it could fix growth problems. security.nse of the uk's post-brexit economic strength could be deceptive. we speak to the co-author of the report at 7:15 london time. plus, capital crunch. deutsche bank is said to be exploring shrinking its u.s. operations as it deals with legal expenses.

you are welcome to bloomberg daybreak europe, our flagship morning program in the city of london. i am manus cranny. , what have you got for us. anchor: she might be willing to let the economy run hot. what that has done is pushed up inflation expectations. we have seen the 10 year breakeven rate rise since its highest in may. nejra: it is the five year against the 30 year. it has the bend the most since march -- it has s teepened the most since march. yield-year bond

increased. manus: the overall, this kind of yield curve was traded at around 96 basis points. a compressed down to 55. we are back at the 200 day moving average. how hot is she prepared to let it run? it manifested itself in the risk radar. he you have dollar-yen moving and a lot of comments coming out. the u.s. is headed for a hot labor market. have a look at dollar-yen. we are in the third week of declines. technically, this is still one dollar up. hedge funds have cut their bullish bets on yen. cba have turned bullish on dollar yen. will the fed go in december? won,ave dollar korean

11.40. have lost some 6% off the sterling this month and we will keep a close eye on that. we will talk to the ui item club about brexit. first word news with angie lau. angie: thank you both. the uk economy has been more resilient since thought. concern that britain could lose market or evenhe tumble out of the european union without a trade agreement and place has driven the pound to a 31 year low. that means companies are likely to scale back investment in hiring plans. we will be speaking to the co-author of the report, martin beck, at 7:15 on daybreak europe. north american banks cut their

share of uk commercial property lending by half. the head of the eu vote. according to a survey, u.s. and canadian lenders market share dropped 7% from 14% for six month of the year, amidst for british real estate. chinese president has warned the global economy is weak and vulnerable to problems that could trigger a new financial crisis. speaking at the summit, he said the underlying causes of the two thousand eight crash had not been fixed and the threat remains of a bp. china is the world's second-biggest economy, set to host next years summit. china's policymakers are facing a dilemma over the yuan, which againstg new lows peers. that is causing a dilemma for the nation's policymakers as they seek to arrest plunging

exports. weaken today by the most in a week. donald trump is taking a hit at the pause as allegations of sexual misconduct and an old vulgar him making comments damages his support among women. hillary clinton has a 6% lead. donald trump technologies he lost those women voters but blames media for "rigging the election." global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 100 20 countries. you can find more on the bloomberg. this is bloomberg. manus: and you, thank you very much. let us check in on the markets. juliette saly standing by. it is all about running hot.

how is that playing out in the asian equities session? the main focus is these casino stocks, this big plunge coming through from crown resorts in sydney. there is a lot of concern that china could be cracking down on gaming, particularly at the crown are still build this new luxury gaming casino in sydney. juliette: that is flowing through to its peers in sydney. the likes of star entertainment and sky city. stocks in macau are being sold off. as well as a number of other players. that is taking quite a lot of shine off the market in hong kong. also in australia, closing down 0.7 percent. elsewhere, there has been upside, on the fact we are seeing a little bit of dollar strength that is helping

the yen. a positive session coming through in seoul, up by 0.3%. more gains coming through their in southeast asia, also looking out the trading session in late trade here. these emerging-market currencies, we have been looking at, the yuan speaks today. it sent the author renminbi to the lowest level in that renminbi tooffshore the lowest level. on down 0.7%.w currencies, but fairly flat at the moment. nejra: thank you so much,

juliette, in hong kong. janet yellen has laid out the case for keeping monetary policy easy. she suggested running the u.s. economy hot could fix growth problems. manus: speaking at boston fed conference on friday, she did not talk about a rate increase this year. assume after deep recessions, the natural next question is asked whether it might be possible to reverse these adverse supply-side effects by temporarily running a by pressure economy. nejra: joining us now is daniel morris, senior investment strategist at the mp para ball -- parabas investment partners. course, with bonds, higher

inflation expectations generally not good for bonds, but it does seem to be at the long end. is this about putting on the s teepening? >> it is happening at the same time that you see higher yields in europe because we have the broader concerns about what the central banks are going to do in japan and europe. it is this confluence of two things, pushing yields higher. the other thing we have the thing about as a feedback loop in the sense that before, when it yields were low in europe, that would push treasuries down. what is that going to do to european yields? manus: it is a global perspective. the u.s. worries the rest of the world tends to tag along with it. these are 30 year, 10, and five-year break-ins. they are shifting this 30 years to the highest levels since may. is this u.s. move the beginning of a reconsideration of the

overall global inflation discussion? there's parallels with what you are seeing here and what you would like to see in japan. they would like to see inflation run above targets. whereas here in the u.s., you may get that, that is possible, because you had inflation, relatively high in the u.s.. that is one of the things that is a key difference between the two. you're seeing inflation and fixations go up higher now because they had gone down for a long time, even as realized inflation was going up. it you had a disconnect between what was in the economy, the markets, and now pushed up even further, but we can't say. nejra: that is what you are expecting as well. we have one of our first word strategist writing on the bloomberg, saying do not discount november because historically, there have been quite a few occasions were the fed has moved easing rather than hiking, and still moved even a

few days before the election. are we run to discount november? sayt: the probabilities that is not going to happen. it would be quite a shock for the fed to move when he markets are not expecting it. it would be quite a shock ahead of the election and is it really necessary? with a take the risk? they can wait till december. wait until the election is over. we are probably looking for december, but even then, if you look at the probabilities, it is army in the 60's or so. the market is not completely convinced. manus: you mentioned the elections. at the aussie dollar -- it has carried its short aussie bets and schizophrenia with the mexican peso. everything you see now coming through on the election over the weekend, has it shifted your thinking at all? do you think the differentials,

do you believe them? do you believe the clinton differentials over trump? guest: we have learned to be more humble when it comes to talking about election results. i think it will be close. it is not just the comments we have heard recently, but also for some voters, what they see as republican economic principles and so on, which they will believe in and support regardless. what has changed however is your democraticsdiscuss getting the house, not only the senate. that would be a significant shift for the outlook of the economy. that is what has changed. we always knew it would be close. house,happens in the that is what is going to be more significant for the economy. nejra: down to morris is staying with us here on daybreak europe. manus: the eu foreign ministers are meeting at 8:00 this morning, uk time. syria and the migration prices will be among the top issue -- migration crisis will be among

the top discussions at luxembourg. nejra: we will hear from the fed vice chairman, sammie fisher, at the economic club of new york after saying the rate decision in september was a close call. manus: tomorrow, the oil and money conference will get underway. hamed al-falih will be among those speaking. bp and exxon will be there. nejra: the third and final u.s. presidential debate is being held at the university of nevada in las vegas. manus: we will get the rate decision from the central bank. mario draghi will follow that up in a conference. the american dream be fading for the lender? manus: the biggest banking merger is almost a decade against the green light from it investors. we look to the european

the earnings season. this is bloomberg. ♪

manus: it is rather over cost in the -- overcast in the hong kong harbor. there is a lot to consider. deutsche bank, cpi, and the it fed preparedhe to run hot. yvonne, good day to you. shareholders have backed their merger. the deal marks the nation biggest high up in nearly a decade and winds a --

they want to shore up their finances and pushed through measures to abolish restrictions on ownership and voting rights. we will speak to the ceo of milano. fallen.hares have 18 employees of australia's after therts plunged whichd detention included the head of an international highroller operation. it sends china and galaxy entertainment among the biggest -- biggesth the losers, down more than 2.5%. to a's plan to switch different screen for the new iphone. samsung dominates the markets, but 99% of shipments in the first half. apple is in talks with a company oled's.e

that is your bloomberg business flash. nejra: thank you so much, yvonne. the move is said to be under consideration as part of the company's broader strategy legal, it's mounting expenses threaten to erode capital. caroline hyde is in berlin with more. what areas will be affected? >> it seems to be the united t ines investment uni particular. if you are 10,000 employees in the united states, it is one of the more profitable areas to be doing investment banking, but it is capital hungry. that is exactly what deutsche bank is not that flush with at the moment. it is trying to negotiated settlement with the boj. one settlement could be to scale back ranking unit, cutting some of those 10,000 jobs it has

there. it is something that is on the table, they are considering a strategy review. they considered firing the supervisory board. local reportssome here in germany that maybe they were being forced to do this by the u.s. boj. that is not the case, according to the people we have spoken to. they say this is not mandatory, but something that is just being evaluated up at -- evaluated at the moment by the bank. look, this is not the only option that sits on the table in front of them, is it? >> precisely. there are so many other ways they can scale back it to ensure that the bank is seen as safer. they could be making more money. they would not do that. we have been speaking to some of the key players out there and it seems as though maybe the core investors, it maybe even the

royal family of qatar, could add to their holdings. maybe they could do a capital raise, sell assets, bassett management business. they have been reporting -- asset management business. they had been reporting -- tableould be back on the or this being explored, we understand. they are getting other banks on the security companies helping them and advising them. they are filing to lose market share. interesting we saw the u.s. on friday, the groups he a faux -- thedeutsche bank's representatives saying deutsche bank's pain has been our game. gain. manus: all of this is a

challenge for mario draghi in terms of the ability of banks to do their job right here in europe to help complement his strategy, isn't it? >> precisely. i will be flying over to frankfurt on thursday to see what the ecb says. we'll get much on the agenda. every single time at mario draghi is questioned on banking in his hometown of italy, we see he is coming out saying, maybe with the italian lenders being put together, the two drunks propping up the bar, it does not mean bigger means better. from mariouestion draghi. at this is a question the ecb has to look internally at. it has not hurt the net interest margin. it is finally showing the weaknesses in certain business models. in berlin.line hyde china's policy makers facing a

dilemma over that yuan. that is posing issues for the nation's policymakers as they seek to arrest a plunge in exports and shore up an economy growing at its slowest pace since 1990. manus: the pboc weakens by the most in a week. still with us is dan morris from the and be paribas -- bnp paribas. you have got a resilient dollar and then selling ethics reserves. what we have got for you is the chondrocyte of it. line, this isite the challenge. it has been strengthening against other currencies and that is the real challenge for the pboc. is there a win in this? >> one conclusion you can make

from what yellen said last week is that if you have a hike in december but fewer next year because you will let inflation run higher, that argues for less ranks in the dollar. this may be a temporary phenomenon adjusting to expectations for the end of the year. yourself howsk much necessarily are the chinese counting on exports to boost the economy? i would argue, not so much. if you look at chinese growth over the next decade, it had not contributed that much true growth. i do not think it is a strategy for the future. it is domestic demand and consumption and so on. they are watching this certainly, but to expected big change in policy, i think they are going to keep stability more than anything else. nejra: if we do get any kind of yuan, howon in the u. much do you think the impact will be outside of china? ati think it is fair to look

the unexpected devaluation of the yuan as the primary culprit. i think they would be cautious about that. we have seen them try to keep the exchange rate stable through the g-20 meeting through the inclusion. we have an election coming up next year. it is going to be all about stability and trying to keep the domestic economy going and keep the service sector strong, which it is, and let the currency manage itself to the degree that they can. manus: i find fascinating, the treasury semiannual report, not that i read it all. they have said that china is not a currency manipulator. switzerland to the potential watchlist. reduced inctually terms of the criteria for manipulation. they have dropped from the elite two of them to one of them. is that for real -- nearly two of them told one of them. is that from real?

>> they were keeping the value low, not terribly coherent. we are seeing a bit of a reversal of that. we need to look at what the market forces are in the end. that is what matters. the rate that they want to manage is depreciating slightly and is going to help the economy, but i think it is ultimately driven by them trying to manage market forces as opposed to manipulating the currency outright. nejra: what are you expecting from the gross number? guest: it will probably be what they told us it is going to be. if you look at that line over time, it is surprisingly stable, but will come in line. nejra: dan, thank you very much. manus: a deal for a merger. a big win for the prime minister. is there more to come? we get into that conversation. this is bloomberg. ♪

nejra: you are seeing the tokyo imperial palace live there. the topix up 0.2%. manus: a new edition of daybreak is on. at your bloomberg is on your mobile. the function there is go. let us see what is hitting the top stories today, and there you go. that is near hyde park. preparedness to run the u.s. economy. the fed chair has laid out the case for keeping monetary policy easy, suggesting it could fix

the growth problems and boost the labor force participation rate. year bonds. what happens next in terms of the dollar? oft does that mean in terms looking through the upper bandwidth on inflation? nejra: we have been talking about the yield curve today. i have to say, i think that is a man running around hyde park. [laughter] nejra: the next three is deutsche bank, germany's biggest lender, said to be shrinking as its legal bills rise. daybreak focuses and on greece, the country's creditors vince today. this comes 14 months after greece -- nejra: markets with guy johnson.

>> ftse futures cool down. things are very much going to be in focus of what is happening in italy. talking of what is happening on the periphery, periphery of europe includes the uk, it seems, judging by the bond market reaction. catching up with what is happening in spain. very significant as well. carney is going to look through gilttion, big yield on the market. the other thing we have to watch out for is mario draghi. talking about the fact that the euro bears are back. one about trading, sub point 10. keep an eye on the euro this week. the downward to victory is something and people are going to be focusing on. are we going to worry about inflation in the u k and united u.k. and united

states? the recount rises for a second week. market speculators are also on the move and this is again going to feed into this inflationary story. charts to three and four are inflation. as we work our way he the week, investors are going to continue to worry about what is happening here, this big move at the back end of the curve, this big move in the gilt market. something to pay attention to. back to you. manus: thank you very much. it let us talk about italy now. backed the merger. the deal marks the nation's biggest higher in more than a decade and a big win for the pm. nejra: damage screen, this is a -- dan, this is a very important

merger? guest: yes. very important for the prime minister's, as you mentioned at the top of the program, because he was a very strong supporter of consolidation, particularly in this very quirky world of pop populare.-- world of there is hundreds of them throughout the top of the northern part of it lead down to the south. if this deal had not gone through, it would not have been a vote of confidence in italy's banking industry, which is suffering under the weight of 300 billion euros of bad loans. it wasuation, i think the bare minimum that was needed to restore some confidence in this industry right now.

when we look at this, are we going to see more of it? you talk about the small institutions around italy. is this the first? it was so successful in spain. this needs to happen. more of this needs to happen. >> indeed. i think, probably a year ago, i would have said yes, definitely, we'll see some more deals, but i think it is going to be extremely tough to put together a transaction of this lies. it is going to be creating a bank of 6 billion euros of market value in the combination just because of this structural issue that they have to confront right now. you have this tremendous mountain of bad loans, and you do not know what is going to has been for sale for over a year, a takeover at the top of the agenda,

so who else really could put together a deal of this size right now? it certainly in the short term. nejra: you mentioned the referendum earlier and that is one of the things, the uncertainty around that that could dan and the way of more consolidation, but how significant is this latest deal for the referendum? >> i think it will help some, but it remains to be seen. we have got roughly more, almost two months before the referendum on december 4. you are crucial because i credit.have un both of them have to raise billions of euros to restore capital buffers. if the referendum loses, if renzi loses, there is the potential for market turmoil.

those banks are waiting to see beforecome of that vote they decide to go to the market to sell stock. something like the third time that they have had to carry out a share sale in the last you years. few years. nejra: thank you very much. dan, italian bureau chief. we will be speaking with --bancapolare kimonos .milano's giuseppe manus: i noticed this. this is the spreads of the

italian government bonds over germany. rising, not exponentially, but we have gone just over 110, so does that explode further in this back three month of the year? two months of the year. and the dying embers of 2016 . >> that is going to have a significant impact on the market, the italian government bond market. it is the contagion question. concernedsignal more about the eurozone in general because you have this failure, fundamentally, of being able to reform itself? guest: on one hand come i think that is a valid question. contagion, however, i think it will be maintained. do not forget, the ecb is buying bonds even if you have a buy off

. it is an italian problem. nejra: talking about the rest of europe and contagion, what other country where the bonds have been the worst performers in developed markets is portugal and they are trying to reform the banks of there. when you are looking at europe, where do you see the most risk at the moment and the most opportunity? the next thing on your radar is italy and portugal looking better and a budget that has seemed to come within the eu target that they had said in terms of the budget deficit and at the same time satisfied some of the requirements of their. they are actually come other risk is perhaps falling, though we still have the determination of whether they keep their rating coming up. there is plenty of political pockets out there anything to concern is that if you have this ongoing french elections next year, is this going to keep to some degree a cap on european equities because of this persistent political concern, which is once you are past the u.s. election, at least that

part of the equation is fading. manus: one of the persistent things, if it is not ubs, they have said, look, there is this continual outflow of capital from european equity markets. it has been sustained. what needs to happen to change that perspective of the global investor? guest: whether or not that is the right move, you wonder if you have retail money moving, you kind of have the concern that they are always moving at the wrong moment. we are more bullish on the outlook for european equities. how to convince people that is another matter. it would come down to first if you saw weakness in earnings in the u.s.. we are not anticipating that. that might be something that changes the psychology of investors. secondarily, if you look at evaluations, it is more attractive than in the u.s.. if people could look at the return they are likely to get over the next two years from a point of view, it is higher in europe. it comes down to sentiment,

psychology, and i think if you had something that showed people perhaps that there was a potential for more stability and reform in europe, that might happen, but ultimately, we think we will see the value. daniel moore stays with us on daybreak europe and we are moving on to talk precisely about european earnings. manus: cortices in the wraps up this week. -- quarter season wraps up this week. we had our appetite wetted it last week. great to see you. can we expect a post-brexit impact on uk profits? confidence, the main thect will come from weakening pound. most of the companies listed on the ftse 100 are multinationals as opposed to the u.s., asia, and the rest of europe. two thirds or more than two thirds of the revenues are coming from abroad. what wey, analysts,

have seen in the data is that analysts have been pricing in, have been adjusting their forecast for the currency translations coming from the weaker pound, so if you look at ago, analystsh were expecting a drop of 4% in the ftse 100 earnings for 20 16. now, they are expecting a job of 0.6%. the biggest upgrades we are seeing is in the pharmaceutical and energy and mining sector, of course, and also helping is the rebound in commodity prices you read this is going to help the --ing and energy sector commodity prices. this going to help the mining and energy sector. the ftse 100 index now for more domestic oriented companies, we

have not seen any certificate change in the forecast for the sector's yet. i think analysts will wait to see the outlook for these companies in the earnings season two see any damage, potential damage from a brexit before they started just enough forecast. nejra: there has been no profit growth for years in europe. could this season mark a turning point? europe, broadly speaking, no we have seen --ectations for earnings speaking, we have seen expectations for earnings so far. earnings growth is going to be negative this quarter again. but most strategists expect this quarter to maybe be the last quarter of earnings, negative earnings growth, and the end of

five years during which we have seen no profit growth in europe, so this could be the turning point. ais comes from mostly the pick up in the economy and the emerging markets and also the commodity sectors are bouncing back. nejra: thank you very much, our bloombergn, first word equities strategist with the latest on what we can expect. coming up on daybreak, bring on the bowls after a wild two bulls after a wild two months. yellen makes the case for keeping monetary policy easy, suggesting it could fix growth problems. manus: a false sense of security. the uk's post brexit economy could be weaker than meets the eye. this is bloomberg. ♪

manus: ok, it has just gone 1:47 a.m. be your weekend is still continuing. running hot. here is a message from janet yellen. just turned here in london. italianholders and lenders'bank a popularity -- popolaire and another italian banks have merged. they have pushed through measures to abolish restrictions on voting rights. the -- we will speak with the bank owner, giuseppe.

18 employees of australia's con resort. it plunged. --er crown resort stocks down more than 2.5 percent. apple plan to switch to oled screens -- dominate the market. apple is in talks with shark to secure -- sharp to secure oled's . that is your bloomberg business flash. nejra: thank you so much, yvonne. yousef gamal el-din joins us now with a chart of the hour.

yousef: we have seen some very big moves in the crude oil markets in the two months you have pointed out, and in fact we have seen four of the biggest position changes in wti and brent and those are usually moved beyond 100,000 contracts. that me show you this chart i have put together for you so you can did a better perspective of how money managers are feeling. they are the most bullish on wti in two years. what you are looking at is your blue line that is managed money. your white line is managed money that short. money -- net short. they have reduced to 71,407 contracts. that is since july. three months there. opec mightimism that be making more progress at the end of the day. the differences are not major between opec members. a good note here it from mike

oilner, the head of research in new york, the bottom line is, they have made an agreement. if you are going short, you are betting against the saudi's, and historically, that is not always a good thing. yousef, thank you very much. yousef gamal el-din in on bloomberg markets: middle east. dropped out ofas the top five locations for investments for the first time in seven years. that is according to a survey of executives carried out by consultants you i -- ey. there are concerns over british plans to exit the european union. dan is still with us from bnp paribas. from that dropped

radar of an investment destination. erat will shut their -- shutt theresa may. guest: in the short-term, perhaps we did have the boost from depreciating currency. that looks great as far as the equity markets were concerned. longer-term, you have to think about what businesses are doing. not only invested businesses, but more importantly, foreign investors. it seemed logical, you thought it likely, that since we still have uncertainty this long after the vote, you would expect that influence to continue to weigh on executive sentiment about the uk. nejra: speaking about sterling, where is the point a weaker sterling becomes a benefit for the uk economy but instead turned into a problem? guest: we are already starting to see that in terms of inflation. as soon as consumers see that things are higher, you will see the negative repercussions. we are already there. the big fault we have already

had is going to feed through into the economy. manus: look at this chart. two different audiences. you have the asset managers rating their short positions. there is the average. 43.23. the asset managers-- they are reducing away from the five-year average. at hard brexit fully priced one dollar -- $1.20? we are buying the pound and selling it against the commodity currencies. two different audiences, simple questions, are we price for hard brexit? guest: i would say you could still go further because of the same time, we think we hear more and more about hard brexit. on the other time, we have comments saying we are going to protect the finances industry. there is hope that you are going to come up with an arrangement. there is potential for more

weakness if even those options go off the table because primarily, opposition from the eu. nejra: how much more weakness? we have another chart on the bloomberg saying there is more pain to come. you have a number, some goldman america,bc, bank of deutsche bank, all seeing more paying for sterling. that is certainly a possible target that sterling would reach from a currency point of view. they kind of always overshoot. $1.20 is forhink value, you are going to go past that. and they go below $1.20, i think that is possible. one othermanus: interest, btv. 43.21. #btv, click on it. 10 year government bond yield in the united kingdom all beginning

to decrease. we ratcheted nearly 7% on friday. it is all beginning, the stitching is beginning to come undone. what does that say in terms of a risk warning or health warning over gilts? guest: you have the initial benefits and concerns about the impact on the economy and like you said, that is starting to unwind. we do not think we'll get the same amount of stimulus from the bank of england. we have concerned about the risk premium you are applying to gilts, and now the inflation effects. those forces probably could continue. i think the biggest risk is for higher gilt yields a we have the bank of england pushing them back down saying that the risk is to hire yield as opposed to lower ones. thea: part of that is inflation expectations.

people i have spoken to show concern about sterling continuing to weaken while gilt yields move higher. i think it is not only that, it is inflation, the risk premium and also what you think is going to happen with the economy. manus: this chart has just come back on the bloomberg which is buybacks. buybacks versus cable. everyone has made a great deal over the foreign complexion of ftse 100. do you expect more buybacks? does that allow them attitude? -- latitude? guest: from that point of view, it would seem to support it. you have the market rallying. possibility for them to support the market. much, danielyou so morris, senior investment strategist at bnp paribas. nejra: janet yellen makes the

case for continuing to expand the u.s. workforce. we break all of that down and continue to look at that steepening yield curve. this is bloomberg. ♪

nejra: running hot. janet yellen makes the case for easy.g the fed economic strength could be deceptive. we speak to the co-author of that report at 7:15 london time, .

welcome to "bloomberg daybreak: europe," our flagship morning show in london. manus cranny has popped out on assignment. let us have a look at how futures are opening. we have got ftse 100 futures up by 0.2%. 0.4%.tures down by we could see this weaker open in europe. a big focus in the markets this morning, still registering those comments from janet yellen on friday, saying that she might be willing to let the economy run hot. what that has done, what it did on friday is push up inflation expectations and a steepening of the u.s. gilt curve. that is a broader context of what we are looking at. we have breaking news from

pearson. i will bring you the numbers we have got so far. it is reiterating its 2016 unchanged,018 gold and 2016 eps guidance ranged up by 4.5 pence. we'll bring you any new news on that as we get it. let us a bit some of the other dynamics in the market. we brought you the futures, so take a look at what we looking at elsewhere. the dollar, a pretty big story because we are seeing in the dollar trade near a seven-month high, this us the probability of the fed tightening this year has risen from the end of september a 66% probability of a fed rate hike by the end of the year now. stronger dollar, weaker korean won. the korean won has ashley slumped to its weakest level in july. dollar-yen a pretty much unchanged. we are at 104.27.

it is holding that decline against the dollar hedge funds which have trimmed their bullish bets by the most since may, and part of this is part of that growing confidence that the fed is going to raise rates this year. if we look at wti, we are off by 0.2%. sterling heading down 0.3%. ? how much further doesn't have to go? let us -- does it have to go? point, 1.79%,sis this after it claimed to six basis point on friday to the highest level in more than four months. i talked about that steepening yield curve as we saw those 30 year yield had higher. 0.07% onn bond up that.

at the 10 year, unchanged at the moment. here is yvonne man. yvonne? yvonne: thank you. u.k. economy has been more resilient than expected since the brexit vote, lulling people into a false sense of security. concern that britain could lose marketess to the or tumble out of the european union without a trade agreement in place has to driven the pound -- has driven the pound to a 30 year low. we'll speak to the co-author of the report at 7:15 uk time right here on daybreak europe. vote,ad of the eu according to a survey by the university, u.s. and canadian lenders, market shares were up to 7% from 14% in the first six

month of the year. this image uncertainty and a cooling market demand for british real estate. the chinese president has warned that the world economy is weak and vulnerable to problems. speaking at the summit in goa, he said the underlying causes of the 2008 crash have not been fixed. china, the world's second biggest economy is set to host the next summit. chinese policymakers are facing a dilemma over the yuan. issues for the nation's policy makers as they seek to arrest the plunge in exports and a shore up an economy growing at its slowest pace since 1990. the most ind today a week. donald trump is taking a hit at the polls as allegations of sexual misconduct and an old tape of him making comments about women damages his bid for the white house.

a new survey shows women in key battleground states increasingly prefer hillary clinton, giving her an overall 6% lead in those eight. trump acknowledges he is lost women, but blames the media for "rigging" election. day,l news, 24 hours a in more than 120 countries. find more stories on the bloomberg. i am the and this is bloomberg. -- i am yvonne man. this is bloomberg. nejra: breaking news on the jr q kyushu ipo. this of course the japanese freight passenger railway and travel agency. ondid get some anticipation friday that the ipo would be at the top of the range and that number, that price of ¥2600 a share is at the top of that range. a let us check in on the markets in asia. juliette saly is standing by

tte: japan closes out the afternoon session and has closed the session by zero point -- 0.25%. we have seen the yen weakened, giving a good boost to a lot of those export players in japan. korea had a good session today, closing higher by 0.4%. next movements across southeast asia. mixed movements across southeast asia. what is driving this movement in hong kong and australia is a number of employees at crown resorts in sydney have been detained in china. that has had a lot of impact on casino stocks across the region, concerned that china may be cracking down further on gambling. the shanghai composite turn into negative territory. it is off by 0.3% as we head into the last hour of trading shanghai.

we are seeing support come through from the health care plans, but the shanghai composite rallied by 2% over the course of last week. a little bit of easing coming through on the first trading day. this is what the casino stocks looked like. that is its biggest fall it has had in eight years. it against the other casino players in sydney under pressure, too. weakness coming through from the macau casinos in hong kong. casino stocks going right across the region. grand korea and seoul down by 2%. they are off in kuala lumpur. the other story of the day of course, dollar strength, that means weakness and a lot of of emerging-market currencies. korean won pulling its biggest drop since july three at a about 0.5% and seeing weakness coming through in the offshore remedy, holding at it -- offshore renminbi, holding at 0.1%.

a bit of a mixed fixture for equity -- mixed picture of equities. nejra: juliette saly in hong kong. thank you very much. janet yellen had laid out the case for keeping monetary policy easy. she suggested running the u.s. economy hot could fix growth problems and boost labor force participation. however, speaking at a boston fed conference on friday, she did not ruled out a rate increase this year. >> the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a by pressure economy with robust aggregate demand and a tight labor market. one can identify plausible ways in which this might occur. increased business sales would almost certainly raised the productive capacity of the economy by encouraging

additional capital spending, especially if a company reduced the uncertainty of future prospects. in addition, a tight labor market might throw in potential workers who might otherwise sit on the sidelines and encourage job to job transitions that could also lead to more hence, morend productive job matches. couldy, strong demand potentially yield significant productivity gains by, among other things, prompting higher levels of research and development spending and increasing the incentives to start new, innovative businesses. nejra: joining us now is david page, the senior economist. david, what is yellen doing here, keeping the fed options open? we have so many different policymakers with hawkish views,

but she says we could let the economy run hot. guest: this is the message she gave a very clearly in september. the economy had run around. we have a report which has suggested this is really growing at an accelerated pace. that makes it awkward for her. is keeping options open. there has not been any strong guidance the market is incorrectly priced. we still expect to see a december rate hike come through. the next reports will be interesting. yellen has a very splits committee. there are a number of people telling her to keep rates low time, monger period of but a distinct number want to see rates rise more quickly than period ofr a longer time, but a distinct number want to see rates rise more quickly nejra: you are still expecting that rate hike to come in december? guest: very much so.

bethought they would not able to move before the election, but the economies were sufficient to see them start withdrawal of what there is stimulus in the economy at that point. we have no expectation to move rates in november. the recommendation will be interesting because that is when the committee will have the final chance to signal to the markets over the next six weeks about what they intend to do? a significant change in medication strategy after that, if there is a change in the statement at that meeting, that is when you might start to double check. we certainly expect to see a rate hike at that time. nejra: you emphasize how data dependent the fed is. if they are looking at the economic data, anything that is going to be that different between now and november and between november and december? guest: one hopes not. we get to more payrolls report. the momentum at the -- we get to

being more payrolls reports. that is going to encourage the fed that they really do need to start moving policy further forwards. a very fastnd of expansion of the labor supply is something the fed has been talking about for years. back in 2014, they were talking about hoping to draw people back into the labor market. they are finally seeing that come through and do not want to choke it off too soon. i think there is a careful balance coming through and the fed's credibility about messaging, i think the put a lot of ethicists on seeing a rate hike this year and it would take a lot to shift that now -- a lot seeing a retyped this year and it would take a lot to shift that now. we have been seeing the breakeven rate move higher. e, theooking at ilb

breakeven 10 year. what are your thoughts on inflation? are you expecting that to keep sort of running higher? when do you expect it to reach the feds 2% target? guest: we are looking at cpi inflation picking up quite markedly. it is not only the base of fact, oil price base of that coming out, but we are starting to see the new prices coming over in oil prices. that helps to push the level higher. we expect normalization there. we expect is see core inflation picking up. labor costs are reasonably firm. i productivity growth is very could subdued. unit labor -- productivity growth is very subdued. we have been waiting for some time to see them catch up to the normalization in oil prices we have seen over the last couple of months. that seems to finally be happening now. that gives the fed some

confidence their mandate is within the perceivable future. nejra: d you think we will see strength at the end of the year if we get that hike but then perhaps a bit of a limit to dollar gains if we do not see a very speedy hiking cycle? what does that mean for the economy? guest: absolutely, we think that. we have seen a sharp move in dollar this last month or so. markets have more confidently rejected a rate hike coming through at year end. it is already being priced into the market. when the fed does titan, whenever that may be, or continue its mantra of gradual appreciation, part of that is going to be to allow the economy to run hot. markets will be very be assured the fed is not going to be tightening rates aggressively. that should limit the upside to the dollar from here which means the economy as a whole does not have the harsh headwind that had at the start of this year after a very strong among period of

depreciation. nejra: does that mean other parts of the world as well will not necessarily feel the harsh headwinds of a stronger dollar question market china, for example -- stronger dollar? china, for example. guest: yes. i think most people will be keen to avoid that. the fed only has so much leeway as to how much it can patro conl markets. this gradual pace should manage the impact for the dollar. you sodavid page, thank much for joining us for "daybreak: europe." could there be more to the uk economy that meets the eye? that is next. this is bloomberg. ♪

you are looking at a live shot of london. not looking so gorgeous, uk ftse of aes, down about 3/10 percent. we are seeing sterling continuing to fall as we take a look at sterling against the dollar. we are at 121.63. this is juliette saly. deutsche bank is explained shrinking its u.s. operations. that is according to two people with knowledge of the metal. one of the people said germany's biggest bank supervisory board discussed the business stateside at a recent meeting and the topic has come up in conversations with u.s. authorities. deutsche bank declined to comment. shareholders in banco popolare

and another bank have backed a merger. it is the biggest high up in almost a decade. the prime minister has encouraged italy's weaker banks to combine to shore up their finances and push through measures to abolish restrictions on ownership and voting rights. we will speak to the ceo of --of thep a lot a italian bank. casino shares have fallen after chinese authorities detained 18 employees of australia's crowne resorts. weekended after the detentions. and galaxy resort entertainment are among the biggest losers with the bloomberg intelligent index down more than 2.5%. that is your bloomberg business flash. manus: nejra: thank you so much juliette. let us move on to the uk and finds the uk economy has been

more resilient than expected since the brexit vote, maybe lulling people into a false sense of security. we are joined by senior economic adviser and co-author of the report, martin beck. thank you so much. great to have you here on the program. think this initial reaction that we had in the economy, taking weaker sterling in its stride, etc. is deceptive? guest: you have had the fall in the pound that will push up inflation and squeeze consumer spending power. there is a reality that if that's it becomes more apparent, that will hold back business investments. it is a drag on the economy. weakerspeaking of sterling, just wanted to quickly show you this chart showing the boe effective exchange rate plunging to a record low on brexit concerns. exfo what impact are you

expecting on inflation and when? when you expect inflation to hit the bank of england's target or overrun it? 2%st: we expected to reach by early next year. at the same time, we should look up the fall of the pound. it is allowing the economy to absorb the shock or of the uncertainty. there will be out of it -- there will be benefits. weakerin terms of the sterling, a lot of that has been on concerns we are going to get this so-called hard brexit. you think the art going to get that? -- do you think we are going to get that? cannotto the extent that be reconciled, it looks like some form of hard brexit is very likely. nejra: how far could that push sterling down? do you think we could go even lower than that and are we already seeing the harm for the

u.k. economy or is that something you are forecasting for the future? guest: we think sterling is cheap historically speaking, particularly against the u.s. dollar. if you look at the likely long-term effects, the fall in the pound is probably overdone now. it has probably gone over what you expected the damage from brexit to be. terms of this negative affect you are expecting to see, how long could those effects last and is there any point where the negative effects actually turned to a positive? guest: over the next couple of somes, that should be off that benefit from brexit to the extent they can extend freer trade and reduce tariffs on imports. that should provide some gains to consumers. there will be some offsets benefits in the long term. nejra: there is another report from ey coming out this morning,

saying the uk is becoming less and most attractive as an investment area. how much is that going to play into your forecast and how concerned are you buy that? guest: we think business -- the same time, the lower pound, the fact that the assets in the u k becoming cheaper for foreign buyers helped alleviate some of that. nejra: given your thoughts on the weaker sterling, inflation running hot, etc., what are you expecting from the bank of england? meeting,ad the last there were expectations we could see some policy changes in november, people scaling up back a little and expecting it to come next year. what are your thoughts on that? guest: the minutes of the meeting said the majority of members would support a cut a bank rate. to looseness need

monetary policy. it is looking more like the bank will avoid any further cuts in november at least. next year, seeto what happens. nejra: do you think we will see more of an easing bias or reversal in policy? we'll seeo not think a reversal. it would make the bank's communication policy look pretty poor. we might see policy level off and that the lower pounds act as a stimulus and support the economy with less need for further cuts in interest rates, for example. nejra: thank you so much to martin beck, you buy item club's adviser and report co-author. thank you for joining us on "daybreak: europe." the european open is up next. we have been talking about janet yellen saying there is a possibility to let the economy run hot and on the impacts on the market we saw on friday and today. stay with us here.

this is bloomberg. ♪

guy: welcome to "bloomberg markets: european open." i'm guy johnson. and here is what we are watching. gilts and treasuries are in focus as the fed chair and bank of england both suggest they will tolerate higher inflation. plunge afteries authorities claim crown