decreased by $3 trillion in two weeks. equities try to find their footing with 71 companies reporting today. ceo says volatility is good for trading, but wealth management clients are sitting on their hands. ario draghi must confront global equity selloff and slowing momentum in europe as the ecb is normalizing. david: welcome to "bloomberg daybreak" on this october 25. twitter is out, a beat, revenue $758 million, as opposed to $701 million expected. that is a nice beat for twitter. alix: looking at monthly active users, a little light, 326 million. the stock not reacting well.

it is so interesting. analysts said don't pay attention to monthly active users. aremarkets the way they don't like it either way. it has to be all perfect. alix: it does. a little relieved today. the tape is better than yesterday. the stock is holding, up 6% -- 1.6%, but how are they getting adequately rewarded for any kind of beat or guidance race? , they lost twogo cents a share and had $590 million, so a big improvement year-over-year. nice earnings from twitter. alix: indeed. tech tobe pivotal for see if we can stabilize, nasdaq

in correction, a worst monthly selloff since 2011, big names reporting. microsoft did well. what these numbers help sentiment? david: yesterday was a slaughter for tech. it took it down dramatically. alix: i want to focus on conoco phillips. their earnings are out. this will be a bellwether for other big oil companies. their production guidance on the high-end is 1.3 million barrels a day for the fourth quarter. the return focus plan is on track. the big conversation in the markets are big oil is will they remain discipline even though you have oil at $80 a barrel? will that continued discipline happen and the efficiency as well? david: some of that is enforced by a stock buyback. alix: it also highlights how

important shareholder returns are. biinbev.av alix: we have s&p futures doing better than yesterday, up 20 points. will they hold onto that gain? i am skeptical. it looks like we tend to reverse any gain by the close. -dollar 114, not a lot of movement. the strongerto dollar and how that is tightening financial conditions and weighing on the equity market. the bond market is a sellers market in the u.s.. there is a lot of buying in europe, particularly italy. we have a seven year option later today. the five-year, director bidders were pitiful. they barely showed up, so what

does that mean for asset managers. crude flat as well. 71 companies reporting from the s&p today, a big sentiment change for the s&p. joining us now is our next guest. it is good to get your perspective. we have a date when we get 71 companies reporting, the nasdaq and a correction, what are you looking for? what looks good for you? >> i think microsoft looks excellent. it is not like the faang it is being compared to. business-oriented software company. businesses are buying their services and software. i am excited to be an owner. it really is a difference of two worlds. , as you at twitter reported earlier, and you are right, everything has to be

absolutely right for investors buy more twitter because it is trading at 90 times earnings. lower, but ituch has a steadier pace of business. that is the dividing line here. investors are looking for high-quality stocks. we get 71 reporting today. i think the quality stocks will be the winners. david: is there a larger pattern here or is it the execution of microsoft? it supplies as other businesses, as opposed to twitter. it is software, not hardware. when it comes to semiconductors, they are not doing well. is it specific to microsoft? >> you bring up a great point. there is a cyclical element to semiconductors. a huge selloffn in the past several cycles.

,aybe it is just time we had maybe we forgot semiconductors are cyclical, but that being said, at the foundation, even business to business or business to consumer, i am a little confused. if you are a longer-term investor, you should be looking at semiconductors and say who will be the winner in five years . that is where i would be putting my money. any kind of computing will get delivered on a semiconductor, right? it is going through the internet, wireless, so every time that data handoff happens come it is doing it by semiconductors. are a long-term investor, why are you selling semiconductors? i have no idea. alix: how are you looking at amazon and google? it feels like the mode in the market is sell the winners.

, killer gear, then getting completely crushed along with texas instruments. how do you handle earnings? adjust your time horizon perspective. people who are selling winners have a much shorter time horizon , and they are probably professional managers. are a longer-term investor, that should smooth out your wall of worry. unless things are completely results onen great the higher flying stocks this year have a target on their back. david: is it sellers are taking a look over the horizon? maybe you did all right this quarter or the last quarter, but you saw it with texas instruments and caterpillar, it looks like problems around the curve. >> right.

the funny part about our business is we don't know what will happen in the future. the fundamental economy still look strong with people being hired. that is part of what drove microsoft's results come up businesses had to buy more licenses for the people they have hired. looking at that come up this is a real head scratcher. everything goes back to what will happen with china, the u.s., and europe with respect to tariffs. that is a non-answered question. that is a layer over all of this. that is causing uncertainty. if tariffs and the trade war want such an issue him a perhaps we would not be having these discussions about selling winners and what next year will really look like. david: we have a headline crossing the bloomberg from the wall street journal, saying the united states will not resume china talks without a firm tech

proposal. we know this is one of the big issues president trump has with china. don't like this china 2025 plan of yours. alix: how much of this will be sentiment-driven, how much by the macro, and had you make that determination right now when earnings are not getting rewarded? >> sure. you have to look stock buy stock, but no what environment is is acting in. the news we will not talk to china, that will chill the sellerstoday and make more common than buyers. alix: thank you so much. really great to get your perspective today. i want to point out some of the industrial names. it is the case of have and have-nots. get to bring cutting

estimates, one hiking estimates, one missing estimates, so it is hard to find a sector direction when you have cuts and mrs. across the board. only stanley black & decker is moving, and not by much. ng down?almi david: maybe just confused. it is hard to figure it out. .e want to mention turkey it came out with a rate decision and left things the way they were. that was expected to happen after they raised last time. they have left things where they are. has strengthened a little bit, the dollar down slightly. alix: additional tightening is possible, if needed. i wonder what it will take for them to do that? david: they are projecting that

they have maxed out on inflation rates. the question is are they right or not. they think they have peaked. if they haven't, they might have to reconsider the rates. climbs.p, the euro more on that in today's first take. this is bloomberg. ♪

david: now for the bloomberg first take. first, the ecb decision. second, what is driving the selloff? finally, ubs third-quarter results and new goals. joining us now is our guest from

london, and michael mckee. always glad to have mike here. i will put up a chart about europe, what mario draghi is looking at today. the white and yellow are growth. the blue is inflation, suggesting growth is hanging in there and inflation is coming down. what is mario draghi looking at today? extraordinary monetary policy that distorts the markets, and no reason not to get out of it. the ecb looks at it from the opposite way that the investor does. money comes in, we can spend it and make profits. any to as good a time as begin to get out. they are only talking about capping repurchases, not even raising rates. the markets are not pricing in a songe of rates in 2019,

there will be a lot of stimulus for a long time. it is time to start thinking about normalization. alix: reinvestment is not the conversation? you know there will be 17 questions about that. >> i suspect the answer will be we did not discuss it. you know how he is. i think it will be in his incentive to keep today's meeting as boring as possible. growth is peter in off a little bit from the higher levels this year, and inflation is holding steady at the moment. the key thing for him would be the euro. we are seeing strength today. there is incentive to balance the currency level with a softer path in the euro area economies. alix: we will bring you that decision and full coverage of the news conference as he walks that tight rope at 8:30 a.m.

eastern time. the other story is the market correction, and one chart in particular. this is the stock correlation hovering near highs, different than the others we have seen, those green bubbles, meaning perhaps the idiosyncratic factors mean less, and one analyst citing this today, jumping over 40% as one of the big movers. >> we have seen a confluence in markets globally. you can see why. all the factors driving it are global. part of it is the fed story, but that has global implications. wars,e geopolitics, trade and all these coming together would be a big push for stock markets globally and something investors around the world are watching. >> the most interesting stat i

saw today is professional investors are jumping at the window right now, but the two biggest etf's that tracked the broader market, including the spy, saw huge inflows yesterday. retail investors are buying the ip. this suggests we are either at or this isulation, just a correction and we will go on. david: i'm never sure which is smart money or dumb money. ubs came out with earnings this morning. they did extraordinarily well with the investment bank and disappointed in the private wealth management. their stock is up slightly here. this is what the cfo had to say.

so, things froze, the wealthy people did not want to do anything with their money. >> that echoes what we are seeing in the market today. ,here is a lot of volatility not a lot of conviction. that is why we are seeing the swings we are seeing this week. not a law of long-term catalyst that would guide high net worth individuals to look beyond the noise at the moment and see what is coming up on the horizon. there is little visibility in terms of that. it is easy to see why they are silent at the moment. alix: it makes the distinction between the short-term volatility traders and longer-term investors. ubs did well. the numbers were good.

i am confused how the market is looking at the numbers. today seems different. >> this is all part of a long-term turnaround plan. he has demonstrated results today. they have cut costs significantly. they have merged their wealth management divisions. they announced aggressive efforts to try to attract more money. investors are looking at this. it is a decent plan. when you compare it to others in ,heir category, credit suisse people like that, also in the wealth management business as their primary focus, they are doing better. if you're going to buy someone in the financials from ubs looks like the cleanest dirty shirt. david: tell us about the state of european banks over all. deutsche bank did not do well. barclays and ubs did well. can we infer anything generally about the health of banks? >> it is a mixed bag at best.

that says a lot about the state of the economy in general. we have seen growth numbers softened. we have seen sentiment, particularly in germany, a good deal softer in the more recent readings. while we saw economic strength earlier in the year, that is fading a little bit. it is an interesting time to be looking at that. last time we heard from mario draghi, he sounded upbeat about inflation prospects. >> which he does not want to do. he does not want to panic anybody. we did not mention it elite when we were talking about the ecb. he will have to talk about that. alix: to that point, he did say vigorous in relation to inflation. that wasn't off the cuff. we will cover that as well. thank you very much.

tomorrow, an exclusive interview with robert kaplan, probably the best week to have him on to talk to marketfed reaction conditions. you can find all the charts we use and more on gtv , browse the features, save our charts. you just go to gtv . 13%have twitter shares of after topping third-quarter estimates for earnings and revenue. joining us now is dan morgan. his tech portfolio includes twitter, amazon, microsoft, and alphabet. of the numberske even though monthly active users missed estimates? >> it looks like revenues and earnings above expectations, which was good, but they came up short in monthly average users. i think consensus was 330 million. one of the challenges going for it for twitter is how do we grow those monthly average users and

increasing gauge meant time in regards to people actually staying on twitter for more than is theinutes, that average engagement time, compared to facebook at 30 minutes? that is how you garner advertising dollars. it will be interesting to see how they can expand those categories. alix: they did well in part from higher spending from advertisers. wil will wel see a shift where monthly active users become less important? >> monetization is key. you are an advertiser, you want to put your ads where you have the most people who could potentially watch it. twitter is 330 million, facebook at 2.2 billion, instagram over one billion. it becomes competitive for them. google the other major player in that space. i think they have to focus on

growing that monthly average user number north of 330 million. it has been flat the last couple of quarters. i know they are cleaning up accounts, but they have to get that thing to edge up to 350 million plus. there valuation changes dramatically. they are not a big-time growth company. contrast them with microsoft. we don't see a big, new idea from twitter. microsoft clearly has found something in the cloud. the amount is dramatic. >> you are right. microsoft had a great number. the key number for me was intelligent cloud coming in at $8.6 billion. i had $8.3 billion, a 24% growth rate. 76%, so we are seeing a nice rollover in the cloud space. s.a.p. did 37% last week on new

cloud bookings. have transformed themselves from a desktop company in a mature space in enterprise to a major cloud player. sas and number two in infrastructure. they are a formal competitor against amazon and salesforce. microsoft had a great quarter. i thought the numbers looked really good. alix: it highlighted there are tech winners out there with the nasdaq closing in correction yesterday. i want to break out the performance versus earnings. the blue line is tech versus s&p. direction ishe higher, versus earnings estimates, which have been revised lower. how do you pick between the winners and losers and what do you buy? >> tech is interesting now. you have the issues with china weighing heavy on the semiconductor sector.

you still have these themes that are very strong. we talked about the cloud, salesforce, amazon, microsoft and everything is going fantastic in that segment. we expect that to continue to do well. ai is another area of growth going forward. in and sayust go tech across the board will do great. you have to discern who is being affected by china, which sectors may have slowed down and so forth, but if you focus on the cloud and the names i mentioned, though stock should continue to do well. david: make a prediction after the bell today. what will we see? >> i am continued strength like we saw and microsoft. i would expect good numbers out of amazon, aws should increase 48%. google has had issues with traffic acquisition costs rising, youtube, but i expect

that to mitigate in terms of impacting margins. i'm looking for good numbers out of amazon and google at the close today. alix: dan morgan, thanks very much. , the cfoon twitter will join bloomberg markets today at 3:30 p.m. eastern, the question will these numbers be enough to stem the tide. can they do it? david: the vix story is the diversions in tech. , ubs pledgingp higher wealth management profit. we hear from the ceo next. this is bloomberg. ♪

alix: this is "bloomberg daybreak." stabilization is the name of the game. the nasdaq closing after a correction yesterday. dax a little weaker.

in the other asset classes, still a stronger dollar story permeating in the markets. what we will see with the ecb? yields up by about three basis points. ubs shares up. nejra cehic spoke with the bank ceo sergio ermotti about his plans to revamp the bank. >> in the u.s. are next focus will be on developing our ultrahigh net worth offering and enlarging in bringing our expertise that we have globally on that area together with the family offices. and capping a market that is very promising for us -- tap ping a market that is very promising for us. we literally touch the u.s.

persons outside the u.s. in the last 10 years. i think this is also a very nice opportunity. $70 billion around closing in the next two years coming from that segment of clients. nejra: all regions did book inflows except the americas. in the u.s. what can you offer the clients in global left management and other areas your u.s. competitors can't? sergio: i would say our inflows line withws are in industry standards. if you look at our u.s. competitors, they don't report new money. proxy to understand inflows and outflows is to look at investment assets. we have been growing in line

with our peers. one can assume we have the same kind of new money. competitive,he what we can offer is the abilities we have outside the u.s. it makes us unique. we are the only truly global wealth manager in the world. it means we have leadership positions in all main markets, not only in the u.s. europe and asia and switzerland. we can bring the expertise of investing globally which is very complementary to some of our competitors. nejra: in global wealth management, a lot of focus has been on the cost cuts. there was some tweaking around the cost targets today. first of all, how should we interpret them? how are those costs targets going to come about? sergio: it is a function of

becoming more efficient. when you look at our cost base, one thing that will stay stable is investment in technology. that is 11 just to get around the rest of the costs front to back. around 2% to 3% per year. what do we do with those costs savings? we reinvest for future growth. that's an important element. our story is not about cost-cutting. efficiencyination of in how we manage our resources and how we manage our balance sheet. the trade-off is the frontier of efficiency between capital returns and cost to income ratio. we are one of the best in the world. nejra: the buyback program is running ahead of plan. he said today don't confuse one buyback program with our ambition and potential. what is the potential for buyback?

how ambitious can make it? sergio: let me clarify that statement. rulesswiss stock exchange we have to declare an amount and in three years we need to complete the program. that has nothing to do with the cash flow that we will generate over three or four or five years. we are announcing every year our ambitions at the beginning of the year. we will buyback $550 million. we have exceeded that target with $650 million worth of shares we bought back. in january when we announce our 2018 that we paid in 2019, we also announced our share buyback intentions for 2019. nejra: you have already exceeded the target. does that mean you slow down or speed up from here? you are already ahead of your on target. clear we do not

retain capital above but we indicated as being our target operating capital levels for regulatory reasons. 3.4% leverageound ratio. if we don't need capital for growth and investment business, we will return to shareholders. david: that was sergio ermotti, ubs ceo and speaking with nejra cehic. they are facing hesitation of investors to commit given the range of risks they face in europe and around the world. the ecb announcing his latest monetary policy just 30 minutes from now. we see some of the risks they face. how they are dealing with the italian crisis. on,come candace banks welcome.

tell us about the risks mr. draghi is facing. candace: while the decision is likely to be uneventful, the focus will shift to the press conference and the message coming from the ecb. in technology this downside risks. front and center, the italian showdown between the european commission and the populace in italy. we have also seen some of the economic data in the eurozone turnover, a little bit of moderation as well, ongoing trade tensions. a lot of these items are likely to be highlighted in the media and the press conference later this morning. details, trying to see if your looking at the first hike in september of next year. we look at the month until the first rate hike in the eurozone compared to morgan stanley, they

are looking at about 12 months. you see this coming earlier, why? candice: the growth and inflation backdrop in the eurozone is quite constructive. alix: the pmi rolling over. the sentiment indicators not holding up as well? candice: the german confidence indicator also rolled over. definitely alarming. a lot of this has to do with global trade tensions. a lot of this will dissipate as well. while the pmi's did turnover, they remain in expansion territory inconsistent with trend levels of growth, which will help to put upward pressure on inflation. wages as well have been on the rise. this should allow the ecb to proceed with their path towards normalization. david: what is the mindset for the ecb? in the u.s. it is clear the fed's mindset has become let's hike unless there is a reason not to. the default is hike.

is that the default for the ecb or is this a reverse situation? ecb they willthe be airing on the side of dovishness -- erring on the side of dovishness, particularly in the second half of the 2019. the asset purchase program itself is set to end this year. they have the flexibility to watch the markets and watch financial market conditions before making that move. alix: you are in july. three months earlier. the question is central banks and reaction to the markets for mario -- to the market turmoil. a i think of we had decline of 30%, they could change with they would do. they would probably consider taking a pause in the rate hikes. this is sort of to them like a garden-variety correction. alix: what do you think? candice: i don't think it will

impact the fed's trajectory. we expect them to go again in december, march and june. then likely you can see maybe a short-term pause. at that time the growth factor -- backdrop will be impacted by feeding fiscal stimulus and 75 more basis points of rate hikes. we think the fed will continue and look through some of this financial market volatility. david: is that what we are seeing a part of the markets right now? we have had a cushion that the central banks are going to cushion any blows we have. that is coming off now and people are being much more discerning when a look at earnings. candice: absolutely. 2017 was the euro very little volatility. you had that unprecedented central-bank support. 2018 has been much more volatile because investors are adapting and adjusting to the environment of higher interest rates.

what that impact will have on the economy, earnings and asset valuations. that's why were seeing more volatility here. david: candice will be staying with us. breaking news from american airlines. alix: they are doing pretty well. onnings coming bang estimates. revenue per available seat mile for the next quarter at the high end could be as much as 3.5%. they met estimates. they don't beat. david: maybe what people are reading into that is pricing power. they have some costs going up and have everyone to raise prices, which for other companies is not so quick. aboutthey are talking higher fuel prices increasing expenses by $750 million year on year, yet they matched estimates.

who would've thought would be overcapacity they kept adding. you are seeing some reward when it comes to margins, which is why caterpillar was hit despite the fact that numbers were solid. much more coming up. we are moments away from the ecb rate decision. this is bloomberg. ♪

emma: i am emma chandra. coming up, darrell cronk. this is bloomberg. ♪ we are 1.5 minutes away from the ecb rate decision.

i want to do a market check. it has been a very, very difficult week for equity investors. now you are seeing a little bit of a relief rally for the s&p. is this actually some real value buying in the market? the nasdaq coming off his force selloff in seven years. the futures market up by about 1%. european stocks flat. dax losing some speed. in positiveome on top of the pmi's. this is the euro-dollar. the dollar has been surging, adding to tightening financial conditions. how does that play out heading into the ecb meeting? buy then italy, it is a store here. down by 10 basis points. three-yield market here, basis points is the rally you

see. the back end it's a seven-your auction coming out today. crude up by .3%. no change expected but it will be a press conference. mario draghi a lot a fine line between what is happening with italy normalizing. how do they wind up dealing with that? we are awaiting the ecb rate decision. no change is expected for marginal lending. will buy assets worth 15 billion dollars a month through september for as long as needed for inflation. they anticipate the end for the program in december, but they will keep rates low for as long as needed. david: they will keep reinvesting after the buying ends. alix: they will do it for as long as necessary.

we are looking at is euro-dollar not moving much yet on the news. rates unchanged through at least the summer of 2019. iny will end asset purchases september. i want to go over to richard jones joining us in frankfurt. what is your initial -- richard: i think you are right to highlight the fact that what mario draghi's messaging is when it starts in 45 minutes. i think he will stay with consistent messaging. i think there timetable for reducing policy accommodation is well-established. the thing with the ecb right now is the have the markets where they want them. the market is pricing. -- probability of a rate hike only into september of next year. they are happy with that. the euro has been trading at a

pretty tight range over the past three or four months. -- thatmberg euro index is not something that will upset the ecb too much. i expect steady messaging week as they are happy with where the markets are right now. david: steady messaging. there is one big change since a lesson they got together called italy. the commission does not like it one bit. will they have to address that issue? richard: i think you will be asked the question but i don't think he will venture to guess on it. he will reiterate the euro area is a rules-based area. the rules are there to be obeyed. people underscore it's important -- he will underscore it's important for the rules three behaved. i think you will be asked on brexit and he will probably give that some sort of cursory reference but i don't think you

will offer anything substantive on those political problems. david: thank you for joining us, richard jones joining us from frankfurt. that actually looks like berlin but it is frank for. joining us is candice bangsund. this is what you expected. no big change. what will investors be looking at? what might change their view? candice: i think it will be how much the downside risks are knowledged in the press conference and a fine balance between the growth backdrop that is healthy and the external risks as well. our view tone of the conference will be one of constructive yet cautiously optimistic. alix: is that fully priced in. i'm struck by the complete lack of reaction in the market. bunds going nowhere. alix: -- candice: the euro has been a

little weaker in anticipation of this meeting. the risks are largely priced into the euro at these levels. alix: we talk about reinvestment. bolivian operational twist so the race -- will there be an operational twist so the rate stay low/ ? take a look at a chart that shows the central banks buying of different sovereigns or types of credit, particularly corporate credit for the ecb. what risk do you have to prepare for when the reinvestment lever is triggered? candice: the central bank has been a huge support for a number of asset classes, particularly in the fixed income space. you mentioned the initial release that reinvestment's are set to continue for the foreseeable future. this is the ecb softening the blow, acknowledging there are downside risks, will continue to keep the balance sheet fairly

steady which will lend support to the markets. you actually think the ecb will raise rates sooner than what the market does right now. you are at july of next year. what if you are wrong and it is increasing convergence between the fed and but the ecb at the bank of japan? what consequences that have? candice: we will see a stronger u.s. dollar because of that divergence. the euro and the yen will be weaker because monetary policies are so different. that could have negative ramifications for the financial markets via tightening of financial conditions in general. alix: how much of that the attribute to the stronger dollar? candice: in our view a lot of the selloff in the last few weeks has been more of a sentiment-driven selloff.

investors are a little concerned about this environment of higher interest rates and what sort of impact that will have on corporate earnings, even the global growth backdrop. when you add in u.s.-china trade tensions, the showdown in italy, a lot of this has investors nervous at a time in rates are decisively moving higher. that support is not going to be so prominent anymore. alix: thank you so much, candice bangsund. david: we will turn to tesla now. tesla moving dramatically back into the black yesterday. announcing profits of positive cash flow. we welcome the men who is taken that model 3 apart and told elon musk of you could build a better. sandy monroe. he joins us over the telephone from auburn hills, michigan. welcome. sandy: thank you very much and good morning. david: they are making some

money and would make more of a build it differently? about 220sent them ideas. we did not ask for any money. i kind of like the idea that tesla is actually making money and elon musk is thumbing his nose at everybody, for at least the short-sellers. but there are some improvements they can make. we sent them a list of things that could make things better and we also think what he needs program weere is a -- thatetroit called stuff is what everybody in town uses to give you a body that is going to be rigid, do the job and needs to do for crashworthiness, and get rid of bits and pieces you don't need. for instance in the wheel well there are nine parts. there should be only one.

it would help them out with that. i made a suggestion as well. get a hold of somebody that knows how to use that stuff. david: he is not a carmaker by training. can he sustain this level of profitability and cash flow positive. it is dramatic what he has done. sandy: if he really wants to make money, a few improvements that will help his quality out. his quality. in his costs will go down. down. costs will go robots are basically blind, one aren't idiots. -- one-armed idiots. we are treating people in china have to design for robotic assembly. is not so much how to what designed a robot?

it is how do i design my part for the robot to be able to pick it up and put it in place every time. it has been a disruptor from the beginning. i think a lot of the traditional automakers said they don't know what they're doing. don't they have to reassess that this morning is a going into the black? here my guys have heard me say it a couple of times. i think tesla is the sun melting the ice age. ice as in the internal combustion engine. the underestimaters and the naysayers will have a horrible wakening. when i first looked at the tesla, i was right in there. i called up my broker to find a had a sell shorts. after i got in and look at the inside, i was totally amazed. there is nobody -- nobody has

anything quite like it. catching up is at least fo yearsur -- at least four years. the 3 is a big deal. david: it is fascinating to heavy on. sandy monroe of monroe and associates. cfo afterith ford's the earnings came out. one of the problems they have is they have to reassess when they will restart goals on their margins. this is what he had to say about that. >> we are not backing up the targets. we're backing off achievement of targets for 2020. we are working aggressively to achieve an 8% or better margin. we pulled that ahead in the first quarter. external headwinds have gone against us. david: that is what bob shanker

had to say -- shanka had to say. they be on revenue. it was really focus in north america and trucks. china,ve challenges in and also latin america and europe. alix: china for example it was also an inventory issue. they did not have the suvs to sell their. -- there. david: they just replaced their ceo in china for that reason. alix: coming up, darrell cronk will be joining us. his take on the selloff. this is bloomberg. ♪

i'm all about my bed. this mattress is dangerously comfortable. when i get in i literally say, ahh. meet the leesa mattress. a better place to sleep. this bed hugs my body. i'm now a morning person. the

leesa mattress is designed to provide strong support, relieve pressure and optimize airflow to keep you cool. hello bed of my dreams. order online. we'll build it, box it and ship it to your door for you to enjoy. sleep on it to up to 100 nights and love it or you get a full refund. returns are free and easy. i love my leesa. today is gonna be great. read our reviews, then try the leesa mattress in your own home. order during our fall mattress sale and save. for a limited time get 150 dollars off and free shipping too. sale prices are available right now. go to buyleesa.com today. you need alix: earnings help stem the global selloff.

the worst valuation crash since 2008. earnings from microsoft, tesla and twitter helped. the market tries to figure out what equity selloffs can stop fed hikes is financial conditions tighten. the ecb sticks to its plan. no surprises. anio draghi must address italian budget standoff. two stories here. the ecb and earnings. no surprises out of the ecb and lots of surprises out of earnings. alix: all eyes are going to be on the press conference. here is what we are looking at. you mentioned some of the earnings helping to prop up the market. dayas a brutal yesterday with the s&p losing its earnings for the year. euro-dollar a little stronger.

it has been aggressively stronger dollar story over the last week and of the euro getting a little demon to the press conference with mario draghi. it is sell bonds in the u.s. at bidders did not show up all. crude stemming its own selloff. up by about .3%. david: oil is coming back a little. time for the morning brief. in 30 minutes we will have mario draghi holding a news conference explaining the rates decision. data in weekly jobless claims. at 12:15 this afternoon, richard clarity will give us first be just the fed vice chair in washington. we will get earnings from amazon, apple that and snap.

returned emma chandra who is here with first word news. york, police new are investigating another suspicious package. the bomb squad removed they suspected male bomb -- mail bomb sent to a restaurant owned by robert de niro. this is after bombs were found to the homes of former presidents obama and clinton. the cia chief is back circle and will brief -- is back from turkey and will brief president trump. she heard an audiotape allegedly ggi'sof kasho interrogation and killing. british prime minister theresa is having a meeting with her party over brexit.

one lawmaker who attended the closed door meeting said she urged the rank-and-file to hold their nerve as she proceeded with the brexit deal. global news 20 hours a day on-air and a tictoc on twitter powered by more than 2700 analysts and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: thank you so much. 71 companies today. gie we whate big the highlights. we want to talk about american airlines. they were able to also have lower plant capacity growth. they were able to offset higher fuel costs that was approximately $750 million. david: that equals pricing power. alix: that equals are rally in the premarket. you get twitter, etc. david: twitter had a significant beat of $.21 per share. it was 13.5 cents predicted.

you can see twitter is really up at the moment. it is really monetizing, which is a question for analysts going in. they have got to get the growth going to get in terms of monthly users. alix: the semi-'s getting completely -- semi's completely destroyed. you are not seeing the kind of rebound we saw in the semi's. david: you don't sell tesla right now. alix: elon musk, don't mess it up. david: he wanted to be the short-sellers. he makes money, look at what happens with the short-sellers. have given usally a lot of stories yesterday, but none bigger than the decline in technology stocks. leading the nasdaq to sink into a correction. joining us now is darrell cronk and romaine bostick.

what happened yesterday? thatne: there are people look at this market and see it is overvalued and overcrowded, which is hard to believe. ratios --ook at pde ratios, they are still well above valuation at a time when the earnings are projected to come in below the broader market. i think that is a little bit of the shakeup you saw. alix: do you buy tech? darrell: not yet. the epicenter is really in the chip sector. the single worst day since november of 2008. alix: a date you never want to be related to. darrell: the nasdaq at its worsening obeisance 2011. you have -- it's worst day since 2011. tech had 58% of its sales overseas. if you're concerned about china and italy and brexit and the

concerns in the markets, it is the highest percentage of sales of any of the s&p sectors right now. david: explain to me what i got wrong. we have microsoft growing enormously in the cloud. we have a lot of other growth in tech. it is driven off of chips. sooner or later you have to buy more chips. this is a short-term or long-term issue? alix: it is -- darrell: it is more of a share price issue. i think we've got a lot of the tech out. amd last night, single best performing stock in the s&p 500 year to date. if it did not continue to hit on all cylinders, there was going to be a challenge. -- we need to get a conference call.. one is revenue growth. you have to have topline revenue growth, and forward guidance. to what extent are we getting a good look. we know it q3 look like

already. alix: helping to support stocks in theory. when you look at the stock correlation. thisroup talked about how stock correlation really rising has been one of the issues and front and center when it comes to the selloff. the correlation is not what we saw back in 2016 or 2050. darrell: you want to see the correlation a little lower. that will tell you the selling is a little less indiscriminate and the buying is less indiscriminate. people are making individual decisions about stocks. when you look at the other metrics we have like the 52-week highs versus lows, this selloff was much more severe given the number of companies taken out versus what we saw earlier in the year. valuations were already low and never really recovered from that, but it was kind of a signal there is some reticence to push those valuations back up

to where we were. some companies are being rewarded like microsoft because they are showing they can manage through this, but there is no reason to get back into them. that is what is going on. does that rate and opportunity? are some stocks becoming undervalued and just going along with the rest of the market? romaine: absolutely. seven of the 11 sectors are in correction territory. materials are in full bear market territory. we think the real value right now isn't industrials and financials. both are facing big headwinds, but both have taken basically the prices down below what earnings deceleration has happened which build a cushion on the types of ideas. romaine: that is interesting about financials. why have we not seen investors warm up to them more? alix: all they wanted was higher

yields and now they have them. romaine: we also have a flatter yield curve. when you look at the epicenter of what happened yesterday, the extreme selloff, it was centered around concerns about china and the fed. when you get into concerns about the fed, the epicenter was in small caps which is already in correction territory, and financials because they are proxied for global growth. if you're concerned about global growth, you should be concerned about financials along with lower net interest margins, flatter yield curves, all the narrative out there. we think a lot of that is priced into the stocks. alix: thank you very much darrell cronk. you look at the market and the fed, will there be a reaction function to the equity selloff? we will take a look at the yield-sensitive sectors. this is bloomberg. ♪

alix: equity markets taking a bit of a breather after a difficult week. the selloff concerns some investors because of the persistence of the losses and the stock correlation. the fed is confident the u.s. economy is on track, but will that change? 30%.cline of i think it could change. i think they would probably consider taking a positive rate hikes. -- a pause in the rate hikes. i think this is a garden-variety correction. alix: that was darrell cronk. the fed is basically backing within the monetary policy path.

the fed is staring at the economy. you have the tightest labor market for the entire cycle. if you listen to corporate earnings reports, what are ceos and cfos talking about? dealing with higher prices, stronger demand and being able to pass the prices through to their buyers and consumers. if you look at what the fed has to look at, the fed is saying there is no data here for us to back away. the job is not to manage the up and down to the market. david: global they say after 8:30 tomorrow morning and gdp numbers? the consensus is about 3.3% growth. scott: you might be right on that. on the back of q2, there is nothing here that suggests the fed is concerned it will throw sent to inflation when you have gdp growth. upsides there an

surprise for the markets tomorrow? we will see a rally? scott: only if you surprise above 3.3%. but we arey in q4 tracking about 2.5% for q4. solid growth. the real concern and what the market is trying to price in is 20% earnings growth for next year going to seven percent to 9% -- 7% to 9%. now you are a hikes into the cycle which will have an effect on what it is in 2019. 2019 is the peak of fiscal spending and stimulus. there are a number of headwinds heading into 2019. that make this a lot harder situation the start calling strategies. alix: a lot of individuals point out the canary in the coal mine being about homebuilders. you can see the underperformance

in the homebuilding sector. negative.in deeply how much of that is because of higher rates and how much of that is a true growth signal in the economy? scott: most of what you're seeing in the prices is much more around just concerns about higher rates than true demand. we saw new home sales down 5.5%. there is a lot of noise from hurricane florence in the carolinas. there is some softness in housing in the north east and west when you break it down. we saw the numbers yesterday and ever strong across the board. every district was saying we can't find enough workers to fill jobs and do projects. the economy is strong and doing well. the financial markets have to be prepared for the interest rate --t the economy can't stand can stand, maybe higher than the

financial markets prefer. alix: great distinction. david: darrell cronk se we stay with us. emma: shares of comcast are rising. the parent of nbc universal beat estimates for the third quarter. 70% increase in the number of new broadband prescribers. that explains why much of comcast's capital is going towards net recovery. southwest airlines has more improvements for brevity trends this quarter. they are seeing slower growth and seating capacity. they reported third-quarter profits that the estimates. shares in the world's largest advertising company are plunging today. they revealed a big earnings mess. things will get worse before improving under a turnaround promise for the new ceo. he says wpp has been too slow to adapt to structural changes in the business.

david: thanks so much. ubs shares are up after third-quarter net profit stopped estimates. with the ceopoke over the stock price this year. every ceo like to thank their stock is underpriced. on an absolute basis it is disappointing to me, the stock being down. how is important is to see our stock is performing these are the our competitors. it is down for total shareholder return. if i look where we trade in terms of multiples and on price-to-earnings basis, we are trading at a premium to our european peers and close to our u.s. peers. yes, i think over time the market and investors will

eventually recognize the value of our franchise and the cash flow generated value of our franchise and the diversification on the table. nejra: you talk about the diversity of ubs' business. of the investment banking business model are most attractive for ubs right now? you had double-digit gains in equity and fixed income. sergio: we are a focused player in the investment bank. 75% is lori compete, we are top five. we compete with the best in the world. execution and research in equity trading, where derivatives, and fx

we are one of largest players in the world. on the other side, m&a. our sweet spot is then the investment bank where we don't want to -- we are not aiming to offering for a bank offering, but we want to stay very focused and always making sure not only do we give the best service to clients but we have inadequate return on capital. midst of talked in the a global equity market selloff. a little bit of a reprieve in european equity markets today, but generally globally to have been down in october. you talked about the impact of trade wars on client activity. do current market conditions pose a risk to ubs' profit? have been going on

ups and downs in the market. it is fair to say yes, u.s. markets have corrected but we are flat year-over-year. corrections,ket what is really impacting businesses is activity levels of clients. you can expect if there is any correction the market, and we have been going through a long bull market and if there is any adjustment, it maybe welcome by increasing volume or at least volatility in the market which is quite positive for our business. david: that was the ubs ceo cehic.g with nejra the euro is little changed. joining us from frankfurt is alessio de longis.

please set the stage. we have mario draghi at about nine minutes. rio: there were no changes in the ecb decision today. the anticipation is still to enw qe approaches by the end of the year. -- new qe approaches by the end of the year. that does not mean it will not be must the talk about in the press conference. one key thing will be italy. detailsill be asked about investment policy, which is very much anticipated. alix: alessio de longis, thank you very much. joining us is darrell cronk. what will be your question in the press conference? darrell: how do you balance the deceleration of growth and core inflation at 0.7% in europe and

think you will tighten monetary policy? the ammunition is not there. i think we need a watch very closely the comments around italy. i expect mario draghi to be pretty hard on italy. to put a shot across the bow. there is concern between rome and brussels if the ecb will back away if italy has problems. david: given that your first question, to what extent with a look across the atlantic to what happened here? the fed did not tighten financial conditions and it did not seem to hurt anything. resilientmarkets are enough and we can go towards normal. darrell: i think they will. the deceleration of late has been somewhat cyclical. i expect it to pick back up and 2019. i think they will go forward with that path but continuing to use the language ample monetary policy in the actual press conference.

alix: also joining us is mark cudmore. what you make of the non-market reaction? mark: this is going to come in place for a lot of ecb meetings. they have not been very exciting for the last two years. i'm not sure the press conference will be wildly exciting. draghi will be slightly more dovish, but people are betting on a dovish surprise and will probably be disappointed. there is always a hopi could easily it a little bit more. alix: is that like an operation to a scenario? that operation -- an operation twist syria? scenario? mark: i think they will keep their options open but say relatively positive. overall, longer-term the euro will suffer.

we have to spike up in the euro, but it is the release valve at the moment. volatility is moving up. refunding rates are moving higher. even if we get a spike in the short-term, it will probably come up again lower afterwards. david: if history is any indicator, we hear how much the ecb has done to support the economy in europe. it is terribly important for the european economy. how can he say that is still say we will come off of it? mark: i think that is a real problem that's why they didn't trying to communicate they have done such a wonderful job, but it is clearly going in the right direction. even if it is not quite as destination yet. darrell: i think it is heading in the right direction. inflationary pressures are picking up slightly, minus the last month or two. you have the italian 10-year 400 basis points over german bunds,

which creates a real spread problem for italian banks and for funding the italian budget issue. downose rights don't come and the spread is not normalize little bit, that puts enormous stress on a major player in europe which is italy. david: you are concerned about italy. the rest of the world is not seen to be. italy does this every six months, 12 months? darrell: i think it is different than the greece crisis or brexit. the third-largest bond market in the world. it matters in everything we do. ital exitlet an happen. mark: i think it is the single biggest risks for markets right now. the ecb cannot control the italian situation if it gets out of hand.

communicate the correct message. italy is a massive risk for markets. alix: one conversation is this time not a lot of foreigners own italian assets versus before related. you will not see the huge money outflow that you would have back in 2012. mark: i have for that story and it think it is hilarious. we have seen large outflows. that still means about 800 billion euros owned by foreigners. admittedly that is held by long-term governments, but is foreign money that could come out. seeell: and you would not race like that if it was not flowing out of the italian bond market. david: there were reports that they were big enough, important enough. if we get to be too big a spread, ecb has to bail us out.

bank?e point today on the darrell: give becomes the ecb put, and it is wrong and brussels locking horns about who is right and who pushes home around -- whom around. mario draghi will be hard on italy saying we have a common currency treaty, we need to stick with it and it's important for the u.s. to control your levels of debt. itk: the history shows always comes much later than hoped. we get disappointed and then we get into panic trading. alix: how high is the bar for continuing asset purchases? mark: too high to be met today. i think they want to see real panic of their hoping the yields are attractive and the budget problems will not come until next year. even though i'm worried about italy, is a long-term issue. we get more positive risk work

its, people might start chasing the market. alix: on one hand the market is not showing enough stress to motivate the government to get anything done and the ecb for not do it, yet the market is being bought. mark: brilliant question. we are not at equilibrium here. equilibrium and italian bonds cannot be at this level. the longer they remain appear, the bigger problem they will have. refundingng issues -- issues. we either need a positive catalyst or they will drift wider until we are crisis trading. darrell: i think it has to be more than 400 before you get crisis. we are just shy of 400 now. 375, 380. the world has to pay attention. with all the drama in the u.s. around the equity markets and financial markets, i'm not sure there are it as closely as they may have the coming weeks. alix: darrell cronk, great to

see you. mark cudmore, can you move to the u.s.? david: we are not letting you go. she has never been told it's a brilliant question before. mark: i will remember that for the future. alix: that's entirely true. i like you before. we have some eco data and mario draghi's press conference. futures holding on to the gains after yesterday giving up all the gains for the year. s&p futures up by about 20 points. gainolding on to their as well despite some er dataco -- eco data that ruled over. the dollar up .2%. it has been a stronger dollar story over the past few weeks. we were just talking about

italy. tons of buying coming to the long end. selling at the long end in the u.s. up by four basis points. the direct bidders showing up? we will be waiting for mario draghi's press conference. we will be joining that in a few moments. we want to get to the eco data in the u.s. third-quarter gdp. durable goods orders coming in better than estimated, up by about 20% in september. if easter about the -- by abou -- david: mike mckee is our policy correspondent. you always see the numbers much faster than i do. mike: i'm looking at it right now. alix: you have 20 seconds. like -- it is an interesting number.

fabricated reynolds numbers down. this may be a result of the tariffs. a lot of declines in electronic parts and computers also could be part of the tariffs. nondefense aircraft down 17.5% after a 64% gain in the prior month. that is obviously going. -- boeing. you want to look at nondefense x aircraft. .1%, the second monthly decline in a row. that is a problem. let me call this one up. what we were expecting was a lot of investment after the president's tax cuts for corporations are going to bring that money home. the chart shows we are not seeing a big rise in investment. we are seeing a static to down. month-to-month it is lumpy, but

it is not showing the acceleration the president was looking for. alix: i was struck by the durable goods new orders up for august. are they as lumpy as irving else? -- as everything else? mike: that gets influenced by things happening with cars and airplanes. that's why i was looking at the nondefense x aircraft orders. david: it are going to sustain growth, unique to sustain productivity unless you had more workers. the hope of the administration is the tax cuts would boost that thinking this 3.5% number going. if they can't get the investment, that will be a challenge. mike: we got the trade deficit figures. it is wider than expected. another chart shows what happened to the trade deficits since the president and his tax policies came in to play.

it is getting worse. that is what every economist predicted. if you cut taxes significantly and raise the deficit, more money has to come in from overseas. if the economy picks up, more people will be buying imports. particularly in a full utilization economy where he can't necessarily make a product people want. that is a drag on growth. alix: we're seeing mario draghi sit-down for that press conference. a little late. he's usually on time. you look at wholesale inventories up .3%. mean?hat -- what would that mean? mike: it is not as good for growth overall. it is closely tied to trade. the trade deficit. this is just the advanced number. down,orts and imports are you will have fewer inventories on the docks.

if the companies want to build up, they have to have more inventory. alix: mike mckee, thank you very much. gover -- don't mrs. interview with the fed chair of -- the fed president in dallas. >> we are very pleased to welcome you to the press conference. we will now report on the outcome of today's meeting of the governing council, which was also attended by the commission vice president. on our regular economic and monetary analysis, we decided to keep the key ecb interest rates unchanged. we continue to expect them to remain at the present levels, at least through the summer of 2019. for as long as necessary to ensure the continued sustained convergence or inflation to levels that are below but close to 2% over the

medium term. no standard monetary policy measures, we will continue to make net purchases on of the asset purchase program, and a new monthly pace of 15 billion euros until the end of december 2018. that subject to incoming data confirming our medium-term inflation outlook, we will then end net purchases. we intend to reinvest the principal payments from maturing securities purchased under the of for an extended period time after the end of our net asset purchases. in any case for as long as necessary to maintain favorable liquidity conditions and an apple degree of monetary accommodation.

information, while somewhat weaker than expected, remains overall consistent with an ongoing broadbase expansion of the euro area economy and gradually rising inflation pressures. the underlying strength of the support ourinues to covetous that he sustained convergence of inflation to our and will beceed maintained even after a gradual winding down over net asset purchases. uncertaintiesme, sm,ating to protectioni vulnerabilities in emerging markets and financial market volatility remain prominent. significant monetary policy stimulus is still needed to support the further buildup of

domestic price pressures and headline inflation developments over the medium-term. this support will continue to be provided by the net asset purchasers until the end of the year by the sizable stock of required assets and the associated green investments -- three investments -- reinves tments. event the governing council stands ready to adjust all of its instruments as appropriate to ensure inflation continues to move towards the governing councils inflation aim in a sustained manner. let me explain our assessment in greater detail. starting with the economic analysis. increasedrea real gdp

quarter over quarter in the first and second quarter of 2018. information, while somewhat weaker than expected, remains overall consistent with our baseline scenario of an ongoing broadbase economic expansion supported by domestic demand and continued improvements in the labor markets. specificnt sector development are having an impact on the near-term growth profile. our monetary policy measures continue to underpin domestic demand. fosteredonsumption is by ongoing employment growth and rising wages. at the same time business investment is supported by solid domestic demand. conditionsinancing

and corporate profitability. housing investment remains robust. in addition the expansion and global activities is expected to continue supporting euro area exports but at a lower pace. the risk surrounding the growth outlook can still be assessed as probably balanced. , relating toime protectionism, vulnerabilities in emerging markets, and financial market volatility will remain prominent. annual icp inflation in september2.1% 2018 from 2% in august, reflecting mainly higher energy and food price inflation. basis of future prices

for oil, annual rates of headline inflation are likely to hover around the current level over the coming months. while measures of underlying inflation remained generally muted, they have been increasing from earlier lows. domestic cost pressures are strengthening and broadening amid high levels of capacity utilization and labor markets. looking ahead, underlying inflation is expected to pick up towards the end of the year and to increase further over the medium-term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth. turning to the monetary growth stood at 3.5%

in september 2018 after 3.4% in august. apart from some volatility , it is flows increasingly supported by bank credit creation. -- onerow monetary remained the may contribute to broad money growth. the growth of loans to the private sector strengthened further and continued the upward trend observed since the 2014 the annual growth rate of loans to nonfinancial corporations rose to 4.3% in september from 4.1% in august. while the annual growth rate of loans to households stood at 3.1%, unchanged from the previous month. the euro area bank lending survey for the third quarter of

2018 indicates loan growth continues to be supported by increasing demand across all loan categories and favorable bank windy conditions for loans to enterprises and loans for house purchases. the pastor of the monetary policy measures put in place is june 2014 continues to significantly report conditions for forms and households access to financing. in particular for small and medium-sized enterprises and creates flows across the euro area. to sum up, a cross check of the outcome of the economic analysis with a signal coming from the monetary analysis confirmed an ample degree of monetary accommodation is still necessary

for the continued sustained convergence of inflation to levels that are below the close to 2% over the medium-term. in order to reap the full benefits from the monetary policy measures other policy areas must contribute to more decisively to raising the longer-term growth potential and reducing vulnerabilities. the implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. policies, theal broadbase expansion calls for rebuilding fiscal buffers. this is particularly important in countries where government debt is high and for which full

adherence to the stability and growth pact is critical for safeguarding sound fiscal positions. , the transparent and consistent implementation of the eu fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. improving the functioning of the monetary union remains a priority. the governing council urges specific devices -- and decisive steps. we are now at your disposal for questions. >> mr. president, if you tilted to the downside and what were the main arguments for or against discussion?

the question is about italy. he said look at the facts and not the words, but the facts have been coming in and have not been a good. there is a budget in breach of eu rules that will be rejected by the commission. what is your assessment now? mr. draghi: it will require a little time. large, the governing council discussion you see from the introductory statement .onfirm the balance and risks there was acknowledgment of a somewhat weaker momentum, but in the midst of most eurozone countries would still have a positive outlook gaps and likely expansionary, and in some cases procyclical fiscal policies in some countries.

we are talking about a weaker momentum, not a downturn. this is clearly certified by most survey indicators that of come out since the last time we met. aboveindicators remain and in some cases well above historical averages. the issue is what are the reasons behind this weaker momentum and this weaker survey indicator? we are going to a variety of destinations. one of which certainly is countries -- country-specific factors. think about the car sector in germany. this is having quite a powerful effect for this quarter, but not next quarter. -- thet question is

second is expert performance. last time we discussed the year,mance saying last 2017, had an extraordinary performance and know you're coming back to normal. we had to decline in exports. that seems to be reflected in the current weaker momentum but has come to a halt. we have trade uncertainties. we have the stalemate between the u.s. and china, brexit, with italy, with volatility. the important part of destination. we are simply having growth returning to potential after 2017 where it was clearly above potential. it is not simple to distinguish what is transitory from what is permanent, what is country-specific, to what is

actually extended to the whole of the euro area. and what is having an effect on consumption and what is not having an impact. we still observe consumption with an expanding employment and expanding labor market, rising wages and business investment. the emerging market economy situation seems to have stabilized somehow. the assessment of the governing council was yes, there is a weaker momentum. yes, there are weaker survey data coming out and maybe some more expected in the future but is this enough of a change to make this change the baseline scenario question the answer is no. -- baseline scenario? the answer is no. it is not considered at this

point in time enough to change the balance of risk. we will have to see the projections in december. that was one of our considerations. i will elaborate on inflation and monetary policy later. italy is a fiscal discussion. there was not much discussion about italy. there.e president was permission to quote what he says. he said we had to observe and apply fiscal rules, and we are also seeking a dialogue. is, canis what it answer other questions on other tracks. thank you. good afternoon, mr. president.

still about italy, i would like to refer to your recent statements that the italian situation was not posing any risk of contagion. my question is if you have confirmed the statement or if it has changed? at that pointsaid in time there was no sign of contagion. let me also respond to the other part of the question asked before about the facts. what is the context? the context of our discussion today was the statement by the vice president of the commission who said he is seeking a dialogue. the second part of context is what is said in the previous press conference in the course of the imf meetings. -- take it for

what it's worth, i'm confident an agreement will be found. facts. me come to the interest rates have come up. they are coming up. that means the lending rates are going up. say, moderately, i should for households and for firms. it may households will have to pay more while borrowing from banks. so do companies. in the case of companies that finance themselves that find themselves issuing bonds -- in that findf companies themselves issuing bonds, increasing borrowing rates has been more marked and quicker. all this likely means we will

have effects on credits. .nd ultimately on growth on the very same space needed for physical expansion. up.rest rates keep on going the room that is available to expand the budget gets smaller. concerning -- the increased interest rates have been there now for a while. the increasing rates are not so far that's the banking rates are not significant or material. survey the bank lending of this quarter. basically terms and conditions applied by italian banks on new loans to enterprises and households

tightened terms and conditions. no standard terms and conditions into the third quarter of 2018 because of balance sheet constraints. spillovers?he since the last time i spoke about this we have observed some andease interest rates some other countries of non-core countries. it is not material but it has been there. the issue is what is the cause of that? these countries themselves had specific idiosyncratic facts,na, fax, events --

events to justify an increase in rates. is it ise conclusion hard to distinguish the spillovers but they are limited. that is the current assessment posted as keep you the situation evolves. another question on the situation in question on the situation in italy. there have been concerns that weaker italian banks to become capital impaired if the spread reachesman bunds 400 basis points. could this hurt the monetary transition mechanism and what tools are available to repair that? my second question is on inflation. what is justifying your confidence on inflation pressures given core inflation

rates have disappointed several times this year? there are certain geopolitical risks increasing. at what point do you worry the wage and inflation pressures we see are not going to be short-lived? mr. draghi: let me answer first the second question. the discussion shows there is not much of a change in inflation really. when we look at rounds and developments, we see negotiated wages keep on going up. it's a very important sign because it means the increases, and some core countries have been quite significant, wage increases are going to stay. they are not temporary or predetermined. they are negotiated wages. quite significant

in some countries. the other thing is the labor market keeps on expanding, but it is progressively, gradually getting tighter and tighter. the third thing is capacity utilization rates seen in most countries are pretty high. assessments we have no sense we should doubt that our confidence inflation is gradually converging to our aim. reaffirmid that, we the fact our monetary policy needs to remain accommodative a considerable amount of a combination is still needed. aere are some concerns about .p.p. that may be ending later

this year. even if it were to end, monetary policy will remain very accommodative by their investment. especially the investment of the considerable assets we have in our balance sheet and our forward guidance about interest rates. let me read this. it says, "this support will continue to be provided by the net asset purchases until the end of the year by the sizable stock of required assets and the associated reinvestments and our enhanced forward guidance on the key issue, the interest rates." in any event the governing council stands ready to adjust all of its instruments as appropriate to ensure inflation continues to move towards the governing council's inflation aim in a sustained manner." that is what i can say about

inflation. on italy, i don't have a crystal ball. i don't have any idea if it is 300 or 400 or whatever. banks'onds are in the portfolios. they are denting into the capital position of the banks. that is obvious. that is what it is. have -- i still -- i should not say i'm optimistic. i'm confident an agreement will be found that basically you have a dent in capital positions and ed funding positions as well. this will translate into lending terms. mr. draghi, you mentioned

they would be a deal between italy and the eu. do you sympathize with what italy's argument is, that it needs more budget flexibility? given the budget deficit is below 3%. do you sympathize with their argument? thesecond question is on rising market interest rates in italy and spain and portugal. how much of that can be traced to the end of qe in december -- the end of qe in december? will you need to see to seenrst, as you have language is exactly the same as considerou have to monetary policy will remain

accommodative even in case you were to decide to end, at the end of the year. will the end of qe put pressure on spreads? say, let me, let me repeat one thing. bondse past few months, but we have bought -- we have knot -- we have knot but we have bonds, bought italian bonds. of qe,se of suspension you would expect spreads would be affected depending only on the net issuance of different countries. that is the answer. countries, theif hypothesis they were having the same degree of