing market share in europe for the 13th consecutive month. overall car sales in september rose 7.3%. 23.9%accounting for compared to 23.3% a year earlier. that is the business flash.

caroline: keep an eye on vw on the start of trade. not many calls for that stock. but there are calls 3% higher. asset funding management is up. that is positive so says goldman sachs. saying the buyback of 4.5% of their shares, looks positive. man group seems to be buying into the u.s. homes market in the acquisition of alto. not a pretty picture. chemkeep an eye on this syngenta deal. you also have the elements being pulled in. there is a state of play meeting today taking place at between the parties and the european commission to discuss the ongoing regulatory issues surrounding it.

keep an eye on exactly what is happening. the fact that these two movement -- megamergers are taking place at the same time, i think really creates a difficult story to the regulators. meanwhile, up 2%. they said they're close to a deal for the us trillion coal mines. it could be worth up to $1.5 billion. guy: let's bring rick back. let's talk about equities. the multiples look good. therefore you would argue they looked he valued. nevertheless, investors are nervous about buying them. rick: that has been the story for a long time. you have topped by a growth in europe, in theory the week labor market would feed through the bottom line. it never happens. guy: a relatively weak euro, lest -- yesterday we saw a break below the 110 line, if that

continues, this does precision -- this dispersion of interest rate -- will we start to see european equities become more attractive? rick: i think you have to look at each country. germany is different from the rest of europe in terms of the economy and in terms of how companies extract earnings. the last time the euro weekend, you had a significant impact in germany. not -- itt -- it was was felt by the rest of europe. italy was about 25% down. the equity market suffered because fundamentally the domestic economy and become honeys relating to it, the banking sector, in particular, was weak. if you look at it country by country and sector by sector. we have had false stalls in europe before. stick withick will us.

state street global advisors, coming up. futures pointing up. we slipped down more than a percentage point yesterday, will we see its reach race? -- retrace? mrs. bloomberg. ♪

guy: good morning. welcome. you are watching bloomberg markets, the european open. here is the city of london. caroline hyde has joined me on set in london. caroline, you have got -- caroline: chinese cgi unexpectedly turns positive for the first time since 2012. is this a blip? chemical experiments -- china is $100to plan more than billion in assets. what will the state in state enterprises mean with investors?

and tough talk. the e.u. president says any brexit will be painful for britain. may still minister think she can have her take and eat it? guy: nine seconds away from the european equity market open. indicating a positive start to -- 0.5% after 0.1 a negative session yesterday. we will at the market makers roll their way through. thann is opening up less 0.1% higher. well below the records we were setting a few days ago. a little bit of a sport now. let's find out what is going on in detail. us: equities are getting that little reprieve you said. is the great global export from china gone? i am talking about inflation, of course. our guests suggested this was merely a temporary reprieve in china and has not played out in europe.

yesterday, we worried about trade. we may be trading equity on a global basis, that you are seeing the cost of production rise. european equities are slightly better this morning. consumer staples of by 0.8%. we have had weeks of outflows in european equity markets. have a look at gmm. you see wti up 1%. leftr is by 0.3% on the side of the screen. the currency is where you see the magnification in terms of risk. the pound down. and myselfith anna this morning. a break of one point 20, and you will start to see a change in the basket case. .arkets are down when does this relationship in the gilt market began to unwind between sterling and the guilt? to --will be returned

where will we returned to? you are seeing a little bit of a change in direction. let me take you to three stocks recover watching. one group has seen a significant ship in net inflows. we are waiting for an opening flash price on man group. funds, believe it or not, have had the best quarter since 2013. .nicredit opening down by 0.5% we have a report in republic of -- republica that they may go for a capital increase. why? investor interest and return .rom the ecb software license revenue has died. guy: manus cranny off to radio

now. let's get rick's picks. be say the market should signaling risk on, but your not position for that. rick: we are a little bit underway in equity. we have hedges for that position. we are over weight in gold and some credit. it is a bit of an unusual portfolio, because we have gone short government owns but long on credit. we like credit. we think we are being rewarded for some of the risk. because we are a little bit pessimistic on earnings growth -- we are very worried about volatility. we retreated a little from equities. within equities, we like small cap. small cap is a little less sensitive in some ways to the fixed income interest rate switchback we have had in markets. also the alpha potential a small cap is much greater. we have seen that over several years. the strategy -- we have found it easier to extract outcome from small cap of the market and large cap.

caroline: we will dig into the u.k. story morning and bit. are you talking across board or across regions? are there any regions you are particularlyk: u.s., the switch is from large-cap to small cap, i think you could apply it to small markets. we know there are governments issues. we found small-cap not exactly a safe haven, but a different place. guy: why are bonds and equities so correlated at the moment? the same direction. have been since the end of august. walk us through what is happening. rick: it all operates through a discounted cash flow model. the particularly where you have got people who look at some parts of the equity market as bond like, there is a tendency for the correlation to start increasing. as investors get trampled out of the short end of the yield curve, they're looking for an answer. they do not like bonds, especially in the u.k., almost 50 basis points.

the equity market -- it increases correlation. caroline: talk about the credit is you are buying. we are seeing the druggy effect not only driving sovereign bonds below the deposit rate, but equally corporate. are you going into investment grade, or are you chasing it down the credit curve. we are long investment grade and high yields, both in europe and u.s.-based portfolio. clients are also interested in spread. many are facing troubles from qe. they are trying to avoid markets that have that kind of distortion. if you look at truly free markets -- caroline: are there any? rick: emerging markets, some of the troubled ones have inflation-linked bonds that have real yields in the 4% range. where you do not have central-bank intervention, you

can see real risk premium. this chart is meant to be the basis of everything, every investment portfolio. and it is a difficult thing to do. rick: it should be. guy: yields are going higher in the states. how much higher do they go and what are the implications of that? rick: they have gone higher. i do not think it is a safe assumption they're going to go higher, even though it might increase in the short-term. there is an honest demand for duration. for pension funds, demographic changes. that puts a lid on the long end of the yield curve even in countries where you do not have such severe intervention like the u.s. caroline: we are just getting man group, the biggest traded listed hedge fund manager rising 10% after announcing they have inflows all caps on 6% in terms of assets over management. they noted a u.s. acquisition they are doing. finally, there is a big story coming out from man group. is there money coming in from

clients? is there appetite to put assets to work? or is it people willing to sit in cash? rick: people are interested in divorcing more wildly. frankie, there is no escape hatch. if you are worried about volatility, volatility arises from changes in expectations. it goes through the equity market. it goes into the alternatives market. i think there is a demand to have a more diversified portfolio. that is a benefit to alternatives managers and those who have been less liquid asset. i hear from every investor we're moving into more and more illiquid assets -- shipping, aircraft leasing. you name it, they are doing it. at the other end of the portfolio, when you have things jumping around a little bit, you need liquidity. are we having to reconstruct portfolios in a different way now, or just stretch them anyway we have not done in the past? rick: i think as investors had a sudden need for volatility. 2000ppened in 2008 and

nine. maybe recently with sovereign wealth funds. the have to get that carefully. after the fact, maybe they realize they are overcommitted. areother question -- you getting rewarded for the liquidity premium. it is quite hard to find an investor who does not think they are going to be rewarded because they are longer time horizon people. logically, that cannot be the case. they need to gauge very carefully how they are gauging that liquidity premium and whether they will be rewarded. caroline: rick will stick with us to talk all things brexit. we talk about brexit hitting the shelves of the supermarkets this week. we talk about the impact on the u.k. retailers and the outlook for the u.k. economy. later, deflation defeated. china's prices rose for the first time since 2012. we get a look at the health of the world's second-largest economy. fixed returns -- u.s. financials report third-quarter numbers today. fixed income trading is set to boost the numbers. we look ahead at some of the key reports. ♪

theline: welcome back to european open. a beautiful sight. a very early morning. john farrell is preparing in his flat. ap 500 futures flat as pancake.

zero .3%.e down about oil prices rebounded. let's check in on the rest of the market. guy: man group doing very well this morning. news out of the group driving the stock higher. stoxx 600 up a little bit more. let's deal with the details of the mrr. this is man group. we go through the whole continuing buying a stock. some of the banks rising as well. some of the miners picking up a little bit of business as well instead of being beaten up so badly yesterday. some of the german software stocks on the downside. some in the manufacturing sector, for instance, trading lower. let's get a news update. juliet: philadelphia fed president patrick parker says uncertainty stemming from the

u.s. presidential election may be an argument for delaying a rate increase. the central banker, who will be an fomc voter here, said he is worried about potential policies that will have distorted effects depending on the outcome of the vote. parker did support a rate hike in december. alexis tsipras says the country is honoring his commitment and expects and demands the same of its partners. speaking at the syriza party conference, he said his government will fight hard in upcoming talks on labor reform. the opposition leader told bloomberg the current government is incompetent and he is calling for an early election. right now we clearly have the most incompetent government we have seen over the past years of government, that is truly not committed to implement the reforms, does not have the capacity to attract investment, and cannot lead us to a path that will break this vicious cycle of recession and deflation. that is why we are calling for

an early election. i understand that every time hear about the potential of an election in greece, they get skeptical. we have a lead in the polls. we can win this election, and i think greece will have a better economy. economy: singapore's contracted sharply, a sign is struggling in a global slowdown. gdp fell 4.1% from the previous three months, a big mess after analysts estimated zero change. growth in the export have been driven economy has been under pressure since last year because of weak trade and lower energy prices. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. guy: it has been a pretty busy week for the markets and it is hard to know where to start. let's kick off and talk about strolling. -- sterling. we have had a brutal week for sterling. interesting week for the ftse

100. the president morning about what happens next, warning that exit will be difficult for britain. caroline: no cake, she said. salt and vinegar. guy: that sounds great to me. you can have a cake. i will have the salt and vinegar. we will also keep the marmite. the ftse 100 moving one direction. a seesaw, the sterling going the other way. rick, you are an international investor. why would you bother even investing in the u.k.? it is volatile and difficult to understand. politics isg the very hard. there is a risk premium emerging and sterling, from a purchasing power parity perspective. it is quite clearly undervalued. that pre-brexit, that the u.k. economy was a little vulnerable. there is a big reward. but the question is, do you want to put up with the turmoil

caused by this political comment in the next two years? is that enough for the volatility you get? behink people might cautious. equity market is a different proposition because of the overseas burning component. in the u.k. equity market, there are parts that will not be affected much by exit. caroline: short on the british pound -- are you seeing still a bit that account will go weaker? or are former investors -- foreign investors starting to think, why not get on u.k. assets, because the town could be back? rick: the problem with the tpp argument is to long-term. currencies do have a momentum that drives them strongly, momentum and interest rate differentials. of deflation sense , people might still go for that short, even recognizing it is undervalued. i guess that is a pattern in currency markets.

you can stay at undervalued levels for a very long time. i am a non-u.k. resident investor, what would your advice before me? stay away? invest? rick: as part of a diverse portfolio, i would not stay away. certainly from an equity perspective. but as a fixed income investor, i would ask whether the combination of yielding currency risk is really being rewarded and how long i have to wait. caroline: i want to dig into the deflation story. we have just seen the 10 year breakeven's in the united kingdom off 3% in terms of inflation expectations. is that something that railroads mark carney? can he not move anymore if you see that pic of? rick: -- see that pickup? rick: is it permanent or temporary? is it going to watch through and cause a change in expectations, or get embedded in thinking, because people are going to believe we are a wee currency

for a long time and the answer is a lot of stimulus? maybe not monetary policy, but fiscal, in which case people will be alarmed. we have relatively low employment in the u.k.. there is talk about immigration. can we stand more stimulus? the inflation, i think, will be a worry. the short-term versus long-term trade-off will be the thing people wonder about. i want to mention brazil, other countries where there is weakness and they are importing currency. that is always the question. is it going to go away? is it going to be temporary or permanent? changesure people expectations and believe it is going to be temporary. guy: that is the comparison we are making. to mention not want brazil. at the same time, i did. guy: can i go back to the guilt story? is there a date we have a guilt crisis -- gilt crisis? we are underwater.

we are underwater on our gilt positions. is there a danger that the crucial money that is needed to apport this -- there has been shift toward domestic investors playing a bigger part. worktheless, if investors -- walk away from the gilt market, that is a problem down the road at the bank. week sterling, it matters less about international investors. it is not confined, but if you look at u.k. investors, the risk demands from benefit pension funds, and increasing other sources like target they forms for defined contribution -- that leads you to the conclusion that there is a risk there, but we may not be so dependent in the as peoplethe currency say, particularly if the current account deficit corrects itself. caroline: looking at the u.s.

versus u.k., talk about the u.s.. you have janet yellen speaking at the boston fed today, where of course we heard from one of the dissenters. he was a dissenter last time. where do see the balance of the federal reserve going? rick: i do not think the balance has shifted in favor of the hawks. if you think of james good are most james, he was the articulate in a sling why we need to get ahead and reversed policy, and then he changed his viewpoint. i think there are others who will tip to the side of dovishness. we think there is a chance of a hike in-- rate december. when you look at the pressures on the bed -- the strength of the dollar, other factors -- maybe we are pushing again into march. guy: keep pushing. thank you very much indeed for so much of your time this morning. up next, we have got a singapore slowed as the economy

unexpectedly shrinks. is this a warning of grave global headwinds? we are live in the city state, next. ♪

>> thus, to innovate, and especially with disruptive innovation, you raise money and especially equity.

lacqua, oure colleague, speaking to our founder, michael bloomberg, mayor of new york in his .revious incarnation and it is fascinating to listen to these conversations and get a top-down view of what is happening in the world. .he technology front michael bloomberg and francine lacqua in conversation. we bring you the conversations from that. caroline: singapore's export-dependent economy contracted, worse than the most pessimistic forecast in a bloomberg survey. the central bank said a neutral policy stance will be needed for an extended period, and it held off on monetary stimulus. joins us from singapore. quit singapore slipped into a technical recession, down 4% on a year on your base?

david: it is definitely possible. the economics is doing badly. in particular, we have had bad performance from a sector that accounts for 70% of all output, the services sector. it has been contracting for three straight quarters, which we did not see in the financial crisis in 2009. manufacturing is doing pretty badly. the possibility of a recession in singapore is greater. guy: this is a command economy in many ways. is central-bank action possible? david: it is a possibility. the thing with singapore is, the central bank only has policy meetings twice a year, so the next meeting will be in april. there is plenty of time before april for new trends to be identified. for now, this is signaling that -- many economies we talked

to think the pressure on the economy, the fact that singapore is export dependent, the fact the government is putting pressure on some sectors -- on the property sector, you control property prices. that is having an effect on the central bank. how much of ane: bellwether is singapore for the rest of the economies? it is a developed economy. singapore is a bit of a canary in the coal mine in that things happen faster. in good times, intense to do better. in bad times, it tends to do worse. so the suspicion if you are a policymaker in indonesia -- if singapore is doing that badly, because it is dependent on exports, we may have those

problems down the road as well. caroline: thanks. david roman in singapore. a key state to keep an eye on. up next, megamergers. guy: we will talk about the china deal. ♪

,l

guy: welcome back. you are watching "bloomberg markets." with the european open, how are things shaping up? we anticipated there would be a pop this morning. a great session yesterday for european stocks. the ftse 100 is back north of 7000. stockl talk about the movers in a moment. particularly good day for the cac 40. altis, upping is its stake for the french mobile

company. that is one of your key winners. man group up 12.5%, biggest , becausedge fund assets under management are up some 6%. they are also doing a buyback of equity. of their traded all of this bodes well. goldman sachs up. -- ie downside, the german stepped out of the country, and look what happens. guy: you are taking responsibility. caroline: purely on my shoulders. software licenses missed significantly, said morgan stanley. confirm their 2016 forecast. i also want to talk about syngenta on the backs of the megadeals in china. guy: let's talk about the ppi data we saw earlier. prices rising for the first time

since 2012. in an indication of further stabilization for the world's second largest economy, we are joined by a professor at the london school of economics. is this a number that i can get excited about? >> i think there is mindset the economy is turning around, stabilizing. i would be wary of what is going on in the next couple years, because really, the government is turning a very delicate balance between growth and stability. i would say that to look for where policy is going, i would say they should maintain a baseline growth rate. beyond that, all the stimulus is increasing leverage and exacerbating the risk in the economy. so i would be very careful. caroline: we were debating whether this was a supply-side effect, a demand side effect. in terms of ppi, it seems to be taking capacity out. is this the right way of pushing the market forward in some way,

recovering producer prices? keyu: the government has been committed to reducing the oversupply bubble. i think it is coming from the supply side. these things take time. that is supply that has been built over a decade. a growth model that produces overcapacity. we are seeing some short-term effects. i do see that as a sign of reversion. guy: when you look at what cpi, ppi, and then global deflation/inflation -- again, cannot extrapolate from one to the other? keyu: in china it is a little different. i think on the consumer side, cpi, inflation on the consumer side, is more upward pressure. we do not have very good measures of inflation. there are studies that suggest we understate the effect of customer inflation. i am not worried about china going through deflation, like japan.

we want to keep ppi and cpi separate because they are responding to separate forces. are talking about potential state intervention. let's talk about state movements. china is planning to merge sign sinochem with chemchina. details are not clear. we have been told it is subject to change before any official announcement. let us get more from our reporter in hong kong. give us the details of what bringing these mega-giants together would do. the -- il be one of mean biggest mergers in recent years. sinochem and chemchina would merge together and become a mega-company with assets more than $100 billion. stage, we do not know much about the details.

we are waiting for more details to come up. in terms of how this will affect the syngenta deal, talk me through that. moments unclear at the how it would affect that syngenta deal. it adds uncertainty to the deal. are statend chemchina owned companies. the change of ownership structure of chemchina will mean paperworkto file more with regulators to create a deal. would mean pushing back the timetable of the syngenta deal. think very much indeed for joining us out of hong kong. a professor is still with us. that is the supply side story we are talking about. how much more of this are we going to see, and what do you think the signaling is? keyu: i think the government is

committed to this. but i really think this will take time to resolve itself. think that is gradual. the government has a challenge right here. we have the 20 17th party congress. that is important. they need to maintain economic stability. they are not going to risk that. as long as the baseline growth rate is preserved, they are going to deal with overcapacity and reducing leverage. caroline: how did they go about reducing leverage? how did they go about concerns with property bubbles in particular? in the past, still hoping growth will absorb all this. i am not sure that will be the solution this time around. caroline: international or domestic question mark keyu: domestic growth, which did happen in the 1990's. do not forget the huge wave of growth. the debt problem, i do not think

they have come up with real fundamental solutions. -- real systemic risk keeping the zombie companies around that threaten the healthy, productive parts of the economy -- you are not giving households a share of income, so they can consume. this is not a short-term resolution. guy: what creation are we going to see? keyu: there is quite a bit of stimulus. what happens is that in the very poorly designed financial system , the credit just gets bottled inside the banking system. caroline: a lot stays home, to a large and -- a large extent. keyu: it does not get into the real economy. which is why fiscal stimulus will probably be more effective. the government is trying to shift leverage from the corporate to the households. households are not so leveraged compared to the rest of the world, and some of that is working. caroline: talk to us about how

the depreciation effect story works in this. we have seen the one at six-year lows when you are looking at the dollar, not versus its trade way. give us a sense of what they are doing with the fx. keyu: that is the mystery. the valuation is somewhat dubious. japan, there was a 40% appreciation. that was really disastrous. if anything, deflation pressure on export-oriented economy is depreciation. i worry about depreciation expectations, which will be reflected in prices today. i think they have gotten a handle in the near term about capital outflows and downward depreciation pressure. but how long they can hold if some of the things we talked about do not get resolved, i am not so sure. guy: another quick question. has ainvestor, it seems, problem with the china housing market, outside of china.

are they right or wrong to have that concern? keyu: they are both right and wrong. cities,nd third tier many do not display housing bubbles. the median income growth actually outstrips housing prices. it is only in certain key tier one cities where the housing bubble has manifesting dust manifested itself. that has to do with expectations of rising household prices. where i would be worried is, a downward adjustment to the housing bubble. the banks are not exposed. the houses are not that leverage. even though it is a commitment to cool down the property market going forward, they need to give time to the local governments to diversify away from the resources being contingent on land sales to other things, like property tax. once they let them do that, this wave of local government assault is less likely. i do not see immediate intervention, and they are going to take small measures to cool it down. and cold a hot

situation coming from keyu jin. great to have you join our show today. guy: the e.u. president talks tough on brexit. what will europe's financial framework look like without the u.k.? we are live in berlin with a member of the european parliament. ♪

caroline: this is the open, 42 minutes into your trading day. here is juliette saly. juliette: thank you. china is planning to merge sinochem with another state-owned industrial giant, chemchina, according to a person familiar with the matter. details of the deal are not immediately clear. the merck has been told it is subject to change before any official announcement. chemchina had earlier agreed to $43 billion, in a deal that still needs regulatory approval. those responsible for state-owned assets have not responded to requests for comment. man group shares have jumped the most since july 2015 after third or asset growth beat estimates. net inflows were $1.3 billion. the firm also announced it is acquiring alto investment holdings, to branch out into private marketing.

still reeling from last year's initials -- admissions standard, losing market share in europe. volkswagen accounted for 22.9% of vehicle sales, impaired with 23.3% a year earlier. honda is recalling 350,000 civic sedans in the u.s. to do with an electric parking brake problem. all the software in the control unit may prevent application of the break immediately after the ignition is turned off. honda says the work will be carried out free of charge and no accidents or injuries have been reported due to the fault. owners will be informed from the beginning of next month. warned that the overheating phone crisis will cost an extra $3 billion over the next two quarters. it hopes to expand sales of the and seven ads to

compensate. it is doubling the recall of the note 7 in the u.s. to almost 2 million devices. samsung already cut third-quarter operating profit by $2.3 billion this week after ending note seven production. that is your bloomberg business flash. the stage is set for , with u.s. season companies expecting a sixth quarter of falling earnings. this was the worst start to an earnings season since the bull market began in 2009. assets foranages j.p. morgan and citigroup. the j.p. morgan cross-selling scandal is expected to have an impact on earnings. this is all due to the fixed income trading. let us get our banking editor, michael moore. asked income to the rescue this time around? -- fixed income to the rescue this time around?

michael: analysts expect fixed income trading to be up year after year, given the activity immediately following brexit. we have seen a lot of big fx moves, like in the pound. yes, people trading around that. equities have been a little more muted. but on balance, it seems trading will be up. lastyou can see for the few quarters as we worked our way through, we have seen a pickup for the banks in terms of what they are doing. will investors view it as sustainable, something that could carry on improving? or will they say, we just had a lot of volatility. had a whole bunch of events that cost that volatility. we are done now. there will benk skepticism. we have seen false start's before. the bank said this time last year, it cannot get worse than that. they seem to have been right. it has bounced back a little from there.

the fixed income business still has a lot of secular challenges. capital ratios have gone way up. the returns have come way down. even if you get this level as a sustainable revenue level, banks are still going to have to make adjustments to make it profitable. caroline: talk to us about wells fargo. it is a retail orientated bank. seemuch are we likely to any movement of customers this particular third quarter? is it going to be the fourth quarter when we might see any dampening effects from the cross-selling scandal? michael: i think it will be more of a fourth quarter stick -- fourth quarter story. you may see some legal provisions this quarter, given some of the fallout there. this happened mostly in september. it takes retail customers -- they are usually a little sticker -- sticky. it takes time to dramatically change their business. statef the public sector

deals that wells fargo has missed out on not come through for a couple of quarters. guy: it has been nice to see you throughout the meat. -- through the week. there has been a substantial amount of news. caroline: on a daily basis. talking cap. what will europe's financial framework look like without the u.k.? we speak to a member of the european parliament. ♪

caroline: 10 minutes to 9:00 in london. in berlin.0 the dax up 0.7%. i am here in london. we are talking hard brexit morneau brexit at all. that was the message from the european union president, who took fire at the u.k. during a speech in brussels yesterday. guy: he went on to say it was time that british prime minister theresa may realized the withdrawal will be painful for britain and can take longer than two years. beginning to realize a little bit about that. let's go to berlin. a member of the european parliament representing europe's green party. would you agree with the line from donald tusk that it is going to be a tough road for the u.k.? >> i certainly agree that this

will be a difficult piece of negotiation. i do not agree with this rhetoric, which seems to me unnecessarily aggressive. clearly, we want to see good relations with the u.k., also, in the future. but it is clear we cannot allow cherry picking. we must defend the principles of the union. but which consequences the u.k. wants to draw from that -- this is only the decision of the u.k., and there should be no lecturing toward the u.k. on that matter. caroline: this note cherry picking its coming up, particularly emphasized by merkel, and donald tusk saying no cakes, just so and vinegar. what are the exact red lines? if there is indeed no access to the single market, do you believe the united kingdom is willing to give that up? >> i think the principles are quite clear. so therefore, fundamental freedoms of the common market --

they belong to the common market . that means you cannot have open capital markets towards the union without having open labor markets. belong necessarily together, as well as trading goods and services. second, you cannot have a common market without common rules. and these rules will be decided according to the democratic standards and procedures of the union. to beeans if you want part of the common market and have open access, you have to accept the rules which have been decided and set according to the democratic procedures in the union. this is what normally does. this is also what -- this is what norway does, and other third countries with which we have a common situation. as a common market comes common solidarity, which means payments into the common budget. and there cannot be cherry

picking. and i think these are the key principles. but which consequences the u.k. draws from that package -- this is only the decision of the people of the u.k. on bothuld politicians sides of the fed listen to business about what business feels is necessary to be done here? all, i must say i do not see two sides of the fence. the u.k. colleagues in the european parliament have so far behaved as if nothing has changed, including the members of the governing party. and i do not see that. i see many people on both sides who have a strong interest in a good relationship. but this means we have to keep the principles clear and the democratic procedure clear. but the negotiations will have to be in a tone of friendship. and this is why i do not like

--h speeches as the one task tusk gasquet. for business, i think it is in a certain way too early. the outcome is not yet set. for me as a politician, it would not be the right time to tell business what they should do. but i think towards the city, and where i have a particular responsibility in the committee for economic and monetary affairs -- i think to the city i can only say, they should not believe the e.u. 27, if brexit comes, will allow the open access without that there is equal acceptance of the principal for the labor market, for the e.u. budget, and so on. the package will be kept together. that is at least what i hear from colleagues from all sides of the political spectrum. caroline: let's talk a little bit more about business. let's talk about deutsche bank business. is the german government

reacting in the right way to the deutsche bank concerns? sven: well, first of all, i was surprised that in germany there was a lot of tough talk about italian banks. and as soon as deutsche came into focus, there was immediately talk of new state aid. i can only say the new banking laws in europe, they apply to all e.u. members states. they apply to italy, to germany, and even to deutsche bank. there cannot be new state aid unintelligible][ guy: should europe be harder on diesel cars? sven: certainly, and not only europe. cars have to become clean. 2013 -- 2030ntil -- we must have emission free cars. --tever technology develops i cannot see that the diesel can -- we haveil we have

a clean air problem everywhere in the cities. european law is broken in terms of clean air. think you very much indeed. a member of the european parliament. caroline is here in london. she will be back in berlin. ♪

china is said to be planning a merger in a deal that would $100ine assets worth billion. rise.factories tough talk. the e.u. president says any brexit we be painful for britain as he stresses europe's red line.