guy: welcome to bloomberg markets: european open. i'm guy johnson alongside caroline hyde, back in berlin. what are we watching this morning? thanking beats. -- banking beats. three banks outperforming. are the banks back? deflation firmly in focus. bonds selloff, stimulus doubts, and cash holding. europe?pect a rise in how far will the hot air leave this market? and salafi surprises by raising

forecasts. are european companies feeling the pressure to leverage balance sheets? we have a question for the cfo of novo nordisk as well. caroline: some great interviews lined up. meanwhile, less than half an hour until the european open. that's what we are all about. it is down. a little bit of money coming off the table, down .3%. we already getting calls for it to fall on the open, and iag is seeing some beats luring in when it comes to these stocks. guy: it has been an interesting day. the move in the bond market is really what people are talking about right now. the backup in yields and treasury over the last few sessions is subject to pay attention to. yesterday, it was fairly next. this morning we are seeing the dollar backing off a little bit. dollar strength is a theme we are watching, with the euro trading back on decent volume.

it is adding a little bit versus the u.s. dollar. the kiwi is trading a little bit higher. that it is this column here, the movie yields we are seeing around the world, that i think have really got everybody talking right now. as we head toward the fed and the u.s. election, if you look at the inflation data coming through, what is happening in credit? we will talk about that story as well. plenty to discuss over the next hour and a half, plus the market open. let's get you caught up with the first word news and shery ahn. shery: thank you. amazon shares have fallen in extended trading after the company said it may not make any money over the holiday season. the online retail giant is still willing to spend lavishly on products or areas that could be the next big thing, even if it means thinner profit margins and a weaker stock price. earnings at google parent alphabet topped estimates after

ad sales made up for heavy spending on its unprofitable experimental unit and new hardware division. consumer prices in japan refused to rise despite prime minister shinzo abe and haruhiko kuroda's best efforts to revive the economy. core inflation fell .5%, its seventh straight decline. spending slumped again in september. the boj's policy board may revise inflation outlook and projected timeframe for hitting its 2% target when it meets next week. china's communist party has declared xi jingping as its core, according to the state-run news agency. the massive change strengthens him at the head of a power reshuffle next year, and is significant in china's elite politics, which has for a decade tried to avoid mouse a tongue --

global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. this is bloomberg. caroline: thank you. s, ubs, investment bank missing out on fixed income a 68%s amongst its peers, drop in pretax profit. third-quarter's earnings did beat estimates overall. the chief executive sergio ermotti spoke to us earlier this morning. >> third-quarter earnings did beat estimates overall. it was a very strong result. we have been able to build up also on our capital position on the labor situation side. so,ere very close to our -- a good money and flow, good progress on costs, so i'm very pleased, because of the diversification of our business

has proven to be a winning theme. guy: meanwhile, rbs has been profit expectations by almost double, but still close to a net loss . -- but still posted a net loss. parker, senior advisor for credit suisse, joins us live. bob, this is the chart that i think people are paying attention to. it's the health care sector, and this is the banking sector. look at what has happened. those lines have firmly crossed, very symmetrical, with money theng out and moving -- areas where valuation might be more attractive. first, on the health care sector, if you look at valuation ratios between defensive sectors and cyclical sectors, all year defensive has been super expensive. i think in addition investors

are concerned about if we do get a clinton presidency, or for a trumptter eigh presidency, both candidates would be negative on the health care sector. i think the health care sector under either president could underperforma trump as we go into 2017. a word of caution. seene banks, while we have over the whole of 2016 has been cost-cutting, de-risking, increasing. that's on the defensive side of banking and profit loss accounts. on the more positive side, incr. we have seen much lower provisions for credit defaults compared with three or four years ago. in many cases, and particularly the american investment banks, we have seen better numbers on investment banking trading, and that is mainly on the primary market side. but revenue has increased.

pl if we lookus -- plus ubs looks very good. caroline: bob, who is set to win the most? if the rally continues, is in the investment banking sector? is it ubs, wealth management? >> i think the first point to -- there are certain elements of the european banking sector where i think further consolidation and restructuring, mainly in the german market and italian market, there's still more work to be done. i -- think therefore investors e to be concerned that further capital will need to be raised. i still don't have the risk appetite to go into the german or italian banking sector. in europe, i think we have seen very strong adjustments of balance sheets and p&l accounts, and arguably you saw that with the paribas results today. and in addition the spanish banks.

i think moving back into the banking sector, which has underperformed very significantly over the last for five years, i think taking profits on american banks, moving into european banks, but your focus has to be france and spain. guy: how big a risk is there, that we have a problem? tbe it boj driven or something else? the italian referendum coming up, which can throw the banking story offkilter. we don't know what the doj looks like, both for deutsche and rbs. >> i think you listed the uncertainty is very clearly. we do not know what doj finds will be, and that is of particular relevance to deutsche bank. but there are a whole series of negative issues still with the doj. the other uncertainty is politics in europe, and whether

the italian referendum -- we have a range of general year, we have the political situation improving in spain -- guy: what you can to do is say, i can project numbers, look at the balance sheet, free cash flow, make extrapolations. you can't do that with the banking sector. >> i think you can do it where the banks have consolidated and de-risked, where they have been successful in cost-cutting, and where they don't have political interference. you are ready to say the italian banks, there is political uncertainty, and that is one of why i wouldn't go into italian banking sectors. but i wouldn't make that statement about france and spain. guy: stay with us. bob parker, from credit suisse. caroline: why i wouldn't go into italian banking sectors. up next, we will be talking investors bailing on bonds. is it time to go to cash? and the idea is catching on. we discuss.

and do not miss our guest lineup. we speak to iceman's finance minister, as the pirate party threatens the ruling coalition. then we speak to the world's largest insulin up maker, novar. this is bloomberg. ♪

caroline: what a beautiful hong

kong. 2:42 over there. hang seng less pretty, down .9%. we are just 70 minutes away from the open. let's get you up to speed with the bloomberg business flash, can shery ahn. shery: thank you. ubs says pretax profit rose 11% after third quarter, dropping wealth management and investment banking. pretax profit climbed to 877 million swiss francs, beating analysts estimates. the world's biggest manager of money for the wealthy said it would continue to cut costs. bnp paribas reported third-quarter profit that beat analyst estimates. net income in the three months through september rose 3.3% to 1.80 9 billion euros, as france's largest lender benefited from a surge in fixed income trading that lifted bank earnings in europe and the u.s. has reported a surprise

drop in first-quarter profit and cut its revenue forecast. the company said adjusted earnings before interest and and they no%, longer expects sales growth to beat inflation this year. rumors as the budweiser published results for the first time since completing the takeover of its main competitor, sab miller. general electric says it is not discussing the outright purchase of baker hughes, but is in talks about possible partnerships. the comment came after baker hughes shares jumped as much as 19% in extended trading on a "wall street journal" report that they were keen to buy the world's's third-largest oil services provider. baker hughes is still trading higher but has pared much of its post-market game. guy: thanks so much. time waiting to see what the french cpi numbers look like as

they comfort. gdp was disappointing earlier on. we will get that data from spain as well in a few minutes time. the on the market has been fascinated -- the bond market has been fascinating. cpi coming through at .1, the survey was for .2. it has come back from the negative last time round. expectations,f but better than the previous number. now coming through at .6. watch out for the spanish numbers a little later on. the bond market, focusing very much on data like that. what is happening in terms of data, stimulus, expectations? where are the base effect beginning to kick in? maybe we got a little extreme in

terms of the pricing we saw. i'm going to close this so you can see the right-hand side of the screen. this is where we stand at the moment. performances in terms of what you have been seeing, unhedged total return indexes globally. see, that has been the performance we have seen month.e last just in terms of the context, you can see how about a month it has been for global bonds. ballpark are still with us from credit suisse. time to run away from the bond market? >> it was time to run away from the bond market two months ago. month. just in terms of the context, you cani stick to my view that r u.s. treasury is an appropriate forecast. 2% for 10 year. guy: 1.86 this morning. >> a little further to go. i think what is more interesting is what happens in the first half of 2017, and what concerns me is that the market -- it

looks naive about fed policy in 2017. if we get an economy which grows between 2% and 2.5%, we get headline and core inflation converging around 2.5%. let's not forget that mrs. yellen has said her objective is to get a zero real fed funds rate, and they are going to move slowly, but after the fed has moved in december, i think the next focus on investors' minds will be further increases in the fed funds in the first half of next year. we could easily have a situation where the fed funds rate is one point way 5% by mid-2017. that would imply, if the yield curve stays the gradient, which i think is a fair assumption, that we'll probably get a u.s. treasury yield between 2.3% and 2.5% over the next seven or eight months. so the answer is -- the time to sell bonds was two

months ago, but it's not too late. caroline: bob, talking of the u.s. yield, i know you are also keenly looking at volatility. when we are looking at my terminal, you have bank of america merrill lynch, market equities,odities, fx, looking at this price moves -- the volatility is sinking, but picking up slightly at the latter end of october. as has the move index and low volatility around the world. we are seeing is come down across europe, u.s., asia. >> bond market volatility will we are seeing is come down across europe, u.s.,increase. foreign exchange market foreign exchange market volatility, i think, will stay fairly low. equity market volatility will increase, albeit from a very low level, historically.

but i'm not looking for a major selloff in equity markets. i do think any equity market upside is sincerely cap to buy this predicted move, not just in u.s. yields, but also european yields, which have been edging up in the last month. we now have positive 10 year bund yields reflecting market concerns about whether the ecb tapers after march or not. it's not just the impact of higher treasury yields. i think it is also investors thinking we are at an inflection point whereby the focus will be on expanding fiscal policy in 2017, particularly in the united states, and that implies higher yields. guy: we are also seeing you next citation that central banks will backup. how much is it an expectation? >> you want to make a clear distinction between the different policies of the different central banks. for the fed, the picture is reasonably clear. their balance sheet will stay at about $4.5 trillion usd but as i mentioned, earlier, we will

it will be the opposite of what we didn't see in 2016, a number of fed funds rate increases. by the end of 2017 we are looking at the fed funds rate to 1.75%. in the case of the ecb i would be surprised if they changed interest rates, and the key decision for the ecb is to what extent do they taper qe. in the second half of next year, they may be reducing qe to $50 billion or $60 billion a month. the bank of japan is absolutely focused on preventing the yen from appreciating. the bank of japan maintaining its qe program is likely. one big theme over the next three to six months is going to be central-bank divergence, and linked into that is fiscal divergence, with the u.s. expanding fiscal policy.

i would doubt if we see any fiscal extension in europe. guy: stay with us. next, what big movers are in today's trading. of european banks reporting earnings. this is bloomberg. the market open, eight minutes away. ♪

caroline: we are minutes away

from the european equity open, and let's get you some stocks to watch ahead of that. total coming out with numbers. we're not seeing that many forces to move; it called pretty much unchanged on the back of but we are, seeing depressed oil markets remaining low, quarterly profit beating estimates. it's all about cost cuts and asset sales, not any driver for growth. factort fuel is a big for iag, which owns other companies. some interesting lines coming up this morning. fx and fuel price has changed for your operating profit output. earlier on he said the weaker sterling will make it more competitive versus u.s. rivals, but if you are the u.k. this morning, he's not encouraging

outbound travel. so yes, if you want to go on holiday and fly, it is going to get significant reward expensive. if you go away from business it will get considerably more expensive. yeah, there is definitely a downside. the fx story is certainly beginning to hurt. will make the story more competitive but it will be great news for the british consumer. caroline: there is one stock that could be on the upside, if you are looking at a beat. we will be speaking to the cfo and a little bit, raising the earnings forecast, in sales of the multiple sclerosis pill setting off fierce competition against the united states for the diabetes drugs. u.s. competition is something that will be hitting another key player. guy: so what's interesting is -- sanofi looking positive on the diabetes story, but nova nor does is coming through and cutting.

we will speak to the cfo as well later in this program. busy morning. that conversation is coming up. this is bloomberg. ♪

guy: good morning and welcome. you are watching bloomberg markets. this is the european union. -- the european markets. we are moments away from the start of european trading. caroline has the morning brief. all top: ubs, pmp, expectations as the lenders continue to outperform in the third quarter. are the banks bank? inflation in focus. bond selloff and doubt creeps in. with consumer prices expected to rise in europe, howl far will the hot air -- how far will the hot air take the market? sanofis.e -- argue --

we will put that question to the cfo. we will also be speaking to the cfo of novo nordisk. guy: the markets opening up. we are expecting a slightly negative open. that is what we thought. looks like london is turning slightly more positive. beginning to price in some of the stock stories. 69.83. the markets are softening up just a touch. there is the cac opening down and there is the london market following it. ftse, and the cac opening up. the spanish cpi numbers beginning to come through and they look better than expected. let me give you the harmonized

month on month. year, the actual .5, the survey .3. the gdp number going in line with expectations. the year on year slightly ahead. so many dark stories to talk about in the bond market is also on the move. look athen you dollar-yen and you look at the stocks, you wonder what is going on. -- the at the stoxx 600 individual movers must be looked at. for --s a lot of up move i ran and up-to-date view of the month so far. up 9.5% and oil and gas are up just 5%. we are seeing little bit of drought.

looking at the gmm focus. we lost 2% on the iron market this week. rozelle to join the non-opec producers at a meeting on saturday. column two is your fx barometer. at the moment. a lack of clear decision-making. we want to bring you onto the gilt market. if precipitous move. i pulled up the 10 year government bond -- back at brexit levels. posenght up with adam this morning on daybreak. the u.k. is facing stagflation. it will not be as bad as the 1970's. the pound has further to fall. when i asked him if there would be anything good from brexit and he said no. keep an eye on the gilt and the biggerrket as a

indication of what is going on. nejra: a lot is happening in the banking sector. i have highlighted two. rbs up 4.6% at the moment. it did swing to a loss in the third quarter, a not -- a net loss. and litigationng as we know -- it has said it will not pay a dividend until it has gotten through a bulk of its restructuring. it also has to focus on u.s. factors. we're focusing on the pretax profit rising and a stronger capital ratio. stock game,g this one of the worst performing large u.k. banks in terms of its stock price this year. bnp paribas, up 0.3%.

i was watching it closely because at the open it was going back and forth. lender beatgest analyst estimates. it benefited from a surge in fixed income trading. this is a scene we are seeing across a lot of european and u.s. banks this quarter. revenue beating estimates, a 41% increase for bnp paribas. that is moving slightly higher. on the downside, it a be in bad nbev. i it cut its revenue process based on a slump in brazil. it completed the takeover of sab miller. they no longer expects sales growth to be to inflation for 2016. guy: some nice moves. what's bigger moves on the

market this morning coming through on other critical stocks. let us talk about novo nordisk. when a show you what is happening. this is my mmr function. it is down nearly extinct percent. 2013.ggest drop since a massive move on the downside for the insulin maker. the apple of europe because of the way that it moves. not because it is the apple of europe's eye. another company is also getting punished, down over 12% this morning. this is the divergence. novo nordisk is down. come back to this. sanofis is also down sharply. a buy that.nnounces it does not disappoint in the insulin area or the diabetes area. it is doing significantly above

expectations. why is novo nordisk telling us one thing in the diabetes space and sanofis telling us something different? u.s. storys, it is a but the u.s. the will definitely be there. bob, give us your take on this. bob: i think this is an interesting observation from your chart which is that we have had positive news from senate fee -- sanofis. we have had negative news on novo nordisk. 5%.upside on sanofis the downside for novo nordisk, 17.5%. we have a downward skew. of a markettomatic where trend upside is very

limited. areof my themes is that we going to have a lot of company and sector rotation -- the risk skew in the market right now is to the downside. caroline: is it about diversifying for novo nordisk? without getting too nitty-gritty on individual stocks. this company is very exposed to the u.s. is it something about health care? bob: a number of factors. the first is that the political risk is very clear. whether you have a clinton or donald trump presidency. the new u.s. administration going into 2017 will be much more aggressive on the health care sector and particularly on pricing of drugs. i think that is negative factor number one and the investment

conclusion from that is to focus on generic health care companies rather than the mainline health care companies. and also to focus on health care companies outside the u.s. i think the second thing is that that companies are much more vulnerable to adverse news when their portfolio of drugs is very concentrated and that is obviously the case with novo nordisk. if you're going to invest in health care sector, you go for generics and number two, you go with companies that have less focus on the u.s. market and companies with a diversified portfolio. guy: check this out. nordisk, thevo lowest since 2000 two in terms of the size of the move that we are seeing. since 2002 for novo nordisk. at one point this was the apple of europe. and blue line is the apple,

this is novo nordisk. they have moved in lockstep since 2011 and now it is coming undone. novo nordisk, significantly underperforming. being absolutely battered this morning. bob will stay with us, plenty more to come from bob parker. and from this program. we will speak with the cfo of sanofis. the stock leading the stoxx 600. and we will speak to the company's finance minister. all of that is coming up. this is bloomberg. ♪

caroline: welcome back to the european open. we are looking across assets and look at the bond market. there is a pickup of the selloff in the u.k. yields are rising. it was all the way down at the beginning of this month. iny are seeing a real pickup the yields for the u.k. but germany is also well into positive territory, similar to spain. guy: let us talk about the drug sector.

the tales of two cities going on here. numeral nordisk and sanofis presenting a mixed picture on drugs today. no nordisk slashed its long-term growth target. they are both in the diabetes sector. novo is now down. sanofis, a heavyweight in the sector, up by 1.55% this morning. sorry 5.58at news -- percent this morning. i apologize for the speaking. let us talk about what the cfo thinks about that reaction to what he announced this morning. he is a cfo of sanofis. congratulations, the market seems to love what you said this morning. are you surprised it is as positive as it is? >> you never know but i think the lesson you take is that when

you price the market properly and we have done better than expected. 12.4%ofit is going up by which is $.20 higher than consensus. we have revised our guidance. i welcome the reaction from the market but i would say that it is the outcome of a very strong performance for sanofis in the quarter. caroline: and the investors like the vivax. what is financing -- and the investors like the buybacks. you are rewarding the investors. >> that is a very good question. first of all, we already announced a year ago that we wherestrike a transaction

we would focus on the consumer health business and the animal health business. a lump sumo receive as a consideration. we wanted to match the liquidation. we wanted to make clear that we would use part of the cash and make clearer that the cash we were going to use to precisely match the --. we felt our share price was undervaluing the company and it was a good time to go ahead of what we said. that is why we offered the buyback. that does not preclude us from looking eventually at a buyback acquisition. buyback today has

announced it to the street and the investor that our share price is undervalued and we are very confident of the value of the company. that, why didp on you not do and even bigger right back? --and even bigger buyback? the share price is one. your business throws off a lot of cash. theirst of all, on top of buyback, we offered a strong ared and our dividends above 4%, what are the highest in the industry. that there isve value to generate into the business either organically or through acquisitions which would complete our main areas of focus. a year ago we came out with the areas we wanted to focus on.

i would say that we have an effective strategy from a capital location standpoint. a way that makes sense. we feel that there are still opportunities that may arise if we are vigilant. you need to because shifts in this market. though and ifeel am curious to know when you talk to investors in the u.s. and those in europe, do the u.s. investors put more pressure on you to do buybacks? >> not necessarily. some of them do but at the same time, the u.s. investors are looking for growth. -- growthakes sense the company even through inorganic growth meaning acquisitions. at both sides of the

ocean. we are looking to create value for the shareholders. we recognize that buyback could be part of it. i've got two quick questions. painted a very negative picture of the diabetes business and has downgraded expectations and as a result of which, its share price is rapidly declining. you have come out this morning painting a much more positive picture of the diabetes industry. why'd you see that gap emerging? too optimistic and you are being too pessimistic or is there something else? >> i think that already a few marketgo, we said -- the -- the diabetes market is going to be more competitive and what we have will be regarded as a commodity. they will pay more attention

to the value of the drugs. are veryme time, we diversified geographically. u.s., europe, and the emerging markets where we are growing strongly. -- theogether, sanofi size of our diabetes business compared to the rest of the group is very different from our competitor novo. guy: a quick final question. i appreciate your time. you issued a bond in negative territory a few weeks back and the market sat up and paid attention. i have that bond here on my board. it starts out going even more negative. it has come back into positive territory and it is now yielding 0.59. has the sweet spot now past -- now passed?

need fore an immediate financing being limited. you tend to be optimistic -- opportunistic. ready to use your cash whenever it arises. today, it is about share buyback and tomorrow it could be more about acquisition. now, everything is relative. what we know is that for good credits, the cost of debt is very low but you could argue that people are investing in bonds because they get a better return versus what they could get for government bonds as an example. i feel that this remains the case as long as we have strong comparedond investors to the government bonds which always tend to be a bit more expensive with a lower yield.

caroline: looking at your portfolio. we see you are disposing of your european generics. our guest says he likes generic exposure. why are you selling that? is there an interested party? and where would you like to add? is it all about oncology? we want to focus on a certain areas. some market is pure innovative pharma. we are a strong player. that is the case for multiple sclerosis. should an oncology asset be but they are extremely expensive and competitive. also, we are investing as you to balance a diversity in

the riskier assets. consumer health and vaccine business. our generic european business we put under review because we have a medium-sized generic as miss in europe and we do not believe that we are the best for this asset. it is a profitable asset that is doing well but we do not feel we are the ones to focus on developing leadership in generic in europe. that is why we are thinking about sending it out and we are looking for an acquirer. guy: congratulations on the numbers this morning. the share price reaction telling its own story. the cfo joining us from paris.

talking about the credit story there as well. let us stay with the credit theme and what is happening in the markets right now. we caught up with the aberdeen asset manager yesterday. these are his concerns. >> the risk is in credit rather than governments. and it is not just the high-yield. i think credit will prove to be as liquid as it did in 2008. at the end of the day, the central banks may have to be the market maker of last resort as they did in 2008 and provide liquidity in the market. talking of u.k. asset, let us look at the u.k. guilt -- gilt. prior to that brexit vote, we saw a referendum of the eu membership pulling 10 year yields going up.

yieldsgeneric 10 year also rising and missing a selloff across the board. bob parker of credit suisse is still with us. the gilt market is in the eye of the storm. bob: if you project u.k. inflation because of the fall in sterling, because of the base effect of commodity prices stabilizing at about current levels relative to where commodity prices were when year ago, i think it is perfectly reasonable to forecast headline u.k. inflation, the cpi moving up probably by the middle of next year to around 2.5%. surge in inflation but the point to make is twofold. first of all, the risk of deflation in the u.k. is now zero. the risk of a moderate trend increase in inflation is clearly evident. yield i have got 10 year

yields of 1.3% and inflation moving to 2.5%, that negative real yield makes the gilt market very unattractive and 10 year treasury yields by the middle of two year heading towards .3% relative to 1.8% today, clearly there is one clear trend in tenure guilty yields and that is for yields to rise. the question is only of how much. a reasonable forecast would be at about 1.7%. of higher than that because the positive impact of quantitative easing holding yields down. --: how big a fear is this if i am invested heavily in credit right now, the door will shut quickly. firstly, in the environment of sideways moving equity markets which we have now seen for close to a year and a half, iere has been a big movement

investors into credit. owneds very much a over position. is there a risk of spreading? yes. secondary market liquidity has been drying up on trent for at least the last five years and i think that problem with secondary market liquidity -- that problem is getting worse. guy: it has been a great pleasure seeing you this morning. parker, senior adviser at credit suisse. reykjavik to speak to the iceland minister. will this man have a job by the end of the week? we are going to be talking about what is going on in the want of markets. massive movement. london started earlier this week

and germany playing catch-up. the dax is down. equity markets are selling off. london looking a little uglier today but nonetheless, turbulence in the markets. that is next. this is bloomberg. ♪

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caroline: welcome back to bloomberg markets, the european open. 30 minutes after the opening. at the meeting in frankfurt and what he will say about ecb policy. and the stimulus to the bond market. the euro is up today against the u.s. dollar. let us dig into some of the individual market movers. to: let us walk you around what is happening. this is a picture as we find it at the moment. the stoxx 600 down by 0.6%. london is doing alright but it is the gilt market and the bond

markets that are really interesting right now. gilt continues -- continues to rise. the german market is playing catch-up. thisgilts moving earlier week. a decent to move -- a decent move after what happened to treasuries earlier. caroline: let us dig into one particular economy. ofis one exposed to two bit a particular risk. iceland is holding snap elections tomorrow. it could be a new chapter for the country. the finance minister joins us today. thank you very much for joining us today. will you work with other parties? we have a wave of populism surrounding europe and the u.s. -- the rise of the pirate party in iceland -- are you willing to

work with them? >> this is our last option to work with that party but we will need to work with a democratic outcome of the elections. it is clear that it will not be a two-party coalition. it will be at least three if not for parties needed to form a majority in parliament. caroline: why do you think there has been such a dramatic rise in the popularity of these parties despite the fact that you see the economy doing well under your guidance and the previous government? the unemployment has dropped. the gdp has risen. what is it you have not done? >> i think there was a big shift in trust towards parliament and politics, parliamentary parties when the financial system collapsed in 2008. we are still trying to regain that trust.

it is true, the economy is extremely strong at the moment. i think we have the lowest unemployment in europe. good growth. archasing power has gone up .5% just this year. things are going pretty well. next year, we are expecting 5% growth. it is not just about the economy but i think everyone agrees that the economic fundamentals are strong at the moment. but still, there needs to be a bridge built between the public and the politics. guy: given that, what will the --llenge be for the next big what will the challenge be for the next administration? the general public is not responding. how do you build that bridge and reconnect? risk wenk the biggest have at the moment is number one to the government to grow

strong because of the inflow from tourists. record number of new visitors here to iceland. 2 million visitors and the population is only 3 million. we have to continue listing -- lifting the capital controls. the labor market is very fragile at the moment. we hope that we will find a soft landing the labor market but it is obvious in iceland as in elsewhere, people will have to work together to maintain what has been -- what we have achieved in the last few years and move forward. guy: why do you say the employment situation is fragile? where is that fragility? >> it lies in the fact that wages have gone up 13% in the last 12 months and still people are not happy.

what we need to find is a good balance between the private and --lic sector there's an, private and public sectors and come to an agreement on how we decide on wage rates in the future. and pension rates. whichare two major issues i think we need to address. we have had too many strikes and which havereements been based on salary increases weight above productivity growth. -- way above productivity growth. caroline: how about the capital growth? will there be an end to that? been a has always balance of payments issue. it has never been a debt issue. balance of payments outlook has grown more positive with the

inflows of foreign exchange from tourists and the export industries in iceland are generally doing pretty well. i am optimistic that we can follow the path that we have laid out. that wextremely happy have already helped the fallen banks. we had an auction in the middle of summer and now we have just taken the first steps toward lifting the controls of the real economy of iceland. i think we can take further steps next year. guy: minister, it has been a great pleasure speaking to you today. of the watch the outcome vote with a great deal of interest. iceland firmly in focus on the political front. up next, we will talk about the marm a sector -- the phar sector in more detail. of novospeak to the cfo

nordisk. iag is reporting earnings. some negative. noble nordisk is down by nearly 15%. this is bloomberg. ♪

guy: welcome back. this is the open. the bond markets for in focus once again. we continue to see a backup in

yields. what i think is interesting is the differential between what is happening in spain and in italy. you can see that italy may be a little more aggressive this morning. germany is seeing yields rise. gilts have already risen. the peripheral trade is what people are watching carefully. let us get the stock story right now. nejra: these are three of the biggest movers on the stoxx 600 today. starting with lindner. it has been a tumultuous third quarter for this company. it saw the collapse of talks with praxair. that led to the ousting of the ceo. the company has turned its focus on more aggressive cost-cutting and pledged to keep raising dividends. that is up more than 4% right now but other than that, there is a lot of movement in the

drugmaker. 5.2% for sanofi. it raises earnings forecast and it is also starting a 3.5 billion euros share buyback program. what has allowed it to raise its forecast is that it is seeing increased price pressure on the diabetes industry in the u.s. but soaring sales offset that. looking at novo nordisk, down 14.5%, the most since 2002. for novo nordisk, the u.s. is its largest market. price pressure in the u.s. meant that it has had to slash its long-term target for profit growth in half. it is also adjusting its 2016 targets. sticking on that theme. as mentioned, shares getting hit

this morning for novo nordisk following the company is slashing and half its forecast. we have the novo nordisk cfo. thank you for joining us today. the key question is -- in the u.s., is the worst behind deal? -- is the worst behind you? we have been telling our investors is that we expect approximately 5% negative impact on our u.s. sales next year from lower pricing. we are only getting into the storm now. we cannot say that the worst is behind us. guy: would you say that this anning's share reaction is overreaction or about right? >> it is clear when you make changes to your long-term financial targets including lowering of the growth estimate for operating profit in the 4-5

year horizon, taking it from a 5%, one should anticipate a significant reaction and that is what we are seeing. guy: you think things could get worse from here. how youave any sense of are guiding the market right now in terms of 1-3 years out? is this a fundamental shift in how the market should see your business? >> i think there is a fundamental change in the u.s. insulin market. that is what we have reflected in our new long-term guidance. we are believing that we will continue to see price pressure in the u.s. market and the u.s. constitutes half of our global business. caroline: should you be diversifying at all at the moment? >> i'm sorry? caroline: should you look to diversify in the u.s. when it

comes to de-risk --when it comes to diabetes? there is -- there are two dimensions. growth wereasing the are seeing in emerging markets. our emerging market business is growing more than 10%. and there has been a rebound in our chinese business, growing north of 10%. there is clearly a rebalancing. market business is where we see the most significant growth in the number of people with diabetes. there are more than 4.5 million people around the world with diabetes and there is only a fraction being treated. and that is where we can make a real difference. caroline: if you are just at the beginning of the storm, would you need to be making more job

cuts than just 1000? we have to put more research and development on hold? >> no, but we do need to focus on the research that focuses on the criteria of getting reimbursement from the market as we see it today. the threshold of obtaining reimbursement is being lifted. pay your cigar willing to pay for convenience but the outcome is what matters. we need to a line research per folio to the project that meet that goal. guy: do you think you are making full use of your balance sheets at the moment? your balance sheet compared to >>. arrival is under geared -- >> we have left ourselves with a strong balance sheet and we have

the ability to acquire compounds or companies to bolster our business. diabetes focus is care. we do not see any large opportunities. where as in the biopharmaceutical franchise which is 20% of our business, there is an opportunity to acquire something that is adjacent to our current businesses with hemophilia. if we could and license a compound there, we would look to our balance sheet to facilitate doing that. guy: you are buying in compounds --why don't you just buy some businesses? scale ofing about the the potential. you have a balance sheet which has no debt. you could gear up your balance sheet. it is incredibly cheap to take on credit right now. do you think you are fully utilizing the balance sheet the

way you should given the opportunities that you have. should you the more aggressive? -- should you be more aggressive? >> we believe that the capital structure strategy is serving as well. we should remain with the prime focus on diabetes care. are anticipating an increased level of investment in the diabetes care area including being able to offer a version of -- including a significant research program. we want to be able to maintain that potential firepower. speak with you this morning. it is good to have your take on that. plenty of other companies reporting figures today including iag. itsweaker pound has hurt u.k. sales.

let us take into those numbers. the aerospace reporter from bloomberg is next to me. -- in somest-brexit ways, today's numbers support that. they are doing alright and the market is rewarding there. >> we are seeing that across the aviation sector. ryanair has had interesting results this week. today, iag, it was up more than 2%. that is despite the second reduction in public guidance since the referendum. it really is a matter of things not being as bad as we originally anticipated it to be. guy: how will the market react when they say they are going to raise the prices? >> it is an interesting dynamic. it is something that was spoken about earlier today on a call. he said there is no chance they

would lower prices. that is quite a big benefit for them. potentially raising prices especially on the transatlantic routes which is interesting because there is a heightened competition on the transatlantic these days including the u.s. as well as the norwegian and others. how much are we going to see a change in direction for the u.k. airlines vis-a-vis the rest of europe? weather theve to sterling storm on their own? brexit, things are shaping up to be better than they thought. it is a good question. ba has been quite positive about brexit and the impact on business travelers. i had of the referendum, they were warning that there was a bit of caution in terms of a dip in demand for business travel leading up to the referendum. after the referendum, that

continue to. and it is something that interestingly he has said he expects to recover before the end of the year. today, he said there has not been any change. we are not entirely sure how things have changed. it is not decreasing, it is not worsening which we think is encouraging. what we: potentially are seeing reflected in the share price. it is trailing along. next, we will be talking tech. build spooks big investors before the holiday season. we will talk tech next on bloomberg. ♪

guy: welcome back. let us see what is happening in the bond market right now. specifically on the periphery of europe. spain versus italy. let us give you a sense of what is going on. there is a slip in the market. this is where italy was outperforming and here is where it is underperforming. this is the story as the italian .ond selloff the spread continues to widen out. me show you what has been happening in the last few days. you can see what is continuing

to move. the spread continues to widen. this is in advance of the upcoming referendum in italy. caroline: that is a great chart. let us talk technology. amazon shares sank as much as 9% in extended trade yesterday after third corner earnings missed analyst experts on increased spending and on the forecast that it may not make a dime on holiday sales expected to top $40 million. we are back to what we remember with amazon. do fact that they sometimes not deliver a profit. a huge gap here. our investors going to start following the prophet again? >> investors are very worried especially as we go into the fourth order. the holiday season is a big time for amazon and here you have them think that they may not

make any money at all in the fourth quarter. range -- between zero and 1.2 5 billion. analysts are looking for more than that. they will not be happy with it being closer to zero. they were also very surprised by the slowdown in profits in the current quarter. this is not a good picture for amazon. caroline: the spending. goodsall about getting into your hands over the christmas period? >> the big spending appears to be on distribution centers. out 18 newolled distribution centers in the past few months. that is a huge spend. they are also spending a lot on entertainment. especially these high quality tv shows for amazon prime. that is also an issue. they are rolling out a music service and now they have a product called alexa which is in

the amazon echo. that has been very expensive. that has really ramped up their operating spent and they have not been making an f margins. guy: can they compete with netflix? >> they are ready are competing successfully with netflix. the music service just launched. it is unclear if they will be able to compete with spotify or apple music. they have a hardware product now that locks you into the echo system. that is what apple has with the iphone and spotify does not have that. spotify is trying to do that without a hardware component. you could argue that it is easier but you could also argue that you do not have the echo system. guy: it does give you more flexibility. stay with us. it is surveillance. i am going to go join jonathan ferro on the radio. i can guarantee that we will be

speaking about the bond market. the market is turbulence. have a great weekend. from caroline and myself, thank you very much for watching. ♪

mark: sovereign selloff. european bonds extend their route with u.k. 10 year yields at the highest pre-brexit vote. np, all topping profit estimates. but how high was the far? the pound sees no gains from a u.k. gdp beat. we bring you our weekly show, "frexit: what's next." this is "surveillance." i'm mark barton in london.