>> political surprise, german chancellor angela merkel will quit after newly two decades, catching the market off guard's. ibm, big cloud field, the world's second-biggest tech deal ever. and catalyst for stabilization, investors search for an end to the market selloff with the s&p headed for its worst month since 2009. david: welcome to bloomberg, daybreak, i'm david westin here with alix steel. angela merkel coming out with a really surprising amount -- announcement. delivering a blow to her party. do we make the argument that it's a global shift to the right? the markets don't seem to quite know what to make of that. --david: thestocks german stocks are actually up.

>> meanwhile, brazil with markets opening, how much of a rally will we see? david: can he execute? can he reform the economy? to talk about over the next two hours. s&p futures are up by 22 points after a dismal week last week i -- last week, compounded by tech at the end of the week. you are looking at a modestly weaker dollar story. the yield curve, yields up by two basis points. lots of skepticism in that scenario. down, seven days away from the sanctions taking hold on sunday. david: in the meantime, this week, there's an awful lot going on. earnings continue, tomorrow

marking one week till the midterm elections in the united states. wednesday the jet bank of japan announces its latest decision followed by the bank of england and friday, the u.s. releases jobs numbers. right now it's time for the bloomberg first take and we are joined by peggy collins and tim o'brien. let's turn to this big news coming out of germany. angela merkel think she is going to step down as the head of the party, which doesn't mean she is necessarily going to's -- step down as chancellor. peggy: that is important, but as we all know she has been under ,remendous -- -- pressure largely because of her policies around refugees and immigration and it will be interesting to see how quickly they can come up with a centrist successor to put forward as someone who will carry on her voice and policy. she has been there for more than a decade, so in a lot of ways we

should have been expecting a change, but it did come as a surprise. i think that german voters are ungrateful people. angela merkel came in in 2005 and said that she would address what was seen as an employment crisis. she has done that. she got tripped up on the refugee crisis. it begs the question, can the center hold. i don't imagine she will stick around for two more years, that's an attorney in politics. there are three elections in the east german states in the next year. that will pose a challenge. what does this say about the eu and the european project? there are a lot of issues in holding the eu together. yet at the same time, people asking if she is jumping before she was pushed. not really a loss, but there was that disappointing result after

a very and there are questions as to whether her coalition partner will even stay with her. that's a great point, but she has also been a voice of reason and strength in the eu, so it will be interesting to see how quickly she emerges. ibm announced yesterday they would be making a $34 billion acquisition of red hat. they say it will be created within 12 months, but the issue is not something i can tell you that i knew that much about, open source hybrid cloud computing. this is a bright new world that i guess will expand dramatically? alix: don't lie, you spent last night reading about it. [laughter] i crammed. i hadn't understood, cloud is big, but not all enterprises have it stored there. this hybrid cloud computing i guess is the way to go? yes.:

i certainly thought of warren hefett when i saw this deal, had largely bet on ginni rometty and ibm until last year and then he started to move out and is now almost completely out of the company. it does feel like she is making a big that on trying to put her foot front forward. with these deals, the new future of cloud computing, this open source where if you have to have security there and people tie their different ideas in the clouds to move forward. alix: we will have some interviews with both of them later, what would you ask? it haswould ask why taken seven years to deliver a cloud computing solution at ibm and why they are still behind microsoft.behind and whether or not it makes sense to spend $34 billion to

find a solution to something that you can't to do organically. it's not just about open source, it's about the entire cloud computing market. investors have given her a long leash to solve this problem and they appear to have confidence in her, but i'm glad that warren buffett is glad he's out of the country -- the company. david: at the same time, i think that what she will say is that this is a third way. at google you have amazon, where .hey own the server farms this will be something but on top of that. and it will be -- tim: and it will be switzerland. if that works. alix: fair point, all of this taking place over the market backdrop of the s&p looking at since 2009.nth you can see how much pain has been cause for long equity investors. the question we are still looking at in the market is it's hard to find a bottom or a

catalyst for a bottom if you don't know why the selloff happened in the first lace. goodcompanies with earnings, getting penalized. blackrock is not a tech a company, but it had good returns and was penalized. you are seeing people recognizing valuations that have been a stretch for some time, cresting. i don't know what kind of earnings makes sense in that environment. clearly the market is taking a much more wait and see attitude right now. alix: if hedge funds cannot make money in this environment, what does that say? are we going to see it? haven't, so far. it has been a bloodbath for a lot of the long short funds. quan's were supposed to save the day in many ways, but because a lot of the volatility has been so fast and the reversal has been so fast, our rhythms have not adjusted quickly enough. we haven't seen a ton of panic

from retail investors like we have in the past, and it may be a feeling of cresting rather cliff, butg off the it's something to watch out for as well with one week to go before the midterm elections. david: another exciting day in the markets. as if we haven't had enough already. peggy, tim, thank you so much. you can find more of these charts on your terminal, browse recent features, even save the charts if you want. all by running g tv . coming up, more on the future of the european project and angela merkel, with paul richards. live from new york, this is bloomberg. ♪

." this is "bloomberg daybreak

hsbc succeeded in posting third-quarter revenue gains that outpaced expenses with adjusted revenue climbing 9%. jumped to ang kong two-year low last week. the ceo says he can deliver profit growth while spending billions on expansion into key asian markets as well. china's top economic planning board is proposing a 50% tax cut on car purchases. people familiar say that the impact of the trade war with the u.s. combined with the slowing economy has dragged down demand. car sales in china are on pace in two first annual drop decades. universal pictures had another strong weekend at the bombs off -- box office with the latest installment of its halloween aboutseries, bringing in $32 million in north america alone. they set global earnings have

already reached $172 million. warner bros. with "a star is born" held on to the second spot . that is your boom -- bloomberg business flash. earlier today angela merkel surprise the world after saying that she would step down as the head of the christian democratic party after the part -- party conference in december. here with more on what this may mean is matt miller in berlin. i was surprised by this. i don't know if you were. has artie said maybe it doesn't mean she steps down? i was definitely surprised by it, angela merkel has always said that the role of party leader and chancellor go hand-in-hand. this is something that almost all past chancellor's have believed. only helmut schmidt was not also the leader of his party at the same time. but it doesn't mean that if she

leaves her role or doesn't run again for her role as head of the party that she will step down as chancellor before her elected term is up. in fact, gerhard schroder also stepped down from his role as leader of the party, remaining on as chancellor of the german federal republic. is youa red headline were talking, according to the german press agency, merkel will an eu job. a lot of speculation now about whether she's were -- leaving and what she, might do after that. what about what comes after her? matt: that's a very good question. it's not clear yet who she will pick for her successor. not clear that the parties going to elect someone that she wants. she has been at the helm for

this massive loss of popularity, so it could be an outsider. it's also not clear that the cdu will continue to govern. obviously in another election, by 2021 or earlier, if the government collapses the voters will have to decide and the meeting parties will have to have -- will have lost a lot of ground. alix: angela merkel will be addressing the media at 1 p.m. time.an time, 8:00 our we will definitely be looking at that. joining us now, paul richards of medley global advisors. i find this reaction to be very confusing. euro-dollar, up. the bund makes sense to me, but that's it, what do you make of this? it wasn't great but at least it wasn't a negative. the euro started the week ok.

realistically -- alix: isn't this like lame duck at this point? duck anyway.e jim baker would have been ideal, but the ftp wouldn't play ball and this could ultimately lead to the spd coming up with a vote of confidence and then trying to form something. if they don't want to play ball, it's a new election and then it's bad. then the euro goes down. that is six months, nine months away, and in the meantime you do have merkel and this is a dignified way of exiting over 12 to 18 months, but the market was expecting that anyways. it just doesn't mean it's going to go to 116 in a hurry. david: but what is left for europe in the aftermath of that? >> it, italy, the s&p didn't cut ratings, "you have hungary and

poland pulling off to the right, someone has to pull it together, will it be up to the crown -- macron? you had withwhat merkel, she was so popular in germany she could become the chancellor of europe. but macron doesn't have the popularity base. europe is europe at present. it's populism taking on a terrific vision of what europe should be in terms of unified nation, but this populism is hurting it. the not killing it, i think euro survives, but this is another round of the walls, like with greece and everything else, it's very difficult. by the way, europe is still trying to negotiate a divorce with the u.k. this is why i think it is the release of the job today. if she could leave everything in europe, the euro would have a bad day together with european

assets. this is something of a relief to me. alix: whose hand does this strengthened? paul: brussels. there were articles suggesting that the prime minister wouldn't survive wednesday, and i think she will survive because i don't think anyone else wants that job or can pull it off. if brussels pushes her too far, they may have a bigger problem on their hands and they know they have got to get exit result . it's easy to talk the hard talk, but you don't want the u.k. out of the european trading union. europe seems to be going day-to-day, hour to hour, just a plug the holes, as it were. to step back a bit, mario draghi said again and again that we would give you accommodative mullet -- monetary policy, but

when this is going on geopolitical he politically, they can't do any reform. well they were struggling anyway and then the populists come in in italy and it seriously in question. that was a mistake that italy made, in my opinion. at the same time you see them withdrawing purchases of sovereign debt, that was a dangerous place. at that point, when you look at volatility globally, you have got central banks pulling back serious way. to me this is volatility. volatility. we had a put on it for 10 years and this is very fast. europe is going to stay very unstable, but the world, look what's happening in china and the u.s. it's really, really hard. i was looking at markets where they have the energy to take it on this week. we know how you feel.

paul: you now how i feel and it's tough. know about this week, but we need that energy to take on the next segment. we are coming back to you. u.s. equities are trying to find their footing, we will have more on that next. this is bloomberg. ♪

of october hash turned into an ugly one and not just for the stoxx. several asset classes have moved down together. john norman says that we haven't seen anything like this since the great recession of 2008 and before that it was the stagflation of the 1970's. movingf asset classes down together around the world. what are the causes? our president says it was all about the fed.

but everyone seems to be focused on rates and not the effect of a brand-new chair that is not necessarily and academic like his predecessor. doesn't make him less qualified, but he's wholly different in the market has to get used to this individual. i think his big moment is going to come up in december. i think that when they hike, he needs to be signaling more optionality next year. the fed is probably 50% of the equation but ultimately the bigger part of his tariffs. when you look at emerging markets, for example, the world has been looking at the level this year. you have to be careful that interest rates aren't rising any further and we have obviously and then youspikes throw tariffs into the equation and it upsets the holick asian around emerging and developed markets. you have had elections, brazil came out with a reasonable outcome, but these are not necessarily reforms.

the uncertainty created by that chart is understandable when you put tariffs and the fed together not 7525.it is 50-50, we have a great chart showing earnings revisions downwards over the next four quarters with materials and getting hit the most. did what you hear or justify s&p sitting at 2700 and a 10 year yield at 310? are we all in the same ballpark? are at a pointe where we have got to decide where we want to go. the fact that the 10 years never test -- no longer testing at that is a good thing, it's a question of 2400 or 3000. i can remember having a discussion with someone and ginny rate this year saying that if you can get -- if you didn't or five -- if you can get 5%

6% on your money this year, take it. by the way, no one has called this move down in october. i thought that october was going to be bad. tohought we would have a 2% 3% downturn. i felt very negative and saying that. no way i picked 8%. it could wind up more. i think the market will rally a little bit this week. but at the end of the day this is a super uncertain time and when i look at the earnings and critically at the comments, they are all mentioning the dollar, they are all mentioning tariffs. how do you pick a positive q4 with those sitting out there? it's too much. are notk, so earnings enough to be a wall against the decline, but what about the u.s. economy? we just got gdp growth numbers out, consumer spending a strong. we he. we keep hearing that the united states economy is quite strong. do the markets not believe that will continue? they don't because they

see uncertainty around tariffs. if the president follows through we could be looking at 25% tariffs. the s&p will not be at 2700 when that day comes. the clock is ticking to get resolution on this and this is what the market is saying. we all understand that the economy is doing pretty well. however, if you take tariffs at 25%, it kills sentiment. but i want to do what i hear that is purchase value stocks and the russell 2000, but that would have been a bad trade for you. what you do, and people are realizing this, you go into cash. you do have an alternative. alix: in your hat. paul: yeah, and what's interesting is you have got to work out what the mom and pop investors are going to do.

i don't think they are out yet. most of them are looking at a flat yield and they say they are up since trump, so that's fine, but the pressure would come on mom and pops into december if the macro instability is still out there and played through. then i think we could see quite a selloff in it markets. the macro factors need to start getting a result and there are a ton of them to be resolved. coming up, chasing the cloud. ibm purchases red hat in its biggest deal so far. we will speak to jimmy -- we nill be speaking to gin rometty. this is bloomberg. ♪

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the nasdaq, hit very hard by amazon and google at the end of the week, over 1%, with european stocks going higher in part because of the auto sector getting a pop in the dax with angela merkel sidestepping the leadership of her party but staying in her chancellor role until 2021 and the market rallies. if you take a look at other asset classes here, moving higher on the session marks, the dollar grinds lower. with the cable rate here, we are getting some headlines out of the u.k. saying that austerity is coming to an end and budget commitments are funded regardless of exit. all of this hours before philip hammond will be unveiling the awesome budget. front and center of course is the slowingl with economy and the light of brexit. on the long end if you are going to be looking at the market in germany, yields are of two basis points in the backend, it's

going to be a choppy week for crude in light of the iranian sanctions on sunday. the businesse world, we have first word news with emma chandra. >> as we have been reporting here and you have been discussing, angela merkel will not be seeking a new term as ahead of the christian democratic union. the coalition government took a hit when the special democrats suffered their worst defeat since world war ii in a state election held in frankfurt. she has indicated she wants to remain as chancellor. the max jet operated by lion there has crashed with 180 nine people aboard. at lost contact between sumatra the oil slick from the downed aircraft. officials say they are not expecting to have any survivors. the search is currently planned

to last seven days but could be extended. the leaders of the pittsburgh affiliate of the national jewish presidenton wants trump to denounce white nationalism. the organization says that the president will not be welcome in pittsburgh until he is -- he stops inviting violence against minorities. global news, 24 hours per day, on air and on twitter, powered by 2700 journalists and analysts in more than 120 countries. alix: thank you so much. oil slipping after opec gives mixed signals on production. they say there is no need to cut oil output. there was an ask if there is to cut at current levels but supporters were told that for now there are no grounds or reasons for it, quite the

opposite, as you see, there are no risks of oil deficit. joining me now is the cohead of oil and gas along with paul richards. make me -- help me make sense of the headlines. last week it was about cutting production because of the oversupply, how do you interpret the last 14 days of opec rhetoric? myand in recognition of resilient heritage, [indiscernible] [laughter] .t has been more than 14 days the market has been trying to figure out the direction it should be going for quite some time. every day you hear a story about an oil surplus or an oil shortage. i think that as a result of the equity markets are quite unsettled, despite the positive and robust oil price environment . that's part of the reason we with noobust backlogged

ipo's getting done at this point until the market settles down and takes a direction, when we have a bit of a standstill. i would say that m&a activity has been quite active, a sign from corporate executives that they are convinced that the business is going to get better. it of course, the polish take his we have to see how much oil in iran actually loses. short-term we are still seeing signs and the threats of oversupply. this is the december contract of 2018 versus 2019. the lower it goes, the weaker the prices, tending to point short-term oversupply. what are your clients looking for in terms of ipo? flex my corporate finance want higher valuations, institutional clients one more stability and civility. that's the challenge. speaking, they feel good about the long-term but are

extremely focused on the offset by geopolitical conditions. david: global growth seems to be softening. they try to help my saying they would pump as much as they want. i don't agree no with the effects of that would be, do we? let's it's still quite early, there is plenty of oil out there, but that does mean that you can produce it efficiently. issue,whole differential there is plenty of production and reserves giving into the market as part of the issue. reflectedcan see that in oil stocks. coming inside the bloomberg, you can see it. that's the energy equities.

if one was a value investor, you would say great, it repaired itself. what is attractive or not attractive about energy stocks for you? first you have to note what is going to happen with the saudi's. it's not even a headline today. that story is calming down, despite the atrocity of what has occurred, it looks like sanctions won't go ahead and that's a good thing. also, what is demand going to be in the world? midterms, wee assume things are going to be ready tough. russia seems to be all in. in venezuela was told don't know. at the end of the day we take the view that this is getting to the point where it's overdone and if you take the view of where the next five dollars is, it's probably higher. overall oil stocks are based here and from an energy

perspective it's a reasonable live. -- buy. terms of are equities and oil prices are, it's extremely high. one or the other is going to change and i tend to agree with on the reasonable floor on oil. but i think what really has people nervous is the geopolitical issues can be significant. we can argue that some of these crisis issues can be resolved quickly, but people behave or have an extreme shortage problem , venezuela having a number of challenges that could become other things of are going on in the oil industry from the geopolitical the perspective where people feel good but are nervous on the upside and from an economic perspective they are nervous. there's too much in the air right now. to push back on that, the theme so far, and we haven't been in the energy reporting

season quite yet, but it's been spending more and getting less,. . >> i don't necessarily agree with that. technologyt the enhancements continue to be substantive. your point is that you are not getting as much oil per dollar spent, but i would not necessarily agree with that. productivity continues to increase primarily due to technology. again, trying to predict the shale world and the conventional world is hard, that business has only been around for 10 years. you can't look at past downturns to predict. and it has changed the global oil picture. >> in the middle of this justngs season, we get not tech, but chevron, dutch, what will we learn? good businesss a to bn in, these companies will be increasingly efficient.

again the challenges that investors are generally nervous about overproduction and your point the goose happens to be cooked here. the reality is that the energy industry is becoming very efficient and they are listening to shareholders with more return on capital and i think you are seeing that happening with dividends and stock buybacks growing. i think we will see a balancing point of equilibrium that we are not at yet. exxon appears to be doing the opposite, looking at a different kind of growth profile. how invested do you want to be in companies returning to the shareholders? stagnant, how do you think about that? not just for exxon, but in general right now. they are facing with every other multinational is facing. where is the world going? what is the growth going to look like? what is the fed going to

do? what's the geopolitical situation? in that environment you tend to get complacency and a conservative approach on assessment that at the end of the day i think the overall platform for oil, when you look at it, suggests demand will keep it higher at the time. at $35, they have proven correct and that's the story kicking in. now both lower, the u.s. consumer is getting something of a relief from what the market was worried about a month ago, that's a good thing as well. both very much. coming up, the world's second-biggest sect deal ever. ibm purchasing red hat, we will speak with ginni rometty and osmar abib -- and jim whitehurst

, coming up next. this is bloomberg. ♪

." this is "bloomberg daybreak coming up in the next hour, the money gram ceo. this is bloomberg. ♪ david: yesterday ibm announced they would acquire red hat, the open source software company. the biggest acquisition by far and a major step forward in their hybrid cloud strategy. now, jim whitehurst with his new partner, ginni rometty.

jim, let me start with you. i know you have had a relationship with ibm for a good long time, but why is red hat worth more in the terms of ibm than on its own? why is red hat that are off? have been working with ibm for many years and over the course of the entire year we started to do more together. more work being done together, speaking i started more seriously back in april and it has been something that has continued to evolve and it became a natural next step. in terms of why we see so much value for red hat, we see tremendous opportunity for open source enterprises and as the leader there we see a large market in front of us. what we have lacked is scale

when we go to market. we have lacked the depth of customer relationships as we are a newer player coming up. onlacked industry expertise what we needed to meet our full potential. ibm brings all of that. together we can dramatically accelerate the red hat business, what we do today, together being able to offer you the offerings that continue to grow the ibm business as well. what about the point of view of ginni rometty? this will be one of your biggest moves as ceo. why did you decide that this would be an important part of your legacy? ginni: we have in reshaping ibm for this moment. to me this is all about resetting the cloud landscape and this is the inflection point to do it. if you look at our clients, chapter one of the cloud is over. they have moved the cost savings

they wanted to get done, that's done, but the 80% ahead, that's a $1 trillion market, and this is the moment and to go after it, they need a hybrid cloud, what jim and i do together. taste on open standards. they tell us that they are tired of the lock in. we are the true open source, the portable answer for them. and we need to manage multiple clouds. they have data now spread everywhere that we can securely pull off together. this next chapter in the one 80% of theiret, workload is going to move. jim just talked about our industry expertise services and so weies to do that, catapulted ourselves into number one. you have to remember, jim, linda, ibm, open source, we are the biggest contributor to the open source community.

we have a long history of that. minix is the starting point for the cloud and a destination. when i say phase two, we own the starting point and the endpoint now. that is a great move for ibm and it is why it is accelerating all of ibm and is good for our high-value models. both got it done, congratulations, it's not get this done, but now the question is what you do with it. you both know that. you have seen a lot of mergers that look good on paper but never get executed properly. i understand that red hat will be a separate unit but also part of ibm? can you bridge that culture gap effectively? i have done 60 acquisitions, i did ibm's largest acquisition. i really pride ourselves on being able to take these cultures and get the best of them put together. there is a reason that red hat will be a distinct unit.

we understand the open source community very well. know that you have got to remain neutral with that ecosystem. we scale that why and to do it, jim will work for me in the team will be a part of the hybrid cloud unit, they will be their culture. and on the one hand, we scale them. on the other hand, we build on them and lift all of ibm, which gotringing our clients, we hundreds of notes from them telling us that this is the thet thing, this is what enterprise needs to get to the cloud and you guys understand that. i am in fact here today in raleigh because the most important message is really to the employees about how valuable they are and that this is about growth. this is not a cost synergy acquisition. this is pure growth in a market that we both see.

jim: just to emphasize that, it doesn't become about us and them, it's about that are together. moving as a distinct unit that i think will help us with our culture. but when there is so much benefit to our customers and ultimately that turns into better growth for the company, i feel comfortable that everyone will see the value in that and will work collaboratively together. the conversations here have been -- what is your commitment to the open source hybrid platform as a person at some point pushing the ibm legacy software? and you tell us how you are going to do that? ginni: with red hat together, we are the largest contributor and our actions speak for that. things like blockchain's, we

have open sourced install that. it's the fastest-growing part of the foundation. i think that our actions are the best way to prove that. the other is that our whole hybrid cloud, you know we are in 19 billion dollar cloud business already. we built it on containers, on cooper nettie's. foundation for the hybrid cloud, same as what jim has built with open shift and the like. that's why they are so complementary together. we build right on top of them. our solution already demonstrates that commitment to the open source world. jim: it really does bring one of the oak ancient compromises in technology. layers that provide choice without the value of deep immigration -- integration when you tie them together. this allows us to have the broad , horizontal ecosystem that we can deliver and run anywhere and ibm taking those pieces to integrate them into tailored solutions to meet specific

industry vertical applications where security is incredibly important. we can do both, it becomes yes and in a way that no one else can do or has been able to do. thei: the big thing that clients are telling us is that many of the other clouds are the -- our proprietary, we are open. this is about open versus proprietary. , we understand, as our colleagues have her in about this, calling it exciting, the huge growth in the open source hybrid cloud. but at the same time there are macro factors as well. we see them with concerns about terrorist and softening global growth and the tech sector right now with some of these companies getting hit on earnings. cannot slow down the growth you are looking for? i understand you are growing the pie, but terrorists, it really

seems to be holding you back. first, i can speak for ibm, the terrorists have not held us back. being in 170 countries with a global supply chain. this moved to chapter two for our clients, irrespective of the economy, even if the slowing is in their favor, it's the move we are making here. all a hybridralia, cloud environment. three times faster, three times less expensive, 10 times faster. that, whether you are growing or declining, that's a move you are going to make because it is in your best interest in those situations. i think that is why this is pretty much immune to that, what we are doing. it's a trend our clients will continue to go on, whether it is to fuel innovation or save themselves money. alix: but give us -- go ahead. we have been doing that for

years, 60 eight quarters of continuous growth through the great recession of 2008. the beauty of open source technologies on the hybrid more innovation and lower loss. what we have done for a long time in the markets is we have talked about cost savings and innovation and in both cases we can continue to grow. by bringing the scale of ibm to market, i think we can substantially grow. alix: your stock was down as much as 5% and wrapped into the theoff that we saw through peak earnings, cresting earnings. where do we go from here? how do you continue to grow? what do you make of your stock not participating in the equity rally and futures market? as everyone better

understands what this is, i want to go back to how it accelerates the high-value model. 200 basis points of revenue, compounded five years on a company our size is significant, but more so in year one, this is to gross margins and free cash flow and at the same time we are maintaining a growing dividend. these are really important factors. you -- you stay strong with investment grade. as the market understands this, they will be as confident as we are in it. i have to say, congratulations, those deals are not easy to get done, i know. thank you for being with us. in, what are we watching brazil, bolsonaro has one as expected. paulog us now is our sao bureau chief. julia, it happened. we expect it to happen. what comes next?

>> in terms of economic policy? we're waiting for the new names on the cabinet. we have three names, two spoke last night, now we want to know what's next. who's going to be the central banker? how many ministries are we going to have? cutting them down, but to how many? alix: how long does he have? asked the question, i have heard everything from six months to a year. when mr. macron came in, he had substantial representation. modest bolsonaro have representation? >> he does, but they had eight in the first round, now 62. david: of how many? >> 600. david: the dozens on the a lot.

>> is improving, he does have a small base but he has also said he won't do traditional brazilian politics. how is he going to build a coalition without the back and forth? alix: especially when mandate seven lead to anything by the end of the day. are we cresting or rolling over? how to handle peak earnings with facebook and apple on deck for this week. this is bloomberg. ♪

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merkel will quit as the head of the christian democratic party after two decades. ibm buys red-hot in the best red redin the second -- buys hat in the second-biggest tech deal ever. big week for tech earnings and economic data. david: welcome to bloomberg daybreak. we have the brazilian elections and now angela merkel stepping down. this is a shot of berlin, the press conference angela merkel will be holding shortly. it was not a good day for her party and her coalition. that is the backdrop to the news that she will not be the head of her own party. david: that comes a week after bavaria, where her fellow party for the first time since world war ii did not get a majority.

the center is not holding in germany. alix: supposedly she will stay chancellor until 2021. the markets like that. you have to be wondering how effective she will be at holding europe together. markets are up after the hammering last week. what is the bottom? euro-dollar flat. it was lower than higher. you name it. we are seeing selling in the bond market in germany. a refunding announcement coming on halloween for the treasury department. time for the morning brief. earnings week continues with facebook on tuesday followed by apple and alibaba on friday. tomorrow marks one week until midterm elections in the u.s. the bank of japan announces its latest rate decision and then

the bank of england. the u.s. releases jobs numbers for the month of october. germany, german chancellor angela merkel surprised the world which announced she would step down after two decades as the head of the christian democratic party in december. training us to tell us -- joining us to tell us what this could mean for your is nicholas, atlantic council senior fellow. ryu as surprised as we were? -- were you surprised as we were? >> i was not. merkel, this is in her character, was going to take responsibility for what are a couple of serious electoral defeats. she has been in power a long time. we have french media reporting

she doess confirmed not intend to be chancellor again after 2021. can she hold on until 2021? there is already a bit of a rush to succeed her as the head of the party. is the issue of who succeeds her as the head of the party and her coalition. reports today that the social democrats think they should maybe pull out of the coalition. of thesdd was forced out coalition. this has been going on for a year now. the fragility of this coalition has been known, and we all prefer stability, so we tend not to look at it until the is an event -- there is an event. announced a year ago

they would not form a coalition, and then they have to because if they did not, there would have to be no elections. weakare in an extremely position. they got the worst pulling in hesse that they have had since 1966. the spd and the cdu, they are all in trouble. what you said about the center not holding, it is particularly disturbing when we have the european parliamentary elections coming up in may, and steve been interviewed recently by john micklethwait on bloomberg saying clearly his movement intends to contest the european parliamentary elections as if they were u.s. midterms or u.s. presidential elections. if you can bring together the

populist movements, germany looks to be less stable than it already was. alix: if you made that argument for the u.s., it would be hard for a ceo to want to buy the u.s. after president trump was elected, that would have been wrong. do you need to fear europe? is this going to be an opportunity? >> i think it is a bit of both. markets hate uncertainty. any events that cause uncertainty, that is what you have seen a selloff in the euro this morning. europe has several sources of stability. one of the interesting sources of stability in the face of brexit has been the stability of the european union and the european commission. contrary to what the populists and nationalists may want to believe, there is a great deal of solidarity that goes through the european union institutions.

one interesting twist this morning is that it is looking more and more likely that there could be a so-called people's vote in britain, and that could be to remain in the european union, to reject a no deal brexit. it would be interesting to find that as we come to the european parliamentary elections, because that would be the timing after the u.k. supposedly leaves on march 29 that there is actually an extension that allows them to stay in the european union. there is tremendous stability in the institutions and instability in the individual member states. there is pretty strong european unity. these changes that are happening inside the institutional structures, with the exception of brexit, rather than something that is threatening the institutional structures. the eu is solid.

the member states are more uncertain. alix: thank you very much for joining us. david: joining us is brian nick, nuveen chief investment strategist. thank you for joining us. it is not just germany. it is not just the u.k. it is italy. put it all together. where is europe? >> i think the merkel news is interesting. the market reaction seems to be hardening. this is a point of uncertainty. 2021 is a long time away. i would be surprised if that is what the markets are keying on. i would be more concerned about what the response will be to italy, do we get any productive news on brexit? is it going to be a smooth exit? does the economic situation in europe turnaround?

we have seen those pmi numbers cascade down to a two-year low. what does the succession plan look like at the ecb? when are they going to raise interest rates? i put all of those as a priority ahead of when does angela merkel stepped down as chancellor. alix: do you want to buy european equities? strong on european equities of the beginning of the year. we know where that went. we were thinking the economic story from last year would carry over in europe and across the world. we had a soft patch compared to expectations in economic growth. we downgraded developed market equities from overweight to neutral in the last quarter because we were looking to be more cautious. there is maybe not a clear positive catalyst for european stocks like there might be for emerging markets. the growth in europe does not match what we have in the u.s.

it seems like the prudent place to be is with a barbell with the united states. david: this might be too far down the road, but we have the ecb last week. we wonder what they might have said this week. does this delay that september rates, and would this be more attractive for european companies because they have a lower euro? draghi, he has not discussed it at this point. >> they need a succession plan at the ecb. do we get someone that looks much different from he does? is that going to be a person that ultimately takes over? i have been skeptical about the september rate hike for the ecb. if they are using the fed playbook, the fed was always surprising markets on the dovish side, maybe wait one more cycle.

there is not much evidence in europe. core inflation is right below 1%. there is no urgency behind raising rates. they use that summer timeframe making them think that the day summer ends is when they will raise interest rates. there is no sign the market is clamoring for a rate hike. alix: mario draghi, before i leave, just one more time. coming up, we are halfway through earnings season for the s&p 500. this is bloomberg. ♪

alix: we are halfway there. it is earnings season. just over 50% of the s&p 500 companies have posted earnings growth. beat, you got killed. what is your take voice so far? -- takeaway so far? >> a lot of this was priced in. what i want to highlight is the fact that the market will always look to or three quarters down the road. they are looking at gdp print. the consumer was superstrong. i think what everybody is seeing is we pushed a lot of the investment into the last couple of quarters and that she bp was artificially high. everybody is getting ahead of that here. rates are picking up. we are at the earnings. you heard those numbers from caterpillar and others. it is going to be tough going

forward to meet these numbers. you don't want to get into an environment where you are long against really high tops. that is the rule against investing in companies that are really hot. you have seen a lot of these high beta names take it on the chin even if they reported really good numbers. what i am interested in the back half is seeing the consumer numbers, names like lululemon, massiveall upward revisions. is the fact that these stocks have not taken it on the chin priced in, or will we see the consumer continued to perform really well? that can continue while the rest of the economy may be the senate race over the next two to three or four quarters. those retailf stocks do well, it is

interesting to see what they say after the next quarter or the quarter after that. it is going to be tough on etc. s, on tariffs, >> we are not seeing downward revisions for these sectors. we are seeing them for all the major cyclical names. it is so separate at this point because we have bifurcated the consumer environment from the business and investment environment. we have talked a lot here on the show over the last couple of quarters about the fact that we're in this huge enterprise cap x cycle. -- capex cycle. we see ibm buying red hat. i don't love the acquisition so much, but it does say they are investing heavily in this cycle.

i don't love investing into these high-volume, high velocity moves to the downside. the question where is the bottom isn't so much give it time, there is time to take these high beta names off at a later date. alix: what is going to be the catalyst for the bottom? small caps have to finally bottom to do that. value has underperformed growth despite the selloff. what do you see that can actually provide growth? >> if you look at this year, momentum has outperformed value as you have said, but during this move down, momentum has severely underperformed value, as you would expect in a high beta meltdown like we are in. there has been massive deleveraging from hedge funds. they had one of the worst months they have had in years, so you have seen them clean their books a little bit. it is going to take time for that to settle because they are

hurting. you are not going to see them pick off these high beta names like you have in the past on shallow dips. they have been cut pretty deep. david: we still have brian nick with us. where do you go as an investor for some upside or some quiet, or do you go to cash? brian: we don't think it is time for cash. we don't think the cycle is on its last leg. if we could move into 2019, we think growth might be a bit more scarce. economic growth is going to be slower. bottom line growth across the board is quite high. some of it is going to be wearing off because of these tax cuts no longer playing into those 2019 numbers for david: when you hear about consumers being so strong, how much of that is tax cuts?

a lot of that is driving the 8% or 9% sales growth. i don't think it is just tax cuts. you are seeing wages coming up. we will see what happens to the employment cost index this week. if we see productivity growth, that should feed through to higher wages. we have seen the equity markets are much more sensitive to the tariffs than the economy as a whole is. if we get that last 267 billion of tariffs, there are a lot of consumer goods there. david: unless something magical happens, you are going to have those tariffs. that,what do you make of talking about consumer stocks? the conversation on friday is that consumer spending cannot last because it is just tax cuts. what the you look for from earnings to suggest that is true?

leigh: if it is because of unemployment, it can last. unless we take a macro turn to the downside, it can last. adjustment is going to be relatively shallow. i like stuff that is a little insulated from the tariffs issue and as well as when we look at consumer technology stuff that does not have regulatory issues. facebook is an issue. snapchat is an issue. twitter is an issue. we like stuff like match, incredibly insulated, really on auser growth, pushing business model that looks really strong, not going to get into regulatory issues. we like names like that. they are not to have issues with the other kind of stuff these other names have. david: we are not going to

regulate dating. alix: fair point. i was trying to think of a comeback, but good luck with that. ryan, thank you -- brian nick, thank you. election over the weekend was disappointing, according to angela merkel, and the cdu cannot just up back. strong statements from the chancellor is the press reports she will not stay the head of that party. david: she has always been steady as you go. she does not move much in any direction. merkel, this seems to be a fairly revolutionary statement. alix: the euro actually rallied after we reported she was not meant to be the cdu, but now it is lower. david: there is this ongoing question, she doesn't have to leave the chancellor, but can

she really stay there until 2021? you know german, what is lame-duck? david: i really don't know. i will look it up. ibm buys red hat for $33 billion. we will discuss that next. this is bloomberg. ♪

david: time for the bottom line. we take a look at three companies worth watching. everyone is watching ibm and red hat. we just got a chance to talk to the ceos of the two companies. resetting all about the cloud landscape, and this is the inflection point to do it. if you look at our clients, chapter one of cloud is over. they have moved the easy 20%. is ahead.

this is the moment to go after it. happy gina is a ramadi. her stock has taken a beating year after year. alix: we have been made for this acquisition where we paid a 60% premium. you always wanted to do that. i am taking a look at hsbc. this is how you do it. you wind up spending more and making more. delivering profit growth and spending billions expanding into key asian markets. it actually worked out for them. that stock is up in the premarket. finally some good news. david: and other company that has not done so much, ge. we turn to brooke sullivan. big week for ge. >> we have a earnings coming up on tuesday after they delayed those numbers about a week to give ceo larry cup more time to

hear about this -- learn about this business he is inheriting. they were down last week, erasing all the gains since his hiring. problems have been happening at a time when other industrial companies were doing quite well. their businesses were healthy. you have to think about, on top he hasother challenges to get ge on its feet, that is going to be harder if their healthy businesses move in the alix: run direction. how long does -- in the wrong direction. alix: how long does he have to prove himself? >> not very long. that said, i don't think there is a quick fix for ge's problems. there is no magic button. there is a wide spectrum of issues, the biggest of which is the balance sheet. what do they do to start reducing that debt load?

what do they do about the long-term care insurance business? do they need to put more capital in there to fill that reserve whole they highlighted in january? david: hard to give a dividend with that. >> that is what people are looking for in this next earnings call, some cut to the payouts. angela merkel saying she will not seek reelection as chancellor in 2021 and that she is ready to serve out her term as chancellor. i wonder what that means? she is ready for. this is bloomberg. ♪ ♪

alix: this is bloomberg daybreak. we are just a few seconds away from the latest eco-data in the u.s. it is personal spending that will be catching a lot of eyes.

thanks to red hat, that stock is by50% after the acquisition ibm. it is a mixed euro-dollar story as angela merkel announces she will not remain chairwoman of the cdu. that moves markets into confusion. personal spending for september up.ng in 0.4% personal income came in lower than estimated, 0.2%. pce coming in a little bit more than expected, 0.2%. david: year on year is 2%. i wonder if this is just a rounding issue? personal income was a little light. alix: it was revised up for august as well. the question will be after the gdp number, will that 4% orderly

gain consumer spending hold? david: personal spending was revised up as well. alix: we are seeing the savings rate actually fall. americans save less at the same spending. spending,t to keep you have to bite into your savings. a look at this from michael mckee. your response? interesting thing about income and spending levels, even though we are focused on spending, and spending was revised up, the income numbers driven down by wages. wages are up 0.2%. that is the lowest in some time. you would not expect that given the labor market we are seeing. that is an interesting development. when you look at the spending levels, and let me just bring that up on the computer, we have been looking for a much bigger gain then we have been getting

from the tax cuts. cutsan see when the tax took effect. we had an immediate jump in march, and since then, the trend has been down. where is the boost from the tax cuts? that is the interesting thing. it doesn't feed into the political dialogue because people have said they feel they are not getting a big game, that it mostly went to the rich. david: it is a powerful point. people don't give them credit for middle-class support. it is not terribly popular. explain to me, we have jobs numbers coming out on friday. how do those numbers square with these numbers? michael: only partially. that will be all kinds of income, social security, farm income, dividends, all the ways you can get money goes into the personal income numbers. that is why we pull out the wage numbers to see what has been happening with the economy.

the others can be lumpy. big social you get security checks, some farm payments go out. david: thank you for that. that is michael mckee helping us sort through those numbers. for what is making headlines outside the business world, here is emma chandra. >> german chancellor angela merkel will not seek a new term as head of the christian democratic union. she will not seek the chancellorship after 2021. her replacement as the party's leader could eventually become their candidate for chancellor. the cdu will choose their next leader in december. while president trump still sees a possible cap for the gop in the -- half for the gop in the gop in the the midterm elections, the white house is already laying groundwork to shift blame away from the president if they

should lose ground in the house. in sports, the boston red sox are the 2018 world series champion. they beat the l.a. dodgers in five games to finish the most successful season in franchise history. 108 wins during the regular season and 119 victories including the playoff run. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: thank you so much. did you watch? david: i watched the first inning. given my schedule, i cannot watch the whole thing. all i needed to do was watch the first and. there was a two run homer in the first inning from steve pearce. he is a fascinating story

because he has played for so many teams, i think every team in the american league east. boston is where he wanted to play. wasn't it the red sox were underappreciated, they cannot beat the yankees, we're done with that, right? david: the curse of babe ruth is gone. alix: so i can like the gains and not feel terrible about it. david: yes, but i am a tigers fan. alix: in brazil, also narrow sweeping into -- also narrow -- bolsonaro sweeping into victory. >> he is never going to accomplish everything he sets out to accomplish in view of the chaotic situation in the brazilian congress. i think he will be able to do a lot and there will be more upside for brazil. there will be corrections along the way, but the trend is clear. is?: joining us from london

ande and -- yacov arnopolin oscar decotelli. investments. oscar, you are on the ground. at the you looking potential investment space? >> we have soap opera elections. last time, we discussed a little bit about this. i think we can certainly toward the future. what do we need as u.s. dollar investors? we need a devalued currency, a good entry point, stable inflation, low interest rates, and stable institutions. i think brazil has enabled to prove that. there has been discussion about

how the president wants to tap into all those points. the truth is economic policy has been done. we have had demand shock this year from oil, currency, and anchored inflation expectations. we are missing the fiscal side. we need to adapt and address pension reform. a lot of people talk about that. this is going to be a major effort to reduce that deficit. we see a country where the new president is talking about unity, putting together so we can drive these so-called stronger forms we need. david: let's listen to the new president jair bolsonaro. he spoke last night. >> our government will break the paradigm. we will trust in people. bureaucracy,own simplify things, and allow people and entrepreneurs more freedom to build the future.

we will unite brazil. david: that is a tall order. when you listen to all the things he had to do, that he is going to unite brazil, does he have the political support to get that done? he has a congress to deal with also. >> there are a lot of questions investors are asking now. it is certainly a conciliatory message, but the main question is around government building. governabilorm -- ity. pension reform, we will see if he is able to get support in congress. the next milestone politically are the elections for speaker of the house and senate in february next year. that is going to determine between his economic team and his ability to get congressional support whether he is able to reawaken animal spirits in brazil. oscar, you don't

agree. >> we have already renewed the congress and senate. bolsonaro'sk at party, they went from being no one to the second strongest. partiesthe majority of that want to go to pro-market. when we look at who is going to be the president of the senate and everything, but we see is first round things were positive to the pro-market position. we want to see what the actual propositions will be. just a point to his speech last night, i think it was a positive speech. it could have been bad. two of his propositions for ministers have already spoken out. their propositions are also pro-market. i think we will see a little honeymoon in the markets the next couple weeks. aberdeen asset management

had an interesting conversation about this. we have seen time and time again brazilian politicians squander the opportunity to do the right thing. congress only seems to do the right thing when it has a gun to their head, but when the foot is not on their throat, they tend to underwhelm. if the reaction is to buy equities today, is that the right strategy? >> i think tactically we suspect brazil will do well. credit is rallying as well. we are positive on brazil. it will be a matter of what about pension reform? social security costs 60% of the federal budget on its way to 70%. sooner or later, there will be a wake-up call. markets will focus on an ability to implement these reforms. what will matter for brazil and

whether bolsonaro can make brazil great again is his relationship with the u.s. and china. on the u.s. side, he has tried to emulate president trump. he wants to be trumps man in brazil, talking about a free-trade agreement with the u.s. chinese, some potential investment in brazil. it could be positive for brazil as u.s.-china tensions flare up, brazil could benefit by selling china.y to orzil could sell more iron to china as well. -- ore to china as well. u.s.-chinesee tensions will benefit brazil. storieseeing several

that start on the private side. we had the ipo of stone in the u.s. a big story, $9 billion company. .e will see more of that story look at the investments in the private sector. amazon, this giant. how are they going to bring more earnings? they are not present in brazil. i think we will see the local domestic story of brazil affecting these global giant companies. we will see a huge opportunity in the private sector. decotelli of dxa investments and yacov arnopolin of pimco. our future of money series. this is bloomberg. ♪ is bloomberg. ♪

>> this is bloomberg daybreak. coming up later, an exclusive interview with the alexandria real estate chairman. this is bloomberg. david: it is time for our regular monday feature on the future of money where we look at how the digital world may be affecting the future of money. moneygram, the global provider of payment transfers operating in over 200 different countries. they are the second largest provider of my transfers in the world. this year they are down year-to-date 70%.

welcome. good to have you with us. >> thank you. good to be here. david: give us a sense of what drives your business to the positive or negative side? what gives you success? alex: the global money transfer industry is moving money from country to country around the world, a $600 billion industry. one in eight people in the world are migrants. 700 million people move around the world looking for opportunity, and they need to send money home. the global economy helps drive the industry and the business. the need for employment, labor, these types of things. our job is to position our product around the world to make it as relevant as possible for our consumers on a daily basis. david: you say $600 billion, is that number growing or shrinking

or staying the same? where are you in terms of market share? the overall high is growing. single-digit growth. predicts that will continue to grow. world trade is changing that landscape. market share has been relatively steady. the company has done some things on the compliance front this year to reduce risk in certain markets and corridors. we are down a little this year, but we are repositioning the company. we are going through a digital transformation and thinking about the consumer interaction and how we go to market. we are doing things intentionally that will have a great effect for us long-term. alix: you have been front and center in the conflict between china and the u.s.

eu military personal sending payments, what do you do? alex: it is unfortunate they made that decision. i think the world continues to globalize, and the opportunity to increase access to payments, access to mobile technology is going to reduce costs for consumers globally, and that is important. ok.g it alone is we have been a public/private company for many years now. what we have been doing is pivot our strategy. globally, we have been one of the largest money transfer providers, distributed through to hundred 50,000 physical locations. we are good at getting money from point a to point b in real-time and paying that in cash and receiving that in cash. as global technologies have changed globally, as digital

wallets have grown, bank account access has increased, we are changing our strategy. we are focused on becoming much more consumer centric, putting in relevant innovations to the market and beginning to give consumers the opportunity to transact through mobile devices, online, send money into bank accounts and mobile wallets. that is where a lot of our growth has come through as challenges in the cash to cash focus have changed our and required us to think differently about that market. i think cashes in to be huge. david: explain how that works for your customers. you say a lot of them are migrants. a lot of them are without bank accounts. do they use their smartphones? with this ifork they don't have a normal banking relationship? >> in a number of cases that is

true. most people around the world to have access to mobile technology. what we are seeing is consumers on the send side, migrants that have reached the u.s., western europe, the middle east, where they have found employment, they are being paid more frequently into bank accounts, less cash. they are accessing that through their mobile devices and moving money home. on the receive side, where consumers have consistently picked up those remittances in cash, they want to put those increasingly into mobile wallets directly. it is changing the paradigm of how this new omnicell consumer ichanneling -- omn consumer is changing our industry. we have needed to add bank account access, mobile wallet access.

g-cashntly launched with in the philippines. that is a huge innovation because it gives consumers access to funds in a different way. where send side, consumers are trying to access my transfers different lincoln we have grown from about three countries where consumers can send online to 17 countries. we are hoping to reach five to 30 countries by the end of this year. -- 25 to 30 countries by the end of this year. we have launched a native in the u.s. -- app in the u.s. alix: thank you. coming up, angela merkel's future, preparing to step down as leader of the cdu. ♪

alix: here is what i am

watching, german chancellor angela merkel will be resigning as party leader. she just finished wrapping up that press conference. joining us for the latest from berlin is our german. bureau chief.n what was the takeaway for you? >> what is interesting is as she is stepping down from the head of the already, she did say she wants to finish out her term as chancellor, which runs until 2021. there remains to seeing whether she will be able to hang on. it depends on who succeeds her as the party leader. people are lining up for that position. hand-picked to be the general secretary of the party has thrown her ring into the hat. rivals have said they will run for that party leadership. if one of them were to get it,

it seems much more difficult or her to hang onto the chancellorship until 2021, when her term expires. she said she is not going to seek any other political office after her term as chancellor expires. there was speculation that should the interested -- she would be interested in taking on the position of head of the european commission. she made it clear she is not interested in that. david: just today with this announcement, hesser influence with the party diminished? herhere is no question that influence has diminished with this decision. she said i am not going to be the one that takes my successor. any political leader that has tried to do that has failed. she is going to see how this plays out. behind the scenes, she is going to be trying to pull strings obviously.

her ability to orchestrate what happens in the party seems to be over at this point. alix: thank you. the market reaction has been interesting. it was lower, that rally, then it was off. david: the market did not know what to make of it. alix: bloomberg markets opened with jonathan ferro. in the markets, we are looking at s&p futures grinding their way higher after the worst month since 2009. 9%.dax topping this is bloomberg. ♪ is bloomberg. ♪

jonathan: from new york city, the countdown to the open starts right now.

coming up, futures rallying to start the week. with --starts october set to and october with the biggest monthly drop since 2009. chancellor angela merkel availing her path towards exit. the tone of this market is better this morning relative to last week. that is easy. call it one full percentage point. euro-dollar messy through the morning, but stable right now. treasuries giving up some of the toent gains, yields up 3.09%. fear abouttaken by the future in october. >> fears about global growth. >> the technicals in particular have been very weak. >>