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.

the stoxx 600 is down for a fifth consecutive day. worst losing run since september 4. this is a weekly decline after two weeks of gains. the german 10-year yield is up to 18 basis points. the dollar is falling against again. it was rising earlier. fellmer prices in japan for a seventh month today. household spending slumped. u.s. gdp data expected to increase. oil is falling for the first weekly drop since september as the opec committee meets in vienna to discuss output quotas for members participating in an agreement to cut production. this is my chart of the day. yesterday'sr stronger-than-expected gdp number. there's a greater chance of the boe raising rates then cutting

2017.n the second half of this is according to overnight index swaps. traders reevaluating how long monetary policy will remain accommodative. boe governor mark carney suggesting a couple days ago that the prospect of faster inflation is diminishing the case for easing. the greater chance of a hike than a cut in the second half of 2017. let's get the bloomberg first word news. here's sebastian selleck. >> french output grew, gdp expanding by 0.2%. that is part of an expansion for europe's second-biggest economy, lagging its neighbors. the french economy is growing at less than half the rate seen in spain and below that of germany and the u.k..

novo nordisk plunged after the world's biggest maker of insulin slashed its growth target by half because of pressure and prices in the u.s. the forecast was cut to 5%. amazon shares have fallen in extended hours trading after the company said it might not make any money over the holiday season. the retail giant says it is willing to spend lavishly on products or areas that could be the next big thing. earnings at google parent alpha after aded estimates sales made up for heavy spending on its unprofitable experimental unit and new hardware division. consumer prices in japan refused to rise despite efforts to revive the economy. core inflation fell 0.5% and household spending slumped again in september. the policy board may revise its inflation outlook.

party hasmmunist declared president xi jinping as its core leader according to the state-run news agency. it is also significant in china's elite politics, which has stressed the shift to avoid the mao zedong style personality cult. a plane carrying donald trump's running mate skidded off the runway at new york's laguardia airport. the approximately 40 passengers and crew including mike pence were all evacuated on hurt. pence tweeted, so thankful everyone on our plane is safe. back on the trail. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 100 20 countries. mark: thanks. let's get to the banks. it has been another day of these

ubs, rbs, bmp, all coming in above estimates. ubs chief executive sergio ermotti spoke to bloomberg's manus cranny earlier about his results. >> very strong result. we have been able to build up on our capital position. targetvery close to our of 3.5% that we need to achieve in 2020. costs.ogress on i'm very pleased. the diversification of our business has proven to be winning. he also give us his take on the future. >> the reason for overcapacity in the european landscape, of course to allow for consolidation, you need a

regulatory framework that allows you to go through from a practical standpoint. that it isd argue still somehow difficult for some of our european peers to emerge across the border. 2017 we may in start to see some movement in that direction. believe there are other ways to extract synergies and economy of scale in our industry. combining part of our value chain so that the industry can become more efficient in responding to the very high regulatory demands we are facing. mark: let's wrap up with elisa martinuzzi. everyone beat in the last couple days. is that because the bar was low?

elisa: not quite happy days yet. i guess the takeaway, rbs for example, the bottom line is litigation andby restructuring costs. as doing division wit better. bond trading lifting bnp, barclays, even deutsche bank. you look at the quarter numbers, they are good, but investors are looking well beyond that at efficiency, cost cutting, restructuring. mark: and ubs, lower cost. do you focus on that was the fact that we had a drop in the investment banking unit? elisa: even the equities had a miss that was greater than expected. mark: this is the chart right

here. ubs equity trading revenue down 16%, worse than its u.s. peers. elisa: the focus again on cost-cutting and now you can get that cost lower so you can weather an offset in a very difficult environment. driven by new money strong inflows into the asia-pacific and switzerland, partly offset by net outflows in emerging markets in europe. net new money was up in the period. elisa: very much within the range they are targeting. they pointed to a single china inflow, which is interesting. i think the net new money is a good sign, but you saw transaction volumes and fee income and interest income coming down. this points to potentially a protracted paycheck of difficulty. mark: is the fixed income gains

sustainable? the u.s. players had a big leap in fixed income. barclays was close to that. is it sustainable going forward? sebastian: -- elisa: we're not going to get brexit every quarter. the volatility in the last quarter has helped those trading figures. that is probably not sustainable. mark: still, banks are off their lows. is there a feeling that banks are over the worst, the 2007 lows? elisa: we've seen in the u.k., the pound being a reason to come back into the market. that is playing a role. it is not just an outlook on the industry, but a currency site. in europe, the stock has remained very much on what happens next.

how do you make your business model viable? mark: great to see you. alisa martinuzzi there. stay with "surveillance." plenty coming up. france, spain, gdp, mixed performances out of the eurozone keeping pressure on the ecb. european companies are spending, but not in the way draghi wanted. are negative rates working for europe? and, good data reversing gains after yesterday's gdp. we will bring you our weekly brexit show and a discussion of the u.k. alternative to the single market. this is bloomberg. ♪

mark: by mark barton in london.

here's sebastian salek. sebastian: rbs shares are trading higher this morning. britain's biggest government owned lender saw pretax profit rise to 1.33 billion pounds, beating estimates. that is after charges for restructuring litigation. by the most plunged in 14 years after the world's biggest maker of insulin slashed its long-term target for profit growth. bloombergy's cfo told that would be worse to come. >> what we have been telling our investors is that we see an approximately 5% negative impact on u.s. sales next year from lower pricing. you could say we're only getting into the storm now. we can't in any way say the worst is behind us. sebastian: that is the bloomberg business flash. mark: french and spanish

consumer prices accelerated in october. the inflation outlook remains weak. the ecb is set to announce further monetary stimulus to combat weak price pressures. let's bring in our guest, fatty balboni.y -- faboio let's begin with france. the economy grew 2.2%. it is not consistent, is it? >> it's clear that france is lagging behind compared to germany, where we have seen quite strong data. the french government still sees growth of 1.5% this year. we think they are going to struggle to hit 1.2%. that is growth heavily reliant on public spending. it is still in a difficult situation. unemployment is falling only marginally.

we've seen them increasing according to the eurostat figures. it is a situation which is quite difficult for the french economy. if you take into consideration how many good things have happened in the past, qe, reduction of the cost of credit, the fall in the oil price, you do wonder what is happening going further. mark: how does the election change the dynamic? >> it creates uncertainty. there's an element whereby it's possible that we will see a little pressure on public spending or tax cuts. if anything, we could get a little more fiscal support. in the meantime, as we go through that period until the election, we might see further weakness. our expectations are not necessarily for a bounce back. mark: the good news keeps coming

out of spain. we are close to the formation of a government after almost a year of political gridlock, aren't we? >> spain has been largely unaffected from the difficulties of forming a government. there is a strong forest sector. the service sector has expanded strongly. there's been a lot of positive elements that are going to come to an end. i do expect growth to slow down. you are more likely to get quarterly growth rates of 4% and 5% next year. in a way, in spain, the absence of a government may be easier for them. now the european commission has got someone to complain about the deficit. we might see more of a fiscal drag next year. mark: we had benoit coeure

speaking in the last couple minutes. stimulation sustainably on track. we are higher than we've been for a long time in the eurozone. when are we going to be back up to those near 2% levels? >> if you focus on headline onlation, we might hit 1.5% february. they've been very clear that they will look through this peak in inflation. it doesn't mean they won't get criticized by someone. maybe jens weidmann is going to say it was all about the oil. we think it is a decent environment where underlying inflation remains weak. it will be very difficult for the ecb to start tapering. mark: so they extend in december? anything else? >> they will extend. that means they will have to tackle some of the technical constraints.

do the veryy will minimum to get them through the next six months. that means probably just increasing the limit on the non-collective action bonds. that should be enough to get them through september. mark: what is going to happen to bond yields? the german 10-year yield rising. does it keep rising? >> if there is an extension to the rise we've seen -- clearly, the market is worried. they know that at some point, they will run out of bounds to buy. there might be a little more flexibility later on. the key concern from an ecb perspective is, they need to keep the borrowing cost of italy, spain low. that gives additional fiscal leeway to keep the low growth going. balboni, european

economist at hsbc. japan consumer prices keep falling. we will discuss that next. this is bloomberg. ♪

mark: i'm mark barton in london. consumer prices in japan refused to rise despite prime minister shinzo abe and boj governor kubota's best efforts to revive the economy. core inflation fell.

household spending slumped again. board may revise its inflation outlook and projected timeframe for hitting its 2% target. fabio balboni,- they keep pushing back their target. 2018, i keep forgetting. they keep pushing it back. are they going to do the same? >> they push it back. core inflation stripping out energy prices. even without energy prices, still at zero. that was revised down as well. clearly the signs are not very good for the boj. they will have to push back the inflation target. in our view, it doesn't mean necessarily they will do more monetary policy action. there is some fiscal stimulus on the way. maybe they wait for the positive

impact of that. in our view, it doesn't necessarily mean they will cut rates further. mark: when do we get helicopter financing? >> eventually, we think that is where we are heading. it might not be next year. we've got another sort of rate cut towards the second half of next year. that will depend a little on the data. eventually, we have to get there. theably the boj will be first one to try something along those lines. on youris is 4601 bloomberg. the white line is the probability of a rate cut after mid-2017. the blue line, the probability of a rate hike. bigger probability of a rate hike.

it is the economists who were telling us there's going to be a cut next week. you've switched. >> we're not looking for a cut simply because the forward guidance the bank of england gave us was always data dependent. the data is quite strong. i think this chart captures the dilemma for the bank of england. they have inflation rising, just through the depreciation of the currency. you're going to get inflation about 4% next year. we don't think they will necessarily react to it. mark: even though carney suggested there's a limit to how much he will overlook. >> in our view, the economy will slow. when itt an if, it is will slow. we think consumption will take a hit. we've had strong q3 data, but

that shows an imbalance. we think as we get closer to the actual action of brexit, we will see a slowdown with should the bank of england in an easier position. high inflation but very weak growth. mark: thanks for joining us. fabio balboni. stay with "surveillance." up next, our weekly show, "brexit: what's next." we saw the pound struggle. better than expected growth. the sun doubled down on you ok investment. this is bloomberg. ♪

mark: welcome to our weekly brexit show in london. i'm mark barton in for francine lacqua. every friday, we wrap up the news, analysis, and conversation that will make you smarter about

what's next for britain and europe. this is "brexit: what's next." here's sebastian salek. sebastian: banks in the u.k. will start relocating operations out of the country by the end of the year as london is set to lose access to the eu single market. writing in the observer, anthony brown says many smaller banks plan to relocate before christmas. global banks will probably lose their current legal rights to provide services in the eu after brexit according to the u.k. trade minister. told bloomberg they are trying to create new models. britain's economy grew faster than forecast in the third quarter. the expansion came as services single-handedly ensured civilians against brexit fallout. helped by box office seats for summer movies, the sector offset declines in construction.

monday, a brexit strategy meeting between the u.k. prime minister and the leaders of scotland, wales, and northern ireland and it in frustration. nicola sturgeon left thomas saying she was no clearer on theresa may's stance and she is not bluffing over a potential referendum. the u.k. households are starting to feel the pain from brexit induced pressure on their finances. u.k. families' discretionary income increased nine pounds from a year earlier, the first time since 2014 that customers haven't seen double-digit growth. a measure of consumer confidence decreased in october. consumers' expectations also declined. breakdowns are more concerned about controlling immigration than maintaining access to the single market according to a new survey published earlier in the week. it adds further evidence that

prime minister theresa may's brexit strategy is in line with the prevailing mood of the country. businesses are demanding action to boost productivity and counteract the uncertainty of brexit. the confederation of british industry wants to boost public investment to 2% of gross domestic product. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. mark: belgium has reached a deal with its southern region to improve a trade agreement between the eu and canada. this ends the deadlock which delayed the agreement. what is to come? adam pozen from the peterson brexitte tells bloomberg is likely to be a long-term issue for the nation. >> i think that's the way to think about brexit, an ongoing source of chronic pain for the u.k. for the next several years.

it is going to put the u.k. in many ways back to where it was in the 1970's and early 1980's, being uncompetitive, people having let's face in the regime, and having to rebalance in very interventionist ways. mark: let's welcome nicolas lockhart. and john ryan. thank you very much for joining us. back to the 1970's and 1980's. do you share adam pozen's view? tomnicolas: there are a number f risks surrounding brexit, but if the u.k. handles this right, we get transitional arrangements that will give business some certainty and we negotiate good access to eu markets. we have new opportunities with the countries. then it might not be so bad. mark: so the idea of

transitional arrangements is maintaining existing ones until new ones in place. how easy is it to achieve that? nicolas: there will be requests on both sides. the u.k. will want to maintain these arrangements with third countries. the third countries will want to continue with their access to the market on a transitional basis until we can put in place more permanent arrangements. when it comes to the eu and transitional arrangements, that is a tougher question. that will get banged up with the negotiations on the long-term arrangements. mark: john, it's the banking industry that once some transitional arrangement to tie it over on passporting or some sort of equivalent until a deal can be struck. is it feasible or not? john: we are going to go over the two years. i think that's right. adam pozen is correct.

this is going to be extremely messy. it is going to take some time to do. uncertainty,this it's important to understand, the government has not presented even ava near of a plan yet. that uncertainty in the marketplace and businesses thinking, what is happening -- you don't have to give all your strategy away, but at least indicate what you are going to do. basically, --g, there are confusing messages. inhink we are not factoring domestic issues and political and economic partners in europe who might have a different view about how we progress this potential deal. us, fort it simply for those that need reminding. why is continued access to the single market for goods and services, why is it the best

possible deal for us economically? what do we lose? what does it cost us if we lose access to the single market? trade termsyou put on a spectrum, the terms we have today are about as good as they are ever going to get. if we lose those terms today, i think the only way is down. it is down particularly in services, which is so important to our economy. if you look at other trade ,greements with third countries they tend to be much worse in the area of services than the relationship we have today. and of course the close economic ties that we would want from the perspective of the european union, carry free movement of people. and if you want access to the european union, you need to follow the product and services standards that the european union lays down.

we would have to continue following european union law to some extent, but we wouldn't have a say anymore on how european union law is shaped. --ther countries that have a have good market access to the european union like norway and switzerland, they are making a big financial contribution to get that. mark: john, is there any middle ground? are opposing it like this. hard brexit or soft brexit. hard brexit meaning we control immigration and lose access to the single market. soft brexit and essentially means you've still got access to the single market. you are stuck with what you've got or it is a hard brexit where you lose out. what is the middle ground? is cherry picking possible? they are grandstanding on both sides. is cherry picking remotely possible? john: it depends on how we situate the deal.

when we are talking about the soft brexit, looking at switzerland and norway, switzerland had a referendum in 2014 where they wanted to restrict more migrants coming in and that was overruled quite recently. if you're going to be a part of that partnership in the soft brexit, you have to allow free movement. this is not possible under the political circumstances at the moment because of the polls showing the population wants to restrict free movement. understand, there is no way they will allow us access to the single market. hard brexit is where i think this is going. i think people in the government feel they won't get a deal. they won't get cherry picking. they will have to go to wto and that is a problem. said, yes, we will

try to facilitate as much as we can, wto is dealing a lot with goods and membership is through the european union. the middle ground is absolutely not in play at the moment, when you hear both sides taking such a hard line. mark: hold your thoughts. we're going to come to the wto, which you call the far end of unfavorable terms. stay with "surveillance." thanking and brexit. with got more from ubs chief executive sergio ermotti's interview with bloomberg. iceland pirates on the cusp of power. snap elections could see the country's conservative party in reykjavik. and the french economy grows less than expected. we get analysis from trusted sources. this is bloomberg. ♪

>> it's impossible to make decisions today i met people are not moving people considering the point we have in front of us. i think it would be a very risky decision. we are going to wait and see. as time goes by, we get some clarity about, if not the final outcome, at least on the time necessary, or that will be allowed to implement whatever the final solution is going to be. it may well be that we are not moving anybody or it may be that we move people. in absence of certainty, we won't make any decision. the real uncertainty -- we talk

about the future in terms of cost or opportunity, but the true cost of brexit is already materializing now. if you look at the pension fund that we had, but also the industry had in the u.k., it is the first major sign of the cost. ermottis ceo sergio talking about the impact of brexit on his business. nicolas lockhart is here. john ryan with me. wto, nicholas. end of unfavorable terms. increased tariffs, red tape, limited opening for services. countries then try and agree on special by l terms to improve on wto terms. how difficult is that? nicolas: there are a lot of bilateral trade agreements out there. the question for the u.k., the

fifth biggest economy in the world, is not whether we can get these agreements. the question is, what do they bring us? how much do they push us from the wto terms? are they going to replace what we might lose? mark: how can you maintain the shortfall? nicolas: that is exactly the question. i think it will be very hard if we lose access to the single market to replace that with new opportunities with third countries, particularly in the area of services. there is much less market integration, much less liberalization, then we have in our relationship with the european union today. mark: john, what do we learn from the eu-canada trade deal, witchcraft over the line -- which crept over the line? it shows you the difficulties of striking a deal with europe if all parliaments and countries and regions have to vote it and

could veto it. john: yes indeed. it was the canadians in the past. i think quebec scuttled the deal in the past. there's a lot of collateral issues here that will make it much more difficult for the united kingdom to actually get a deal going. this is with canada. there's good relationships and they want to do the deal. now we've got a country that wants to leave the european union. there's different countries that can come in. one thing is forgotten in the british debate. never all these countries. in the exit from the european union, the parliament will have a vote and it will be a simple majority vote. my understanding at the moment is this would not be a given that they would vote for the deal. mark: so you strike a deal and it gets voted down. is that the worry?

nicolas: i think that is a big worry. it is important the government focus on transitional arrangements as part of a strategy. we want to make sure that when we get to the end of the two years, we probably will not have finished the negotiations, we may be out of the european union, and even if we reach a deal, the deal may not be implemented. we want to start out by trying to arrange transitional arrangements that will give business the type of certainty they need to plan in the long term until final arrangements are in place. mark: at the moment, businesses have no certainty at all. you were saying yesterday's gdp number -- it doesn't even begin to take into account the process of brexit. john: not really. we've had a decline in the pound. we had all this uncertainty. when we get to the end of march, and if article 50 is indeed

implemented then, which i think is a rather bad time to implement article 50, with dutch elections, french elections, and german elections, and everyone looking at their own domestic politics -- we've got a wasted six to nine months where there might be changes of government. we are coming through that period. we are in a situation where we're looking at some elements of good news. further down the line, there will be more uncertainty. there will be more clear lines that we are leaving the european union. our growth rates may not look as good as now. nissan is investing in the u.k. the questions arise. was there some sort of special deal? is theresa may giving preferential treatment to various businesses? is that a real concern? nicolas: i think the good news is that nissan has made this investment.

great news for the northeast. for brexit, it does raise some questions about what's going on in the background. from what i've read, the government has given some commitment to nissan that changes in the terms of trade will not prejudice the company. that could spell trouble down the line. the u.k. government can't do that for everyone. we would be having to pick winners and losers. the upa government may also run into problems under wto rules about subsidies. if the government were to provide support, other countries could counter these subsidies. it could end up being a race to the bottom. mark: john, we've had nissan, heathrow finally being rubberstamped. whether or not it happens is a new question. the good news is forthcoming.

but you say the real process hasn't begun. meanwhile the bank of england is left with a lot of the heavy lifting. how much could and should philip hammond do when he reveals his autumn budget? john: everyone's talking about fiscal policy. if you look at the situation we're in at the moment, we might be on the titanic with no lifeboats. qe has run its course. we've gone down to zero interest rates or near to and global debt is 30% to 40% higher than it was before the last financial crisis. we need fiscal policy because the ammunition is running out. we need a very solid plan. we have to realize that we are adding more debt to our national mightt some stage, but we get some benefits. this will all take time. when you implement those fiscal policy measures, it takes time. there's a time lag. we look for quick wins.

we might be in a tricky situation in the short term. we need this fiscal policy to have some impact pretty quickly. mark: nicolas lockhart, john ideas.ellow at lse up next, iceland goes to the polls. it is expected to vote in a radical coalition spearheaded by the pirate party. we are live on the ground next. this is bloomberg. ♪

mark: i'm mark barton in london. pirate party is tied with the ruling independent party in polls for a snap election tomorrow. let's bring in omar in reykjavik. when can we expect the result and who is likely to take office? >> the polling places will close at 10:00 p.m. tomorrow night and we will get the first results soon after that. the final tally probably won't come in until late sunday. who will take office is anybody's guess. right now we can expect some kind of coalition probably led by the pirate party. economyw healthy is the that the next leaders are coalition will inherit?

actually really healthy. we've come a long way since the financial crash in 2008. the economy is expected to grow as much as 5% next year. we have very low unemployment. probably the lowest unemployment in europe. record numbers of tourist arrivals every year. a very healthy economy is being passed over. mark: a busy weekend for iceland. thanks for joining us, omar. stoxx 600 is currently trading lower. it was earlier. let's check in on the markets. here's nejra cehic. nejra: it is still lower. that dropped for a fifth consecutive day. it will be the longest losing streak in more than a month. europe's equity benchmark, every much and the -- industry group editing the work, including banking stocks, losing their spot as the biggest

decliners this year. we've had some healthy bank earnings today. in terms of pharmaceuticals, a mixed bag. sanofi shares have risen the most in five years. it raised its earnings forecast. this as soaring sales of a pill offset increasing price pressure on the diabetes business in the u.s. for novo nordisk, the u.s. is its largest market and it has had to slash its long-term target by half. novo nordisk shares have dropped almost 20%. this is my favorite chart. about the talking bond selloff continuing. germany yields have hit the highest since may. bonds have lost almost 3% in october according to the bloomberg barclays global aggregate index. on course for their worst month since may 2013. that label there is actually

incorrect. chart,ve on to the final dollar-yen, with broken through 105 on that. some say 108 by year-end. a lot of that is being driven by this divergence. how much of this is dollar strength? mark: consumer price data today in japan. great job. "surveillance" continues in the next hour. guy johnson will be taking over in london. tom keene joins us in new york. we kick off the conversation with kamal sharma from bank of america merrill lynch. 4:56 in new york. this is bloomberg. ♪

tom: in excess of two standard deviations yielded higher.

it's a sort of global bond rout. november is a dead meeting. bonds adjusted, chair yelling in a live december meeting. and soon, it will be all over. clinton in trump spar while governor pence spends anxious moments at laguardia. good morning, everyone. i'm tom keene; with me is guy johnson. the vice presidential candidate of the republican party landed at laguardia last night in heavy rain, and he slipped off the runway. that would never happen at heathrow, right? guy: absolutely not. apparently the whole front of the plane was covered in mud. quite an experience. the bond markets are experiencing something similar, i would argue, but things have turned around the last two minutes. tom: i like your observation. we'll give you color on that