anna: good morning from london, i'm anna edwards. manus: i'm manus cranny. this is "bloomberg daybreak: europe." anna: asia's fourth-quarter earnings fell short with no share buyback. the stock takes a hit in asia. we spake with the bank's finance director. >> fourth quarter from our perspective in the industry's was a little weaker with respect to global bacon market revenues, space.larly the ficc we also took corporate exposures in the fourth quarter. manus: asian equities snap a six-day rally as hong kong comes back online following the new year's holiday.

meanwhile, treasury yields climb ahead of a quarter trillion dollars of auction this week. anna: and a brexit backup plan. theresa may is said to be preparing to withhold aliens and eu payments if the bloc doesn't play ball on trade. ♪ anna: good morning, this is "bloomberg daybreak: europe." let's get straight into the market auction. we will have more from the finance director shortly. msci being weighed down this morning, part of it is hsbc, where we see negative reaction coming through to that earnings statement, in particular the pretax profit numbers and shared by backstory. we will get a lot more detail in a moment. we are down by .6% overall in

the asian session. remember that china and taiwan are still close, but most of the asian indexes are in negative territory. hong kong had its head above water the earlier, that has come to the downside. one thing we are focusing on as we get closer to the u.s. session is u.s. 10 year yields. and that ofove 2.9, course throws into focus the big auctions late we have for this week. we have $151 billion of short dated bills just today. how high will those yields need to go to get this kind of borrowing away by the u.s. treasury? and because it was president's day yesterday, and because we work in the united states, we put the dollar spot index, up by .3%. manus: welcome back from president's day. let's have a look at what all of that richness means in the bond market. will they show up and buy the bonds? is it getting rich enough?

this could be the battle royale between the asset managers and hedge funds. do we have gathered for you here is a difference of opinion. we have the asset managers and funds, the third widest in 10 years. you've got 2017, middle of 2010. this is where the real money wagers were, they came out on top. so tonight we have three months and six months. the yield you are getting is the highest in a decade when it comes to the spread. 10-year note in the united states are offering 1.6% more than their g7 peers. that is the fattest, lobbyists spread you have had an 18 years. is it enough to draw in the buyers? two-year papers offering more than the fed, three times the average over the past 20 years.

a veteran of tutors saying more inflation could rock these bonds. will they show up, will they rock up the fast money, the middle east money? anna: the banking sector hoping to benefit as we see interest rates go higher. one thing i asked about the each sbc finance director -- i asked of the hsbc finance director, why they couldn't do a share buyback. that's coming up. let's get the first word news update with yousef gamal el-din. yousef: let's talk about the u.k. government, said to withhold billions of pounds of brexit payments if the eu doesn't give the country the trade deal it wants. while it is not the preferred option, some in the administration could believe it could be necessary as the eu tries to go back on the future commitment to a free trade deal, according to three people familiar with the matter. meanwhile, in a speech later today, brexit secretary david davis will reassure the european union that the u.k. won't try to

undercut the bloc by tearing up regulations as separation takes place. angela merkel has sent a strong signal about her preferred successor as german chancellor by appointing a close ally to be general secretary. of her on the right party have called for more conservative policies as a way to win back motors lost to the hard right alt. but the unexpected move is a signal that merkel intends to keep cdu in the center. bank of england governor mark carney says he is already bracing for the u.k.'s next financial crisis. while admitting no central bank can't eliminate risk, he says the boa is creating a more secure defense by preparing for bank failures, providing extra liquidity, and ensuring higher capital. carney says expecting a crisis will happen is the best way to prepare for it. president donald trump has

endorsed former republican presidential candidate mitt romney for a u.s. senate seat in utah. the move sets aside long-standing differences with one of trump' party criticss as the gop looks to preserve its narrow majority in the chamber. romney, a former governor of massachusetts, announced on friday that he would run to succeed senator orrin hatch, a strong trump supporter who decided not to seek a third term. the latvian prime minister says he will try to prevent a councilmember from returning to his post when he was caught up in a bribery probe that rocked the nation. he's also led the latvian central-bank from 2001, but faces suspension from his job as a security measure. he rejects the allegations and says he plans to hold a news conference today. the leader of the u.k. opposition labor party has vowed to make it harder for asset strippers to take over company. in a speech to manufacturers, jeremy corbyn will say that, is

elected, labor will broaden the scope of public interests to allow the government to intervene. he will also send a warning to the city of london, with a call for a fundamental rethink of how finance should be regulated. the head of opec says the rebalancing of the oil market is gaining traction. meanwhile, the uae's energy minister says the cartel, russia, and other producers are looking at ways to continue the corroboration beyond the end of their production later this year. the downturn that was experienced between 2014 and 2016. global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . let's check in on the markets in asia with david ingles in hong kong. david? david: yousef, a quick pulse check across asia, some markets are already close, hong kong

still up and running. it's essentially a down day. ignore china, which is .8% to the upside. it's still shut, along with vietnam and taiwan. volumes are quite thin, not a lot of turnover. japan closed 1% lower below 22,000, a negative correlation between where the currency is and where the strength is, it's really kicking in. markets,, currency dollar strength, dollars were caught across asian assets, yields are on the way up, not just in the u.s. india, australia's 10 year the 10 yearack up, was just last october. have a look at some of the movers we are following here. analysts are talking about hsbc, quite a miss, down about 2% on

that stock. providing is is about two points in hong kong. india is following this loan fraud over in japan. that's a wrap of your markets. anna: thank you. david ingles in hong kong. heard, fell as you in hong kong after the four-year adjusted pretax profit missed estimates due to the government's last set of earnings, with john flinch replacing him. i spoke with the group finance director about the results. >> i don't think the analysts missed anything. weaker, little particularly in the ficc space, and we also took a couple provisions for significant corporate exposures in the fourth quarter.

that is really the future of the fourth quarter, a couple things on the unexpected front with respect to impairment charges coming to the markets business and lower revenues in that quarter from the same business. anna: you cite a couple clients in europe with regards to it. is this going to continue to be a drag on earnings? do you have any visibility around these impairments? >> no, we have always taken a somewhat conservative stance in dealing with troublesome credit, so we've dealt with this in the fourth quarter of the year. we expect to go into 2018 with a fairly clean slate with respect to those exposures. expectede analysts nicely buyback today, above your target at 14.5, targeted 12 to 13. why did you decide today was not the day to do another buyback? >> you are absolutely right.

we are in a great position, 14.5%, well above the top end of the range of 12% to 13% we targeted. it's a really technical reason behind this. we are targeting some alternative tier one instrument issuance between $5 billion to $7 billion in the first half of the year. our experience has been getting those kind of capital instruments into the market in the first half tends to attract more interest in the instrument, as well as better pricing overall. there is a regulation with respect to some authorities that you cannot put capital instruments in the marketplace and do buybacks at the same time . it is simply a phasing question. our policy with respect to how do we manage our capital has not changed in any size, shape, or form. buybacks are still part of the capital management toolkit. the decision is informed by a technical decision during the first half of the year. anna: ok.

can you update us on the u.s. tax situation? clearly things have changed a lot on the tax front in the united states. what impact has this had on your business, this year and looking ahead? >> well, like so many others that have already reported, we took an impairment to deferred tax assets in the united states of $1.3 billion. obviously, the lower tax rate of 21% versus 35% going forward clearly ought to be beneficial to some future. we, like many others, are waiting for guidance from the u.s. authorities with respect to how specifically the beat tax may be applied, and whether it would impact hsbc. but we continue to follow quite closely what's happening from regulatory perspective, and the guidance we will follow from the legislation that was passed in december. but obviously, going forward, we

would expect the fact that corporate tax rates going from 35% to 21% would be beneficial in the longer term. anna: also in the united states, we see interest rates on the rise. what is your expectation for how this positively benefit your business? >> well, we have certainly seen the benefits of this in 2017, when the fed moved rates. we obviously work in a number of markets where the currency is closely related to the u.s. dollar. so we have seen improvement in spreads coming through our liquidity. power plays on the deposit sign, liability side, balance sheet, has certainly been a tailwind for earnings in 2017. we expect to continue to realize the benefits of that through 2018, in clearly to the extent that the federal reserve may further pick up its rate policy over the course of the year, which is where the market tends to guide us. that would inform positive tailwinds for hsbc. anna: your chairman said in a

statement this morning, it is about reasonable growth in 2018. what are the expectations? are there areas of concern? >> well, one of the things you have seen from our strategy over the last couple years is what we call the pivot to asia. we have obviously got incredibly strong business in asia, representing three quarters of the profits for the group on an adjusted basis. continued to invest in building our business normally in hong kong, over delta and mainland china, and even further afield. these markets continue to be very attractive fields for us to invest in, with robust growth rates and good returns on investment. where we are positioned in asia positive,to be very and when we look farther afield, at the continental european these, the u.s. market, are all markets where we have strong presence, and with the

nafta bloc, we have great presence certainly in mexico and canada. it is a pretty encouraging environment for us. we continue to see rates of growth that would not be inconsistent with 2017, where we generated revenue growth overall for the year of just under 5%. ackay,that was iaian m speaking to me earlier. it wasn't my voice. technicalakeaways -- buybacks, that was interesting. and the reason for the miss. but also the impairments in europe. but broadly speaking, a positive story around hsbc. manus: it is an unfortunate way for him to hand the baton. let's bring in our guest from vanguard asset management, the chief european economist. listening to mackay talk about

asia, threeasi quarters of our profit there, you say no hard landing in china, it's about the rebalancing story. that plays well to the hsbc pivot to china and asia. >> yes, and i think global banking generally is benefiting from this incredibly good global backdrop, china and asia doing and the picture in europe is incredibly encouraging. the u.s. is growing very nicely, buoyed by the tax effects. overall, it is pretty difficult not to make money in the banking world at the moment. ands: you stay with anna myself. , no expense also spared in terms of location, we have nicholas petrovic.

good to see you. let's hope it's not too cold and windy. you are launching your route to amsterdam, good luck with that. three hours, 40 minutes. is it leisure route or business traveler? who is going to take a trade three hours, 40 minutes to amsterdam? good morning. >> hi, good morning. there's a lot of excitement. minutes would be mostly leisure passengers. we have started to trains a day, but we are considering the possibility of round-trip to get business markets. we are also going to rotterdam, which is a good business situation. manus: tell me this -- are you done expanding? i've been to paris, bruges, -- where do you go next?

i know you were leaving, but where does the company go next? think generally a lot of people want to take high-speed rail, so it's a question of finding opportunities where we can make money. areas in thed at southwest of france, which is popular with british tourists. we have seen the future, let's balance faster. anna: good morning. tell me a little about the logistics on this amsterdam route. i understand that on the way back, passengers going back to the u.k. will have to return from the netherlands, changing for border checks in brussels. is this still a work in progress? will that be changed in the future? solution,temporary

because dutch and british governments still have to completely agree, just a put into place controls in the netherlands. come, and i am hopeful it will end before that. on the way out from london direct and on the way back, you will have to change . thewe are celebrating trains, everything in place, and we have the customers. anna: what is your latest expectation on brexit? in the past about how you don't think it will damage the business too much, people will still commute. what is your latest assessment of what impact this will have on your business? well, we know brexit is difficult to forecast, but at the moment we are still seeing a strong year for business potential.

2018 looks really good. if you get to see much downside risk for us, as the operational eu,, how we operate in the and everyone wants to work. manus: we certainly hope that doesn't happen. you have been with the company since 2003. you have been the ceo since 2010. you have witnessed a great deal of change and growth in this company since it began back in 1994. how do you think euro star has changed our lives, our travel habits, in europe? think it's a big part of my career, to develop and grow. as i have seen the customer base completely change throughout the year, from what was an adventure

to this easy way to travel between cities. people don't think too much about hopping on a train, it has changed the mental map of people living in london and paris completely and it's interesting to see how mental you can be in london and paris is closer. it has been a big success i think. anna: thank you very much, as the noise builds behind you. nicholas petrovic in london. let's get the bloomberg business flash with yousef gamal el-din. yousef: thanks. let's start off with hsbc. they reported fourth-quarter pretax profit, $3.6 billion, missing the lowest estimate among analysts surveyed. it is a rare failure to live up to analyst earning estimates.

reign chief executive's comes to an end. two clients reported narrowing lending margins. speaking to bloomberg, the hsbc finance director says numbers were a factor. >> the fourth quarter, certainly from our perspective in the industry's, was a little bit weaker with respect to bank and market revenues, particularly in the ficc space. group,on with our peer we took a couple provisions for significant corporate exposures in the fourth quarter. billiton has protected a new activists call for a corporate overhaul and trying to boost investor returns. first-half profits of the world's biggest miner rose to a three-year high. bhp raised interim dividend payments 38% to beat estimates as underlying earnings rose by 25% of $4.1 billion.

that was your bloomberg business flash. manus: thank you. westway is vanguard's chief services cheap european economist. i will get your title right one day. a bit of a chat with the eurostar outgoing ceo. he talked about brexit. if we look at the bank, we want to get back to where you are. i am looking at how the market is repricing the gilt yield in -- we have the 10 year bond yield forecast, this is what the market is doing, in reaction in many ways to the global shift in yields. do you think it would be pragmatic of carney to raise rates as early as may of this year? >> i think he will raise it, because i think the inflationary pressures are building as

such that global demand is pushing the bonds in the u.k., but also there is uncertainty about the underlying supply. both of those things mean inflationary pressures are going to merge. if you look further out, though, there is so much uncertainty about which of the flavors of brexit we are going to get that i think he is going to hesitate to go much further. for us, all options are still on the table, ranging from no deal at all, which would be very bad, right through to brexit not even happening, which would potentially be very strong for the u.k. economy. that is what's so extraordinary to me. this long after the referendum result, we still don't have clarity over where we are going to land. anna: do you see weak spots in the u.k. economy at the moment? granted, they did not appear with the size and speed many had

forecasted after the vote. spots?see weak we saw the housing numbers looking weak, talking about how things have changed since brexit. what is week for you? >> i think there is still generalized weakness around investment, for example. in this environment, terms just aren't going to make big layouts in terms of large projects while there is so much uncertainty. as mark carney, the bank of england governor, pointed out economy ishe u.k. probably about 1% below where we think it would've been if we haven't had brexit. even though we didn't have the sharp downturn following the referendum, i think it is safe to say we are in a weak position. if you compare what's going on in continental europe, where things are hammering along very nicely, 1.5% growth is pretty

anemic, given the rest of the global economy. manus: how tenuous is that consumer? u.k. retail sales barely grew in december, .1%, far below the .5% expected. part of why consumer spending is so weak is because the rise in inflation mainly caused by the following exchange rate has pushed up, measured inflation relative to wage growth, which has squeezed the consumer. that compounded by the overall uncertainty, means consumers aren't in a great place to spend, either. anna: thank you very much for your thoughts so far. he stays with us on the program. won thehis man has backing of euro area finance investors to become the next ecb vice president. we will head to brussels and have a discussion on what that means. anna: we have been covering this story.

he was transplanted to brussels for the vote, european finance ministers making that decision. this is bloomberg. ♪ ♪

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anna: this is "bloomberg daybreak: europe." it is 6:30 in london. dollar, up3% of the against the japanese yen. we saw substantial movement yesterday, which drove japanese equities higher by nearly 2% in the nikkei 225. today we are back with the full complements of the u.s. back in the mix let's get a look at the day ahead. manus: the social democrats are opening for members to vote on the proposed government coalition of chancellor angela merkel. anna: the swedish bank manager

said monetary policy is in new york city. manus: and the palestinian authority president mahmoud abbas addresses the un security council. let's get into the numbers. anna has been welcoming everyone back from the chinese new year. >> i'm not quite there. china is up, this is where they closed the other day, this is where they closed for the year of the dog. they will be trading on thursday, but asia is lower today, taking cues from the european market yesterday and as we said the u.s. markets were closed, although we do see asia opening lower. i want to look to one of the big stories of the day, the treasury market in the u.s. u.s. treasury yields are poised to hit 3% this week, the auction

flow gains are opening this week in the u.s. and we don't have a ton of economic data out. they will be selling $151 billion today, $250 billion for the whole week. this chart here shows what's happening between the asset managers, the gap the between the asset managers and the institutional counterparts. , thean see here the levels third-largest spread the last 10 years. last time it reached these extremes the asset managers came out on top. we will see whether third time's the charm. i want to quickly show you the oil market. opec secretary-general speaking in nigeria, saying we are seeing this momentum rebalance in the oil market and here you can see the opec deal is increasing the price, and we did have the uae week,nister speaking this

talking about the fact that the institutionalization of this group between opec and non-opec -- that will be a big topic this we will beusly speaking to bob dudley. the strength of the yen is one of the big drivers in terms of the bond market. let's get that strengthening currency. -- as the europe, next european federal bank vice president. the decision puts spain back on the executive board after a six-year hiatus, coming at a crucial time for the ecb as it prepares to unwind unprecedented monetary stimulus after a decade of controversial decisions. through,anish went pledging to defend the independence of the ecb.

but this is from a politician this time and that makes me very an easy. >> well, you are not the only one, manus. they are very aware that the , hele who don't like this is now sitting as a central banker where he is supposed to be independent from any kind of political interference. he set up the end of the day you have to set monetary policy for the entire euro area. we understand moving any conflicts of interest in the coming days, we don't know exactly whether it is imminent, and at the same time he also hinted that there are no conditions to the appointment. there was speculation that this was part of a bigger deal, that germany will get the presidency next year. true,d none of this is

but the speculation continues. anna: good morning. you spoke to him yesterday. is he giving any guidance as to where he stands on the monetary policy debate? he has been trying to cast himself as something of a hawk. >> right, and that is a big question. people don't know where to place him. he likes to present himself as a hawk but he does come from spain, a big beneficiary of qb. when i asked him where he stood he said he has already adopt did the ideal of a hawk, someone who is pragmatic. it's an unusual answer but it is a we got from him. he says it is good to have different people and he will bring in different opinions. in this case we don't really know what that means. anna: thank you very much. joining us from brussels with the latest. still with us in the studio, vanguard asset services chief european economist. your thoughts on monetary policy

in the eurozone, as we see these changes at the top ahead of one of the bigger changes at the top? draghi andn we see others having to be replaced, but these small changes are headed bigger ones. >> i think it is an important change, although i think the politicization could be overplayed. you must remember, if there is any politicization of decisions it is coming at the other end of the spectrum, pressure on german members to remove the stimulus at a time when that may not be appropriate if you look at inflation. perhaps this will be quite a useful balance. looking forward to next year, having in northern european governor at the ecb will be the more important change and that is what people will be looking to. manus: the growth story within

europe is really quite stunning. if you look at 2017, imports surging, we have a nice graphic which encapsulates the trade boom. i love what you said in your notes, back at 2% in the risks will continue to the upside. . you haven't seen these risks in these way since 2008, 2009. >> that's right. if you look to pmi's, things just kept coming out on the upside. that is still happening. if anything it is not inconceivable to get 2.5% growth. the point will come when spare capacity gets used up -- manus: how much lead time -- >> i think in the next 12 months we will hit those barriers, and at that point we will start seeing inflationary pressure. of course, inflation has been nascent in every developed economy, but i think it will come through, in that is why the ecb are talking about removing

this extraordinary policy stimulus, probably as soon as september. 2019inly by the middle of we will be back in rate hiking territory. germanou mentioned a when talking about who will take over the ecb. is that your expectation? we did a survey of economists, and that does put him very much in the lead. it is his to lose, isn't it? >> it is, but there will be this comfort for the reasons i talked meut -- it wouldn't surprise if maybe somebody from the netherlands for a more european country took the job instead but he is probably in the box. manus: we were just talking about the exit in 2019, the as not -- you have him wanting to be perceived as one thing or the other but he has

implemented quite aggressive who didn't take the man or woman in the streets money. thisu look at 2019 -- ridiculous level of stimulus. given the new complexion of the ecb, how much more aggressive tightening could come in 2019? our job in the market is to just to try to price. >> fundamentally, what you have to remember is the ecb are trying to get inflation back to 2%, and at the moment, it is still if not fast asleep, barely stirring. quicklystion about how the spare capacity gets used up is absolutely critical, and -- is what can a and i spent most of 2017 discussing, the inflation target in the

united states. and then within the space of a a whole month of american inflation. it has to be that we are misjudging the propensity for returns inflation. >> exactly. the title of our ngo report we put out was called rising risks to the status quo, precisely that, that there is a cozy consensus among economists that the world of low inflation and high growth was going to carry on. i think that is a risky assumption and what's happening in the united states is being compounded by an ill-timed fiscal stimulus just when you get to this point of full capacity. but if you look there it is starting to look as if inflation is coming through and maybe we will see something similar in europe. anna: when we look at europe, do you see reasons that inflation is different?

is it behaving differently from other recoveries? injust got some wage data germany that suggest maybe there is some inflation coming on the horizon, but doesn't look structurally different this time? ,> i think around the world certainly around the developed economies, inflation is behaving differently. when spare capacity closes there is less tendency for wages to pick up. it is probably to do with the berization of the market. the technology means that pricing -- all of these things are making inflation behave differently. whether that means the laws of gravity have been suspended, that is where we need to be careful. manus: vanguard asset services chief european economist.

remember, if you are a bloomberg tv customer, you can watch on tv go, everything that we use throughout the day. you can also influence the conversation, asking a question at the bottom. anna: coming up, bhp billiton's profit for first half has risen to a three-year high. we will discuss the company's earning, in the market, next. manus: and the u.s. market reopens after president's day, and the bond markets are back in the spotlight as the treasuries -- a flatter yield curve. we have an onslaught of supply. how will the market take it question mark this is bloomberg. ♪

manus: welcome back. a live shot of the capital of the united states. lower as blackrock says they have gone over u.s. equities to buy. the u.s. tax plan will supercharge the earnings. we are coming back from president's day lighter, a quarter trillion dollars in terms of bond offerings. let's get across to yousef gamal el-din. yousef: thanks. with hsbc, the reported adjusted fourth-quarter pretax profit of $3.6 billion, missing the lowest estimate among analysts surveyed. the rare failure to live up to analyst burning estimates comes at the end of the chief

executive comes to an end. discussediggest banks narrowing lending margins. according to the finance director, soft or itc numbers were a factor in the earnings. >> the fourth quarter from our perspective in the industry's was a little weaker with respect to revenues, particularly in the and we also took a couple provisions for significant corporate exposures in the fourth quarter. the world's largest money manager turned bullish on u.s. stocks, like rock seeing $6 trillion in assets, saying in pending fiscal assets will boost strong momentum for earnings. the company's global chief investment strategist says american profit growth strength is unmatched and that blackrock has raised u.s. stocks from neutral to overrate.

anna: anna: thank you. yousef gamal el-din with the business flash. bhp billiton has boosted investment returns, rising to a three-year high. they also rejected a renewed demand by elliott management for corporate overhaul. our bloomberg managing editor joins us now, still with us is the chief european economist at vanguard. let's get your thoughts. we have been given one side of the bhp story. some of the numbers didn't quite live up to expectations. >> it was later than analysts were hoping, but i think people will focus on the dividends number, which was higher than people expected, paying 50% of profits and illustrating how much is being generated by these big mining companies right now. copper prices in particular helped, starting off around $6,000 per ton and ended at

700,000, which boosted profit. manus: it goes back to discipline from blackrock, that is what seems to have been delivered. sees exiting shale in the u.s., it's a lumpy investment. that now theysed are more aggressive than before given the renaissance at low prices? that business has always been problematic. they paid too much, it is very gassy, and has been very much the focus of the activist campaign and they don't like the fact that this mining company is in the shale business and they have agreed it should be out to the business and hopefully the positive vibe will help. anna: they only bought in 2011. >> that's right.

anna: thanks for bringing it in. you on thes come to u.s. economy. we talked about the inflation pressures in europe, a lot of concern about the return of inflation, concern and opportunity at the start of the year. how high do you think the inflation gets? >> i think maybe it could get up to 2.5%, which at the moment -- we have had inflation staying underlying, so i think there's enough inflationary pressure for the fed to do a few more rate hikes but i don't think four is out of the question. events thattion of we are seeing, inflationary , and ofs, big supply

course more of it has to be soaked up by the market. manus: we have talked about the governmental level, but have a look at this, but consumers are happy. we might be crying into our cups and the u.k. but this is the state of play. , theresent situation expectations are still in an upward trajectory and consumer confidence -- you are looking at levels really taking off -- we haven't seen this kind of level since 2016, so the consumer is very confident and it is this talk -- this tax plan. do you rerate the growth story in the united states? >> i think you have to. it is very unusual.

if you look at the normal correlation between interest rates in the business cycle, it is very unusual to have a fiscal stimulus being implemented right at the point when you hit. passive the. i think that is going to mean that the inflationary pressures will be coming through and i think growth will be stronger. i think it is pretty much inevitable. whether that means equities will benefit strongly, i hesitate to make big calls over a short-term horizon, and for us looking out further, we see a pretty subdued picture for equities globally. the u.s. is very overstretched in terms of valuation so for investors focusing on the you arem, we think probably looking over the next 10 years at something like 4% 5% , much more subdued than we had in the past. there eithersk is for the equities story or for

the u.s. growth story from higher interest rates in the u.s.? because we are at 2.9% if the markets came back today, and there are questions about this treasury issuance we are seeing this week, a lot of short dated treasury going into the market, a lot of waving. how will markets absorb that? >> think the most obvious risk is either policy mistake by the fed of doing too much too ofckly and i see the risk being around an equity market correction. we saw a little bit of that had a corrections with consumer confidence numbers , i don't think they are reflecting yet the impact of the uncertainty that we've been going through and because we are going through such uncharted territory as far as policy

is very difficult for policy makers to navigate. that is where the risk is, especially when markets are so overstretched. manus: the other chart and i and i converged on -- this is the dollar. basically saying the dollar could have 3% in terms of the growth story to the united states, and he goes on to talk about emerging markets, the decline in the value of the dollar emboldening emerging markets. but there is this very clear link between the dollar and the u.s. strength, and much as said members might not want to talk go,t the dollar, there you that's a moderately good correlation, isn't it? moderately. we will see that dollar stay in that position for much

longer remains to be seen. i think with inflationary pressures coming through the dollar could bounce back. anna: one of the most compelling reasons to explain the dollar weakness we have seen -- we went through seven or eight that you could offer as reasons why the dollar has been weak, less chinese interests or things around interest rates, all sorts of other factors. think people say if interest rates are higher in one country that means the dollar goes up -- that is bad math. way it is what one would expect but i think we are continually getting shocking dollar rates which should put pressure on the dollar again. manus: anna mentioned $250

billion, but 10 year notes are it isng 1.6% per year, the fattest over fed funds in years. how important is it that the market takes this week's supply and doesn't bust above 3%, doesn't bust those big trigger points? but il, it's important, think that will be the direction of travel. i didn't think there's anything not given around the 3% barrier and i think these rates do go up three to four times this year. at some point in the next six months we will go through that and i don't think it is coming back. anna: thank you very much. vanguard services chief european economist. let's check in on the u.s. equity futures. the u.s. 10 year yield up two point 9%, perhaps taking the edge off the asian equity session. higher,ondon indicated blackrock saying by u.s. stocks

and morgan stanley saying it is just an appetizer. but we have the main course for you, preparing for the heady auction of a quarter trillion dollars. how do you play the markets this week? this is bloomberg. ♪

go good morning from bloomberg's new european headquarters -- manus: good morning from bloomberg's new european headquarters. it's a species miss -- hsbc's miss. the stock takes a hit in asia. we hear from the finance director. >> the fourth quarter from our perspective was a little bit weaker with respect to both bank and market revenues. coleman with some of our peer group, we got a couple of collisions in the fourth quarter's. anna: asian equities snapped a three day -- a six-day rally as hong kong comes back online

following the new year holiday. treasury yields climb again ahead of a quarter of a chilly and dollar -- quarter of a trillion dollar. if the bloc does not play ball on trade. ♪ manus: welcome to "daybreak." asian markets are playing a little bit of a catch-up coming back. you've got hong kong back in business. still liquidity at the tail end of holiday season. you've got teachers rising. you got london up by 12 points. morgan stanley saying that the -- blackrock saying the u.s., you should buy stocks.

yen is showing slightly more risk-off level. stocks are generally higher. you are going to get swedish cpi today. you get euro area consumer confidence later on. there is one focus for markets. that is the bond issuance. you've got breaking news on the hotels. anna: intercontinental hotels reporting numbers this morning. they are up by 4%. for is just a pretax, $274 million. it is a little light on the revenue side. etf,t full-year adjustment 2.446. we're speaking to the ceo, keith

barr at 7:30 u.k. time. other breaking news. that is an understatement. melrose industries talking their performance. this is the business that is bidding for the engineering company. melrose industry staying on the topic of the k -- gk is in need of fundamental change as they going to talk about their own performance. melrose industry giving their profit numbers. they come in a touch ahead of the estimates on that pretax profit number. jeremy corbyn citing the melrose gk bid the last four hours. talking about what he would do if you were in a position to prop certain types of takeovers. let's get to the risk radar and talk about where we have been overnight in the asian session.

the hong kong market is back but china is still out for the lunar year. -- lunar new year. hsbc has been a bit of a wait on that market. one big focus on markets as we head into that treasury issuance . short dated bills will come to the market. 2.9% on the 10 year. we will keep a watch and what impact that has on equities and the broader u.s. economy, a part of this 2018 conversation. dollar index and therefore you. we get the u.s. market back in focus today. today at bond off auction. the yen -- by 5%. -- they givest

the japanese the advantage to come in and pick of the yield. the shorter end of the maturity in terms of flow this evening. there is a trend in the bond market. you got that 10 year paper, a little bit better off. tenure paper is at a for your high -- 10 year paper is that a four-year high. they are yielding 1.6% over the g7 peers. two-year.oes for two-year notes are from 70 basis points. that is three times the average in the past 20 years. gillespie is saying a little more inflation could unseat the bond market. there is a wonderful story about the bond tourists who bought ideals. if these blooms kick in at 1% --

in these buns chicken memo percent -- let's get your first word news, edward ludlow standing by. ed: u.k. government has a plan to -- if the eu doesn't give the country the trade bill. the move is not the preferred option. many believe it could be necessary if the eu tries to renege on a free trade deal. meanwhile in a brexit speech later, david davis will reassure the european union that u.k. will not try to undercut the flock. merkel has sent a signal about her preferred successor as chancellor why pointing close ally to be secretary of the cdu.

the unexpected move is a signal looking to keep the cdu firmly in germany's center. mark carney says he is racing to the uk's the crisis. -- uk's next financial crisis. carney says the just accepting the next prices will happen is the best way to prepare. trump has endorsed mitt romney for u.s. senate in utah. the move sets aside long-standing differences. the gop looks to preserve its narrow majority in the chamber. romney announced on friday that he would run to the seat -- run for the seat. the latvian prime minister says he will try to prevent ecb governing council member returning to his post after he

investigated in a bribery probe. allegations and says he plans to hold a news conference later. the leader of the k opposition labor party has vowed to make it harder for asset strippers to take over companies. in a speech, jim equipment said -- to allowlabor the government to intervene. extended warnings to the city of london of how finance should be regulated. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg. let's get a check on the markets in asia. last hour of trade here in hong kong. a very quiet session. we are down on the benchmark after six days of gains.

consolidation.s bit --getting a little taiwan is close, a half of 1%. japan closed 1% lower in a negative correlation between the value of the currency and were equities are -- and where equities are. hong kong, as you can see, we are up by 14 points. hsbc, providing a lot of graphic. 11%.f the index, when you look at hsbc, shares up this week. you take hsbc out of the index here, we should be up about 60 points. just to get to you, we are down about 1.7%. there we go on your screen.

yields on the premium, we are now looking at the disappearance of the term, australian is a has against -- 2.9%. that has implications on the currency moving forward. really just move up and bond yields. -- in bond yields. higher.he dollar is treasury yields rising ahead of an auction. paper, 2.9%. let's put this in context. yogi dewan is with anna and i this morning. we started at 6:00 a.m. this

morning. thanks to the asset managers in the hedge funds, what you are seeing is as cap. the third widest in 10 years. it was the real money that one out. is this auction will it -- is this auction will enough? do you think they will show up to buy? yogi: it is hard to say. outflows this last week of 14 billion. 13 billion the week before. issuance that the we saw in 2016 versus 2017, it is up globally around 7%. are there lots of buyers? i suspect lot -- i suspect not. it is pretty much priced in. i saw comments about the yield

creeping up to 3.25. at what level will it hurt? we will see masses of flows and it will start to hurt. anna: i want to ask you about the relationship between those bond markets and other asset classes. you got this chart talking about the equity bond market correlation. it has in the blue, the fed funds target rate. however you expecting that to evolve in 2018? what d.c. bond yields going higher? do you see bond yields going higher? earnings.ust had q4 we have had earnings at 50%. 8%.nues growth at

if you look at imf forecasts, this is good news with dollar weakness behind it which is what we have seen over the past few weeks. this is all supportive of equities doing better. at some stage, if you get bond yields, that may flip. it all comes down to if we are going to get for interest rate hikes or three. anna: if we get -- if 10-year yields go about that, it is that for equities. yogi: the market is expecting it. 3.25%, thatve starts to hurt. we start to see the bond flows that we have been talking about. manus: you see blackrock overnight. there topline -- they maintain profit growth is unmatched the moment in the united states. they got overweight. it is great when these -- we get

a 3.25% which is not one million miles away. the profit story is very strong. the s&p earnings so we can see this reevaluation on the u.s., although the s&p has outperformed the alps -- outperformed the stoxx 600. yogi: blackrock's comments which were very interesting. we are not overweight with the u.s. we're concerned with where valuations are. if you look at nasdaq, we are up at 22. this is following the correction was signal the last two weeks. -- was signaled the last two weeks. we do agree with some sentiment. we like u.s. tech. the reason is its exposure is

global. it doesn't depend on just the u.s. he said that is very positive. global growth forecasted at around 3.6%. anna: yogi dewan stays with us. coming up, hsbc shares fall in hong kong after fourth-quarter adjusted pretax. manus: theresa may's back up brexit plan could provide billions of pounds in payments for the eu. that is if it doesn't get the trade deal that it wants. we discuss. this is bloomberg. ♪

manus: 41 minutes until the start of the european trading. let check in on the markets. there is a range of views out there. yogi dewan suggest year -- american markets are rich in value. that may dictate the direction of travel for markets. you can equity markets up three pets. bund future's, .75%. when and if those bones hit 1%, when you -- you will see high-yield seekers come back. anna: hsbc shares fall in hong kong after the full-year adjusted pretax profit and the fourth quarter missed estimate. i spoke to in mckay the about

the results. >> we have always taken a conservative stance in dealing with troublesome credit. we have dealt with this in the fourth quarter of the year. we expect to going to 2018 with a really clean slate with respect to those exposures. anna: some analysts expected another by back today. your tier one capital ratio above your target at 14.5. why did you decide that today was not today -- was not the day to do a by back? , well aboveecision the top end of the range that we targeted. a technical reason behind this. we are targeting some alternative tier one instrument issuance between five to seven but -- $5 billion to $7 billion

in the first half of this year. the first half tends to attract more interest in the estimates, as well as pricing overall. the regulation with respect to some of our authorities that you cannot put out capital estimates in the market place in dubai back at the same time. -- and dubai back at the same time -- and do by back at the same time. numeral change of policy. the decision is informed by the decision to get alternative tier one estimates into the marketplace during the first half of this year. manus, really interesting. since i spoke to him, it has emerged that part of that clean slate on exposures, they are venturing to achieve, the impairment they took in the fourth quarter relate to carillion and steinhoff.

it is fascinating to see the extent of those two businesses. yogi, let's talk to you. awaiting the specifics of hsbc. one thing that he did go on to talk about is out they -- is how they cut the benefit from the rising rate in the united states. is that something you are playing the sector for? yogi: we are completely. and just go up three or four times. that is good for the banking sector. we like hsbc on the basis of valuation. there are concerns about asia but asia is growing at a pace. opportunity ton buy on the dip. manus: for anybody that has missed any of the highlights, anna, great interview. they cited that in the tliv

interview. the measure of whether earnings are rising faster than cost. it is back in positive territory at 1%. i pulled of the relative value function. the prices 1.44 and this is -- we are seeing credit suisse creeping back above par. there are still opportunities. .talian banks are beaten up how do you look at the relative value of banks? do you want to be europe? u.s.? yogi: hsbc has taken a hit despite its price ratio because of the leverage in emerging markets. asia, that is the big concern. also the asian market tends to be more trading orientated. that impacts on their revenue

stream depending on the volatility or not. q1 this year we have seen masses of volatility. this can be a good entry point for hsbc. most european banks tend to have more exposure to europe or the u.s., less so asia. your plate is more to do with what is going on with europe with european interest rates. anna: looking at other companies that reported, bhp billiton, that has reported. is it around finding growth opportunities, or is it about getting cash back to shareholders? yogi: the mining sector has more to do with the gdp growth. with what a lot to do is going on in the commodities space which directly is impacted by the u.s. dollar. look at the dollar, global gdp growth. we take if you on geography and

sector allocation and the mining sector is struggling. we look to q4 earnings. it was one of the poorest performing sectors. primarily because what has been going on. manus: look at the valuations that you popped down for the u.k. the lead story is the latest tentativelywhich is been agreed to pay to the european union around 4 billion pounds. can, 13.9 on the ftse 100. how do you look at the u.k.? --were looking at the you looking at the retail sales. the domestic economy versus global perspective of the ftse 100. yogi: the problem you got with u.k. is buying domestic exposure.

most constituents are global fires. just global players. when you look at the ftse 200 just ftse 100 with the ftse 250. that is cheap relative to the u.s. u.k.'s not doing that badly because we have been seeing inflation figures now above 3%. you've got one interest rate hike most priced in. the u.k. economy outside of the brexit negotiations is doing ok. not doing as bad as everybody thinks. anna: yogi, thank you for joining us. take a moment to check features around europe. we are expecting to see -- it could be a flat start to the day. major markets way download bit. -- weighed down a little bit. manus: the private -- the profits the highest in years.

hsbc, likely to buy back versus their technical prospect. coming up, conversations of 20. test conversations of plenty. -- conversations of plenty.

guy: welcome to the work markets. this is the european open. i am guy johnson. matt miller is off today. cash trade less than 30 minutes away now. ♪ guy: hsbc misses in q4. shares drop sharply in hong kong as they are heading to the worst performance since stuart gulliver's 10 year. he leaves today after 30 years of the bank. bhp's half-yearit