manus: is gavel. after north korea's nuclear test, president trump threatens to be up sanctions. mattisry defense promises us with response if it's allies are threatened. yet, goals, and treasury futures price. merkel and schulz face off in their only televised debate. refugees,over trump, and turkey. brexit will debate. david davis dismisses reports theresa may is set to approve an eu payment of 50 billion pounds. meanwhile, the eu top negotiator says britain needs to be

educated about the price they will pay for leaving. ♪ manus: will come to daybreak europe, our flagship morning show right here in the city of london. i'm manus cranny. the world is absorbing and understanding just what the ramifications are for the actions of kim jong-un. as it is understood that a hydrogen bomb, 10 times the size of the hiroshima bomb, was tested over the weekend in north korea. the prospect for a clean resolution and north korea are difficult to put into parameters. the money is going into gold and it is flowing into yet. dollar-yen at the bottom of the screen, even though money has run into the yen, it has literally retraced 50%. of 9.80, retracing 50% of

its initial game. the position of the market, the situation over north korea appears to be a splitting. but the market is still short. shorting the young is the third most popular that. therefore, you can get a squeeze that could look ugly. could you see a rerun of august 29? the ballistic missile was fired over japan and the yen went big and gave back a great deal of its strength. these are the short positions. they hardly budged. the short positions in dollar-yen are still fairly .table at 60,300 you are looking at a fairly tight range of dollar-yen and that according to mliv blog suggests the market believes rhetoric will win. let's check into these markets. features are closing since labor day. if you are having a late barbecue, this is how futures

look. let's have a look at the european risk radar. with a shaved the u.s. equity futures in a second and here is the asia-pacific, down half of 1%. you are seeing a risk off a reaction. tokyo sold to a bump. we have 30% of our money in cash. the dollar one is seeing the one sliding the most in a month. south korean government warning of the reality of the nuclear test spreading to financial markets. you have the top story that mr. trump, the president is considering the trade agreement with south korea and that could have a huge implication on the south korean won. i put in u.s. bonds, the futures are open, the cash market is closed. money is going into u.s. bonds. these are the futures prices. that is actually not the right price. let's have a look at the risk

equity futures. let's get that in perspective. all the u.s. equity markets are showing a decline. you are seeing you today, a year-to-date rally of 11% on the s&p. the nasdaq is up 20%. is this every rating? is this a moment that donald trump that increase economic sanctions to anybody who does business with north korea. what are the ramifications for the world in that regard? some breaking news on novartis. ceo as ofa new february 1, 2018. this is breaking news on novartis. we have an announcement in the narasimhan. we will have more detail on his background and bring that to you shortly. he is named the ceo effective figure he first, 2018.

i will read a little bit more on this and review breaking news. let's go more to the us claim tensions of north korea. yvonne man is on the ground in seoul. business as usual, which is quite remarkable given just the latest hide line -- headlines coming over north korea over the weekend. we wrapped up lunch hour here and we are seeing tourists on the streets. there is a fashion show happening here, reversals have been going on the last couple hours. literally the show must go on. are two milese away is the blue house, the government house where president moon jae-in has had a busy 24 hours speaking with his counterparts in the u.s. as well as japan. urgent to strengthen deepening

ties between the u.s., japan, and south korea. we are seeing a united front and a response up in the air about the military and air force conducting live fire exercises early this morning in direct target. north korea's nuclear test site over the weekend. the market impact, we have heard from the finance chief talking about the long-term implications. we are seeing knee-jerk reactions in the market they think is not just predatory or short-term, could actually have an economic factor when it comes to consumer sentiment. the lehman plans when it comes to korea inc.. we are seeing movement here, certainly swift and we are seeing the market react. let's see how that plays out in terms of the next step. the next shoe to fall in the divide between south korea and america. great work in seoul for us. news,get the first word

juliette saly is standing by. manus, chancellor angela merkel faces tough questions on germany's diesel car crisis during the debate with her election challenger. in her class with martin schulz, the social democratic opponent expressed outrage over auto executives saying they undermined an appeal of germans export economy. the election takes place september 24. the european union chief negotiator michel barnier said as people need to be negotiated -- need to be educated about the price britain will pay for leaving the eu. they are said to tell there are extremely serious consequences of leaving the single market. the economic affairs commission left open the possibility brexit talks may fail to move on to trade discussions after october. start by resolving

the issues that are on the table. then we will think about our future relationship. it is no secret that we think we need to have a very strong trade relationship with the u.k. out of the eu, but first things first again. juliette: steven mnuchin says congress should combine initial aid relief with an increase in the u.s. debt ceiling, saying lawmakers need to put politics aside to ensure the victims of harvey get the help you need to the attempt to link the two attending to put off the standoff. they must raise the debt ceiling by september 29. two days after president trump asked congress for $8 billion to clean up after harvey, the governor of texas say the ultimate built make top the money spent on hurricane katrina. greg abbott said the initial request was a down payment and a number of people affected by harvey and the size of the disaster far outweigh katrina or hurricane sandy.

global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . asian markets are reacting to the north korea test. we have seen significant risk of attitude across the region. the young moving strongly against the dollar. in late trade down by 1%, hong kong coming off his recent run and the cost is under significant selling pressure. the korean won is privileged worst-performing currency in the region. stocks, korean defense stocks are surging. develops moreh products, is going up. you are seeing downside to these consumer related stocks, korean airlines, cousin medic, tourism stocks in seoul getting honest. we are seeing the one starting

to fall and there is speculation that goes into the european markets are going to come out of the market over the next quarter. a lot of analysts we have spoken to say this could potentially be a buying opportunity. one is saying it's an opportunity to add rid. short-lived, but certainly a lot of money coming out of korean stocks and foreign outflows. there is no alternative. jill kelley with the very latest in singapore. let's get into our north korea story. -- guest is what does north korea want to achieve by this latest action? objectiveth korea's

and goals have been consistent over a long period of time. they are transparent. it wish to unify korea on its terms. they wish to expel the united states from the region and reorder the security architecture and third, they would like to have all sections lifted and restructure the economic order in east asia where either north korea or unify korea would be an integral actor in that economic war. manus: that's a pretty tall -- forist for brexit breakfast, lunch, and dinner. his us more about protecting themselves against any potential regime change? do you think they want to be recognized as a nuclear power? are they a nuclear power? guest: the first thing is survival. you have to survive. the regime is not under the kind of pressures they face in the mid-1990's when they face horrific famine.

the economy is better and they seemed to stabilize the political system. kim jong-un is doing all the things he needs to manage his dictatorship. in the long terms, the reason their goals exist and what their strategists think about every day, honest legal goals i mentioned. analysts have been focusing on the development programs, on missiles and nuclear weapons and other weapon systems. or some kind of caricatures of the regime, some kind of strange pictures or stories, as if it is a freak show or some kind of circus. they have strategic goals they think about him chung yong and strategist who plan for these long-term goals every day. manus: the president of the united states when walking across the lawn yesterday asked, would he take military intervention. he said, we have many options. defense secretary mattis promises a massive military response, both effective and

overwhelming. if the u.s. and or its allies are threatened. are we getting closer a point of no return with this? what you think rhetoric and diplomacy is still the avenue we will see the world take with north korea? guest: i read secretary mattis' statement and if we look at it closely, he may have misspoken. he used the word threat as opposed to action. to make military response to every threat north korea makes, we would be at war every day. they need to be clear that any north korea military action against u.s. allies or the united states would be met with an appropriate and proportional response according to international law, all the way up to nuclear response is necessary, to extend the nuclear and relative to our allies. manus: thank you so much.

daniel is a lecturer in international relations at troy university. theing me in the studio is global head of flow strategy and solutions. welcome to the show. i hear responses like that and i sit back and go, i hope people running the world will think before they speak. perhaps i appreciate them too much. your reaction to the latest news over the weekend. guest: i think this brings a bit more concern to markets. which have been literally slaughtered by systematic selling and the victim is nearing an all-time low area -- low. today we need to be careful in terms of this tradition of outcome. , it has neveris been so interesting in terms of portfolio protection. manus: i know you like writing options, i know you like buying

options. let's get into it. i got volatility of gold. 30 date lability. -- 30 day volatility. of course, this is the beginning of the hubris with north korea. you want to be long, cold spreads in gold. by the calendar? why do you want long cold spreads as opposed to product? guest: first one is gold has a behavior or pattern of safe haven. particularly as it yields and rate have essentially come down over the past few months. remember old doesn't yield anything and in an environment of higher rates or yield, it tends to underperform. you have a good environment for gold to perform. number two, volatility is low. we like owning back 17, cold spread on gold as opposed to a tale rest hedge. manus: i started the discussion

on it yet. it's given back 50% of that initial spike. thing is let'sl see what happens on a sunday night. that has happened, we we traced 50%. in terms of havens, you prefer reasonably gold over yen over swiss. is that a reasonable estimate of your mindset at the moment? guest: yes. one thing to her member is yen has always been a risk off asset that squeezes higher in tough environments. the yield curve control by the bank of japan is essentially doing a qe because it is trying to guarantee jgb yields are not going about 0%. there is a natural supply of yet out there, not something you see in gold, at least for now. manus: we spoke to a mp capital, they manage want to million

dollars -- $110 million. they say there is a significant disconnect between uncertainty and market pricing on risk. you use the word slaughter in terms of volatility. this is everything markets want. a want catharsis on the equity side. rememberu have to asset prices have done extremely well in the past few years. been backedcell has through qe and negative interest rates, etc. today we need asset prices to go closer to their fair value. estimate of current business cycle will end in 2019. winter is coming, so to speak, in our mind. this is why investors need to realize the current business cycle has been part of one of the longest ever over the past few hundred years. two things. asset prices have good days

ahead of them for the next two years, but this is not going to go on forever. manus: nothing lasts forever. daybreak does less forever. he is the global head of flow strategy and solutions. this is what you should watch this week. heck of the week in terms of risk and markets. the u.s. congress returns from its recess and with a few weeks, pass a guest spending bill to fund the government to the end of the month. --resa may faces opportunity opposition in jeremy corbyn for the first time since their summer recess. next day, we get the european central bank and news coverage. will mario draghi challenge the traders? coming up on daybreak. china hosts of the brexit summit with the leaders of five emerging-market nations but north korea is threatening to steal the show. we are live to the summit next.

this is bloomberg. ♪

♪ manus: light out of hong kong, it is 1:21 in the afternoon there. north korea is exploding. we understand a hydrogen bomb over the weekend, testing a hydrogen bomb over the weekend. his pyongyang testing the global leadership in china as they host the bricks nation, a very big global political form in the side for everybody? we talk about the chinese fromdent hosting leaders russia, india, brazil, and south africa as a part of the bricks summit. it's being overshadowed by these events from north korea and the latest moves claimed successfully to have donated -- detonated a hydrogen bomb.

tom mackenzie is on the ground for us where the summit is taking place. good to see you this morning. this coalescing of the bricks. what are they hoping to achieve at this summit? i suppose as trump saber rattles again free trade agreements from south korea, perhaps the brics will take on a new and resplendent meaning. tom: resplendent they would hope for. part of it is feeling that vacuum as the u.s. pulls back on tpp or the climate change agreement or questions the u.s. -- south korea package. mexico not a part of the brics grouping but it is on the sideline and looking for a stronger partnership with china. brazil is going through one of its biggest privatizations pushes it at least a decade, selling off 50 assets including

ports and air force, even the national mint, looking for chinese investment in another area that has been in focus prior to new clear tests was the india-china political concessions. we have seen the worst order spat in decades. -- border spat in decades. particularly they will pay attention to the indicate out tomorrow morning to see if there is any calling of tensions that can move this forward. the minutes to -- they managed to resolve these disputes. then you have russia and china, big energy partners, $300 billion in pipeline deals between the two countries. they will see more emphasis, as well, but putin meeting with president xi as well. manus: indeed. great work on the ground there. tom mackenzie with the latest on

the brics nations. when you hear tom setting the stage for brazil, russia, india, and china, how important are these kinds of meetings in terms of driving the agenda forward for brexit? guest: they are, but bigger picture, rates and currencies are even more important. becausey global gdp consumer spending is a big driver for these companies and countries that have to export to bigger markets. manus: if you look at the performance, this is the brics, up 30%, mx msci up will percent. there is no doubt about it,. , in mexico, it is

resplendent. guest: this is one of the biggest surprises of the year. remember emerging markets tend to over perform when yields are higher because this whole concept of risk premium is what drives major markets. one thing we had this year was a inrease in heightened risk brazil and china with nonperforming loans situation, going down. manus: those nonperforming loans were stunning last week. the dollar travels lower for you are it -- for you. guest: the dollar is likely to perform if the trump administration passes tax reform. if that changed, we could see rebound in the dollar. manus: stay with us. next, brexit deadlock, eu economy chief says negotiations may fail to move forward as the u.k. and the eu additions are not fully compatible.

storyl bring you the full with bloomberg. that's next. ♪

♪ it's an daybreak europe. there is a live shot of the emperors palace in tokyo. dollar-yen is rising 4/10 of 1% to it did rise on the back of this latest development from north korea testing a hydrogen bomb 10 times the size of the one used on hiroshima. dollar-yen is on the move. newark a hitch takes us through the markets. thea: let's start with equity markets heading for its biggest drop since august since we got those fire and. comments from donald trump in response to north korea. s&p futures, u.s. equity and bonds cash markets closed for

labor day, but we are seeing futures move lower. is this time different than what happened on august 29 when we got that missiles sent toward japan? then we had a quick recovery we could open tuesday with a bearish tone in u.s. equity markets. markets, money is moving into the yen and swiss franc. the korean won the worst performing currency against the dollar in this session. this is three-month risk reversals. yes, a little bit phased if you look at the jump, not quite where we were seeing it at the beginning to mid august. perhaps some analysis to be made that. markets,t the bond treasury cash markets not moving. we are seeing a treasury futures think. this is japan's 10 year yield. said he at the moment but it has fallen below zero to the lowest since november 2016.

something to keep an eye on. yields move lower in australia and new zealand. they are not a huge mover. there is a sign of risk in other parts of the markets. metals gain, the on short you to its strongest level since may 2016. a long run of gains for offshore yuan as china has seen as not to affected by these two political risks. manus: u.s. gasoline prices are down for a second session. some of the u.s. gulf coast refineries plan to restart operations following the shutdown forced from the flooding from hurricane harvey. yousef gamal el-din joins us with his chart. good to see you today. we are talking about gasoline here. it is like the worst of is over. harvey

in terms of markets, where are we going to go? yousef: we saw a bit of normalization in gasoline futures. let me show you the state of play. shipping to the bloomberg, with we haveely chart, crossed u.s. gasoline futures. you can see the spike of the storm and coming back down, leveling down a little bit. some of the story for wti, no major movements but the last couple sessions have been moving higher. bloomberg intelligence is a fascinating. be next sector that can coming in with gains is the energy sector. they are pointing out underlying support from the dollar and the most price favorable demand versus supply measures in years may come to fruition as the system clears. they are underscoring that appears right for movement over the weekend late

friday. they have the other index that 759. crude unchanged at later in the week, we keep a close eye on what is happening with opec and non-opec. comments from the russian side, they are saying they are open to an extension of the agreement, a bit of an interesting twist. they were one of the biggest critics of the agreement. now they are saying it is crude and there is a benefit to that. that can be a factor weighing in on the price action later this week. manus: thank you very much. european union economy minister insisted on first things first. they say the deadlock brexit talks let the possibility they may fail trade discussions. he spoke to us at the forum. >> we are starting the real

discussions with our but his friends. we are starting to move into positions inside so this positions are not at this stage of fully compatible and this is quite normal because this discussion will be long-lasting. it 27 never states have some principles. of course, the financial problems must be solved. first of all. then we must be in full agreement with the british friends on citizens rights. citizens from the eu living in the u.k., citizens from the u.k. living in the eu and their families, as well. we are exchanging views and positions. michel barnier is worried about the progress of the negotiations but we have some times to go.

quite a good deal of times to go. confident an agreement will definitely be reached? >> we had no choice. no alternative. we don't -- we know that timetable, we know brexit must 2019ld by 29th of march and we know there needs to be a ratification before the timetable. we have a calendar of negotiations. we must solve the problems we need to solve a forward-looking at the future of our relationship, which is obviously important. first things first. speaking exclusively to bloomberg. to german politics, angela merkel has expressed her outrage at other executives accusing them of undermining the pillar of juries export economy in her televised face-to-face clash

with martin schulz, her opponent on the ballot. miss merkel face tough questions on diesel. we speak to matt miller in berlin. this is one of the only televised debates between schulz and miss merkel. was the s&p leaders able to score any points in last night debate? only one. was the they only have one debate. she has really shaped the candidacy process and the debate process. they have one moderator from each of the four major broadcasters and one debate before the election. it did not look like schulz did score any goals, so to speak. he was occasionally coming out with aggressive attacks. for example, talking to angela merkel and telling her he thought the way she dealt with the immigration crisis was

flawed. however, her answer was so good that it seems to sort of equal example,ttack and for the local paper here has a soccer scoreboard with the score 0-0, schulz merkel on the cover. the idea ofross what last night's debate turned out to be. manus: it's soccer, matt. you have the passport and you been here long enough. football, not soccer. matt, thank you very much. that was the latest on the political front in berlin. he don't want to miss this. it happens every monday. keeps you can check with what one on. , everyminute special monday, germany decides. the global head of flow strategy solutions at societies

general. what he do to get ready for the german elections -- what do you do to get ready for the german elections? i am going to put my feet up. fair, it has been the main focus around the french elections or italian referendum. risk of beingof present in. for the german elections, investors do not seem to be as worried as they were for the previous elections. today, you can argue things are pretty relaxed from a risk perspective. manus: do find volatility in the euro? looking at the pathway to 140, it is an open road really. a few bumps and humps, but we have done a survey. we carried out our survey, 67% believe mario draghi will express his concern over the euro strength on september 7. do you think draghi will jawbone

the euro on september 7? guest: we think the euro is likely to move further from here. there is tapering happening in ever a few starting in 2018 and a first rate hike in the ecb by the ecb will be in 2019. ultimately, one of the things making life difficult for draghi is the strength of the euro tapering harder. this is the path of least resistance. manus: you will come with me that you will come with me on this journey. what is that turning take me to -- where does that journey take me to? marketsis normality and are a bit extra for over exaggeration, where does it go to on a 12 month span? or you want to pick a down to shorter-term, please do. guest: our values are around 130.

the euro is as much a euro story as it is a dollar story. if the dollar continues to weaken, you can see the euro having more strength going forward. there are a lot of things going for it. the most important element is the negative interest rate environment which is not conducive to better economic growth and connectivity. it is negative in the interest margins and we need rates to be out of negative territory for the economy to recover. long and the ecb runs begins tapering in january, and aggressive tapering program, what does that do to bunds? .379, we were up .6, we are up .379. on a tapering program you just suggested and a writ program you just outlined. where does that take me on

bunds? guest: i think moderately higher. the ecb does not want to have a brutal tapering. it will be so gradual. the path in terms of yield will be higher from here. we expect bunds and yields to be higher to be higher in the next 12 months. where will that go? we need to come up with a move. we have the draghi to step, we have the macron. we have the interest spiked. that's what they want to avoid. they don't mind the direction of travel but they want to avoid that spike. would you think the bond markets go as you go through the process? guest: definitely 50-60 basis points higher from here. ultimately, the way the yield goes higher from what matters in terms of market stability and disruption. taper tantrum in the

u.s. and the eurozone as well and this creates more market volatility. it is something banks do not want to see. manus: let's switch our attention back to the u.k. we had this sunday times story that theresa may might be in a position to put forward a 50 billion pound settlement. davis was on the sunday show and his words were nonsense. that this was other nonsense. in terms of what they are talking about. some of my guests have said, this would be the smart move to andally front run europe put it on the table. ahead, spew the march and provoked the system to move forward on october 19? smart move maybe? guest: you could argue smart.

but again, the problem here is that we cannot be in a situation where they agree to disagree. we need an agreement and the clock is ticking. it is the negotiation process between 20 billion court 100 million, the number is probably in between. remember, the eu does not want to change or move away from its freedom principle and the u.k. has to deal with its currency and the risk of imported inflation, which could jeopardize consumer spending. losesides have a lot to and they need to agree at some point. manus: the pound is down for the fourth straight month. this is a calamity for the pound. at what point in eurosterling does it become almost an obligation by the bank of england to do something?

and if so, what? guest: the sort of the subject is that the bank of england cannot do much in terms of attacking its monetary policy. if the u.k. would go into recession. the question becomes, what do you do in inflationary environments? weaker currencies have created poor inflation, which is bad for consumers and the economy. could bee of action for the bank of england to stop raising rates at least to be sounding more hawkish, to stabilize the euro cable exchange rates. manus: i would put it to you that it would stabilize everything, mortgage, consumer. that would be the greatest trichet andke since i interviewed him on friday. guest: that is clearly a risk, remember, doing nothing scenario is essentially creating even more inflation, which would

jeopardize tumor spending and what do you do in that scenario? manus: thankfully i don't have that job or the qualifications for that job. what does it do to eurosterling? the stella -- the selloff in sterling, given everything you said, the quid pro quo in terms of eurosterling, because that's where the move is, not so much cable, because that's the dollar store. guest: economists expect the likely scenario to be a hard exit and the impact would be a negative 50 basis points on gdp in the long run. of ability of that is higher than 50% in our economists' mind. manus: thank you for being with us. what have we got for you coming up on the show? michel barnier's warning on brexit. the price will be paid for grading the block.

this is bloomberg. ♪

♪ welcome back to daybreak, you are looking at a live shot of the border between north korea and south korea. tensions are, to say the least, escalating and donald trump is looking at all options on the table. you have the south korean won in the right hand side of your the dollar up by 7/10 of 1%. rise buteeing tensions moderately contained at this stage. the u.s. talking about a variety of options between the defense minister talking more aggressively. you have donald trump warning about trade relations with a whole variety of nations, anybody doing business with

north korea to be in the front lines of the united states of america. julie kelly is standing by. -- juliette saly is standing by. must put morele choices in shopping search to avoid investigations. they want to rival listings. we have to see the change in the markets. choosers get a chance to other shopping comparison services. toause if you have to go page four in your search results to find a competitor to the google shopping, you are not to be found. it's not going to happen. what we are looking for is changes in the marketplace so we as customers are better served. joseph jimenez will retire as chief executive officer next year, naming a new

successor. the company is in kettering decline in sales for its best product, losing its ground to cheaper copycat drugs. to invest willing more money,: unicredit's presence in eastern europe a growth engine area while the strategic plan doesn't include more disposable acquisitions, they showed a more open approach for the future. he spoke to bloomberg at the forum in juneau be a. andhe credit is growing growth means nothing in a generation and growth means we for to put more capital -- the month, we are happy with what the bank is doing. juliette: that is your bloomberg business flash. manus? manus: the european union's

chief brexit negotiator has warned of extremities series on sequences for leaving the single markets. according to bbc, michel barnier said the u.k. must be educated on the price that will pay for putting the block. -- quitting the block. theresa may is set to approve a 50 billion pound payment to leave the european union. for more on brexit and the ongoing negotiation, helen dickinson joins me now, ceo of the british retail consortium. suggests we need to be educated. educate me in terms of oranges and things. i think that is the top line of our things. tomatoes.oes -- dutch there is risk on both sides. guest: there is indeed.

we were really looking specifically at customs borders and the impact of what frictionless movement really means. what we were highlighting is helping people to understand the sheer volume of movement of goods, over 4 million trucks inquiries a year cross our borders at the eu. secondly, the sheer complexity administrationd that would need to fit behind and administration behind a customs border. while we agree with lots of points in the government's position paper, there are areas where we have not begun to explore. that is why we sit around the investment needed in infrastructure and i.t. and systems and warehouses in order to be able to -- manus: what kind of number is that? one million pounds, 2 billion pounds?

what can the infrastructure could sustain a fiction this movement of product? guest: it comes back to the nature of negotiations. what is not clear yet, we know there will be a form of transitional arrangement. we don't know whether it will have a customs border or not. it could be a lower level of investment or a higher one. the main point we are making is from a longer-term point of view, it seems fairly clear at the moment there will be some form of customs border and that will require some infrastructure that sits behind it. from our point of view, to make sure we get access to the availability of the goods we are taking for granted each day. manus: a message to any minister tuning in, what do you want them to prioritize? you want them to prioritize transition. period? with mentorship as the eu, apropos labor? guest: the number one priority

is to give visibility and certainty for what will happen next week that is the biggest thing i hear from my members. the retailers importing goods into the country and selling them to all of us as shoppers. they are looking to know what the transitional arrangement is going to look like because the sourcing contracts may have with their suppliers, many of them are long-term. many of them are relationships that have existed based on trust and the nature of the type of goods they are buying. making sure they know what will happen as quickly as possible. manus: i have 30 seconds. how confident are your members in negotiating tactics at the moment? guest: i think they are more concerned about knowing how to ensure the continuity of supply of goods into shops and keeping prices low for consumers. it will let negotiators do negotiating.

that's their main concern. manus: thank you for being with us. up next, more on the united states and sanctions globally, potentially. this is bloomberg. ♪

manus: after north korea's nuclear threat, trump threatens to beef up the sanctions. meanwhile mattis promises massive military response if the u.s. and allies are threatened. yen, gold and treasury futures rise. merkel and schulz face-off in their only televised debate. the german chancellor and a chancellor -- and her challenger spar over trump, refugees and turkey. brexit bill debate. david davis mrs. report that dismisses reports that theresa may -- the eu's top negotiator says britain needs to be

educated about the price they will have to pay for leaving. ♪ manus: you are welcome to "daybreak: europe." show.our flagship morning i am manus cranny. equity markets are shaken. they are absorbing the news of this test -- this alleged hydrogen bomb test over the weekend. equities are lower. we have seen this before pierce out to create the text that the korea missile launch -- this is breaking headlines across the number terminal. south korea the text north korea -- the text north korea missile preparation. equities are lower. what are the prospects for a

clean resolution with north korea? this is a question that traders will be asking themselves. the situation in north korea appears to be escalating. pull dollar yen. -- the markets bought dollar yen. let's see how this translates into dollar yen at the bottom of your screen. how the u.s. equity futures look. happy labor day if you're having a late martini or barbecue and a glass of beer. you will need it because this is your futures. .asdaq is up 20% this year trump is threatening economic sanctions and halting trade with any nation doing this is with north korea. u.s.-south korea free-trade agreement is on my mind. , catsarkets are closed

bonds are closed, cash equities are closed, therefore you'll see vicarious trades going through on the features. dollar yen is accelerating in terms of buying yen, selling the dollar south korea says north korea is preparing for an icbm launch. this is a news headlines coming in. let's have a look at the risk arer as these new headlines what the market begins to deal with as we waken up. -- asia-pacific, you are seeing rises saying we are putting more money into cash. they are putting 30% of their money into cash. , and you aren seeing the one go lower and the dollar go higher. south korea is in talks on the deployment of the u.s. carrier news. according to the

there is an escalation happening in terms risk. the dollar yuan citing the most in a month. we will talk about those with my guest. juliette saly is by with the first word news in singapore. juliette: manus, thank you. david davis has dismissed this nonsense reports that theresa may is set to approve paying as much as $50 billion -- 50 billion pounds to leave the european union. the commissioner left open the possibility that brexit talks may fail to move on to trade discussions after october. >> we must start by resolving the issues that are on the table, then we will think about our future relationship. it is no secret that we think we need to have a very strong trade relationship with the u.k. out of the eu but first things

first. juliette: angela merkel faced tough questions on germany's diesel car crisis. in her only televised debate with martin schulz, merkel expressed outrage about auto executives saying they undermined a pillar of germany's economy. u.s. treasury secretary steven mnuchin says congress should combine an initial aid relief with an increase in the us that ceiling saying lawmakers need to put politics aside to make sure the victims of harvey get the help they need. the attempt to link the two measures is an attempt to avoid a standoff. two days after president trump asked congress for $8 billion to help clean up after harvey, the governor of texas says the -- hurricane katrina. greg abbott says the initial request was a down payment and

the number of people affected by harvey and the size of the oraster far outweigh katrina superstorm sandy. trump will be in mexico city later today. desk to limit the incentive to -- trumpexican workers has threatened to quit nafta unless the other two partners agree to a major overhaul. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . of course, following that test the north korea on sunday, yen is very strong across -- against the dollar. also closingarket lower by .4%, even though we have seen a huge rally still

going through in the metals market. steel in shanghai looking very strong today. hong kong coming off its recent run and the kospi also under pressure. seoul the weakest performer today. thewon down .8% against dollar. the koran defense stocks are where the money is going -- the korean defense stocks are where the money is going. stocks link to china tourism all coming under pressure in seoul. foreign outflows coming out of the kospi this month. august could be -- or the next quarter could see a decrease in net foreign outflows but on the upside, a lot of analysts saying this could provide a buying opportunity. one saying it is an opportunity at risk. the test impact on emerging markets will be short-lived.

and korean stocks under a fair amount of pressure today. manus: juliette saly, thank you. just to recap some of the breaking headlines. onth korea -- south korea is -- is in talks on the deployment of u.s. strategic bombers. south korea is saying north korea is possibly preparing intercontinental ballistic missile launch. they have an tell -- they have intel. man. get to yvonne she is on the ground in seoul. these are the very latest headlines. the kospi will show you the markets as we go through. the kospi down 1%. give us a sense of the mood on the ground.

we have an escalation again in terms of our understanding of what might happen next. right. that is the stakes are higher. we talked about those threats coming from north korea, possibly intel from the south korea thatom south they could be doing another missile launch. the north, they tend to like to pick milestone days for these types of events. september 9, that could be a key date. this is john yang foundation day. pyongyang foundation day. observingim jong un -- that was the day they were going to do some kind of test. were caught off guard that we saw this quick nuclear test happen them easily afterwards on the same day, on

sunday. there is an elevated concern of whether or not this is the hydrogen bomb or not it u.s. and south korean officials still try to analyze the details from the detonation. the explosion itself really highlights the sheer impact that it could potentially have if it is loaded on internet -- on intercontinental listing missile. experts say the explosion was big enough to end an american city if you could be loaded on icbm. the magnitude was a 6.3. does go tremors were found as far away as both china. -- from theremors north koreans just a year ago in their last nuclear test on september 2016. very similar at that time that impact from that nuclear test

was the same impact that we saw when the u.s. dropped that nuclear bomb in hiroshima. manus: yvonne, thank you very much. she will be there throughout the program. joining me now is mary pieterse-bloem. thank you so much for joining us this morning. your assessment as you look at markets this morning, i have done the risk radar. it is a classic response. we have the escalating news lines coming through in terms of the preparedness. that they are loading up for a potential icbm launch. talking to clients this morning, give me a sense of the conversations you have had with clients. the bomb was a little more severe judging from the size of the tremor. words were more severe from

trump. now the market is looking at what the action will be following this latest news from north korea which is very disturbing. i understand the market's reaction going slightly more risk-off. the market reaction will be stronger than what we saw in reaction to last week's missile launch over japan. manus: the consequence of that, mary did you work in the fixed income space. you have your choices now -- of that, mary. you work in the fixed income space. you have your choices now. where would you advise protection? where is the best protection? mary: that is true. thanle looking for safety

any of the core government bonds will do. yields's because the there arching the low but you have to look beyond this short-term horizon and still look to see what core government bonds can offer you. yields are just extremely low everywhere. also in europe. if the market reaction is going to be very short-lived which is what i am expecting, then you would have to look beyond this othern and to see what types of bonds can offer you in terms of yields. my favorite take is still corporate bonds. manus: your favorite take is corbyn bonds. i'm receiving now -- is corporate bonds. is theeiving now, this worst headache of all. i mean that in the greatest sense of reality.

that is the worst potential headache for kuroda. he has the situation on a rising currency. he is trying to reflate his economy. now you have jgb is going back into negative territory in terms of yields. this could be the worst coalescing for the boj. mary: the boj, but also i think kuroda can shake hands with mr. draghi on this one because he is very much in the same situation, and of course, europe, the council meeting is coming up already this thursday. both gentlemen are very much in the same position. not a position they would like. manus: not a position they would like at all. in terms of how you look at central banks. they have not stopped buying government bonds. they are still fully locked and

month, $300 billion every . where in the corporate space do you want to go? i wonder, when i see the price of junk and i see emerging-market bonds and i see countries being able to borrow at 6%, i wonder, this is a search for yield too far for me. mary: i can imagine when you have a look at the charts and you see spreads grinding lower, bit by bit. that is just the type of environment we are in. inflation is very low so this is a very good environment for bonds, and also it is those geopolitical senses are not going to escalate. that is the worry of the day. continue.till manus: mary, stay with us. we have a little more to discuss

, the actions of mario draghi coming up on thursday. daybreak. with a quick check on the markets. the are the rising tensions this morning -- there are the rising tensions this morning and the possibility of another icbm movement from north korea. dollar yen, we are seeing more yen, retesting the yen highs of the day. .9%.s up .9% -- gold is up 1360 is where we could get to according to ig. down 1.8%.e kospi north korea is getting difficult. at the same time, donald trump is considering his free trade agreement.

1.14%.he kospi down this is bloomberg. ♪

manus: welcome back to "daybreak: europe." there is an acceleration in the bang of yang dash of yen. to create desk south korea has detected the korea is ready for another launch. hence the reason you're seeing a move on dollar yen. that me show you the board in terms of how europe and the middle east markets are finishing and starting verde. as you look at what the -- starting verde. as you look at the markets, jpmorgan, you've got to make this choice between dollar yen

being a haven and the proximity to north korea. the government bond yields, you are seeing the on market rise and fall just seeing the bond market rise and fall. -- seeing the bond market rise and fall. .2%.ubai market is down by you want to belong kospi volatility in gold spread. juliette saly is tracking all the bloomberg business flash. juliette: the eu's competition --missioner says google must to avoid further investigation. the eu is weighing the company's plan to give equal treatment to rivals. >> we will have to see the change in the markets. that customers get a chance to choose other shopping comparison services because if you have to

go to page four to find a competitor to the google shopping, not going to happen. what we are looking for is changes in the marketplace, so we as customers our first. juliette: novartis says joseph jimenez will retire. the company is attempting to counter declining sales of its best-selling cancer products which is losing ground to cheaper drugs. that is your bloomberg business flash. manus: a quick check in. if you're having a late beer, good luck. this is what you're looking at in terms of the s&p futures, down 3%. the dow jones, down .3%. nasdaq down .1%. cash markets are closed and

futures markets are trading. nasdaq up 20% you today. trading.speaking let's talk about another huge markup and you've got the central bank, mario draghi, could he expressed concern on the euro? that is the question on everybody's mind when he meets with ecb this week. he will not deny -- quantitative easing program. many economists are expecting a gradual process. >> they could phase out of this qe over the next several months. they could stay home hold for another six months and normalize the policy rates. they could do sooner or later depending on economic data. about appreciation of

the euro and they will impact both economic growth, a balance and inflation, therefore eu will have to be cautious how they communicate. pieterse-bloem joins us. mary, we are running up to thursday. is draghi going to jump over the euro? america that is what everyone is looking for. last week on friday -- mary: that is what everyone is looking for. last week, there was an official this is the move should not be exaggerated. how can you exaggerate 50% appreciation? it will be good if mr. draghi does mention the word "euro" and goes into the topic and gives a clue on how they perceive this with respect to the economy, and particularly inflation.

inflation shows a slight uptick which is good. the market is looking for more clues. manus: i wonder, is he boxing himself in -- the survey that we have is saying that he will not touch on qe. if he doesn't pick -- take some chance, do you think he is boxing himself in terms of all of the pressure coming in the december announcement? mary: they will be reluctant to say anything on the qe tapering does that may add fuel -- tapering, because that may add fuel to the fire. they are just not ready to show any details because they are figuring out what the program and the procedure should look like with respect to this program. bunds wire -- why are

ds .36%.- bun mary: the economy is still very high. it is good we are having growth, caninvestors are wondering the central bank really do anything in light of this very low inflation? the market is factoring in indeed that any kind of normalization will be a very slow and gradual process. manus: mary, thank you for being with me. a quick market check for you. equities are lower. money is going into yen, gold. you are seeing the hang seng and the kospi drop. gold is up at a ten-month high.

yenar yen, you are seeing being more aggressive in the past 20 minutes. guy johnson is next. this is bloomberg ♪. -- bloomberg. ♪

guy: welcome to "bloomberg markets: european open." first trade of the cash session coming up shortly. the european equities. the u.s. is closed today. it is a national holiday. i'm guy johnson in london. i'm alongside matt miller who is in berlin. i'm sure he is going to have a great day. nuclear reaction. president trump threatens to cut off trade with china and imposed sanctions after north korea's latest nuclear test. we are going to take you live to china and to