mary: good morning from bloomberg's european headquarters in the city of london, i am nejra cehic. manus: and i am manus from dubai. these are the day's top stories. nejra: bowing to pressure, italy's populist government may cut its deficit. rosy future ahead. may fish is expected to paint an optimistic future of her efforts. and, staying the course. about thepowell talks new inflation risk. we will hear more from two fed presidents. ♪

manus: it has just gone 6 a.m. in london. the euro snapping a five-day losing streak against the dollar. it is reported that italy's government will cut deficit plans after pressure from the eu. written are has wonderful piece this morning. mark, welcome to the show this morning. it looks like italy blinked. mark: i am not sure they really have. this is a very inadequately let -- inadequate reaction to cutting the budget deficit. they are talking about cutting it in 2021, 2 years too late. cutting it to a 2% from a 2.4% target. it will not address the market concern that is much more imminent. i think there rise on this --

the rise of the euro currency on this news is not enough. nejra: we talked yesterday about the currency. where do we go from here? : absolutely, that is why i think we have crossed the rubicon. the market is declaring war on italy and saying that he wants a fairer response from both the italian government and the eu to address these debt concerns. for the of maturity debt is about 6.8 years, 3.1% and the seven year yield. we are triggering and negative spiral of italian debt, which means that interest rate payments will get higher. both the interest rate payments and of the budget are reacting negatively on the debt and it means they turn in government and the eu must counteract soon, if they want to control the situation. manus: we had a conversation with stephanie saunders and she

challenges what you said. she says, given to the europeans, come back to 2%, who knows right he will be with the time. in two years >> i think that is correct, i expected the eu to do that initially. ultimately, the markets control the situation because the debt by italy is so large. if the market says, they are not happy with 2.4%, something must be done. it is all about the signaling and the eu could help by saying, we will see if italy can get away with this and do it by stimulating growth, but that. nejra: is not happened yet. nejra: marks, thank you so much for joining us. you can follow insights from mark and the rest of the tea on bloomberg at mliv . 1.15 78 is where we are, that is a rally in the euro. to see where their

currency will go. of course, mark doesn't think that the euro rally will sustain. ali forster of the dup yesterday, setting of her red line, raising big questions for about the irish border. we will hear from prime minister may. in the past, some of her speeches have led to a drop in the sterling. we could see some volatility when she is talks. asian equities over all are down for a third day, that emerging-market equities are taking the heat in the fx space. the indonesian rupee is at a 20 year low. the indian rupee as well. other than that, emerging-market fx is fairly steady. manus, what does mohamed el-erian have to say about emerging markets? manus: he says, you have dollar strength, oil strength, it is perhaps a little soon to jump e.m..

features are indicating a nice bounce at the moment. s&p is also up, getting out of the global funk. to some extent, the italian story has moved the bond market. a little bit of a rise in yields. we are out of the u.s. equities. favored theraders s&p 500, it outperformed the e.m. by 3% during the first three quarters of the sierra. feety be soon to jump in first into this market because of the dollar strength, and because of the political tensions in europe. you have got to be brave, and the question is, are you a meat eating bond trader, or a quiche-eating equity trader? nejra were: coming up, the bank president of chicago joins us just after 11 a.m. london time.

let us get our first word news with juliette saly in singapore. nejra, the federal reserve president has welcomed increases in wages. speaking in boston, jerome powell says he expects to stick with the central bank's current path of gradual interest-rate hikes while monitoring risks presented by very low unemployment and low inflation. new york state tax authorities have started an investigation into allegations that, trump and his family created a real estate empire through "instances of outright fraud." according to the new york times, president trump received roughly more from his father that he had previously stated and that president trump backed his sons bad financialng stretches. the white house says the report is misleading. u.s. secretary of state mike

pompeo will travel to pyongyang on sunday to meet with kim jong-un and prepare for a second summit between the north korean leader and president trump. the state department's announcement confirms what he promised last week, that they -- "maketo open court the final preparations." seeking aent is firmer commitment from kim jong-un to give up and nuclear weapons. lawyers for two women who accused supreme court nominee that kevin of sexual assault and misconduct have said the fbi is not doing a full investigation of their claims -- supreme court nominee judge kavanagh of sexual assault and misconduct have said that the fbi is not doing a full investigation of their claims. earlier, president trump doubled the on his support for judge kavanagh. president trump: i said that it is a scary time for young men in

america, when you can be guilty of something that you may not be guilty of. this is a very difficult time. here has muching more to do than even the appointment of a supreme court justice. juliette: global news, 24 hours a day, on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. ♪ you can find more stories on the bloomberg at top . checking in on the markets in asia today. south korea and china are out of action, but the nikkei is under pressure, retreating from 27 year highs. hong kong markets are still holding onto the losses from yesterday, quite a lot of selling coming through in the afternoon session in the hang seng which is already in bear market territory. one bright spot, the australian share market in late trade is of but about went through percent.

we had the bloomberg interview with our guest who talked about a hard brexit, and the impact they would have on their business. they are now saying that $78 million hit in weekly revenue, that toyota generates from his see ah plant, if we do hard brexit. toyota is now off by a half percent. we are hearing that bhp and another company have reached a deal with prosecutors. yes bank is doing really well in india after the holiday yesterday. although they are saying that there could be a storm ahead for that bank in india because they are still on the lookout for the search for a ceo. ?ejra nejra: juliette saly in singapore, thank you so much. a five-dayapped losing streak against the dollar. according to italy's draft

budget plan, it will see the deficit reduced to 2% in 2021. the currenttuesday, prime minister had insisted that it would stay above 2%. we have chief strategist at bluebay asset management. david, thank you for joining us. we are looking at this chart here, we are 300 basis points on where one of our analysts said, it is full-blown panic. another strategist said -- are these signs of full-blown panic that could raise contagion, or is it a turning point where we could see buyers coming into the market? david: i think it reflects clearly, a lot of concern within the market, given the comments we have been seeing recently. coming out of the italian government. i disagree a bit with your analyst, mark.

i do not think when you look at the overall yield and the 2.4 thatit target next year, it places italy's public debt on an exclusive path, and does not do that. the deficit is about the same as the budget that france will have --ir we debt on an that it places italy's public debt on an explosive path. it does not do that. the deficit is about the same as the deficit by france. i think that is more important, looking at the very short end, then looking at the seven-year are the 10 year. closek we are quite to the point where if we have a inningful further widening spread, you will see contagion across border european assets. so far, broadly speaking, we have not seen that. manus: david, what does that do to the kind of thing i am .ooking that

come spain versus italy we are looking at record highs in terms of that spread. andy's hayne is spain portugal's gain. would you be a buyer of that? , italy overar high spain. what you make of that? david: i do think that italy's oreads are mispricing exaggerating, if you like, both the fiscal risk faced by italy in the near-term, and also a .ind of, implicit exit risk as you highlighted come a very wide to spreads to italy, about three times of the spread versus portugal. is actually trading wider on the spread terms with italy, if you look at the market, relative to brazil. --s is a pretty romantic dramatic pricing we are seeing on the market. i expect over the coming weeks,

months, to get a bit of compression, with respect to spain, but also more generally for overall spreads and italy best spreads and heels and italy to come down. anna: you said you were watching the front end. we have seen the flattening, but not the way it did in may, when we had investors worrying about rhetoric. you are right to point that perspective. how concerned are you with the fact that the euro has been swept up in this in the past five days? maybe it says that investors are worried about broader contagion. your investors are watching italy. an overalls clearly part of the narrative about the euro. it is going to have a negative impact in terms of inflows into the euro asset class, particularly from asia. i think they will be concerned

about the level of critical risk. if as you highlighted, people thought this was generally a systemic risk at this stage across the market, then spain, portugal and greece would be trading much wider. i think the euro would be meaningfully weaker than it is. i am not trying to downplay the impact and influence of italy, it is very important. but as of yet, i still think it is being viewed by the market, correctly, more than an issue for italy than it is an issue for the border european asset class. manus: we have one of our bloomberg columnists, mr. giuliano. he said that the best way to work with the populists is to tell them to let the market -- button,s hit the stop and their way to bring them down

is to it and did say, listen, it is best to leave it to the investors. did the bond vigilantes win? are they winning? david: i prefer that time -- the term gentlemen of the spreads. [chuckles] think the gentlemen of the spread have indicated that they are not very happy with -- i steepening than the overall level. relative to budget deficit, elsewhere across europe including in places like france and also whether it be the united kingdom or the u.s., the 2.4% target is not an unsustainable one. , where the market, including myself have been concerned, is the fact that the finance minister has said that

andould be sub 2%, actually, his control within the government or influence is may be somewhat less than had previously been anticipated. so i think it is all about signaling from here. nejra: wonderful to get your perspective, david riley. us.astic to have you with chief investment strategist at bluebay asset management. he stays with us. coming up, you do not want to miss two fed president on bloomberg today. beth president of the federal reserve bank of chicago joins us for an interview just after 11 a.m. london time. minas: and another voice from the fed later on. jay powell last night. and the president of the federal reserve of philadelphia. both will speak on bloomberg. ♪

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are taking a look at a live shot of washington. the latest rhetoric from washington to the king of saudi arabia, watch out. he would not be in power for more than two weeks area a warning shot from mr. trump. the press reports that the italians may, may lower the deficit. that is moving markets of this morning. speaking of which, the fed chair, jerome powell, has said he expects to stick with the central banks gradual path of interest rate hikes. calling it a reflection of economic strength of the times you are in. this historically rare pairing of steady low inflation and low unemployment is a testimony to the fact that we remain in extraordinary times. policy of gradual interest-rate normalization reflects our efforts to balance the inevitable risks that come with extraordinary time. so as to an current mesh extend

the current expansion while maintaining low unemployment. manus: extraordinary times, jerome powell speaking at the nab annual meeting in boston. david riley, the chief investment strategist at bluebay asset management. one of our two strategists was here this morning, and she said , the fact that he referred to the fact that unemployment could fall even further. would you agree or disagree? david: i think it is likely that in the us unemployment will fall further, but i think to some we are at full employment. the participation rate has not then moving much higher. it was interesting in his speech tot he also made reference things like labor shortages,

capacity constraints -- the u.s. economy is operating at full capacity pretty much. there was a comment made that the u.s. are sitting on an as path of monetary policy. i think that the situation we currently have is isometric in the sense that inflation risks are starting to build within the u.s.. i think the lords of economic stability have been completely broken. the fed is gradually tightening and they will continue to gradually tighten. a bitk the market is complacent about the outlook for inflation at this particular juncture. our strategist i think, agrees with the on the whole, saying that the u.s. is in a good place. saying, right now the fed is hiking because it wants to,

rather than because it has to. david: the danger, of course, is that you get caught behind the curve and then he has to do much more aggressive rate hikes and slamming on the brakes. but i do not think we are there yet. it think it is interesting that the market and the fed, there is still a divergence there. it is pretty clear and direct, refreshingly so, that it will be a steady march higher. the fed is marching higher. inwill get another rate hike december, rate hikes every quarter, going into the first half of next year. the market has said that the fed is on course for current of the middle of june of next year, and that is about it. i do actually think the fed is more likely than not to be doing for rate hikes next year rather than the two that the market is currently pricing. next be doing 4 rate hikes year, rather than the 2 that the

market is currently pricing. manus: where will the dot plot, take us? to help us divine what happens, charlie evans joins us for an exclusive interview, president of the federal reserve bank of chicago. we are seeing yields rise ever so slightly this morning on 10 year government bonds in the u.s., 3.072. what dost charlie evans have to say? that, i look forward to into another exclusive interview with santander chairman, ana n.ti she says she still has faith in the country. she spoke to francine lacqua about the bank's position in emerging markets. >> i remember we had a conversation a few years ago about brazil and we delivered 14% r.o.e. in brazil when they were in recession. i am very proud of my team. resident will deliver close to

20 percent r.o.e. this year, -- brazil will deliver close to 20% r.o.e. this year. -- coming election to up. we need to remember that the election is not the beginning of the end for brazil. i see it as a normalization of politics. i have huge faith in the country that i have not really well for 30 years. thereason is that institutions are working. i think we will have of the wrist on private sector. and we will have a huge internal market. there is maybe one exception for latin america, venezuela, but in the country is a have a presence, the lows are always higher. elections, they would be important and deliver -- determine the pace of development, not the direction. this is an important belief that we have come at which is i am so confident about center and there. ask you: i was going to whether investors misunderstand some of the emerging markets,

including brazil, because they see the elections as very decisive. it is important, but like i said, i don't think it changes the direction, just that this. francine: are there any other countries in the world where you might exit? right now. -- not right now. we are in 10 cor markets. ewhen investors look at santander, maybe they are not understanding the amazing opportunity for growth. as of june,exico were 33% of the group net profits. spain, portugal and sent under consumers in the euro area countries, 33% of group profits. the total lending in mexico and brazil was 100 billion dollars. the total lending in the euro area was 350 billion.

opportunity that we give investors in latin america is a very attractive one. manus: that was sent and there's , speakingana botin exclusively with francine lacqua. not everybody has such faith in the latin markets. mohamed el-erian says it might be too soon for investors to reallocate away from u.s. stocks into e.m.. prices,: higher oil stronger dollar, slowing growth and tightening financial conditions are not a great cocktail for most emerging markets. in the short term, be careful. this is not yet the time front anti-divergence rate. it will come, but not here. our guest,d riley is chief investment strategist at bluebay asset management. if i look at the equity differential -- this is that on the g7e financial,

currencies, based on the dollar. these gaps are still very wide. is it still too soon for you to jump into e.m.? are in the e.m., including in some of our multi-asset credit strategies, there isink that value, particularly in a dollar credit. there is certainly some value there if you are selective and discrete. prices broadly speaking, are actually a net positive for emerging markets. , is whereor investors the best one thing to think about as investors is when is the right time to get into emerging-market currencies. there has been a big repricing

of emerging-market currencies and in pretty much every metric, most of them look very cheap. that is a variable that emerging markets need to adjust to this stronger dollar, tighter u.s. financing condition. whether we are quite there yet, i do not think so, but i think it is quite a big call for investors, going into the remainder of the year. nejra: as much as we love mohamed el-erian, we always disagree with him on our show. about quantitative tightening, you always hear that we will get it a lot of big outflows from the emerging markets. is that what you foresee as well ? oned: it has certainly been of the issues in the narrative. during the quantitative easing era, we had this surge of yields and everybody went into riskier assets, including emerging markets. -- i've look at the numbers

printed maybe 15% of the capital flows that have gone into numbers,markets, big could be potentially related to qe. some of that money is going to flare out. that's only about 10% of the total flow. i think it is actually going to be manageable for emerging-market assets. manus: indeed. we have our big report out this morning about central banks around the world. our guide to what the top central banks will do next. technique, anybody -- tightening, anybody? if you are a bloomberg customer, you know what to do. you can save it all in euro

library. nejra: let's check in on the markets. morning, danny. a pretty mixed picture this morning and asian markets. the biggest losses going to be from india, 0.8% decline. officially below the $2 trillion mark. losses in japan after posting a record high yesterday. looking across assets, one of the ones to keep your ion is the euro. up higher today after italy might be seeking a lower budget deficit. australia gaining after a surprise miss in august building approvals. gold and silver showing some moves today. i mentioned the mixed picture in asia. it has been that way for most of the year. index, we areic in a holding pattern. we did have games near the end of september here as pension --

trade tensions seem to be easing. we are declining again. not even japan's recent gains have been able to break us out of here. we are also seeing gold to klein relative to the points -- price of oil. also at a is four-year low. analysts, this low price of gold versus oil might actually be a boon for the safe haven asset because as oil rises, as the price of commodity rises, investors might flock towards gold as an inflation hedge. we are starting to see some of that today. manus: thank you very much. your first word news. juliette saly standing by. has snapped five days of losses according to della sera. the italy populist government will reduce its budget deficit

to 2% of gdp in 2021. the deputy prime minister said the administration would stick to its for -- its plans for a deficit feeling of 2.4% as recently as yesterday. new york state tax authorities have opened an investigation into allegations that donald trump and his family created their real estate empire through outright fraud. according to the new york times, the president received more from his father then he previously stated. the white house says the report is misleading. u.s. secretary of state mike pompeo will travel to pyongyang on sunday to meet with kim jong-un and prepare for a second summit between the north korean leader and president donald trump.

the announcement confirmed what he promised last week, a visit soon to make the final preparations for another summit. is seeking a firmer commitment from kim to give up his nuclear weapons. lawyers for two women who accused supreme court nominee brett kavanaugh of sexual isn'tt have said the fbi doing a full enough investigation of their claims even as the bureau has been glinted broad authority. one attorney said the fbi apparently hasn't contacted any of the more than 20 witnesses to her claim that he exposed himself to her at a drunken college party. president trump double down on his support for kavanaugh. >> it's a very scary time for young men in america, when you can be guilty of something that you may not be guilty of. it's a very difficult time.

what's happening here has much more to do than even the appointment of a supreme court justice. news 24 hours a day on air and on twitter. powered by more than 2700 journalists in more than 120 countries. this is bloomberg. nejra: thank you so much. want to bring you a headline. more reports in the italian papers, the finance minister has reassured the president on changes to the deficit target after early reports that italy was going to lower the target to 2% in 2021. we have seen the euro move on that. let's talk oil. near the highest level in nearly four years. it's going to be a topic of conversation at the russia energy weak, ticking off in moscow today. below $85 per barrel.

much should we expect from the meetings in russia? >> good morning. i feel like it is deja vu in russia again. the saudi oil minister and his russian counterpart meeting again as rises are rising. when they met in may, prices weren't as high. trumpere getting those tweets and calls from india and china asking for more production to be released into the market. right now the group is struggling in terms of compliance. they are over complying by 29%. the market is beginning to look very tight. people are expressing prices to rise higher than what we are seeing now. potentially $90 by christmas. 100 by the new year. manus: let's talk about the around flow. down 39%.

this will be harder on a wrong than it was under obama. ministere iranian iron -- oil minister no longer showing up today? why is he not coming to see you? >> it's interesting. they are definitely under pressure. he didn't give a reason. we know that last minute he pulled out from attending this conference. though sanctions will be hitting them in a month. droppeddy know exports 39% since april. we know that their buyers just are either halting or stopped buying. south korea, japan, india. the big question there is china. orl china continue to buy will they adhere to the u.s. sanctions and stop those iranian imports? the big question, we have the meeting, whoister

has the spare capacity to make up those barrels? russia is pumping at post-soviet record highs. saudi has spare capacity but some of that is an oilfield they's share with kuwait and those talks are ongoing. there's no positive drilling starting there. once you start tapping into what if weities, have another shock? nejra: thank you so much for joining us. toorts of italy's government bow to cut its deficit plan. our guest is still with us. good morning. -- caving intog the used a man's? >> they knew the eu wouldn't give them whatever they wanted. you would always want to start out with the more extreme

position and then hope to find something in the middle ground. clearly the eu has rejected the numbers that were leaked to the press last week. we had comments from younger and other eu officials. now they are coming back with something slightly lower with the hope that that will be more acceptable. >> very good morning to you. one of the things that are guest host said, the gentleman of the fair pointt is a that the market has pushed political issues here. is that your take? >> yes. it's not only that the government is bowing to the demands of the eu. they are bowing to the market. the 10 year yield was up 3.5%. the government is paying close

attention. the last thing they want is a market crisis of confidence to deal with on top of everything else going on. they have come back with a more , hoping thattone the market doesn't react is badly. do you thinkriley, we will hear from the ratings agency later this month? >> i think we are going to likely get negative rating actions from the rating agencies who have reviewed the budget and medium-term outlook. we don't actually have the budget planned at this point in time. a lot will depend on the details the medium-term outlook and the credibility of the individual policies. the agencies have italy on a negative outlook.

that you get ad downgrade. i certainly don't think it will be warranted. i don't think that they will junk italy. it's something which investors will be watching pretty closely. atimately, it will be measured response. manus: does our risk increase with the taper from the ecb? it has been the backstop in for those peripheral nations. is that the risk we are under assuming as we travel through taper? good point.ly we're in a shift right now whereby the ecb clearly is winding down its net bond purchases. 2015, the ecb has been buying more than the italian government

has been issuing on a net basis. that's a pretty powerful backstop. premiersome risk increase, some spread widening across other assets within the euro area, it is warranted as part of preparing for the ecb winding down its qe program. in your conversation with clients and investors, what are they most worried about now with italy? >> there are some concerns about contagion, not only to other broadlys but also speaking italian assets. worried about what this means, does this mean the risk of default has gone up for italy? does the risk of italy leaving the euro area go up? if you look at the market reaction yesterday to the

comments from the italian official, he said something like the euro is not italy's cap -- currency. the euro went down to those comments. the market is concerned about that possibility and about that becoming a greater possibility in the future. manus: thank you very much. areas our senior euro economist for bloomberg economics. i guess stays with us. for thep, it is ipo day ceo of aston martin. his first interview of the day. this is bloomberg. ♪

nejra: this is bloomberg daybreak: europe. it is 6:46 a.m. in london. juliette saly in singapore. tencent music entertainment

group has filed for an initial public offering in an definite continuing surge of u.s. listing by chinese companies. it is china's largest social media company. elicit its offering size as $1 billion. the amount is a placeholder and may change. the chairman of bank of santander is saying -- staying polis on the country even as elections threaten latin america's largest country. she said she is confident in the banks brazilian unit. team, very proud of my brazil is going to be close to 20% r.o.e. this year. we have an election coming up. i think what we need to remember is that, the election on sunday is not the end. it's a normalization of

politics. have huge stakes in the country that i've known for 30 years. comcast has sold bonds to finance its acquisition of sky in one of the biggest sales in the u.s.. the cable giant sold $27 billion of unsecured bonds in 12 parts. the longest portion of the 1.75% abovelds treasuries. that's less than an initially discussed range up to two percentage points. ceo says u.s. publicly traded companies are dwindling because of frivolous shareholder meetings. also said many companies are of first ipos because of regulations that accompany a share sale. >> i love my shareholders. the meeting has become a farce.

we all know that. -- i'm not against social groups. >> that's your bloomberg business flash. nejra: juliette saly in singapore. let's check got -- check in on what is trending across the bloomberg universe. nations currently have strong penalties for drug offenses including capital punishment. europe's economic engine is running out of gas. increasing sides of instability as technology brings deep changes to the country. stories,e most read third place, russian billion met -- billionaire suing. wage hike underscores the difficulty of attracting temporary workers.

top story, i huge lending crash leads to protests in china. afloat. licensed onon martin begins trading the london stock exchange later today. the carmaker is expected to price its apo at 19 pounds a share. it will list at a higher valuation than ferrari. going to get into the race. good to see you this morning. that a verypossible british brand could do better than a very italian brand? no nationalism here. according to the sources we saying that the price is expected to be 19 pounds. it looks like the british supercar maker will be valued less than ferrari.

we will know when a few minutes. means pounds share price it will be worth about 4.3 billion pounds, about 20.8 times9 -- that's a little bit higher. ferrari has a stronger history of cash generation and profit. it's an anonymous success for aston martin. owner of aalian private equities group, the company was falla about 400 million pounds. -- valued about 400 million pounds. we talk about ferrari as the benchmark for aston. these twos ago, carmakers were talking about a tie up. >> this is a scoop we broke. aboutially, we heard

three years ago, aston martin investors a process for larry for a potential tie up. aston was trying to find ways to capitalize its investment. they decided not to pursue it for internal growth. ferrari has decided to develop itself different cars. finish into didn't the furry empire. -- we are here to see a very it is very iconic for the u.k. market. manus: thank you very much. martin a gelato is aston beats ferrari on the opening bid. ceo of astone martin joins us for his first interview of the day.

he's not buying anybody a gelato. would you buy me a gelato? nejra: we really miss the ball on that, not having gelato with us on set today. is still with us. i'm going to pivot from aston martin to brexit. i heard some commentary this morning, it's a big mess. what does that mean for how you which allocate -- how you would allocate? >> it is a big mess. i wouldn't be looking to increase allocations to sterling credit. have a bias to be short sterling. i like long sterling volatility. at the end of the day, there's a withf noise at the moment the party conferences in the u.k.. investors need to step back from to theocus on the run up

october summit. i don't think we are ultimately going to get to the point of deal or no deal until we get to mid-november. , we will be the break point find out whether there will be some kind of transition arrangement or we are generally into a new -- no deal brexit scenario. bigs: can we pivot to other trades going into the last quarter of the year? have so much she was in my back pocket i don't know what else to do. what about european corporate debt? tell me what you make of this. european corporate bonds. the cheapest they have been this year. do i hear a bid from riley? >> you do. european credit looks more attractive at this point in time then you was credit. why do i say that?

you have a steeper curve in europe, both in the spread market as well as burns. if you go longer dated, you can roll down a little bit. it's attractive to foreign investors. have you have -- as you have highlighted, the fundamental story is better where the market is price. growthket has priced pessimism. in additional political risk we have been talking about on this program. it has priced the end of ecb qe. i think the rotation out of u.s. into euro assets is looking like an attractive contrarian trade. nejra: the divergent story we have been talking about. does that turn into re-coupling at the start of 2019? the bar in terms of

expectations for a re-coupling themee back into -- as a has been set pretty low. everyone is so bullish, including jay powell, about the u.s. economy and u.s. assets. pretty pessimistic in terms of europe and the yams. i think the key deal is what happens to china. that has spillover effects into europe as well. trade,that particular what you think is going to happen to china? manus: of course. we have seen a whole host of notes from jpmorgan saying, i best case scenario is what he 5% jets. thanks for sharing your time with us. coming up, we will talk about the fed. you don't want to miss these two interviews. charlie evans will be with the bloomberg team a little bit later today. that's just after 11:00

a.m. u.k. time. the president of the federal reserve bank of philadelphia as well. this is bloomberg. ♪

manus: good morning this is bloomberg daybreak europe. i am live from headquarters in london. these are the top stories. manus: bowing to the eu. the euro jumps on the reports. eye on the feature ahead. theresa may expected to paint portrait of her efforts to reach a brexit orinda pound trading at a low. austin martin taking on ferrari.

our investors prepared to pay 19 pounds a share? are investors prepared to pay 19 pounds a share? ♪ nejra: good morning. just after 7:00 a.m. here in london. numbers coming from the uk's retailers. let's bring you the first half ca --ting profit for tes that is a miss. quarter, u.k. sales, up 2.5%. that is a beat. this is what analysts were expecting. they were saying to expect strong new case sales growth. coming in stronger than the street was expecting. margins looking for a

boost. a mystery the first half, revenue number, 31.7 3 billion pounds. running, 19 up and pounds a share. that is what you need to bid if you want to be part of the austin martin story. bid foring making a in 2014.rtin back austin martin has a market value of 21.3 billion pounds. pounds, james bond, popping the champagne cork. let me get to this market.

you take your choice. 2189. it is on your bloomberg terminal. what they say, they go over two years. what am i talking about. press reports. are talking about the republic of coming out with new numbers. this is not an unsustainable number. the spread will compress. that is according to riley. overdone, above 3%. me leave you. extraordinary economy. comcast, $27 million in bonds coming to the market.

there you go. take it away. futures, how are they looking? nejra: let me bring you more lines out of tesco. up 2.5%.s the interim dividend per share, 1.67 pence. what we are getting from tesco. firmly on track to deliver medium-term ambitions. profit number, a miss on the estimate of 992. that brings us to the european futures. yesterday, we saw stocks close lower. the ftse underperforming. it did pullback to close lower. we cannot show you those futures . we can show you what is happening with the ftse and dax.

could be a fixed session covered futures looking flat. futures. a bit of struggling is what we could get. with get the first news juliette saly in singapore. >> the chairman of the federal reserve has welcomed recent increases in american wages while expressing confidence low unemployment will spur a take off in prices. speaking in boston, jerome powell said he expects to stick with the central bank half of interest rate hikes well monitoring a state of risks presented by low unemployment. historically rare pairing of inflation and low unemployment is a testament to the fact we remain in extraordinary times. our ongoing policy of gradual interest-rate normalization reflects our efforts to balance

the inevitable risks that come with extraordinary times. so as to extend the current expansion, we will make maximum unemployment and low inflation. nejra: new york state tax authorities have opened an investigation into allegations donald trump and his family realed their roads it -- estate empire through instances of out ride -- outright fraud. from his father than previously stated and trump -- the white house is the report is misleading. mikesecretary of state pompeo will travel to meet with kim jong-un and prepare for a second summit. the state department confirms what he promised last week, a visit to make the final preparations for another summit. pompeo, who would be making his

fourth visit to the country, is seeking a firmer commitment from kim to give up his nuclear weapons. lawyers for two women accusing supreme court nominee bret kevin avanaugh of sexual miss conduct say the fbi is not doing a full enough inquiry. the attorney of deborah notrez says the fbi has contacted the witnesses to her claim. donald trump double down on his support. president trump: it is a scary time for young men in america when you can be guilty of something you may not be guilty of. this is a very difficult time. what is happening here has much more to do than even the appointment of the supreme court

justice. best-knownof china's actresses and company she works with has been ordered to pay $129 million in texts and finds following a months long tax evasion probe. $60 million. were notatives for fan immediately reachable and her studio did not respond to requests for comment. global news 24 hours a day. by more than three 700 journalists and analysts. more stories on the bloomberg. another day of losses in asia. the nikkei retreating. a fall of around 0.2%.

india below that, too. below the $2 trillion mark. 200 buckseen the asx the trend. let's have a look at currencies. that is where the focus is in asia. crude at four-year highs. weighing on these emerging-market currencies. the lowest level since the 1998 financial crisis. bank indonesia said they are continuing intervention. you are seeing the thai baht stronger against the u.s. dollar. that is thanks to buying up bonds. manus: it is unity day in

markets in germany are closed. the rest are up and running. they are all swinging higher. the topet's get to story. the euro has snapped a losing streak against the dollar. to thesually presented parliament today. the the tiny and bond features -- italian bond futures have open. let's get the latest from rome. given how bond futures have opened, it seems perhaps italy has done something to calm the markets. has. fact, it it has cut the deficit targets for 2020 and 2021. that is the good news. let's look at 2019. the government is digging in its heels and will go for a 2.4%

budget deficit next year. that will still likely be outside of eu regulations and rules. manus: good morning to you. what is like to happen today in rome? questionbeginning to his voice in this government. >> there are a lot of questions about that. newspapers say he is in trouble. nobody knows what will happen. he willw, he has said stay as the finance minister and guide this thing through, even though he received a chilly reception. manus: thank you very much. europetern

economy. thank you for joining us. has grippedstory the global market. here we are. it looks like there is a movement from the political status quo in italy. do expect significant repricing in the spread if this is what they are coming up with? 2021 >> from an investor timesctive, we suffered of spread widening in the eurozone. the political scene tends to be volatile. the current government is no different. will pass with time. what can brussels do if the budget deficit is 2.4%?

it is what the cost of funds will dictate. held a italian government will behave. will dictater -- how the entire government will behave. there is no single currency. italians will look at assets at the front end of the curve. expect the spread compression versus germany to revert back to the longer-term average over the last decade. >> before we open today, we were above 300 basis points. it is tightening up a little bit every 293 now. perhaps a touch of relief coming in. equity markets outside the u.s. attractive. especially europe. we have seen the euro be

buffeted a little bit. do you see any potential for that happening in italy, impacting your view on european equities? european equities have been disappointing this year. we entered into the start of the year thinking you would see an outperformance or more cash flows from outside europe into europe. i think probably the exact opposite has happened. in italy, uncertainty about brexit has kept a lot of foreign or u.s., asian allocators out of europe. manus: our last guest, his thought was you have overpriced the lack of growth in europe. perhaps you will see a resurgence of funds back. would you be a buyer of european

equity? of the european corporate debt side? how do you look at europe in terms of the risk you want to take? is to continue to focus on fundamentals. globally are still positive. growth forecasts .2 4% global growth. in the u.s., the number is north of 3%. europe is recovering from the deep recession. equities, relative to say the u.s., they are attractive. some point,ct at when to get the italian situation more clarified, beyond there has been a lot of investor focus. the next six months, i would

expect europe to trade on its fundamentals. lifting rates very gradually. you witheat to have us. you stay with us. remember that bloomberg users can interact. catching up on key analysis and saving charts for future reference. chart ashown the bund lot. definitely one to watch. yesterday, manus, that 10 year yield. it is coming down almost 10 basis points. we went up to something like 335. yield unchanged. higher by four basis

points. seeing the search for the safe haven right now. manus: the debate comes down to this. ubs, over the two-year market. they say there is a probability of an italian default in two years. the president of the federal reserve bank of chicago. joining us after 11:00 a.m. london time. this is bloomberg.

nejra: approaching the european equity market. -- market opening. italian bonds already trading. seven-year he hailed, -- yield,

down. let's talk about the u.s.. thell says he expects current path of gradual interest rate hikes. a reflection of the extraordinary economic times we are in. welcome, great to have you. thank you so much. you talk about the story of two forces. what do you mean? >> you have a strong growth. capx is booming to read it is about those two forces. the dominant force. it is strong. it should remain the dominant force. you have those forces in the

background. manus: good morning. we are in an extraordinary. of time. an extraordinary economy. howell is sounding like greenspan back in the day. it reminds me of 2005. people were not pricing so many rate hikes. i feel we are in the same backdrop. growth in the u.s. is strong. ,he market is still not racing even the fed is not pricing by the market. howell is acknowledging the fact growth is strong and should remain so. they will continue to hiking rates gradually. here. i have a chart it is not the exact one but it intentions look

firm. there are some coming out and trade wherevergence america is winning. we will see convergence and recover only by the start of 2019. you stand firm on overweighting u.s. equities. >> i think so. certainty.litical trump is a polarized character. you know what he is trying to do. he pledged a tax reform which he delivered handsomely. he is revising all the key trade agreements the u.s. had. that benefits the u.s. economy. supply chains around the world will adapt quickly. positive not just for the u.s. economy but the global economy. trade tariffsthe

are a long-term may be active -- negative. which is probably an outline view. there is a greater buy-in from the eu, japan, south korea, canada, and mexico. to have a closer look how they trade with china. hold that thought. let me bring it back to you. it is interesting, you mentioned greenspan. i am channeling greenspan and what happened to the bond market. it literally fell apart. are you suggesting we could see a rerun of more aggressive price hikes from the fed? if you want to understand the bond market, this is where you want to go. 10-year paper. could you see a more aggressive fed and their a higher price in

terms of yield? >> the keyword will remain gradual. gradualism. what i'm worried about, the fed is getting bullish. 2.5%, that is strong. they have this neutral rate stuck at 3% can read my fear, there must be something wrong. you have strong growth. hope productivity will pick up. the neutral rate is stuck at 3%. this might move. the 10 year yield is likely to grind higher. finally to you, what does that mean for your global allocation elsewhere? does that mean you are being selective? >> the recent contagion, selloff, it was centered around five countries, brazil, south africa. promises unique to

themselves. has probably been overdone. looking at countries such as taiwan or mexico. where you have low current account deficits. represent cheap buying opportunities today. thank you so much for being with us. u.s.is the senior economist. it thomas is going to continue the conversation on bloomberg radio. for joining us this morning. let's check in on the markets. all eyes are on the italian government bonds. you are seeing a bit of a shift. happen to that spread? a record against spain.

nejra: that spread has been tightening on the bund spread your read a bit of relief for now, for italy. this is bloomberg.

>> good morning, welcome to european markets. we are live from our european headquarters in the city of london. asian stocks fly. oil prices near a four-year high. trading on my china is closed -- on mainland china is closed. to mine or undermine. the euro jumps on a report italy will out the eu pressure. yields fall. theresa may expected to paint a rosy picture of her efforts to reach a deal.