manus: good morning from bloomberg's new european headquarters. i am manus cranny and here are today's top stories. theresa may is set to deliver a new proposal for ireland. jerusalem outcry. donald trump says his decision to recognize the city as longl's capital is overdue. world leaders condemn the move. set to seek control of sky in the battle for fox assets. ♪

manus: warm welcome to "bloomberg daybreak: europe." starting toare just reassert themselves. one market that is reflecting on everything in 2017 is that the oil market. we had the worst drop in two months. 2733.s it right to the edge of technicals. i have the lower bollinger band. wti drops the most in two months. brent crashed the most in four months. before, and ifis history is any protagonist to go by, what happens when we touch on this sequence, we typically rebind. the upper bollinger band is

narrowing. you can cry at me about using relative strength, bank of america says this oil market will make 70 bucks by next year. oil is definitely front and center. we pause for thought. we are reflecting. what donald trump does in israel or says he is going to do is the geopolitics this morning. united states government might close down. this is the show of stabilization and the equity market. he snapped the longest losing streak in two years. has it ended? golden saxman set -- goldman tohs -- you are not going

see this momentum in 2018 as you had in what 17. aussie dollar down boy -- down by 0.25%. that adds to the tough gdp reading. all is not uses in the aussie economy. fusive in the ef aussie economy. can you get the dup, the irish republic, and the london to agree on wording about what a non-border looks like? the pound, this is the irony to end all ironies, you might have thought it would be debilitating currency. list ofd is topping the this year's by recommendations for 2018. the sleeping volcanoes could be

in different form. four-month toy get you through trade ramifications. do you get a deal in terms of island, a transition deal. they recommend buying at 138 and selling at 141. this is one of their preferred trades. those are your markets. juliette saly has first word news. juliette: ahead of the uk's main business lobby says uncertainty --ut brexit is affecting there is no time to waste and rome is burning. eu citizens will leave companies and shift jobs. investment will move abroad unless the government offers a clear plan. the man responsible for taking britain out of the eu --

pres. trump: israel is a sovereign nation with a right like every other sovereign nation to determine its own capital. acknowledging this as a fact is a necessary condition for achieving peace. that was u.s. president donald trump talking about how they have named jerusalem that was u.s. president donald -- take ak is expected to non-cash charge of about $20 billion. dollars -- in southern california wildfires have shut a major commuter artery, suspended coming, and wiped out $3 billion of market.

they are threatening some of the states lucrative crops. 405 was shot as flames engulfed nearby mountainsides. parts of upscale l.a. were evacuated. global news powered by 2700 journalists and analysts in more than 120 countries. stories ond more bloomberg top . a much better day here in asia. nikkei coming back by 1.5% helped out a little by the yen weakness. despite the miss on the trade --a in australia, the imf has been warning the chinese banks need more capital.

seeing some weakness coming through in development stocks in hong kong. this is one sector that has rallied so far in 2017. jeffrey's the tech selloff is starting to rebalance. manus: juliette saly, thank you. u.k. prime minister theresa may is expected to submit another proposal over the post brexit irish question. her irish counterpart told quote,rs yesterday that, having consulted with people in london, she wants to come back to us with some more text. may topped out yesterday.

may,elegraph says theresa the government may fall without a deal. you have other newspapers talking about the difficulties that this administration are having. let's bring in alberto. the irish are causing theresa may untold problems. the guardian says there are 48 hours to agree. there areaph says fears that theresa may's government may collapse. how do you read the tea leaves? we think the market is not prepared for this scenario. after brexit comes potentially a new prime minister or a new elections. in's mean probability of a labor win.

elections mean there is a probability of a labor win. at the moment the market is pricing a relatively low tail risk. we need to keep in mind that settling the divorce bill is the easiest thing to do. the issue is how do you square up the freedom of movement for people and at the same time, as prime minister, you need to keep happy the right wing part of your party. so far, theresa may has been trying to do that, but it is a very difficult operation. manus: she is trying to keep all factions happy. the markets are not prepared for this potential outcome.

there is also a warning shot from a number of institutions talking about the decline in sterling, and what impact that might have on inflation. you talk about game theory in terms of labor coming to power. next year could be the year of inflation. lower sterling could inject more -- a government change could affect more inflation. we talked about for a ?ong time, where is inflation we have been waiting for the return of inflation after nine years of qe. ,his year we have been thinking can inflation come back because interest rates and employment are low? or can inflation come back because of the school stimulus?

it inflation does not come back, there is another driver that is politics. that is where i say the market is not prepared for risk. if you have high any, you have withthrough a decade of qe young people not benefiting from the recovery, at some point people will ask for a solution, and this can be inflationary. if you have the labor government where you have a depreciation, higher benefits, perhaps universal income, this is the force that rebalances incomes and wealth and creates inflation. is that an extreme

scenario, or becoming a more such a scenario? in which case what would that do to gilt yields? it is a tale scenario. if you had elections today, you can see in the polls the share of labor is increasing about 50% in some polls. the scenario is becoming a little less of a tale. gilts could start -- could start trading as a credit instrument. debt to an increasing gdp. is it the right thing for the country to rebalance income and wealth? it is, but it will cause a market shock. this country and others have ignored this rebalancing. we have built up any qualities,

we believe in the trickle down effect, it has not worked. we are headed for a rebalancing. bond markets have not priced that in. manus: it is a tale risk and we have not priced that in. up, trump has been criticized for his controversial move. to recognized jerusalem as the capital of israel. we get the reaction from the middle east. plus, the battle for sky. we discussed the bid. this is bloomberg. ♪

♪ live shots of jerusalem

this morning. this is "bloomberg daybreak: europe." of the united states has officially referred to jerusalem, the ambition is to move the embassy from tel aviv to jerusalem. encouraging all protagonists and participants to join him in the road to peace. he said he believes in a two state solution for the israeli-palestinian conflict. he was not making comments about borders or divisions. this is what you should be watching for your trading day. social democratic party is starting their convention where they will --ide zimbabwe's finance minister is discussing the budget. they are due to hold a news conference.

that will be a 4:00 p.m. today. juliette saly is standing by. is interestedast in taking full control of sky. part of the reason it is a filmly working to acquire and tv assets from 21st century fox. that despite competition from rival disney. the world's biggest banks may lose as much as it can percent a result ofenue as new rules that take effect next month. total revenue from corporate and investment banking across europe and africa may slide 2.6%. the coalition all says -- also

fall 2.4% andill 1.7% respectively under the rules. bitcoin has smashed through $14,000. the head of bitcoin exchange says the crypto renzi is probably about -- hebdo currency -- that is your bloomberg business flash. juliette, thank you. world leaders have condemned president trump's decision to recognize jerusalem as israel's capital. they're concerned the move could trigger violence. for more let's go to the middle east. andrew barton joins us from dubai. joins us fromen

dubai. you have the whole world reacting to this. andrew: you have the palestinians with the chief negotiator saying the announcement disqualifies the u.s. as a peace negotiator. you had may, who is close to trump, saying it was very unhelpful. it was across the board. isolated once again himself as we have seen on the past in climate issues. the last attempts to get them to back down did not work. now we look to see what will play out in the following days. we have three days of protest that have been called for by the palestinians. we saw a little violence last night, but not much. more broadly, and how the rest of the world comes to terms with this, and what it might mean for

peace efforts. does it mean for the peace effort? i was watching newsreels here based in london that this is kicking a box by trump. he promised to do this. there is no shock. why has he done it now? palestinianigger israeli agenda at play? is the bigt question. why now? what does he get out of it now? it is not clear what the long-term policy objective is. yesterday we were given a heads up. we knew the announcement was coming. what we did not know was what is the master plan? why are you doing this now and how does it fit in? that was not touched on yesterday. we are in the dark. we are hearing from white house officials that the peace efforts

that kushner had been involved in, he has been shuttling act and forth, he met many times with saudi arabia's crown prince. it brings more questions, why is trump doing this? is it some sort of pre-negotiation he has done to give this to israel? it does not look like that will take place. we may have to wait a few weeks and see what comes from this. alberto gallo with algebris investments is still with us. without getting into the weeds in this with palestine, as you said, markets are coming to an end of rational complacency. this is about global policy uncertainty index. it has dissipated slightly.

if we underpriced our tale risk in brexit, our markets under pricing potential geopolitics risk in 2018? alberto: i would say markets are numb. we have been under the effect of the qe aesthetic for the last nine years. the flow of assets from the central banks is going to fall into negative territory. qe will gradually fade. need to walk again without holding the hand of central banks. some say this is irrational exuberance. if you look at real world volatility, the volatility of earnings and the default cycle, especially in the u.s. credit market, the volatility of geopolitical risk, all of these are pointing to a world which is not highly predictable where you

have, especially in geopolitics, the hotspots. there is increasing uncertainty in the world. without the order based on the policing the world as we had before. we think that this awakening of the patient could be abrupt. the goldilocks that most predicted will continue next year could be broken. geopolitical risk is one of the factors. you have also inflation. and a new successor for the ecb next year. a new fed board later in the year. and the new bank of england governor. quote youove the using your article.

crisis takes much longer time coming the -- then you think, and when they are happening there faster than you thought. how do you want to position yourself? people are saying the bond market could get to 3% next year. yourselfd you position with these idiosyncratic risks? alberto: there are a few things you have to keep in mind. the easiest thing to do is be in portfolio. when volatility comes back, having a lot of hedges and moving parts is difficult. sometimes the hedges don't work. shorter duration. there are simpler places to hide, and bond markets in europe.

corporate's have not done anything crazy with leverage. and the ecb supporting of the markets. if you think of some countries greece, they are on the mend. if interest rates rise, they make more money. they don't offer as much cushion as before. there are places you do not want to be which are the potential bubbles. everything depends on low interest rates staying low. it can about tech. some emerging markets had issued 100 eurobonds. into as ahave blocked life raft. things like art collectibles, cryptocurrencies, are vulnerable to a change in the interest rate environment. manus: i will get to bitcoin

with you before the end of the show. alberto gallo is with algebris investments. angela merkel has a political job on her hands. coming up. this is bloomberg. ♪

♪ the emperor's palace. it is after 3:30. by a quartern off of 1%. let's get to the markets and see what is going on. nejra: you can see that turnaround in asian equities rebounding from eight days of losses, the longest losing streak in two years. australia higher.

the nikkei rebounding from its worst day and nine months, closing by 1.5%. at theake a look emerging-market equities. they have seen a 28% rally in 2017. 1.5% on msci on markets. it is testing its 100 day moving average. that tends to be a bearish signal. the rotation out of tech stocks make it a big part of the index. the aussie dollar is showing weakness for a second day. yesterday we saw it drop on the gdp data. it is dropping on a worse than expected trade balance data. the bloomberg dollar index hitting a two-week high.

generally we see more risk on sentiment. testing its 55 moving day average. it has gained every day this week so far. not the politics in germany. social democrats are holding their convention in berlin hurt. -- in berlin. they also expected to vote. alberto gallo with algebris investments is here with me. 30% favor a grand coalition. 56 favor, not -- it is not stacking up well for the grand coalition, is it? alberto: fortunately, it does

not matter. politics is not the driver. europe is changing. we have a political crisis in germany. sweden qualified for the world cup instead of italy. europe is changing. we have a political crisis in italy is growing faster than the u.k.. have a lot of different moving parts. what we do not want to worry the german situation. it is not a big political crisis. if there is a grand coalition it is better for european -- even a minority government is better ,han a coalition with the fdp which was more isolationist in economic views. the grand coalition is the best pro-europe scenario in terms of capital markets.

a minority government could also be ok, given how strong the economy is doing. chart, whichgot a , the euro area investment, it is in a decent trajectory. the momentum is there. what does that do to the euro? ago, everyoneear thought the eurozone would break up. there were discussions about how, not about if. --ay we are looking at where how europe is growing. consensusom a breakup to after the macron elections in france, europe is not breaking

up. we have a macron merkel alliance. the recovery is spreading to the countries which were not growing , like italy or greece. capacityeing signs of the liberalup by market. we are seeing signs of overheating in the economy. the problem of banks is going down. banks are selling their bad lend to households and small businesses which create jobs. there is a healthy process in place, and we are looking for more momentum next year. manus: are you joining the , and we will see a market?g of the bund

do you believe we will see more aggressive ecb next year, and therefore higher yields? alberto: the ecb is trying to give time to the economy to heal as much as possible, particularly given that unemployment in some parts of europe is still very high. the president and vice president want this recovery to take a bit more momentum before taking the foot off of the accelerator. we will get some sort of wage pressure. we are seeing signs of firms that make people work overtime starting to hire new people. year, wee end of next will start may be a faster normalization. we also start to think who comes next after president draghi.

that is a change from the central bank, and you will potentially see a higher euro and higher bund yields. i think they will keep a lid on this for the next few months. a cracking newt function, the whisper function. you can give me your call on .ooms -- bunds euroto: let's do the dollar. manus: you're picking an easy one. have you put your whisper in? alberto: i think it is going to be higher than that. 124. manus: that is not a huge movement.

given the growth story that you laid out for me, recovery in italy. alberto: we should be there. .6 or .7 in bund. we should have been there already. long-term yield depends on the central banks changing tack as well. manus: this is part of your thesis. we are entering into the foothills of a re-rating of central banks. is that a fair take on the piece that you have written? alberto: this is one of the risks. central banks have bought $23 billion in assets over the last nine years. if they do not stop we will not have dry powder to deal with another crisis. i'm worried about central bankers not being wise enough or strong enough to withdraw

and assets going on a parabolic rise, which we are seeing now in some areas. ,hen you have a parabolic rise when people buy things out of fear of missing out rather than -- it has an impact when the bubble bursts. that is the bigger risk we have. as result of another slowdown in a few years from now, if central thenrs do not have powder you have populace. i hope central banks will get tougher next year. bitcoin, $14,449. that is parabolic. you are worried about that. it is an asset based on faith but it is an alternative

to anything you can find in normal currencies. liferaft inhis as a the ocean of central bank liquidity. environment,est the qe bubble is closing this. but it could change. if central banks raise interest rates you make one to put your money in something that gives you a yield. alberto gallo with algebris investments. you can watch more of alberto and myself. you got the video and the charts and all the functions. the ask the guest a question. big corporate story, comcast is interested in seeking full control of the u.k. tv giant skype.

despite tough competition from rival disney. it is partly why the company is pursuing the deal to acquire film and television from -- film and television assets from 20 century fox. -- 21st -- forget, and they say sky brand. this guy a tally up. -- it is obviously expanding dramatically into a global company. the logic is bigger is better. rupert murdoch's vision up until now, where he is back his empire after building for decades. you look at something like 26 million subscribers. that doubles comcast's

subscriber base. you've got the technology. sky, according to comcast, has the best technology going for the interface and that has become crucial now that cable companies are creating with the likes of netflix which give users a more on-demand option. those kinds of formats and platforms that skype does have, and that comcast has are very .ttractive the aspecte is also of of how sky, the murdoch deal, will want to do a whether it is comcast or disney. there is less of a regulatory

hurdle with one than the other. >> that is what everybody is telling us. that disney would have a better shot there. there has been some regulatory headwinds. in the u.s. you have the trump administration coming out against the at&t time warner combination. ,his would be similar to that combining a supplier of tv content with the distributor of tv content. it is a powerful package. antitruste time regulation is deal by deal, case-by-case, i do not think they would be discussing this. the parties involved are big dealmakers. they would not be discussing this if it was a dead letter in terms of regulatory openings. advantage,a slight that is no reason to count comcast out.

manus: let's see who wins that trophy. coming up, prime minister theresa may will present another proposal for post-brexit irish border. trumps jerusalem decision, we will get reaction live from the middle east. this is bloomberg. ♪

♪ york as the new world wakes up to a couple different issues. futures, who said they are worried about technology stocks. overseem to have gotten

the hustle in the markets for now. let's get the business flash from juliette saly. comcast is interested in taking full control of sky. a dealigorously pursuing to acquire film and tv assets from 21st century fox. despite competition from rival disney. according to a person familiar with the mattie, skies technology is seen as superior to other providers in europe. the world's biggest banks may lose as much as 50% of their revenue from trading stocks as a result of new rules that take effect next month. -- may lose as much as 15% of their revenue. the coalition also says fixed income trading in banking which accounts for the vast majority

of revenue will fall 4.2 and 1.7% respectively under the rules. forher day, another record bitcoin. it has smashed through $14,000. ahead of bitcoin exchange has told bloomberg that the cryptocurrency is probably a bubble but will still rise over the long term. that is your bloomberg business flash. thank you very much. i'm going to ask her for christmas i want to bitcoin. you know it is over when i ask for something like that. >> chinese authorities are

taking a number of steps. just to back up a little bit, we our report. meetings we held with them. they are in agreement with us on the assessment of risk. not only that, they have taken many steps consistent with our recommendations. i think they are moving in the right direction. they are mitigating them. three steps they have taken recently, they have set up what they call a financial allotment which will focus on assisting and monitoring risks, and making

recommendations across all sectors. that is number one. they have a draft regulationying across investment products whether they are issued in the insurance sector or by banks. it reduces regulatory arbitrage. number three, they have strengthened the oversight of the online nonbanking micro-lending. the people's bank of china will refrain from raising --es even if the fed decides

that, talking about leverage, the deleveraging story, does it impact your world or are we talking about it too much? >> it definitely impacts my world. .e have seen the rhetoric move concerns about what that means. that, china is making inroads. manus: you have extolled the we've got one belt, one road, but we also have the deleveraging program. his 2018 -- >> we are thinking about

deleveraging the wrong way. one belt, one road is a mechanism that china will deleverage. they will funnel capital from the right places. they will fund a lot of their him -- infrastructure projects. that sounds like a more efficient use of capital. the rallying call for state owned enterprises. in the short-term we are more concerned about financials than we have been recently. that flattening yield curve in china at the moment. we are looking at the size and growth of these financing vehicles. these have been the main funding vehicles for projects in china. do you think you'll get

the reserve requirement in q1? and have you want to position for that? >> it is a tight balancing act for china. , our eyes arened keen on china. a have the highest amount of cash. they will support their export driven economy. utilize those cash balances in a more efficient manner. they try to get their cash better allocated. --r the long-term some trouble .8% of

china's that was at risk, trading in indonesia and india as the emerging key markets. this is according to the imf. we talk about the contagion effect. let's talk about tech. , thisn the united states tech bashing, what is the ramification, the contagion -- there two things at play. the market is desperate for correction. it has been a low -- the largest correction we have seen in stocks are those that have gained the most over the year. cases lead many markets higher over the year.

we have been looking at a lot of tech stocks, and despite morgan stanley's downgrade, it still looks robust. potentially the risk, and the ,hinese are concerned about chinese economy is dependent on tech. liquiditye ramifications as a whole. as the chinese government tries to reduce liquidity, attack correction means they are more cautious. coming up. in the ongoing brexit saga. u.k. prime minister refuses to give up as she prepares another proposal for ireland.

we will discuss whether she can .ring the dup this is bloomberg. ♪

manus: good morning from bloomberg's new european headquarters in the city of london. i am manus cranny. this is bloomberg daybreak: europe and easier top stories. trying again. theresa may delivering a new exit proposal for ireland today. this as we head toward the eu summit. jerusalem outcry. donald trump said his decision to recognize the city as israel's capital is long overdue but the world leaders condemn the move. expanding the network. comcast is said to seek full control of sky in a battle for fox.

a warm welcome. it has gone 7:00 a.m. in the city of london. breaking news for you. german industrial output declined by 1.4%. the estimate for was -- was a rise of .9 of 1%. gallo talking about the work of germany, does it matter whether she puts a coalition together? industrialized output dropped by 1.4%. the market tensile then again of .9 of 1%. this is for the second month in a row and the reason why you might see a bit of reaction. we will run the euro-dollar for you my euro-dollar, euro-yen and the markets. that see how the euro is reacting. production shrinks for a second month. output down and activity was dampened by calendar affect. the euro-dollar virtually

unchanged, the report comes unexpectedly rising for the third month in a row. vacation days that workers took holidays inblic october contribute considerably to this decline in output according to the ministry. favorable orders above all, more optimistic business expectations will signal a continuation of good industrial momentum. it was a holiday. you are not allowed holidays. let's talk about the markets. we have a reset in terms of our thinking. we are looking at equity markets, they are causing for thought in the first instance. london snakes in nine points on the upside. you are seeing a reassessment of the geopolitics in the u.s. and onir view into lucy room -- jerusalem. the markets are underpricing risk. underpricing tail risk in the u.k. of the labour government.

the u.k. markets are underpricing. sterling, gilts, and equities. dekes futures are up as you can see. it is the holiday leave that seems to have maligned the data for this morning. you're looking at the paris market of five 7.5 pips. -- could sees are a share of gains in emerging markets. it is not going to be like this year. clothing --arkets a according to goldman sachs. the pound in there and the aussie dollar and i have the msci asia-pacific. this is the abatement of the mini- ride. we go from records to talking about the longest losing streak in two years, it was a many selloff. that is what it was. put it in context. andalted and a day selloff it is beginning to turn. the markets were desperate for

an excuse to come a little bit lower according to alberto golomb -- gallo. this time, down for a second day. the short-term funds and surplus shrinking to $105 million and then cable. theresa may has got to come up with a solution for the dup to get them on site. they prop up the. we will talk more about this. a little bit more detail which is about what are the risks that theresa may faces and is the pound priced correctly? this is on your list. topics go. this is the trade of their mother does with them market is saying. you get an upside, the u.k. could achieve a transitional array of -- arrangement. the alphabet again sterling. i like this other trade that is coming through which is to suggest buying four-month cable,

dollar sterling. strike.the higher let's talk about the bond markets. this is where you could see a re-rating of the markets. u.s. treasury futures down by 930 seconds. bond traders homing in on the inflation mistry is the key to winning 18 -- 20 18. goldman says you will see 10-year gilts -- 10 year notes. morgan stanley say you will have a flat yield curve. in paris andpips down by 10 on the bunds. the view seems to be you have a strong europe and a potentially theating and the market and o.a.t.'s. those are your market setting you up for thursday morning. juliette saly takes us around the world with the global news. juliette: u.s. president donald

decision to recognize jerusalem as israel's capital has prompted condemnation from global leaders and protests in the middle east. the move concerns -- ignite concerns that it could ignite violence. it is time to officially recognize jerusalem as the capital of israel and the u.s. would start the process of moving its embassy to the city. >> israel is a sovereign nation with the right like every other sovereign nation to determine its own capital. isnowledging this is a fact a necessary condition for achieving this. juliette: citigroup has become the latest u.s. bank to say it will take ahead if the senate's version of the tax reform bill is enacted. the cfo said he expects the bank to take a non-cash charge to earnings of about $20 billion. that would be mostly from writing down its deferred tax

assets in the time the bill is signed. 3 billion or 4 billion would come from the taxation of unlimited foreign earnings. in south carolina, wildfires have shut a major meter -- commuter artery. and threatening some of the states a lucrative crops. stretches of interstate 405 which feeds major l.a. job centers has shot as flames engulfed hillsides. parts of upscale biller were evacuated. air were evacuated. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. you can find more on bloomberg at top . -- we have seen a comeback in equity markets. japan closed out the session up by 1.5%.

still the selloff in these large cap stocks in china that have performed well over the course of 2017. australia coming higher by .501% despite the miss on the trade data. in terms of stocks a call from the imf that china banks need more capital after the credit boom, particularly the smaller shanghai.n and a rebound in tech players have [indiscernible] and an interesting story falling the most on record in korea. after the bank and a major credit set to release its borders and it could lead to the suspension of that stock. you.: thank juliette saly with the latest on the markets. let me bring you this breaking news. to 3.9 billion pounds. holdings say it equates total 33.1 billionof

pounds. it is -- 3.9 billion pounds. gvc would have 53.5%. a nonbinding proposal. they will go into more detailed talks on the possible combination of the two companies. heating up in terms of putting the companies together on the u.k. high street. nearly 4 billion pound deal. more on that story. the sure we will see what calls are on those stocks as we get them. let's talk about the u.k. per minister. she will try and do a deal and try to deliver value. expected to submit another proposal over the post-brexit irish border. union -- -- before the you and summit. before next week's summit.

she wants to come back with some more text. it is all about the details. the u.k. papers, the daybreak story is very much heavily featuring theresa may. she is on the front page. let me just show you. the front pages of the telegraph, a number of different papers are talking about the risks. there is the daily telegraph. they are saying that she could be without a government. the government could fall without a deal. these are the risks. also talking about other risks in terms of basically the myth -- mess that it is. and talking about a clueless position referring to the brexit secretary and those papers which seem to be hard to find at the moment in terms of the -- assessing the brexit impact.

apparently they do not exist. our guest oversees 280 $9 billion of assets under management. welcome to the show. clueless, the government could fall, are we assessing the tail risks with sufficient focus in this country? are we looking at the tail risks week could have a government int falls and potentially the extreme scenario, we go to the polls and labor are ahead and could in theory exceed. >> the general view is the market looks at the expected a sense of complacency, forecasting what could be the case. in looking at the tail it could be dire. bestan identify what the hedges are. sterling, ik at

have everybody in this week, ing saying that we are underestimating the value of the transition. that is a rather optimistic view that we get to an agreement and get onto a transition deal. you could get to a book 40. , smolderingx volcanoes, sterling is one of them and it could turn to the upside. do you want to position for that binary outcome? like sterling. it could go into the one 40's so it could be a buying opportunity. thatews flow is dire and could create volatility but when the dire news is out there, look at the paper. could it get any worse question mark potentially but that is a low point. here's the plan to link into sterling at this level at 133. made one 40's and the purchasing parity basis is good for sterling. get in now and look for holding and see if it is a good trade. the volatility is there. it could weaken from here.

this is a decent time to leg in. manus: we like the idea of having the hedge, it is tough. if i am showing the front pages evene telegraph, the sun have it yesterday evening. if i am talking about that and we are almost mainstream with it now, what are the hedges, what is my protection opportunity? >> a bit of cash. keep your powder dry for with the market valuations are. markets are expensive as you look at the valuations in the u.s. come a you look at where it is in the u.k. some of the risks relating to the fundamentals are large. if those fundamentals were to get worse investors will look at those valuations and say that is quite expensive. looking at keeping your powder dry, keeping some cash makes sense. other areas leaving interest-rate exposure also can make sense for a hedge. manus: the gilt market to a certain extent is tethered to

the vicissitudes of brexit. when you look at the on markets -- galloment, are we suggested the bond markets should prepare themselves for perhaps a more tighter or tighter or more aggressive move from central banks. when you look at the bank of england, or you agree that there could be a more aggressive tightening next year as the markets seem to think last week? we are pricing the change but does that come to bear on your thinking? >> we do. the potential for gilts could go higher as well as u.s. treasuries. the key to watch out for is inflation. unemployed and has grind it down lower my very strong for the economy. to aunappointed comes lower level, that is when inflation is likely to pop. wage inflation popping in the u.s. unlikely to lead toward higher rates in the u.k. as

well. as well as higher inflation coming through in the u.k. be somewhat defensive in terms of underweight duration could make sense. manus: we will get more into the u.s. equity markets shortly. withd fitzpatrick stays the daybreak team. the battle for sky. comcast is seeking for ownership of the british company's fight competition from disney. we will discuss that next and the royal bank of scotland joins us for an exclusive interview at 10:00 a.m. u.k. time. ♪

manus: live shot of berlin and the brandenburg gate. you have angela merkel gathering political collateral. will martin schulz lead the spd? we had german data this morning

. the market said we are not bothered. leave all with holiday and they are more interested in the engine of european growth which is germany. and france. let's give you a quick flash of the markets. you have your euro stocks -- eurostoxx futures. goldman sachs are saying markets will have a good year. not just may be as good a year as you had this year but still there's a potential for outperformance. 10 year yields, 2.34%. how do you look at the u.s. curve, will it continue to flatten? they want to be short tenure .aper s&p futures are up. it seems to be the markets have paused from the many selloff we have seen. let's talk about comcast.

seeking full control of uk tv giant sky. despite competition from walt disney. isis partly why the company vigorously pursuing a deal to acquire the film and tv assets from my first century fox. from 21st century fox. has written ceo beautifully. he is a man that likes to win but it is the technology wants to hit his hands on within the sky house. guest: it certainly is. the emerging battle for viewers in the tv world, technology is proving to be key. you have more and more viewers who are wedded to the idea of viewing on-demand so you need at technological platform that re-creates that experience even as a cable provider. this is one thing that sky has

managed to do. they have a platform that allows users that have a dvr aspect so they can record shows. view on-demand a experience. this is what comcast has so there is logic for that combination. they like that spot that allows them to bring in other providers as well. it becomes a platform that offers the user a lot of flexibility to go beyond the basic cable experience which more and more users are cutting the cord on. in an environment with -- where there competing with fast-growing companies like amazon, netflix, for the viewer experience, that kind of technology-based can be valuable. ares: regulatory issues always a perennial issue. do you think it will be disney as the better suitor versus comcast -- comcast? when it comes to the regulatory hurdle? disney it manages

they are not big in the distribution business and the u.s. justice department is signaling with its opposition of the at&t time warner deal that it does not like the idea of district readers combining with suppliers. that does push the price of programming up my something that is inevitable in today's market. there are signals that could be opposed. these are big players. what we are talking about is all three major empires that have grown from acquisitions. they will, any combination of these will change the market. there is down to be regulatory challenges. just yesterday the u.k. antitrust regulator said it was going to delay its initial report on the sky purchase. the fox purchase of sky is still yet to achieve regulatory approval so we know there is some opposition to these major media combinations because they do affect competition within the industry. each one of them has their own

disadvantages. also these regulatory hurdles are part of the reasons assets are for sale in the first place. we cannot expect to hear more and hear the logic. here's a guy who is a consummate dealmaker. all of these guys really are. if they are taking a serious look, that is a sign that they have looked at the regulatory hurdles and they see them as surmountable. the question is getting it across the line to pending on the suitor that they choose. on set is gerard fitzpatrick. they $289 billion worth of assets to manage. someoneat the melee, take a look at m&a go. we have $5 trillion worth of deals, we are up 11.7%. -- globally.

north america is not where we are seeing the most m&a. it is in the european context for you and where you are seeing most of it. a hallmark ofo be 2018 or is it going to be more if called as funding cost rise? gerard: i believe so. if you look at valuations and room on the balance sheet there is opportunity to leverage of balance sheets and look at valuations being relatively cheap and to fire up the m&a activity. we have seen the play out in the u.s.. contrast to where we are in europe. expensive are so there is still a bit of room on the balance sheet. activity.e more expect that m&a activity to come down as we look to were more recession risks. manus: the other question, we were looking at stock buybacks among the s&p 500 companies. there is every patch rish and of

the dollars, what is going to happen and this year we have seen is the s&p 500 companies that are on track for the first year. they will be down for the first time in a non-recession year. expect,would you repatriation of dollars, as it dollar bill, stock buybacks, we go on? gerard: companies have leveraged of quite a high amount already. i do not see as much of that going forward. relating to where the opportunities were. the balance sheets are full and valuations are expensive. cfos are reining in anticipation recession risk rising. manus: you come from the bond world. where natural question is

do you stand? morgan stanley said you will get a curve flatten or going on in 22018. are you concerned about inflation and 2018? what is it that will drive want markets, inflation or a more aggressive fed? >> it is more inflation. inflation and the fed area unemployment rate coming down lower, inflation will rise and that will put pressure on the bond market. we see the u.s. 10 year rising up 2.7 in a years time and we see a flattening bias. the curve is likely to rise as the fed tries to catch up. three next year. we started to see the curve flatten. thatis typically a sign recession's coming. as the curve flatten and inverts that would be a recession sign ahead. manus: good to have you with us. we will see how the fed plays out in 2018.

that is it for daybreak europe. the market open is next. we will keep an eye on how the deal plays out. that is next. retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. guy: welcome to bloomberg markets. this is the european open. this is guy johnson alongside matt miller over in berlin. we will start cash trading and european equities 30 minutes away. the bitcoin boom. setting another record topping $14,000 by rising more than 20% over the last 24 hours. how long will the meteoric rise continue? if a