>> good morning from bloomberg's european headquarters in the city of london. anus: this is "bloomberg daybreak: europe and these are the top stories." >> saudi pushes back against trumps threats over the disappearance. the u.s. president hints at imposing new tariffs on china. theydent trump: although are down 32% in 12 months, which is 1929, i don't want that. i want them to negotiate a fair deal in open their markets. nejra: all options on the table. pboc governor said the central bank is preparing for a worst-case scenario as the u.n.

sinks below seven per dollar. we will hear from our exclusive interview with the boj's kuroda. a blow to germany's political stability for which will offer the greatest trading opportunity. manus: welcome to "daybreak europe." after $10 billion worth of losses, sears files for bankruptcy protection. this has been something which the market has been speculating a great deal about. our headlines talk about the issues for sears. they are a company mired in debt, deserted by shoppers. it is official, they are gone. the chief executive and hedge fund manager has been trying to

prop up that retailer. years of realty -- of retelling history, it is gone. whatyou think what is -- it is happening from the amazon side and online delivery side, this is what the challenge has been for sears. it is the number one shareholder among the largest creditors. you just think what is happening on the u.s. retail sales. it is over. it is toast for sears. what stock about these markets because we are reassessing geopolitical risks on a wide variety and broad-spectrum. the message from the pboc is that they are not met -- a are .ot weaponize in the yuan they are already trading. bloomberg survey says he will not break this year. brent is rising. saudi arabia vows to hit back against anything chin. what does that mean? could that mean some form of oil

implication of 1974? finally, you have global equity markets. i think the warning signs coming from the imf. i love what mohammed said. welcome back. you.: good morning, thank that selloff that we saw in equities, some people sing the most expensive selloff we have had. we are seeing u.s. features lower. they dropped 4% last week. we had that big loss on wednesday. futures pointing lower. if you look at s&p 500. you are seeing the bid for the faith haven. gold had its first back-to-back weekly gain since april. we are still above 1200. the hedge funds went very short right before the rally. there might have been some pain up 4/10 of a percent. with3/10 of a percent stalemate in those brexit talks. ofumbia university professor

economics joins us after 4:00 p.m. u.k. time. juliette saly in london has more. great to have you with us in lending -- london. the risk of sentiment is back across asia. you are seeing markets under pressure after we had the reprieve coming through on friday. the msci asian-pacific down by 1%. you are broad-based selling with consumer stocks hitting very hard. you can see the nikkei down by one point 6%. hong kong joining in the selling. those two markets are amongst the weakest performers along soh taipei, because that has many apple suppliers. you can see it down by 1.3%. let's have a look at the stocks we are watching in the asian session today. you have seen softbank continue its plunge down by almost 8% in tokyo. it has taken its plunge to about $20 billion wiped off its market

value since it speak. tencent is one we are watching. it had the 8% rebound on friday but down by 3% today. it does not seem to get many bits of up that 280 level. the automaker in hong kong also under pressure. it plunged by 30% on friday, down another 7%, this after bmw took over that joint venture. quite a lot of selling coming through in the tech stocks that are broad-based across the region in asia. to london.ome have a great couple of weeks there. , it is another crunch week for brexit. a lot of channel miles are being earned. we have heard that line before. week returnsat the to markets ahead of the summit on wednesday. italy will submit its contention -- contentious budget. rulingthis, the

coalition in germany, in bavaria with more state elections due later in the month. is,question of the day which offers the greatest opportunity for you to trade brexit negotiations, german politics or the italian budget? get your submission into the mliv team. we are always open to a chat. send that in. that is your mliv question of the day. stale makers have deepened after the weekend of intense negotiations. bloomberg sources say the u.k. and european union are on course to miss this week's key milestone after failing to break the deadlock. eu leaders meet in brussels on wednesday for the sunlit they hope to use to finalize the divorce. german chancellor angela merkel faces a new round of coalition turbulence after a major election setback.

dropped to aparty historic low in a regional vote that exposed the scope of voter d satisfaction with germany's political establishment. germany's other partners fared worse in the region shedding half of its support to take less than 10%. china central bank is preparing for a worst-case scenario on the economy. that is according to the pboc governor. he told bloomberg he is considering a range of risks facing the yuan as a inches towards seven per dollar. added that the currency is at a reasonable and equilibrium level. the bank of japan governor kuroda says the first sign of an exit from stimulus will be seen in bond yield not asset purchases. speaking exclusively to bloomberg, he offered the clearest glimpse yet of what an unwinding would look like. when we discuss exiting from

the current policy, when 2% target is met or is close to be change the monetary .perating target interest rate desley: global news, 24 hours a poweredir and at tictoc by more than 2700 journalists and analysts in more than 120 countries. a rebound in global equities on friday has failed to gain access. u.s. futures pointing lower. equities falling following a weekend of warnings on global economic fragility from finance chief meeting and an imf gathering.

joining us now is fund manager at the investment. he joins us for most of the hour. good morning on this monday. we could see another day of selloff in global markets after that rebound on friday. we got that big selloff last week and everyone said we knew we -- we knew this would happen at some point. do equities take another leg lower before we see a proper recovery? >> it is impossible to say. askkey thing you have to yourself is whether the opportunities are tractive, whether the odds look good to you and i would say they do. i think the fundamental backdrop , you have to stand back from the political noise. you are getting brexit politics and now saudi and u.s. news constantly bombarding u.s. investor. the reality is it has been about rising interest rates. global equities have gotten cheaper because earnings have continued to grow.

i think there is pretty good opportunities for the global investors. most of the noise is creating opportunities. manus: welcome to the show. good to see you this morning. eric: and you. manus: i am good. the temperature is getting better, i can go to the beach. i am not worried about the bond market. risks of this the morning, and we will talk more with our executive editor about what is going on between saudi and the u.s. looking specifically at bonds. the market is getting very, very nervous. are we hitting the cap in the bond spike? eric: i think we are getting better. you and i have been speaking about this for 12-18 months, if not, longer. the low point in the bond market was post-brexit. june of 2016 was when there was a clear, unambiguous case of shorting bonds. to thehen, a big call

global investor is does owning the bond market protect you against risk or does it add to your risk? the call at that point was that you want to short bonds to diversify you because rising bond yields will cause a problem for global risk assets. i think we are at the juncture where people are starting to say, if on yields go higher, it will cause an economic problem. to some extent it is self containing. it is equilibrium built into the price behavior. i think there is a very legitimate case, certainly when it comes to u.s. bonds for anticipating and we are approaching there will be a point of pod. i would not make a big that on the u.s. on market at this juncture. nejra: would you make any bet at all? would you buy treasury for the yield itself or because you are trying to protect yourself from something else? eric: i think that is very fair. one of the big calls for us since post-brexit phase is that you want to be shorting bonds or not owning bonds to diversify yourself in terms of global risk

. that rising discount rate would be a problem for global risk assets. we have reached a point where the yield curve diversifies you. either if yields go up higher there is a self equilibrium tendency. if there is a problem globally with growth you can actually generate returns from treasury. the interesting call may be in value. it may be a case of shorting german bonds, japanese bonds, guilt versus treasuries. it may be that we are at the point of relative value being the big call within the bond market rather than the spread. manus: hold those thoughts. stays with us. the clock is ticking for saudi arabia to explain to the trump administration what happens to the -- what happened to the journalist in istanbul. they are regarding the kingdom's in thein the involvement

disappearance. saudi stocks took a bashing yesterday. tension is driving oil markets higher. president trump said they will be severe punishment with those behind the disappearance. there is a lot: at stake. may be so because this man was a reporter. you would be surprised to hear me say that. there is something really terrible and disgusting about that if that were the case. we are going to get to the bottom of it. there will be severe punishment. what does that really mean? bloomberg's middle east editing manager joins us. we have had 24 hours to go over the interview. yesterday the word was severe. now it is stern action. is it a diplomatic downgrade we are looking at rather than sanctions? understand the range of options they are looking at. it does not include locking the arms sale. the president was clear about

that. ranging from boycotting the so-called desert to a downgrading diplomatic sanctions of saudi officials. we have had time to basically digest the president's statement, but there was a strong statement yesterday saying we will retaliate against any punitive measures with stronger ones and hinting at the kingdom's oil wealth saying, we play a vital role in the oil economy. adding to that we had a prominent saudi columnist who said, you are angry about $80 oil, with sanctions it will be 100, 200, double that. it the saudi embassy said, does not represent leadership views, but the tension still exists. to speak to you. that comment, particularly about $100, $200 oil, the markets will be mulling over. how realistic would it be that

saudi would actually weaponize the oil market? they have -- alaa: not done that since 1973. year, thecanada this energy minister made it clear that oil and politics would remain separate. perhaps that is why we have seen saudi officials say this does not represent our views. in the oil markets is that people are not discounting it entirely. manus: can i ask you, jpmorgan ceo has dropped out. there is a huge gathering in saudi arabia next week. jamie dimon is dropping out of the fii. again, one has to ask if this is an escalation in terms of people questioning for now? the saudi's continued to deny, the turks are saying something else. there is a global feast of opinions. when you see someone like jamie dimon filling out -- pulling

out, is that a signal? eric: definitely, he is one of the against names to attend the conference. when he says i am pulling out as well, that could probably encourage others to say, i am dropping out. the interesting thing is that in the dropouts they are not saying we are accusing the saudi authorities of doing this or that, they are saying until there is a clear answer on what happened inside the consulate, we still have big names on the list. u.k. were looking into boycotting the event. more could come. nejra: bloomberg's middle east emerging editor alaa. an important note that several companies have pulled out of the future investment initiate event. manus: coming up, the president threatens to implement further tariffs on china. we talk about the impact on the currency and how the pboc plans to respond. --dy for in the situation

for any situation. we hear from our interview with the bank of japan. this is bloomberg. ♪

nejra: we are seeing some weakness in asian equities. hung saying down more than 1%. down more than 1%. a new headline coming through on the bloomberg that sears is in for some esl on a bid store base -- basically we heard that sears has filed for bankruptcy court protection. has stepped down from his role as ceo. that is another line coming through. also named as chief restructuring officer.

closed 142ngs also unprofitable stores. these are some of the lines coming through in the past few minutes. sears and caught -- and kmart stores are open but sears is debtiating a $300 million in possession, getting commitments to $300 million. starting the process to accelerate the transformation. filing for bankruptcy. let's get the bloomberg business flash. jpmorgan ceo jamie dimon has become the latest corporate leader to drop out of the saudi desert ofos in the an. that follows the disappearance of the washington post journalist. u.s. treasury secretary steve mnuchin is also facing calls to skip next week. softbank is plunging again today pushing the decline in market value to about $19 billion since its peak this year.

the company has been battered over the last two weeks as tech stocks plummeted globally. the biggest, outside investor and softbank's 100 billion dollar vision fund has come under increasing international pressure over the disappearance of washington post journalist. l3 technology have agreed to merge they will create america six biggest defense contract with a combined market value of $33.5 billion. been the deal that has approved by both ford, both investors will get 1.3 shares of the stocks for each of their existing shares. at $2.3.rently valued manus: let's get into our top story. president trump has indicated he is considering more tariffs on china saying he is determined to force a beijing to change the way it trades. target 250sures

billion dollars of chinese goods and the administration has already ended up putting them on all imports. trump told cbs he wants a level playing field and he insists he is not trying to push the chinese economy over the edge. president trump: although they are jumped 32% in four months, which is 1929. i don't want that. i want them to negotiate a fair deal with us. i want them to open their markets. manus: open your markets, change the terms of trade. manager.und he is our guest hope. no, he does not want to push them into a depression, but in that same discussion he talks about more tariffs. i just do not think the market is at all prepared for an additional slap bang of tariffs. is he right that synchronized growth was closed this weekend at the imf bali meetings?

eric: i am a lot less worried about it than he is. i think he will not cause 1929 in china because chinese economic debt is largely in their own hands and he does not control it. i actually think he is pushing on an open door. sympathyve a lot more with trump. it is more logical what he tries to take on the europeans where you have a german economic model that is premised on running trade surpluses. the chinese for the best part of a decade has been saying they want to rebalance growth. he is pushing on it when it comes to economic dynamics. you can argue over the political fairness over specific goods and industries, but that is a sideshow. thebig call with respect to chinese economies is the mix of demands versus exports. the chinese wants to stimulate demands and that is starting to

happen. i think the unintended consequences actually recession with economic risk in china going down. if anything, these actions are bringing for it monetary easing. i am very positive about the prospects for domestic chinese risk assets because you have chinese domestic equities and you have in easing the fiscal monetary policies. nejra: are you saying that china, separate from the u.n. -- if you look at differentials between the u.s. and china, you could argue the u.n. is not being recognized -- weaponize at all. does china have the tool to manage a soft landing no matter what president trump does? eric: i think the effort suggests that they do. it is at least 15 years that there has been repeated concerns about chinese credit eating out of control, problems in the shadow banking system. --have seen the chinese because multiple tools have been slowing the economy down, soft landing it then initiating

recovery. no policy makers are full proof and china is not some miracle economy. there is always economic risk. the reality is that they brought forward that easing because they have been under external threat. that just improves the odds of success. very briefly, you said fiscal and monetary easing. we have seen for triple oars. how much easing could pboc do this year? with this currency i would be very surprised if they did anything aggressive on the currency. i suspect it will be business as usual. that said, who knows. they could come out tomorrow and surprise us. i think it would be politically contentious and provocative. there is no reason for them to raise that issue. they are doing well in terms of competitive trade. they do need to rebalance their economy and stimulate domestically. i think that will be their emphasis in travel. eric stays manager

with us. crunch time in europe. budgettalks and italy's in brussels. we will talk about risks in the region next. this is bloomberg. ♪

gone six: 30 just a.m. in london, seven: 30 a.m. in germany waking up to a slightly lower euro. historic setbacks. the absolute majority. it reveals the brought to's affections. it is not a crisis for angela merkel. more coalition inc.'s to come. -- angst to come. one lady always in control is anne-marie what the markets. angst ine: there is asia. it is a risk off sentiment

across the board. we have japan, one of the biggest laggards down one of 10%. australia down nearly 1%. msci asia-pacific down more than 1%. there is a lot of geopolitical issues and warnings from the imf this week on global economy. how fragile it is is crowding the market. we have christine saying to be market volatility and china's ambassador to the u.s. saying it did not want a trade war but was ready to retaliate. we cannot talk about the markets without touching on what is happening with oil. brent and a beauty are rising. saudi arabia threatening to retaliate against any measures taking against them when it comes to the disappearance of the colonists. what i am going to be showing -- columnist. what i will be showing is rice -- the saudi rising. they are trying to fill that gap between losses of other key producers from iran and venezuela. this will be a story to watch

very slowly in the short term. of course throughout the end of the year as sanctions hit the yuan. the currency space. we have activity surging in terms of trading in the yuan, it is weakening. we are approaching that psychological key level of seven per dollar. on friday, volume trump to more than 40 billion -- jumped to more than 40 billion u.s. dollars. this is ahead of the potential policy shift the pboc may have as they wait for the u.s. to come out with a currency report. nejra: that could come as early as monday. let's get the bloomberg first word news. donald trump has threatened to impose another round of tariffs on china. the president told cbs's 60 minutes that chinese meddling in u.s. policies is a bigger problem than the russia involvement in the 2016 election. he said he did not want to push the world's second-biggest

economy into depression. president trump: although they are down 32% in four months, which is 1929, i don't want that. a fairthem to negotiate deal with us. i want them to open their markets. nejra: president trump has pushed up the pressure on saudi arabia, bowing severe punishment for the disappearance of the journalist. he also said it would be foolish to scrap arms sales to the country because that would allow russia or china to swoop in. the agency said the kingdom would retaliate against any measures. china's central bank is preparing for a worst-case scenario in economy. he told bloomberg he is of risks asa range a interest towards seven per dollar. they added that to the currency at a reasonable and equilibrium level. he said the trade war with america is a lose-lose

situation. global news, 24 hours a day on air and at talk on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. talk europe. brexit talks have been put on hold over unresolved matters over the irish border. the key set to miss deadline for the deal. italy's government is due to hand in its budget draft. coalition leaders say they are doubling down on their populist measures, including a 2.4% headline deficit target for next year. nejra: angela merkel's -- manus: angela merkel's coalition suffered a huge blow and the state election. our question of the day is straightforward. which one of those will offer the greatest of trading opportunities? would it be a touch of brexit? a touch of german politics? italy is low spread on your agenda. make your pick now. this is your moment.

with one would you trade the greatest bang for your buck this week? president trump: -- eric: trade would be the wrong term for me to use. there are two investment opportunities. is in an italian equities. particularly in italian banks. they came in on reasonably telling valuations. you have seen negative price action on the politics, which i think in the grand scheme of things we are going to look back on an at will -- and it will probably prove to be more sound than anything that material in the medium-term. the italian economy is making a recovery and doing pretty well. ultimately european interest rates will rise and is beneficial for italian bank earnings. a tie in equities are attractive with respect to brexit. it is worth bearing in mind that if you look at cable, the lows

around the 120 mark, you had persistent bad news on brexit. the risks of no deals have seen to increase. any viewsible that could be had on this. eventually given the threat of a second referendum and actually a deal gets approved. is verysterling attractive against the dollar. that is something that may require considerable patience. nejra: sterling is very attractive against the dollar. you have to be patient. shortages is also joining us from berlin. richard, let me ask you about brexit since we have taken it in that direction with eric. are the risks to sterling moore to the downside, particularly as people are saying any moves to the upside could be capped because of the parliamentary risks in the u.k.? --hard: on any giving week given we get as if -- it is

difficult to take a pic. it is still weak for the pound. as difficult as it has been to get a deal with the european union, and we don't have one yet, the big it -- the bigger challenge for theresa may is to get this through the house of commons. i think the difficulty there is we could be heading into new elections. he uncertainty that new elections would bring forth and put downward pressure on the pound. in addition to negative pressure from brexit, which i don't think are being fully priced into the interest rate curve or the currency. that combination makes me more nervous about the downside of sterling weather than the upside. manus: let's all join this conversation because volatility, somewhat say, is not pricing in what could potentially happen by next march. but to you, richard, do you think we should be a buyer of thetility, and to eric,

same question. where are we with volatility? saying that brexit and hard brexit is still a risk and not being priced insufficiently. -- priced in sufficiently. richard: i think sterling is the short end of the curve and should be supported. they have been supported, but in terms of pricing political risk, i don't think the market is as efficient as they are a pricing other risks. once the political realities come more real we will see the jump. for now it should stay supportive that we will see more concrete news before we see the big pickup in volatility. nejra: on that note, and it does center around volatility, let's go back to the question. where are the greatest trading opportunities out of these these -- out of these three things? yourdent trump: -- eric: potential for the highest returns are probably in italian

equities. particularly in saudi bank equity. you make 40 to stash 40% to 60% out of those -- you make 40% to 60% out of those. are going to get them cheaper if spreads move out to those kind of levels, for sure. what you have to try and look through the noise and ask yourself, are the italians really going to precipitate a fiscal crisis? there are a lot of games going on. they will do power, they are trying to sound aggressive. they typically backtrack. it would be madness for at times to precipitate a crisis. if you get any fiscal stabilization or get an agreement with europe, you could see an aggressive rally. manus: it takes me back to what o said was that everyone had to tone it down. that includes all parties. you said there could be

potentially a huge opportunity, do you think there is a bit more to come in the low spread before you get that opportunity. we looked at capital in the banks and most of them have a long way to go before you have a real pain. this will be a long road to the springtime of whether they are potentially accused to be excessive deficit procedures. even then, would it matter? president trump: that -- eric: that is the key point. .4% of the budget deficit is statistically trivial. the miss measure of the attire and economy is probably worth 15% of gdp. this is noise in the gram scheme -- grand scheme of things. people have forgotten the good news. the attire in a economy has been were covering over the last 12-18 months. ultimately, european interest rates are going up. the level of interest rates is

extreme. there is a lot we have forgotten about. you remember in the first quarter of this year everyone wanted a tie in equities and the same. the ability of the market's mood on these matters is to change, is there for us all to see. we know these things happen. you are now getting extremely good odds when you look at the valuations. the big- nejra: question is how do we reprice if we get the big news. you both. eric will continue the conversation with us at 7:30 a.m. u.k. time. the bank of japan's governor says the change of bond yields will signal a start of the government. we spoke with the exclusive interview at the world bank annual meeting. she started by asking about his communication with the market. kuroda: maybe the market

people have not understood exactly what we have been doing. we have seen fluctuation and decline. 0% jgb interest rate have .een well-kept that is the operating target. target 10ssary to year jgb rate around 0%. purchasemount of jgb is not operating anymore. that is one point. from the outset we do

intend to make jgb tenure rate exactly 0% with some fluctuation. the fluctuation has been successfully reduced by the market. no need to behat so narrow. it could be fluctuated much wider depending on economic circumstances. at the same time we are answer percent. kathleen: when you are ready to be?, what will the signal it cannot be changing bond searches. mr. kuroda: i think the amount of the purchase is no more

monetary operating target. -0.1% on the demand deposit, and 10 year jgb rate, which is now around 0%. it is the main of the current monetary easing. discuss exiting from the monetary policy, when 2% target is met or is close to be met, of course we can change the target, monetary operating target of interest rate. moment, it is at 1%

so that we will continue at the current level of interest. kathleen: i just want to make sure i understood. the bond purchases will not be a signal. we keep it around zero. so if there is a definite change in signal, it would be an actual change in the interest rate. mr. kuroda: that is right. kathleen: that was easy. keepuroda: we continue to around 0% jgb interest rate. there withkuroda kathleen hays speaking about monetary policy. global risk this morning is being reassessed. money is flowing into dollar-yen and euro-yen. sign of anya for a exit would be an bond yields and he is talking about inflation. he is talking about rate hike

and really recommitting the bank of japan. risk off this morning in terms of usa, fed and trade, a additional tariffs, all takers to risk off momentum, dollar-yen. nejra: we are seeing that and other assets. gold has been in the session with still above $1200. we are seeing the 10 year treasury yield take a little lower on a three-year 15 handle. saudi threat.mp's the u.s. president warned of severe punishment if a kingdom is linked to the disappearance of washington post journalist. we will look at the impact in the oil market. we will speak to the microsoft time.ter 10:30 u.k. this is bloomberg. ♪

manus: it is time for your business flash. ceo jamie dimon

has become the latest corporate leader to drop out of saudi arabia's debt posts in the desert event. if follows the mysterious disappearance of washington post journalist jamal khashoggi. steven mnuchin is also scheduled to skip the conference. u.s. department stores steers -- sears has filed for bankruptcy. the 120 five-year-old company collapsed under pressure from too much debt and too few shoppers. aboutdie lampert told $2.5 billion in sears debt as of september. there's also multiple attempts to keep the chain a full -- the flow. softbank is pushing the decline in market value to about $19 billion. the company has been battered over the last two weeks as tech stocks plummeted globally. saudi arabia, the biggest outside investor in softbank's

vision fund has come under increased international pressure over the disappearance of washington post journalist jamal khashoggi. that is your bloomberg flash. isra: let's check in on what trending across the bloomberg universe. on tictoc, the world's 500 richest people loss $63 billion on monday. that was luxury stocks in u.s. equities dipped. on bloomberg.com, brexit talks have been put on hold. there was a weekend of intense negotiations that failed to resolve key issues such as the irish border. our most read story on the bloomberg over the past few hours in third place comes in, it is oil. saudi arabia vows to hit back against any sanctions. softbank has lost $19 billion this year.

u.s. president trump threatens to impose another round of tariffs on china. oil is hot to trot this morning. back to oil.get wti trading around $72 a barrel. arabia as saudi threatens to retaliate against any u.s. punishment over the disappearance of journalist jamal khashoggi. joining us now is chief oil analyst. great to have you with us. thank you for coming in so early. whatone is talking about saudi arabia could do to retaliate against any u.s. measures. talk about whether that means weaponize in oil. let me take you to this chart that shows saudi and russia have nothing on u.s. crude in terms of production since 2010. if saudi were to use the oil markets to retaliate, what it actually have any meaningful impact taking this chart into account on oil prices? >> first and foremost it is very premature. on theirat this says

official website. again, there has been no direct mention of the word oil. that is how the markets are interpreting. i think the big thing is that the u.s. still imports about one million barrels of saudi crude oil. i think that is the space we need to watch. then the question is how much does europe import. i think that is where the focus will be in the short term. very good morning to you. great to see you in the studio. they are talking about oil prices going to $200. that statement was walked back by d.c. what i want to know from you because you have the inside track, how tight are the markets? how over compliant is the market of opec at the moment? >> i think that is the most important question. it just highlights that even the mention of any of this could prices up a lot.

the reality is, there is hardly any capacity in the short-term. we can increase production over the next 12-18 months in saudi arabia and uae, but the number of new products coming online are very limited and effectively, saudi arabia, if you look at how much they will be producing, we would think that is the short-term maximum. iran is dropping, we have not mentioned nigeria or venezuela. there are a lot of possible threats. nejra: does that mean that if demand drops, that the impact of that is limited because of what is happening on the supply side? amrita: i would go the other way and say we need demand to drop. in the short-term, if there are no measures to increase supply, you have to ration demand, which is not good for anybody in the industry because then you lose demand potentially permanently. it is not necessarily the base case but the risk as prices

spike is the market balance. that is why everything that is going on right now in saudi arabia is the real tension in the market. you can see how prices have reacted this morning. manus: we have a couple of stories in terms of what russia might have a capacity to do. 200,000, 300,000 barrels. delighted make novak in terms of his ability to deliver for putin. could the russian contribution in context in terms of tight oil? say, like saudi arabia, russia in the near-term is maxed out. they are producing 11.7 million barrels a day, which is near maximum. saudi arabia could also increase production. they have a new fuel ramping up. fuel, theys of new could add 250,000 barrels next year. the problem is q4. can any countries bring online

production right now? not so much. nejra: if we get to $100 do we stay there? amrita: it depends on the circumstances. but save get one other outage be at liberty a -- libya or nigeria . we can stay there. nejra: chief oil analyst. let's just attack another angle in this oil market. bear with me. very briefly, do you think it will come to bear at the next meeting? bigta: it is definitely a concern for opec and i think it has always been discussed. we do not think the u.s. administration has the appetite for it. it shows that any time you do a strategic petroleum release, it goes higher because you get a lot of buyers. i don't think it will happen

right now. nejra: thank you. chief analyst at energy aspects. we will speak with columbia university professor at 4:00 p.m. u.k. time. this is bloomberg. ♪

manus: good morning from dubai. this is "bloomberg daybreak: europe." nejra: these are today's top stories. manus: saudi pushes back against trumps threat over the disappearance of a journalist. meanwhile the u.s. president hints at new tariffs on china. pres. trump: although they are down 32% in four months, which is 1929. i want them to negotiate a fair deal with us. i want them to open their markets. manus: all options are on the table.

bankboc governor says the is preparing for a worst-case scenario. the end of an era. a pioneer files for bankruptcy protection. the ceo steps down as it announces the closure of 140 unprofitable stores. nejra: we are just under an hour away from the european equity market open. losses of more than 1% across the asian equity benchmarks. looks like we are going to see losses again today. it looks like losses could continue. there could be disruption to trade.

the headline broke a few minutes ago. this is how futures are shaping up. we saw the stoxx 600 close at its lowest in two years. ftse futures flat. cac 40 futures taking a hit as well. we could see the losses in asia continuing the european session. we've got a slight rally in u.s. treasuries. to play theybe want spread between u.s. treasuries and bunds. that has topped out for now. btp's down. draghi from bali has said, we all need to come down in regards to bunds. there is money going in, not

at outrageous rates. let's get to the first word news. >> the brexit stalemate has deepened after a weekend of intense negotiations. bloomberg sources say the u.k. and european union are on course to miss this week's key milestone after failing to break deadlock. eu leaders meet on wednesday for the summit. they had hoped to use it to finalize the divorce. new roundkel faces a of coalition turbulence after a major election setback. a historic low in a regional vote that exposed the scope of motor dissatisfaction. her other coalition partner failed even worse, shedding half of its support. central bank is preparing for a worst-case

scenario on the economy according to pboc governor. he told bloomberg he is considering a range of risks , but added the currency is at a reasonable and equilibrium level. he also said the trade war with america is a new -- is a lose lose situation. governor kuroda says the first sign of an exit stimulus will be seen in bond yields, not asset purchases. speaking to bloomberg, he offered the clearest glimpse of what unwinding would look like. when we discuss exiting, extremely accommodating policy, when the 2% target is met or close to being met, we can .hange the target

>> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. thank you so much. today we are asking the question on mliv, our blog on the bloomberg terminal, which offers greater trading opportunities? brexit negotiations, german politics, or the italian budget submission? you can get in touch by asking the guest a question if you go to tv on your bloomberg. let's check on markets in asia. case, we asked that question to one of our guests, he says it is italy. if that helps at all. in theequity markets

asia-pacific, you are getting bits of green in the em space. down 1%, japan is down 2% into the close. broader risk aversion is pushing dollar-yen below 112. the other thing i want to mention, on the back of what is happening, the saudi story, that is the close on sunday. saudi is the biggest outside investor of softbank's vision fund, one of the bigger stocks in that index. softbank was closer to 8% today. that did enough to deck -- drag the nikkei down. the banks were to blame in australia. a lot of risk aversion out there. the big movers we are following, carmakers in china, the data has been bad. an investment bank warning price pressures continuing in the carmakers, watch inventory levels.

as you can see, substantially down across carmakers on the chinese mainland. that is a wrap of markets. back to you. certainly think that softbank story is going to -- now the clock is ticking for saudi arabia to explain to the trump administration what happened to the journalist, jamal khashoggi, within the consulate in istanbul. the u.s. increasingly regards the saudi arabian denial as untenable. tension is driving the oil markets. president trump has said there will be severe punishment. pres. trump: there is a lot at stake. maybe especially so because this man was a reporter. something you will be surprised to hear me say, or is something really terrible and discussing about that if that were the case. we are going to get to the bottom of it.

there will be severe punishment. joining me now onset is our middle east managing editor. we have had this running play out in terms of what has happened. the disappearance of jamal. we understand there could be a diplomatic downgrade by the united states. we on the gravity of the u.s. response you go it is verbal right now. >> we have been told there is a series of measures from event,ing the investment imposing sanctions, which would be the first time i remember where the u.s. imposed sanctions on officials linked to the saudi government. even if symbolic, it would be significant. we saw yesterday the saudi government came out with a strong response and said it will respond to any measures with even stronger ones, adding to

that, they pointed out the kingdom has played a vital role in the global economy. one of the prominent columnists and commentators in saudi arabia , if you are talking about $80 oil, wait until it becomes $100. the saudi consulate watch these comments back. -- walked these comments back. nejra: you mentioned it has not happened since 1973. how likely is it to happen this time? >> common sense, even without the common stock, energy markets , people saying, is it going to escalate? we have seen the reaction in oil markets today. it was up 1%. there is tension, maybe the thissy reiteration that

does not represent policy is calling people down. ming people -- is cal down. manus: one of the big centerpieces for saudi arabia is next week and riyadh. a number of people have pulled out. , the poster face, he is not going. they want clarity. therein lies the point. there is being saudi denial. are changing the question of travel. >> no side is providing evidence to back up their assertion, whether the man was killed, or walked free unharmed. jamie dimon's withdrawal, also is, will the question this encourage more people to say, going to suspend my -- we

will watch today, maybe they will be -- there will be more names. you. --nejra: thank an important note. several companies including bloomberg have pulled out of the event as media partners. a rebound in global equities on friday. europe failed to gain traction with markets in asia dropping, stocks fell following a weekend of warnings at the imf gathering. europeans and u.s. futures are pointing to a lower open. now, a portfolio coutts.at coots -- you are maintaining your warnings. we have just talked about this war of words between the u.s. and saudi arabia. why do you maintain that? >> just to describe, if we look at a federal balance portfolio, we would be looking at a bond split. we are at 54%.

there is an element of derisk ing. we have been taking profits. we have reduced that equity rating overall. isstill maintain there better value in equities been safe havens. i would say we have a new dimension of risk to take on board. i look at dollar-yen, euro-yen, the fx markets, they are telling desire forre is a some form of protection. do you change any of the protection? trump talks about more tariffs. you have seen euroyen. i have a proclivity for protection at the moment. what about you? >> good morning. is -- thee see this desire for protection peak.

we then see last friday there was a selloff in all asset classes across equities and bonds as well. what we saw friday and throughout last week was a pretty aggressive reaction with an equity markets. yields were initially on a gradual basis, suddenly the went of saudi treasuries from 3% to about 3.25%, which is a big rise to see in a matter of hours. equities, naturally reacted to that in a downward fashion and sold off on friday. this is very much a mirror image of what happens where we have a reaction to rates rising from the u.s. and equity markets sold off again. even in terms of timing, that was tentative where we are now. earnings season is about to kick off, or it kicked off on friday.

it is about to continue. we feel market focus will shift back toward earnings. we think earnings will be strong in the u.s.. nejra: how do you feel about europe? we talk about a rebound in u.s. equities. we did not see the same rebound in europe. u.s. equities this year. >> firstly, u.s. equities and the u.s. economy tend to be the site of shifts around the world. we continue to see growth. abig risk for us would be global selloff of 30%. what we are experiencing is a correction. these are notoriously difficult to see coming. they're very difficult to foresee, but when they happen, the important thing is to act on them and assess whether it is worth adding the risk or not. economy continues to grow, we feel that will be demand elsewhere in the world.

when it comes to europe, we have got to reduce. the one place we do focus at the moment is the u.k.. we saw there is not just fundamentally good reasons to invest. we also think concerns over brexit appeal to be -- appear to be over. manus: you are not going to wait for us to get down the brexit track. we will get down that track in just a moment. --t is fully manager at portfolio manager at coutts. if you are a bloomberg user you can contract with the charts on the gtv function. the charts we featured on bloomberg tv, you can pull them up. your very own gtv library. think of that. nejra: we love gtv . coming up, crunch time in europe. merkel suffered a setback. brexit talks ended in stalemate.

this is bloomberg. ♪

manus: it is just on 7:19 a.m. in london. market wallmega watch for you. asia took a hint of pain. treasury secretary mnuchin expressed concern over the yuan's weakness. money is going into the yen and oil is big whether you like it or not. saudi arabia for to hit back against any sanctions from the united states. there seems to be this move to decry the 1974 would be on the table. you see a bounce in oil. take us forward. nejra: let's look forward to the

european equity market open. 2016 lowequities hit a on friday. euro stocks, 50 futures lower. we could see the selloff continue in europe. money is moving into bonds. we talked about the save haven with the yen. the 10 year treasury yield down to basis points. that 10-year btp yields moving lower as well. btp-bundg in the spread. cable hitting a one-week love with brexit talks in stalemate. u.s. department store sears have filed for pregnancy -- for bankruptcy. they collapsed under pressure for too much debt and too much -- too few shoppers. the result of multiple attempts to keep the chain of what. -- a float.

charles, let's start with the first question in terms of how sears lost traction. >> i think there were a couple of things. one is a department store typically has to have a lot of clothing, things like that. sears never managed to establish a decent position in that area. it obviously brought in brands, but the last time i was in a sears store, they tended to look very sad. not really attractive. the second one was it was key part were things like appliances, auto, garden equipment. and faced increasing competition from home depot, lowe's, best buy. you.: very good morning to when you read our story, the top line is sears, mired in debt.

the last time you were in one it was a fairly tragic affair. it lived on it, the ceo was said to be part of a recovery or bid. how did it take so long to get to this demise? was it limping on a hope and prayer? >> i think it was. if you look at the same store sales, they have been almost every quarter for at least nine years, probably more. you just can't keep the business going if the amount of cash coming in through the door is falling. even if you get the cost down, the sales and revenue, when it is falling at a faster rate, that was -- eventually it has come to this. nejra: thank you so much, charles allen, analyst for bloomberg intelligence.

brexit talks have been put on hold over unresolved matters around the irish quarter. the eu is set to miss a key deadline for a deal. meanwhile, italy will hand in its budget draft. to germany, angela merkel's bavarian coalition suffered a huge blow in state elections. our headline question of the day, this is how we kickoff monday mornings, which of these markets is offering the greatest opportunity? politics, orny on italy. i know you will say you look at the -- you are strategic. when you look at the trifecta, i would say a quartet, saudi-u.s. as well. which is the biggest opportunity? our guest in the last hour said italy is a roaring opportunity on the banks.

it could come back to life on any sign of good news. would you agree? >> arguably he is right. the trade we have made when it comes to italy is to buy btp's, especially shorter-term. italian government debt looking three years ahead. the biggest risk we can conceive is if italy was to leave the eurozone. we do not see that as a risk. there is no outside risk among the electorate. it was to happen, if we take a look at brexit, the time frames brexit are taking, over a two or three year term, we see a minimal risk. if anything, negligible risk. 3%,three-year btp yielding a sensible trade, especially euro. nejra: should we be buying italian banks? >> we hold the larger ones.

unicredit is still a well-capitalized bank. the risk with banks as they hold italian government debt. if euro values go down, they continue to go down juliette:. -- they continue to go down. for us, financial credit is pricing and a lot of risk that is not there. that does not necessarily exist. banking profits might be uncertain for us. banks are still a safe bet. if we can pick up a yield of 6%, that is attractive. manus: i know we are having a little bit of -- my work would be -- my word would be very cajun. cation.ari are we under loving and under owning sterling interest rate risk? >> for us, we think sterling and

u.k. are undervalued. it has been an extremely unloved market all year. generally speaking, the way i see it, international markets looking at u.k. equities are saying i do not want to touch this because of the political risk. a sign of that is the fact that we have seen the reverse relation between u.k. equities and sterling. when sterling falls, that is good news for u.k. stocks. , theyeans when they sell convert that back to sterling, they get more pound back for their money. that seems to have been neglected by international investors. that tells us u.k. markets have been oversold. nejra: thank you so much. portfolio manager at coutts. good to have you. that is it for bloomberg europe. the european open is up next.

manus: we are shaken in these markets. equity risk is rising. "the european open" is up next. ♪

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anna: good morning, welcome to "the european open." alongside mattds miller in berlin. matt: markets in asia are dropping this morning. brent crude jumping above $81 a barrel on the u.s. and saudi arabia. the cache trade in europe is less than 30 minutes away. anna: the risk widens.