>> good morning. i am anna edwards. >> and i am manus cranny. these are today's top stories. buckle.obal equities the biggest selloff for global stocks in two years. volatility bite back across assets. manus: divisions over brexit f deepen. merkel allows more time for coalition talks. anna: broadcom boost its bid. tois said to raise its offer $120 billion, which would make it the largest tech deal ever.

welcome back, everybody. this is "bloomberg daybreak: europe." welcome back to another trading week. we have a quick look -- numbers through from ryanair. 750 million euro share buyback in february. third-quarter revenue comes in exactly in line with the estimates at 1.4 billion euros. traffic up by 8%. at 129ve seen it million. nothing enormously substantial. this is interesting. some of this coming through in the numbers from ryanair.

fourth quarter fares will be up due to easter. the profits jumped into off percent, and they still see 2018 net profit at 1.4 5 billion euros. those are the headlines coming through. a lot of questions to ask in terms of employment cost. they finally recognize unions at ryanair. little bit about that this morning. and how do they relate to the strong numbers we saw out of recently? we put all of that to the cfo of ryanair. let's do a quick word on where we are in global markets. this is the big picture. the biggest selloff in global stocks in two years, and it continues in the asian session. msci asia down by 1.4%. what are the clues as to whether this carries on into the u.s. session later? the s&p posted its biggest loss.

that is fairly substantial, but it has been down more than that. .9% on u.s. by futures. one of the most interesting things for me this morning was rediscovering european stocks erased all of their gains. just what is this, what is going on here? is this an overdue healthy correction? keeping track of course of the we. 10 year yield is where are at this stage, because this is -- the relationship between bond markets and equity markets has been crucial to where we are on this global equities story. manus: even janet yellen talking about that. these markets were in public territory, but she had warnings about stocks and buying commercial property. breaking news. top life flow on samsung. up y'all of j wiley is

critical in terms of the length of jail term he is given. a couple of lines coming through. the court does not accept there was a succession issue for solicitation. there was no bribery in support them. smaller lines coming through. not guilty of hiding assets overseas. and the money sent is not actually hiding assets overseas. we will wait to see what they have the say about the duration of any incarceration. keep an eye on top live , following the verdict as we speak. terms ofthe stage in the global equity market continuation of what had happened. volatility is the key. the vix moves by 34%. volatility is coming back.

the biggest weekly jumps and august of last year. 3192 is a chart on this. all 11 sectors of the s&p 500 declined, so what actually happened next? when you have a week like this than vol rises by more 20%, two thirds of the time, in the following week, use your drop on average by 14%. that is not playing out in the first instance. buckling. where are the buyers of the divs so far? and i what point do you continue to see the fed? willu fear the fed is -- they do more than three rate hikes? the issue for the market is very clear. at what point does the treasury market unwinding mean you want to get back into bonds and safety? that is a discussion. sophie kamaruddin joins us today from hong kong with your first word news. sophie: thank you, manus. prices aren has said

elevated but stopped short of saying markets are in a bubble. she made the comment to cbs's sunday morning tv show, in an interview recorded on friday, as she prepares to leave the central bank. price-earnings ratios are near the high-end of their historical ranges. if you look at commercial real estate, prices are quite high relative to risk. now, is that a bubble or is it too high? it's very hard to tell, but it is a source of some concern that asset valuations are so high. sophie: in the u.k., the hard choices of brexit have tipped theresa may's party into open warfare, and it is not clear the prime minister will survive the crossfire. mp has emerged as arrival.

exchequer,lor of the philip hammond, with a modest separation, of you that has brexit backers calling for his head. angela is allowing extra time for talks on renewing a government alliance with the social democrats, suggesting a deal is within reach. and went,ate came extending the country's longest political stalemate since world war ii. fourth termer hanging in the balance. north korea is sending its highest ranking official in years to the south later this week for the opening of the winter olympics. the delegation will be led by p the head of state. moon jae-in is considering holding a one-on-one meeting with kim. -- beating the new england patriots, 41-33.

an extraordinary encounter in minneapolis. folesn his -- nick produced a strong game joy global news, 24 hours a day, powered by more than 120 countries. you can find more stories on the bloomberg at top . checking in on the market action a backseat of amid concerns about rising bond yields. some strategist opined this might be the time for a behind the dip opportunity. tech weighing heavily. tencent dragging the most in asia and sending the hang seng to a third day of losses. while global funds are headed to the exit in hong kong, they have topped $1 billion today. are losing ground,

we are seeing shares in shanghai swing. let higher by financials and resource stocks. it is providing the biggest boost in shanghai. that stock is planning to a record on the shanghai comp. in tokyo, honda escaping that stock route thanks to its profit outlook. honda is one of 10 stocks rising on the nikkei 225. in hong kong, that is extending gains. resuming the advance. allure toding some the stock. anna. manus. anna: thank you very much. let's go back to our big story this morning. witharted with u.s. bonds asian equities within the red.

futures pointing downward. futures pointing downward. the cio of global equities, good morning to you. correction?althy does this make you feel more comfortable or less? >> more comfortable. at this stage, quite concerning just the way markets keep going up. the length of the bull market without any correction at all was really quite unusual, and so, to have some correction is healthy. the reason for it is one in which we had been looking for it as well, so any pickup in inflation, which we have begun to see, producing the wages. it is all logical. and the bond yields rising, that is going into equities. it's all perfectly textbook stuff. it does not concern me at the moment. i think it's something we should be looking at. manus: one lady who has got a

bit of relief on her shoulders is janet yellen. it was her last interview. she showed commercial real estate could be on the high side. chair yellen: i want to say high. highs earnings are near the high-end of their historical ranges. if you look at commercial real estate, prices there are quite high relative to rent. now, is that a bubble or is it too high? it's very hard to tell, but it is a source of some concern that asset valuations are so high. naturally. she's the central bank. she's not going to call a bubble. i think what it does do is put more pressure in terms of our assessment of where the valuations are stretched. last year, the trade was selling volatility, selling it and period.hat low vol

that is the trade i think has been unseated. it was solo before last week, really quite unusual. you could argue that where we are at the moment, more of a concern with inflation. you should have higher volatility. the fact that it has moved up does make sense. what janet yellen is saying is completely factual. we are at the high-end of valuations relative to history. that's true. can't argue with that. anna: that's the valuation picture she was talking about. in terms of stocks versus bonds and where you choose to put money at the moment, i think you prefer equities to bonds. this is an interesting one to look at. the spread between s&p earnings and treasury yields keeps on narrowing. some have suggested we keep buying stocks because look at the yield compared to treasuries. how does that get higher? the difference is getting

smaller. for how long do you feel comfortable with stocks as the yield get higher on u.s. 10 year yield and treasuries in general? lucy: risk premium looks like this. long bond could get to three point 5% before equities look really expensive. we are moving around at the moment. it has been a shift in the last week. if the thing you are concerned about is inflation, and that is the bogey which is worrying markets, that is much more concerning for bonds than it is for equities. manus: we will continue that authorization in a second third breaking news on samsung. this is j wiley's prison term. ay y.s sentenced -- j lee's prison term. this is a critical point we are making up a top of the show, which is, would he be

incarcerated? it has been suspended. the stock is up by .6% on samsung electronics at the moment. anna: there is a tliv to go to if you want to follow along with all of that. the high court in seoul making those decisions on lee's appeal. the corporate earnings story, what have you seen so far? what has given you comfort and what we have seen from u.s. corporate in particular? lucy: very strong. upgrade. underneath, you are seeing good topline growth. also in the resources sector as well, which picked up. technology has continued to be strong. we have seen in previous times that it is still motoring through.

by growth, we are talking about midteens growth. again, financials, but also resources and industrials. the early area, which is weaker from the consumer sectors, some of that is structural, some of that is disrupted in retail. the overall picture is pretty robust. driversne or two other for financials. we will talk more about that shortly. financials in and of themselves, going into a new era of rates, certainly in the united states. the dallas federal reserve suggesting we need to do more than three. if we look at financials and consumer optimism and manufacturing, financials -- are they appealing for you? lucy: yes, that has been the position we had.

firstly because valuations are relatively low still, and looking anywhere in the market, it is quite a challenge. stock evaluation is quite low. there is also a question about whether we are closer to peak regulation. insibly some deregulation the cloud over the sector. you have got companies with strong balance sheets beginning to pay dividends. there is a reason why one might be -- anna: janet yellen was warning against that. manus: stay with us. a little bit more to chat about. lucy macdonald is the cio at allianz. coming up, we have ryanair. they reported a 12% jump in third-quarter profit. we will talk about the numbers. we have the cfo who joins us for his first interview of the day. anna: german coalition talks. merkel and the spd taking

negotiations on a potential new government. is a deal within reach? we bring you the latest from berlin. this is bloomberg. ♪

in thenet income jumped third quarter. they committed to a $750 million -- 750 million euros share buyback. joining us now, the cfo for ryanair, for his first interview of the day. good to see you. 750 million euros. i want to focus in on the cautious guidance for the full year. why the caution? what is the top line in terms of holding you back? easyjet intimated that we actually think that ticket are on the right.

why are you cautious? is that a disagreement with easyjet? >> are on the right. why are you the quarter just en. guiding profits and a range of 1.4 5 billion on a basis. billion on that basis. we are also seeing fares down at least 3% on a full-year basis whereat will depend on the easter bookings and up. that is a slight improvement on where we were and our guidance previously. 12%.auxiliaries up the quarter just ended. we are expecting that will be up 2% on a full-year basis. despite the fact that fuel is $70 per barrel, and we have a slightly higher fuel headwind. we are still holding our cost down 2% on a per -passenger basis. isa: do you think easyjet

seeing a pricing picture that is more positive than what you are seeing? you think you may be seeing different markets are similar pictures? i have to say first and foremost that we have very limited visibility. it would be unusual for us to give guidance this early into the financial year. there is a lot of optimism that i think it's probably not warranted. there is a lot of fuel headwinds. $70 per barrel. most airlines are facing a higher fuel price. so we think it's probably overly optimistic to expect airlines are going to recover all of this and then grow their fares on top of that. that's why we have the caution into the summer. manus: talk us through may be what could be a tailwind for you, the overcapacity story. i think about air berlin, monarch, it's whether you have

any desire. that theot sound to me end of that capacity is showing through in your language. lucy: i think we are starting to see some of the capacity come out and we would have benefited from the monarch collapse earlier on where we had three extra aircraft in manchester in the u k, and we are getting a number of their pilots joining us in germany, where we are picking up a lot of air berlin pilots. we are starting to see some of the capacity come out, but not in great numbers yet. i think it will, as the year goes on. know, that process is ongoing, so we will see what happens. we would expect beneficiaries on the operations if and when capacity curtails in italy. are you still investigating whether to bid for any of the alitalia -- lucy: we are available -- neil: we are available. we will pick up some of the short-haul opportunities that

arise, but we are busy just growing ourselves. we are going to grow to 200 million customers with our boeing max order. anna: new routes to jordan, i saw. neil: this winter, we will be into a month -- into amman and aqaba. manus: the original idea was 100 planes. lucy: we have a 210 aircraft order with boeing. the 77.on top of another 29 next year. we are well on track to have a better fleet of just under 600 aircraft and 200 million customers per annum by march 2024. anna: in terms of alitalia, you would be open to feeding some of their operations. would you be interested in taking on any of their roots at all? -- routes at all? neil: we are the largest carrier

in italy with 30% market share, so we are -- manus: do you not need to buy alitalia? is that the message? neil: we don't necessarily need to buy anybody. we are good with our own organic growth. we have specific opportunities where we can buy some of these things. anna: you had some comments on the conversation at pilots union. how confident are you that things will be sorted out? this must have been a big culture change from ryanair, both on the pilot's side and the management side. juggling a whole new process and power dynamic. neil: we had always said, when all of our pilots or the majority wanted union recognition, we would go down that road. we worked 30 years or well with our previous process, but we are now in the new era. we have had a lot of success in the u k, where six weeks from the initial phone call, the sign of recognition agreement. over 25% of our pilots are recognized, enjoying a pay

increase, putting them well ahead of air snowy gin and easyjet. say much about this. we are making progress in third countries. we have -- our shareholders should be ready for some small disruptions over the next period time. manus: brexit. you are selling tickets. next summer, apparently, with a clause -- a brexit clause. what has brexit cost you so far in legal fees? what is the price of brexit so far for you? neil: in the context of our legal bills, it has taken up a lot of management time. it has taken up some legal expense. it has not been huge yet. big uncertainty for the business. definitely having an impact on forward bookings in the u.k. to and from, and certainly in relation to that. anna: thank you very much. joining us -- neil

from ryanair. negotiations between angela merkel's party in thie spd will resume. we are live berlin, next. this is bloomberg. ♪

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tokyo. the yanis strengthening with the equity global rise in markets. look at the yen, strengthening and u.s. bond yields are rising. the nikkei, the biggest slide since november of 2016. that is the update in the japanese market. nejra cehic gives us a global perspective. nejra: yes, manus, that 10 year treasury you at a four year high. that seems to be causing jitters in the equity markets.

without the worst global stocks in two years last week. the s&p 500 and the dow dropped by 2%. formsci asian index heading the worst slide in 14 months. as you can see, it is red. by 1%.kospi down steady in some of the chinese equity gauges, but even hong kong is down by 1%. equities have been selling off and we have seen volatility rising. at showed a great vix chart the top of the show with volatility last week having the most volatility that we can august. we see the nikkei implied volatility surging after the global selloff and equities. i have trappe attracted againste dollar. -- i have tracked it against the onlar, down 1% to 2%

dollar-yen. how much of an impact will these bond yields have on the equity space, and if they rise further, how much could that impact? that might cause nervousness for traders, defend the s&p is lower this session. even a technical 10% correction, which is not where we are right now on the s&p 500 would not break the longer-term trend line if you look at this chart. the relative strength index on the bottom shows that dips below 70 again. that seems to be the cell signal once we have gone into overbought territory. let's look at oil. last week it was not just that for equities, but commodities as well. we see oil decline for the second day in today's session. that is after we got the baker hughes rig count data surging the highest sincew august. we've also seen short-sellers increase their bets.

anna: thank you. in germany, angela merkel's talks on renewing her alliance with the social democrats have reached the sunday deadline. this comes as negotiators seek to clear final hurdles on labor and health care. manus: with the end game for the sheition pact underway, secured agreements on broadband expansion. matt miller has been tracking the story for us in berlin. matt, good to see you this morning. what happens next and how high are the hurdles for merkel to get this deal across the line? matt: i should point out that the deadline, of course, was very soft. we have seen german talks break these deadlines ever since the elections last year. it was widely expected these talks would drag on a bit longer. they took off fairly early last night to get some rest. they now have to agree on only

two further issues. housinge dealt with the issues, as you said. now they have just got to make an agreement on labour. the spd once to -- the spd wants to curb the use of part-time workers in germany. the spd has wanted to try to get rid of the two-tier health care system that germany has, the public and private system. the way they figured they would do that is to curb higher paid to doctors for private patients, thus rendering the private health care pretty much useless. so, it is widely expected, whether you listen to people spd,the cdu, csu, or that they will come to these agreements. these talks will be successful today or tomorrow, the question is, will the spd's voters agree to that when they put it to a broader party base of 440,000 members later on? anna: that will be the big

question then, matt. you suggest at least, that talks are expected to be successful. what could go wrong here, though? matt: well, first of all, they could have issues. they could have stumbling blocks. we have seen those surprises before. everybody expected the coalition talks for the so-called jamaica coalition to be successful, and they were not at the end. so, you could see failure within the next couple days. but more likely that the spd's voters do not go along with it. now, the polls suggest they will. a poll suggested recently that 59% of the spd voters will back another grand coalition. the youth wing of the party has been extremely against it. they are determined to go into the opposition. and if they have to do that, the question is, will merkel choose a minority government, or push for new elections? manus: matt miller there in berlin.

matt, lucy, isn't it amazing to see angela merkel in this hung parliament kind of limbo land.? it is not at all what you would have imagined for the strongest leader in europe. she has turned out to be perhaps the most weekend of the ma -- te most weakened of them all? lucy: yes, but she is used to dealing with coalition talks. the economy underneath it is very strong. and even coming up to concerns over the low levels of employment. there is a very strong backdrop. anna: and how does the strong euro play into that, then? how much is that worrying you? when you look at the excitement around european recovery, and

from the european expected perspective, there is a lot of excitement. even the hard-to-reach areas of the eurozone economy -- and for good reason, the euro rises. comment of a threat, or when will that failed to be a threat? -- how much of a thread, or when will that fail to be a threat? lucy: we see this already. we've seen that already, which is what we expected, but this has been quite a big move of the euro against the dollar. most of that is the dollar weakening. the strength should be helping the euro as well. it has been quite a big move. it is something central bankers are looking at to see whether it does have a more tightening effect in europe, and whether that needs to be taken into account when they are looking at interest rates. manus: i know that you look from a global perspective to put this

chart together -- which is 3314, which is the s&p 500 and the dax. it might have been better if i read into one currency, but it is the principle about performance that i want to start with, which is the s&p 500 relative to the dax. if you look at the growth in europe and the lack of inflation, versus the growth and inflation story in the u.s., that is what i'm trying to tie together. does that gap close for you as a global investor? lucy: in the last year, the dax has outperformed in the same currency. that is in line with what we have seen with the recovery in europe, but also the starting point of the valuation, because of the underperformance for a number of years. wards surprised on earnings and only a bit of that was taken to account last year.

we see more about this earnings season. it is now internalized within the expectations of where we are now. if we get more weakness in the dollar, that will affect this. anna: we should bear olivet of that in mind when we look at the fact that european stocks, unlike the u.s. or asia. u.k. look at the we started this conversation talking about german politics. theresa may is under fire, potential outmaneuvering's, being outflanked by the likes of boris johnson. where do you see the story on u.k. growth going and therefore, the bank of england? we are looking at a bank of england meeting this week and nobody is expecting a bank of england rate change, but are there signals of changes to come? lucy: well, the u.k. economy is still lagging. it is more or less in line with

europe. it used to outperform europe, and it has now slated down, while europe has picked up. the consumption picture is better. movede currency has been between the larger currencies of the dollar and euro. it mostly has been affected by the dollar weakness, and therefore, has a strengthened. so, inflation pressure is still there. toothe interest rates are low for the level of inflation that we have. they should rise, but whether the economy is strong enough to really have that rise is a question. anna: we will see if they react to that political hindrance. lucy macdonald stays with us. crude prices more than doubled in the last two years.

the ceo spoke to us ahead of the singapore airshow tomorrow. >> i have got to say, we are coping quite well at the moment. in october, we get our update for july to december, we said they would make the underlying level. that would be the underlying factor behind the qantas group spike. manus: for more on the story, juliette saly joins us from singapore. so, fairly upbeat. there is something about irishman and airlines, isn't there? [laughter] juliette: there is something about irish men, ,manus. you heard that projection for a record first-half profit. we increased it by 12% based on those figures, which will be

$712 million and $752 million. we are still dealing with the tax amputations in australia. what alan joyce said is they are focused on more jet fuel efficient planes. they are also focused on the long, nonstop flights. alan joyce said they can start using some of these more jet fuel efficient planes, like the 787's. he said he could fly two of those tail to tail, and it would be more fuel-efficient than the 380. anna: i read quite a bit about opening up the west of australia to more tourism over the weekend, juliette, with the launch of this life. you also spoke to other industry leaders today ahead of the airshow, when you are on the ground, of course. how do they feel the industry

can cope with higher fuel prices. we spoke to the ceo of ryanair, and he said that was one of the reasons to be cautious heading forward. yes, i think the word would be acceptable, is how you could use the current prices. amongst to boeing, others. the boeing head of sales in asia, she's told me that essentially even though jet fuel prices are double where they were two years ago when boeing first unveiled the plan, he does think the industry can withstand it. take a listen. >> they are doubled. they were at an all-time high in nd 2009. the industry has gone through that chart and this is still a comfortable region to be in. meeting the oil prices around $70 right now. we think the market will continue to bear it. keskar says heh

believes $60 to $70 is the capital. he says the greatest risk here infrastructure, updating some of these airports. there is continue to demand from passengers around the world to matriculate here in asia. manus: everybody has got their headwinds. juliette saly there at the singapore airshow. coming up, getting sworn in. jerome powell is to take over as chairman of the federal reserve today, succeeding janet yellen. what will he inherit, and what way will he lead? this is bloomberg. ♪

anna: this is "bloomberg daybreak: europe." in london, it is 6:47 in the

morning. south korean court has suspended the prison sentence of jay y. lee, heir to the country's largest conglomerate. stephen engle joins us now. give us the latest on what has been going on. reporter: yeah, if you can both be stunned and not surprised, that is what the reaction is we areday, because stunned that the high, which was reviewing the appellate court me,ess here in seoul behind they have not exonerated jay y. lee, but they have allowed him to pretty much walk free. he has already left the court out here by a bus to the seoul detention center, where i suspect he will collect his belongings. he has been there for nearly a year anda local news agency says the heir apparent, the man that

was convicted in the same courthouse in august to a five-year prison sentence for various corruption charges, he will be able to go home this evening. it is a stunning reversal because this was, of all the different options that the appellate court could have come up with, this was the one that the legal experts said was one of the least likely. of course, second perhaps to being completely exonerated. basically, from a five-year prison sentence to a two and a half year prison sentence -- but that is a suspended sentence and four years probation, meaning he can go home. let me quote what the court said. there is no evidence that the defendant has gained benefits from offering bribery to the now ousted president. he was found not guilty of hiding assets overseas. it is quite a stunning reversal. manus: i wonder what the

shareholders will have to say in his absence. in 2017k rallied 41% when he was behind bars. but what happens next. what are the implications for samsung and the investors? stephen: well, korea's twitter is abuzz. the number one trending term is cofsamsung. this has been the age-old cozy relationship between business and politics that has eroded the trust of the south korean people have in korea incorporated that has been dominated by the large conglomerates like samsung. there have been some protesters, but most of the people making the most noise to the right of me are supporters of jay y. lee. when he came out of the bus, they were cheering.

there are tons of korean flags, even an american flag -- i don't know what the american flag is doing here. scene that an odd raucous quiet to quite quite quickly. anna: stephen engle joining us there from seoul. manus: on friday president trump approved the release of the republican memo that raises questions on the part of the fbi and justice department, how they handled the probe into the russian meddling. the document sparked a dispute within the gop. e itdemocrats, who defin has misleading and incomplete. anna: what are the implications of this memo? a lot of revelations on friday. how does this live on? reporter: yeah, well, perhaps the release of a memo seems to be the most important and

salient fact, rather than what was in it. what was in it does not seem to be making as big of a splash, but the release of it seems to be a big playing card for the republicans. the president says the memo vindicates him in the investigation into russian meddling in the election, in the 2016 election. democrats are saying, not so much. democrats are trying to make a bigger issue of the release of the memo. they see the republicans who released it should be investigated. some republicans are saying that there are some -- the intelligence community republicans are saying the investigation should continue, but others say this shows the president did nothing wrong. hard to tell from that memo. there is not a smoking gun inside that memo, but at the same time, everybody is making a lot of the fact that it was released. anna: so, it is the release rather than the content. jodi schneider, in hong kong.

jerome powell will be sworn in today as the new chairman of the federal reserve. he is not scheduled to speak for weeks, leaving investors guessing on the path of monetary tightening. lucy, we started the conversation about how the bears are in charge. this goes back to a strong u.s. economy, which is irking the bond market. yields are rising. it is the bond market which is irked by the prospect of inflation. do you welcome the prospect of bylation, or are you irked the prospect of inflation? lucy: we are not concerned by the level of inflation we are currently seeking. in some ways, the fact we are beginning to see some wage inflation is a good thing because it's been weird that we have not seen any. that is something janet yellen has come back to again and

again, saying it does seem strange the level of growth we are seeing, and that we are not see more. the fact that we are beginning to see some coming through is quite healthy. and that is now feeding into concerns about inflation. at the same time, we are seeing other cyclical inflationary pressures coming through on commodities, as well as the weaker dollar. i think over the next few months we will see quite a bit of cyclical effects on inflation that we have not seen for years. whether that then carries on and overtakes the broad structural pressures we have had on inflation over the last few years, which are the debt, demographic and also, the fight seen, a lot of downward pressure from china. that is yet to be seen. china has changed because it has

taken on more than the vivacity it had. -- more than the capacity it had. but there is still quite a lot of downward pressure from technology as well. anna: we are looking at all of the data from the u.s. there's a host of metrics jerome powell will be inheriting. -- thedilocks tory in te goldilocks story in the u.s. the you see that the fed will get behind the curve? there is a lot we do not know yet about where wages will go and that is what this hinges on, i suppose. do you believe that the fed is behind the curve? lucy: the fed has been behind the curve and that is our expectation. all economies with high levels of debt will remain behind the curve because of the fragility of the situation and that has been the case. and the assumption markets made is that jerome powell will continue with the same strategy.

and that is very much the consensus. he concern, the risk is comes out a bit more hawkish than expectations allow. that is something we are watching. manus: ok, lucy, great to have you with us on the 10 year government bond yield, 2.88% as we go into the start of european trade. that is definitely the issue for markets today. minneapolis fed president neel kashkari joins bloomberg at 6:00 p.m. u.k. time. anna:, global equities sell off deepends. andtarted with u.s. bonds has now spread across international markets. we talk about the selloff we see in international equities, and we keep an eye on the markets.

u.s. future should be weaker at the start of the trading day. we'll discuss that further when we come back. this is bloomberg. ♪

manus: good morning from bloomberg's new european headquarters in london. i'm manus cranny. anna: i am anna edwards. manus: asian shares fall, extending the biggest selloff for global stocks in two years. acrossity bites back the assets. anna: divisions of her brexit the been within theresa may's party. in germany merkel allows more time for coalition talks. raising chipmaker is the offer for qualcomm, making it the largest tech deal ever.

the market might be looking at the biggest tech deal ever coming down the pipe, but you are looking at a tougher opening for these european equity markets. london, paris and frankfurt will follow suit. the bond market is the issue that is irking the market most. the bulls have gone missing in action and there is a bit of panic in the bond market. the services in china, coming in a bit above the estimate. that does nothing to save the equity market, volatility is rising. it's rising in the u.s. and the japanese markets, at a three-month high. the s&p 500 -- janet yellen has handed over the reins to jerome powell. the european equity markets are beginning to really price this in. the question is, will you have a

market correction? or, is this just a blip? one or two analysts say you are unlikely to see full-blown bear market. as yet, the buyers of the dip have not materialized. anna: they have not. where have we hidden them, manus? because a dip is what we are seeing. here's the msci pacific for you, manus. where do we stop the selling for the time being and reassess? will it be at the start of the u.s. session. snp numbers suggest we will continue down into the u.s. session. they were down 0.9% earlier, if that has any bearing on thanks. 18,opean stocks, gains for 20 which is fascinating when the asian and u.s. have a currency impact. is this a healthy correction, or is this something more enduring? we have had many conversations

on this already. keeping a close eye on the u.s. 21o0 year. to what extent will this move into equities? we've had a lot of conversations on where this goes, how fast the fed has to respond and therefore, how much damage is done to the stock market because of the removal of that punch bowl, which has been so readily available for so many years. manus: and all of the references there. we have heard of fomo, the fear of missing out, and the goldilocks story. the goldilocks story of goldilocks and the three bears. let's get the tech numbers out and then we do the bond market. tesco proposed a final dividend of two pence a share. the profit forecast of at least 1.57 billion pounds for this year. they say the trading performance is in line with the third quarter. the battle royale over christmas, in terms of where we

spent our money, whether we went to tesco, morrison's, or the other stores out there. treating performance is in line with forecasts for the third quarter. it is a big week for reporting. this week we have got sanofi, the more philip morris story, etc. let's see if we can get the bond markets up here. the bondooking at yields at the screen. termse futures drop, in of the bond markets. again, we see this continuation in terms of the selloff in the bond markets. i do not see this in the equity markets. at what point does this turn into a reversion back to the bond markets? do the yields in the bonds offer a better proposition? 10 year government bond yield making four year highs, losses bonds since the start

of this year. they were start of the bond markets since 2009. is where it gets interesting. how high will the bund yields go in terms of capping it out? you are looking at futures and u.s. equity. we are indicated lower again within the equity complex in the u.s. sophie kamaruddin is standing by with your first word news. sophie: manus, in america, janet aid u.s. stocks are elevated. she made the comment to cbs this sunday morning during an on friday asorded she prepared to leave the central bank. >> i do not want to stay too high, but i do want to stay high.

the ratios are near historical ranges. if you look at commercial real estate, prices are quite high relative to where it has been. now, is that a bubble, or is it too high? there it is very hard to tell. but it is the source of some concern, that valuations are so high. the hardn the u.k. choices of brexit have tipped the members of theresa may's party into warfare. the m.p. advocates leaving the eu without a transition period. in sharp contrast, philip hammond. angela merkel is allowing extra time for talks renewing her government alliance with the social democrats, suggesting that a deal is within reach. a target date of yesterday for concluding a coalition pact came and went, extending the

country's largest portable stalemate since world war ii. with angela merkel's fourth term hanging in the balance, party leaders resume discussions today. ceremonyencys says the ahead. the south korean president is considering holding a one on one meeting with kim. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. on the markets, we do have a acrossbit of movement the asian region. i want to highlight that we do have stocks on the mainland of china seeing little change now as we wonder whether national brokers have come in to help e ase those losses.

down 2.6% of25, soq volatility returns with a vengeance. and you have bond market jitters bounding within the week. you have the philip lane, australia and india due. we have been focusing on the samsung story. , walking three. walking free. shares in shanghai, they have swung higher. the last word on the aac technology, we did get an aacade to the stop, helping technology. manus: sophie kamaruddin, thank you.

we had the spread across international markets, asian equities in the red. we've taken you through the gambit of all the points and they are all in the red. anna: yes, european features and u.s. futures, suggesting we move lower. .oining us now, stephen say we had a conversation during the last hour, whether this is healthy, cathartic, or something more enduring. do you know? >> i would hope i have some insight, but probably not. manus' word -- manus: don't blame it on me! >> it is very accurate. we have needed is for a while and i would look more at the bond market than the equity market because we have had this frustration with the market for 12 months now, that we have not seen a steepening of the u.s. curve, and we have not seen longer-term yields move higher in the u.s.

finally we are getting that, 2.88% this morning on ten-year yields. this is normal with the fed hiking rates. i think a slightly negative impact on equity markets is to be expected from that. our view at b.n.p. paribas is not that this is the start of a dramatic equity selloff. manus: you start with the bond market. i have a bond market curve for beenwhich has obviously talked about a lost over the last few months, a flattening. i will pull it to a slightly shorter term perspective. this is the yield curve. we will get there in the end. you have seen perhaps one of the a numbereepeningssteepening in of months. that is a healthy u.s. economy. that is the biggest steepening in a number of months. steven: i think the market is

reassessing the outlook of the u.s. economy. if you go back before this happened, the market was of the view that yes, the fed would hike rates, but the economy is not doing that well. inflation is low. the terminal rate will be relatively low. that is what kept the yield curve very flat. i think what's happening now is, we're seeing stronger numbers coming out of the u.s. we see growth doing very well, for example. we revised higher our u.s. growth outlook to 3.3% just last week on friday. i think that is typical of the market. as growth become stronger, the market is saying, "oh, actually rates do have to go higher over a more medium-term basis in the u.s." anna: so, do we need to be guarded, prepared for the fact that we seem to be in a good news-bad news environment for equity markets? steven: i think it is more normal. this is what we expect many

years ago, in terms of how the markets and economy would play out. i would not get too concerned. our year end forecasts for u.s. 10 year yields is 3%. .88% now. 2 now, it is looking very achievable. it also suggests, if we are right, that we do not see a dramatic move higher in yields. manus: we played a little bit of janet yellen during the first word news. we always do that. she did not call a bubble, but she spoke of her concerns on cbs. she spoke of her concerns regarding the asset price. anna: in bonds and equities. manus: i think she is trying to find her word to define it. this is the s&p 500 versus treasuries. and the spread is narrowest in eight years. this is what people have got to realize. which do i believe?

do i believe i still want to have that growth, 3.3% exposure in the equity market, or do i want to be more exposed to bonds? when you see that fed model collapsing, what does that say to you? steven: the first point i have to say is that janet yellen should be very pleased. anna: she is smiling. steven: given that she views this as too much enthusiasm. in risk or equity markets. four rate hikes to come this year, and one more in 2019. that is an initial two over what we were forecasting just a week ago. and in that environment i think it is right that we do not see too much in equity market. anna: this move higher in bond yields, the selloff in bonds, this is "for good reasons,"

and therength in data positivity of the u.s. growth story, rather than a market that got a little bit nervous. we will not hear from jerome powell for many weeks. you see in that environment that investors might start to get a little bit nervous about where the fed goes, of the fed is committed to the loose monetary policy as it was previously. it is a long time to go without getting any guidance from a new captain. steven: sure, i think that is a fair point. but what will give the markets a calming influence is the fact that inflation is still low. the issue is that the market does not believe that the inflation bogeyman is out in the open and going to reupset things in the market. we still have subdued, anchored inflation. i think that will give the markets a lot of covered. ofus: we are in the depths earnings season. i pulled up ea.

you can look at that. reported --ave these are the surprises and the misses. you are looking at a good set of numbers in the u.s. i've chosen the sp, actually. it's a good reporting season. and companies have delivered. they are giving pay rises to employees, share buybacks, dividends aplenty. apple is delivering on that front. does that embolden the equity story once we have got to grips with what this move is in the equity market this morning? steven: yes, i think that is correct and i would go back to my starting point here. what do we talk about? the bond market. i think the bond market is driving the conservative equity market. if you look at what you just said, manus, the underlying fundamentals of equities, they look pretty strong, not to mention significant tax cuts, too, which are very positive.

we would argue different sectors in the u.s. but the general fundamentals here are very strong. what is changing is monetary policy. i think if we would expand this discussion into a global forario, it may be that example, japanese equities outperform u.s. equities going forward because you do not have the potential tightening of monetary policy in japan that you have in the u.s. anna: a great story on the bloomberg this morning. how is big business using the trump tax cut? deal, dividends, all of those in the mix. steven saywell, senior multi-asset specialist at b.n.p. paribas stays with us. coming up, tory civil war as theresa may comes under fire again as divisions over brexit deep in within the conservative party. that conversation, next. this is bloomberg. ♪

manus: are we seeing signs of complacency within the treasury market?

7:19 in london. european traders, according to mliv, 40 minutes to go. they came in expecting a little bit of pain and they will be arriving to a bloodbath, according to mliv. it is trading across multitudes of commodities and assets. stoxx futures, down. money going into the yen. s&p futures, down. it was a fairly tortured session on friday, anna. we are looking at a weaker opening. anna: the s&p posted its biggest weekly loss in two years, but now futures just turning positive. here is sophie kamaruddin in hong kong. broadcomm plans to

increase the bid to around $120 million. this would be the largest ever technology deal. according to a person with knowledge of the matter, they are considering lifting the offer to about $82 per qualcomm share. they plan to announce the deal this morning. the ceo had the initial proposal of $70 per share. represent is for both companies declined to comment. a south korean court has suspended the sentence of the vice-chairman. that is after jay y. lee appealed his jail term. the sentence was cut by a half to two and a half years, and he is now free to go on four years of probation. ndal brought down the corporate president of samsung. anna: thank you, sophie kamaruddin with the business

flash. the hard choices of brexit have created open warfare, and it is not clear if the british by minister will survive. m.p. advocate leaving without a transition period. in contrast, you have philip hammond, who wants a more modest separation, a view that has brexit backers calling for his head. anna: steven saywell from b.n.p. paribas is still with us. u.k. assets, then, i have a chart here -- 3202 shows the pound. we have gone from a situation where we were favoring calls to favoring moves. how much is the u.k. story and the pound all about the politics? the bank of england is in the mix as well. steven: i think the first point i would make here is, look at

u.s. sterling. the pound is still relatively weak. a lot of what we see in cable is the dollar weakness. we would argue there is a bit too much optimism built into the pound at the moment. i think the politics is the key point. i think the market took the view that because discussions did not collapse back in december that therefore, things will continue to move smoothly. anna: there was a constructive tone. steven: exactly. but i think there are a lot of risks going on at the moment. the next day to focus on is march. theresa may once a transition deal. that's a big ask. it's quite, i think, an optimistic view. to get back to markets here, this is happening while cable is very strong and in our positioning data we have a net long position on the pound.

that is not something we have seen consistently since the brexit vote. the point i would make is the pound is actually vulnerable at the levels and our view at the bank is that the pound is likely to weaken from here. manus: we have the bank of england this weekend nobody presumes there will be a change of rates. mark carney has indicated that he wants to get back to normal, which is dealing with inflation. where do you believe the boe will go? we have this global conversation on rates. the fundamental conversation has not gone away regarding where we go on rates. steven: i would argue this week we could see a bit of a dovish move. anna: not sliding towards the may hike, then? steven: now, the point we would say is inflation is getting close to a peak. we think growth is suffering in the u.s. we have a below trend and below consensus forecast for gdp this year, at the time when inflation

is taking. so, we think we could get a bit of a dovish leaning from the bank of england this week. probably still some consensus, ke,be two voting fo rr a hi but we do not believe we will get a shift to a more hawkish tone. anna: in terms of europe, then, if we look at the eurozone, we spoke with lucy macdonald about the strength in the euro, and she said looking back, she could see how the strong euro had a damaged earnings to some extent in the last quarter. is that evident for you already, that the strength in the economy is hurting? steven: you do see it. a cautionary point i would make here, i would not look at just eurosterling. we look at the euro trade weighted index and from that perspective, the euro is far less strong than if you just look at the euro-dollar. fx impact their, but

it is not as large as someone suggest. our view is the best way to trade european equities are mid-caps. these are companies that have more exposure to domestic demand than europe, which is strong. less export focus, less impact from an appreciating currency. manus: let's see what these markets make of the havens and the view on sterling. steven saywell, the senior multi-asset specialist at b.n.p. paribas. he continues his conversation on bloomberg radio. .ou can always send a ib chat anna: here, european futures. we will show you the european futures in terms of where we expect them to go. we are expected to be weaker across the european equity markets. the u.s. futures were down yesterday and the nasdaq is down again 0.5%, but they have been down more than this in the asian session. manus: mliv is using quite

strong linkage. money is going into the yen. the question is, do havens persist? that during the european market open. ♪

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guy: good morning. welcome to "bloomberg markets: european open." -- castraterade yet less than 30 minutes away. ♪ trade less than 30 minutes away. ♪ nowhere to hide. the global equities selloff spreads to asia. how hard will europe be hit at the open? futures pointing sharply lower.