♪ >> tech tanks. the selloff in the u.s. drags u.s. lower -- drags tech lower. newsom is that too -- the state of the auto transition hangs in the balance. and calling the rebellion. tory rebels failed to get a no-confidence vote in theresa may. labor doesn't rule out a second brexit referendum. >> we will keep our options open. the pressure now is on the government not to accept the deal that theresa may has brought -- we will vote against it in parliament if it comes out in its current form. ♪

>> welcome to "bloomberg surveillance." these are your markets, a slight loss in the tech sector, european tech down 1.8%, having an impact on the stoxx 600 overall. it started in the u.s., and you can see it is filtering through to europe. what i'm looking at is a little bit of impact on euro-dollar. treasury is pretty much unchanged, steadily dipping because of concern on the trade tensions. that is really playing out in the individual stocks or sectors. let's talk brexit with the german finance minister, an exclusive interview coming up. later on, we sit down with the chairman and chief executive of morgan stanley. we will ask him about his bank, the banking sector, and u.s. trade. let's get to the first word news

with taylor riggs. >> the anticipated revolt against the u.k. prime minister appears to be running out of steam, with her opponents failing to get a challenge. so far, more than 20 tory lawmakers have publicly declared they want her to go, but speculation that the 48 threshold was close to being met have proved wide off the mark. meanwhile, the bank of england governor appears and you can government later today, with brexit likely to dominate lawmaker questions. an exclusive interview -- >> i think he should read something a bit more positive in the future. i don't want to know deal. i want to deal. i want a society that works for all. i'm not comfortable in the society where the you when tells i wantmillion people, -- to change that. >> and shares his nissan and

mitsubishi have fallen in asia after the arrest of the chairman for alleged violations of japanese financial law. says he misused assets and is said to be removed. meanwhile, the british board of directors is set to discuss allegations this evening. >> it is too early to speak about the facts, since i don't have additional detail. the french state has a shareholder, being extremely vigilant about the alliance, as well as the stability necessary for all the employees of the group. i want to say to them that the state, as a shareholder, will ensure. >> london stock completed unsold homes sold by almost -- fell by almost half this year as affordability ways on the housing market. the number of units in the capital jumped 2300 out of the end of september, the most on record.

one area in croydon, near the south of the city, had the biggest stock fall. to geting is expected billions of dollars of deals. this marks the first visit to the philippines and 13 years and comes as the country's president shrugs off u.s. warnings about accepting chinese cash. the trip takes an even greater significance, as it comes shortly after the apec summit for the first time due to simmering u.s.-china trade tensions. confidence among u.s. homebuilders has plummeted by the most since 2014. if the highest borrowing cost in eight years. the national association of home builders dropped eight points to 60, the lowest level since august 2016. this as to the signs of a cooling housing market and will

weigh on how high the raise interest rates. global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. >> thank you. equities in europe are taking a hit. asia also saw declines, with tech stocks leading. of the major u.s. benchmarks, the nasdaq plunged more than 3% on concerns that the trade war will disrupt supply chains for major tech companies. joining us now, the global chief investment officer at credit suisse. thank you for coming on. i have been waiting for you, i'm glad you made it to the studio. when you look at market volatility, this selloff seems to hit a lot of the trade stocks and tech stocks. are we going to see more of the rout? >> it is clearly there, because the trade rout is not going to go away very quickly.

this is a fundamental conflict we have ended up in this year. the correction in tech stocks in general was perhaps a bit overdue after the solid returns and gains from last year, but it is not such that the earnings potential, the growth's potential is being completely taken away. but it is unsettling. >> are valuations too high for tech? or is it that the market is worried about supply chain linkage which we don't fully understand? >> i don't think the valuation is too high, given the growth potential. it's obviously a political battle between the u.s. and china for the future leadership of technology sectors globally, which is absolutely crucial to growth. right now, it seems to be playing out particularly hard, especially in october, with the u.s. and going off uncertainties about earnings. and here you have two

movingions and we are probably toward a more normal environment, where interest rates are sitting at a higher level than the u.s., and as a consequence you need to discount your stocks in your future earnings. >> michael, what's your base assumption? that's a trade war continues for 20 years? that it escalates? officer,investment that's the one thing you need to get right, because that is the currency. >> i don't think this is the one thing to get right. tohink it is more important get right how you are positioned overall for global growth with these disturbances coming in. trade tensions, in the u k we have a special political situation. overall you need to ask, how long do i wish to be positioned for growth? >> the answer? >> two to four years.

>> you think there's a downturn after that that comes from what? the tech stocks or a global downturn? >> i think downturn is too strong of a word. overdue, slowdown is in the second longest expansion of the economic cycle, coming out of a very dark phase of the financial crisis. central banks are being incredibly accommodative. it's not surprising that it is low. but it is very clearly a case that the business cycle has not been removed, just shifted. it is time to take stock of your risk positioning, and overall we would advise you try to participate in this growth cycle. >> where do you see the dollar going from here? is there a danger that the fed hike could make it sink, or because it is overheating, the fed hikes more? versusave a neutral view

the main currency pairs. we have the u.k. and italian situation behind us and a little more uncertainty about the top dollar. however we see the three to five-year outlook become weaker. >> thank you so much. stay with us. stay with "surveillance," plenty coming up. nissan is looking to remove a chairman on allegations of misconduct. a look at what that means for the world's biggest car alliance. and could there be a second referendum? we will hear what jeremy corbyn has to say on the brexit deal. this is bloomberg. ♪ ♪

♪ >> this is "bloomberg surveillance." the stock we want to bring to your attention, deutsche bank has an all-time low, shares down 5.5% as we are trying to dig deeper to find out exactly what's going on. if you look at the historical they need to- restructure the bank, let's talk about the things are john cryan's predecessor put in place. there are some things that have gone well, but some shareholders think haven't been done enough. that is the thing we are watching out for, deutsche bank down 5.5%.

let's get straight to the bloomberg business flash with taylor riggs. >> society general has agreed to play billions of dollars to resolve violations that it violated sanctions. the deal comes five months after the bank agreed to hand over a similar some to terminate other cases involving bribery and rate rating claims. it is substantially lower than what was paid by bnp paribas four years ago. apple shares have fallen close to bear market territory on concerns that consumers are no longer clamoring for the iphone. high,closing at a record it fell almost 20% after the announced they are cutting orders. apple says the company can still generate revenue growth by charging more per device and selling an increased amount of digital music. meanwhile, the chairman of barclays bank says the current

market volatility is set to continue. breakdown in multilateralism, the rise of the nationstate, the markets find it hard and so they ignore them. but these risks are manifesting themselves pretty much everywhere. there's volatility in this uncertainty will continue. >> shares in cryptocurrency related companies in japan and as priceea slid declines continue to rock digital currencies. bitcoin plunged below $5,000 for the first time since october 2017 amid speculation that increased regulatory scrutiny would prompt initial coin offerings to liquidate their offerings. and that's your bloomberg business flash. francine? >> thank you so much. the state of the world's biggest car alliance hangs in the balance -- nissan says it plans

to remove the chairman after he was accused of underreporting income, failing to declare about $44 million. the company says he also misused assets. mitsubishi says it will investigate his contact. the board is due to meet this evening. for more, kris bryant, our opinion columnist, joining us from berlin. what do we know about the response? >> good morning. the story moves to france today -- the french finance minister came out this morning and effectively said that he wasn't in a position to continue as the because -- the andd will meet later today they will name an interim ceo. there are some obvious candidates that might replace him, most notably the chief operating officer. task, they aret

a shareholder and therefore have a strong interest in what happens. mistrustquite a bit of because the french appear to have been caught unawares with what's going on in japan. in there will be a lot of questions in france about what happens now. >> what does this all mean for the alliance? there was a 30 minute conversation about six weeks ago what does it mean for the three companies? >> the share price declined again showing that the full-blown merger is off the table. that's not going to happen, primarily because in japan there

was always quite a lot of skepticism about whether it was a good thing for nissan and now nissan will feel they have a bit more of the wind in their sales. a full-blown merger -- will integration happen? there has to be a? over that. but unwinding the alliance probably wouldn't be advisable because they benefit from economy and scales, they share platforms. >> all right. thanks so much. kris bryant, our opinion columnist in berlin. the u.s.-china trade war could also hurt emerging markets. in an escalation, if an escalation spawns global risk moves, argentina and chile could drop 20%. that's the view of the wells fargo strategist. let's look at some of the trade tensions.

about --e were talking the linkage between treasuries and emerging markets. indicatorgle key risk .as been longer risk rates it triggers capital outflows, risk premium for emerging markets overall. we have seen the crushing feeling. for me, the biggest worry is a iarp slowdown in china and don't think they have a vested interest. think it is going to be a step-by-step process. it seems as if we are coming to some kind of situation where

people would prefer to freeze it for now, but i don't think this is going to go away anytime soon. it's not just about terrorism, it's about leadership. >> this is one of my favorite charts -- thank you for bringing it to my attention. it yields more than chinese counterparts. what does this tell you about the linkage between the u.s. and china? >> well, for me, it says one thing very clearly. what happens in this world is strong with the u.s. economy, u.s. yields, capital markets in general. i think the chinese, industry dispute, used the instruments that they had. on the one hand, to hit u.s. companies to an extent where they feel that there's a price to be paid and on the other hand, they can and they have mildly depreciated. >> this is a question we are

asking today. what should the pessimists and trade war -- how should they trade? is there an asset class he would selloff? >> i still think you can build a portfolio that protects you against the quality. there are still some safe haven assets that you can park your money in. gold hasn't been particularly usable, and overall, i say to investors, there is one asset class that would hedge quite where for these -- quite well for these types of disputes. certainly in the three selloffs lucina has worked well. >> thank you for that. he stays with us. up next, ray dalio believes he or entering a period of global returns in the u.s. we will interview him next.

this is bloomberg. ♪

♪ to go for lower terms in the future, because if you take all these obligations, there are unfunded pension obligations, health care obligations, there's a lot of obligations. essentially, a lower real interest rate and the lower asset return.

assets are held by those who are more rich. lowerk you can expect returns and probably more taxes. >> that was ray dalio, the founder of bridgewater associates speaking at their opinion piece. still with us, michael, brady e years of-- th low interest rates have squeezed returns out of assets. how long will this last? >> that's difficult to say. there's a big dispute between secular stagnation on the one side and on the other hand technology will come to the rescue and we will see higher overall levels of productivity. i would side of more with the second part. i don't believe -- we are still extremely tainted by the air on

the financial crisis, and coming out of that was anything but normal. i think we are moving towards a phase where monetary policy is becoming normalized, fiscal policy will see what the government is a very split political world due to the fiscal deficits down the road. but i'm an optimist and i believe it is much too early to say there are returns. >> thank you so much. he stays with us. up next, we spoke to germany corbyn. we will have more on brexit. ♪

i am a family man. i am a techie dad. i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience.

my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. ♪ economics, finance, and politics. this is "bloomberg surveillance." let's get straight to the first word news with taylor riggs. >> the anticipated revolt

against u.k. prime minister theresa may appears that are running out of steam, with her opponents yet to reach a threshold for a leadership challenge. so far, more than 20 tory lawmakers have publicly declared that speculation that the 48 threshold being close was wide off the mark. the bank of england governor appears in the u.k. parliament later today, with brexit likely to dominate lawmaker questions. shares of renal have fallen in paris for alleged violations of japanese financial law. says hean ceo underreported income and is said to be removed. discussctor is set to allegations at a meeting this evening. >> i would have all the discussions with the people that are in charge, and we will take decisions as soon as possible to ensure stability and long-term

visions for us and nissan. andondon stock of completed unsold homes surged by half this year, amid uncertainty and affordability issues. the number of units in the capital jumped to more than 2300 at the end of september, the most on record, fewer than 1600 at the end of 2017. xi jinping is expected to steal billions of dollars during a trip to manila. arrivalese president's marks the first state visit to the philippines in three years and comes as the country's president shrugs off warnings about accepting chinese cash. biggerp takes on it significance as it comes shortly after the apec summit ended without a joint statement.

edit confidence among u.s. homebuilders has plummeted by the most since 2014 as the highest the borrowing cost in eight years starts to stream demand. the national association of homebuilders dropped eight points in november to the lowest level since august, 2016. the data as to signs of a cooling housing market and will weigh on the fed debate over how high to raise interest rates. the modi government and the r.b.i. will jointly study official demands for sharing capital. the r.b.i. will form a panel to consider transferring funds to the government after a board meeting that lasted more than nine hours. the two sides have been sparring for weeks over how much capital the bank needs, and how tough the lending rules should be. veterane in the u.s., democrat nancy pelosi is facing internal opposition to becoming

the speaker of the house. more than a dozen incoming and returning representatives say they will not support her bid, and will instead vote for new leadership. he was speaker from 2007 to 2011. global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. >> thanks so much. a little bit of news out of nissan. this is the s&p, putting nissan motor on negative watch from stable watch. this comes 24 hours after the thek arrest of one of shareholders. titan the auto industry facing jail time. i think we are still trying to figure out the ramifications.

we are hoping to hear more from the french government. we understand the board will meet today. carmakers, and it really throws the alliance into turmoil. we will have plenty more on that throughout the day. now let's turn to an exclusive interview. anna edwards spoke with jeremy corbyn about his view on the current brexit deal, and whether he supports a second referendum. will keep our options open. our pressure now was on the government not to accept the deal that theresa may brought back. it inl vote against parliament if it comes up in its current form. >> under what conditions would you support a second referendum? >> we will come to that when we know what's happening with this deal first. andpriority now is the deal

after that if the government can't command a majority as it clearly cannot then ask yourself the question -- how stagnant is a government that doesn't have a majority in parliament? people he to decide who runs the country. >> it seems that you can argue there's quite a lot in the deal that a future relationship has ties with europe. why not back the deal? she says it is in the national interest. >> what does it do what paul us into a customs arrangement for several years, that we have no say over whatsoever and can only leave on the condition of the eu? >> that's the backstop. >> why is it there? and it doesn't deal with the question of northern ireland.

a different trading relationship between northern ireland and the public. >> what about labor mps who decide it is in the national interest to back her deal? what do you say to them? >> i would say to them, as i , we sat downthem those tests. we do not believe this deal meets those tests. we believe it is our duty to hold the government to account, and we will vote against it. i believe all labor mps will understand that, and i believe the parliamentary party will vote against this deal. >> that was our exclusive interview with jeremy corbyn. he is gaining in the polls, the main opposition in the u.k. joining us now, the global chief investment officer at ubs. welcome to the program. mark, let me kick off with you. when you look at brexit, how do

you do it? .he pound is very volatile >> you have to look at what's going on politically. what's amazing is the way that all these u.k. assets are really keying off the pound and that is really the shock is over for what's happening. we have surveyed many asset managers around the world. if you don't have to be actively involved in u.k. assets, many are on the sidelines -- unless we get a huge move in the pound versus the dollar, we will probably wait and see a little more. >> do you stay on the sidelines, or do you find a good deal? >> i think we can find a good deal. the pound is undervalued in our view, and it has been a slide that has been painful but we have a long-term forecast of the pound.

fainthearted, why not at your way into the pound and look for u.k. assets, for windows political situation clears up? >> let me get over to our sterling volatility chart. you are very optimistic about the kind of deal the u.k. will get. think the pound has been substantially beaten down by the political uncertainty, unjustifiably so if you look at the economic fundamentals. currencies are the shock absorber, as mark said, in political stress situations. the moment you have political situations the currency gets under pressure. i don't think anyone can rationally say exactly what's so in theappen middle-of-the-road the big highway looks like a softer brexit. that is why we are still overweight the pound. >> first of all, how do you see it politically turning out?

if we have an ugly brexit, voluntary or on voluntary, what does that mean to u.k. assets? >> a couple things.what michael said about the longer-term value is absolutely true. if you look at purchasing power, parity. the question is, what is the road to getting that valuation to snap back? as we just ahead, saw from the opposition leadership, is a lot of dancing yet to be done. i think theresa may has done the right thing by giving the opposition party to show their cards. she has to sail the ship of state hopefully to europe and caps on deals with the european leaders to get a few more concessions, and maybe that is the path through parliament. probably what is going to happen is people in parliament will reject it the first time, and then they will come back.

in that wrangling there is room for error. under u.k. law, there is a hard brexit coming early next year. >> we will have plenty more from mark, the global chief investment officer at credit suisse, and from ubs wealth management. the bank of england governor, mark carney, will testify before the treasury committee today at 10:00 a.m. london time. we will see if he moves the pound through his testimony. coming up, the global stock route threatens to deepen. it is showing up and manufacturers will get an update next. this is bloomberg. ♪

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this is "bloomberg surveillance." stocks are falling globally with european and asian equities tracking the rout of the u.s., set to deepen. investors are noticing the trade war an impact on the sector. this?how do you see i don't know whether it's tech valuations, a little bit of adjustment -- certain valuations seem sloppy -- or if it is something deeper. >> will certainly, there is some slowdown in global growth. we had in october the market price in a more hawkish fed and the trade tensions persist. some of the fears are that the delicate supply lines have been interrupted by trade and people want to see how that works out. we have said all along that this will be a more volatile year, and be forget what that feels like. bloomberg did a great story yesterday on volatility, and

this is more normal volatility. >> are you long volatility? let me also show you one of my it is looking at the correlation between the chinese and u.s. stocks. we brought it back and have seen the increase. this is the supply chain, right? >> supply chain and trade. the way it works is we have taken down our equity overweight over the summer because we felt a lot of the trade tensions went priced in. we recently added back to that. but that long position in global equity is counterbalanced by some hedges on the portfolio. we like the 10 year treasury, and it has reacted very well as a stabilizing portfolio. we also like the yen. >> the yen as -- >> as long versus the taiwan dollar, kind of a stabilizer.

>> so if trade war's were to increase -- do you look at renminbi or yen? >> u.s. 10 year. the u.s. is causing the problems, but it's everybody else's problem. the dollar has strengthened, and if it gets worse -- our base case is that the tensions could ratchet down. people seem to forget but president trump blinked on the oil. he gave some relief on the sanctions because he said he was afraid oil prices would spike. we know the administration does watch the markets. >> i hope that you follow the blog on the bloomberg terminal, which is rather excellent. the question we are asking -- if you are a pessimist, how should you trade? is it through treasuries? >> i think so. remember that the fears that this thing is going to 6% hasn't been met.

indeed, we are off the recent highs, and the yields are closer to 3%. stabilizer as a good in the case that things get worse. >> are we right to be a pessimist? if you look at the midterms, the impact could be donald trump only has trade under his direct control, where he can really do some damage, or put some changes in. clear that's very there's not going to be one summit that is going to resolve the wider issues with china, perhaps not even solve the trade issues. i think particularly in emerging markets, asian assets, would respond well if they came up for some framework for addressing and that the clock in the united states has at least slow down. there are some signs that it could be what is going to happen. >> are you adding to risk at the moment?

are you slowly taking it out? so now we arently comfortable with the level of risk. barring any changes, all things being equal, we still want to pay her equity exposure with some of those hedges that we find attractive, and also some opportunistic trades. for example, when the italian two-year yields spiked, we said italy isn't going bankrupt in two years, so we added that in the position. mark from ubs wealth management, staying with us. up next, we turn our attention to china. investors are said to be extremely wary of the 2020. we have a lot to talk about, including the impact of hedge funds. bloomberg bell ♪

♪ >> economics, finance, and politics. this is "bloomberg surveillance." chinese stocks were the worst performers today, following the

trade war at the u.s., sending the equity benchmark down 20%. it's not clear whether the countries will make any progress at the g20 summit. we will talk about investment and euro markets with mark -- how do you view china? war, from the trade policymakers are trying to keep it together. do you worry about looming debt, because of policies can inflate debt? >> well, certainly, the debt issue in china israel and they have not managed to really bring it down. witheal hope for this year that china would be able to put now theyeasures but seem to be heading the gap again on some stimulus. the important thing about china -- for the debt pile that they have to turn into a liquidity

crisis is a little different than in the west, because of things like the capital controls and the more command economy. we believe that china will take the steps to prevent a severe slowdown. fixed assetg , that ist increase now our base case. >> is it a big psychological barrier? will ber estimates it you -- it will probably trade through that open-source of next year. given how low rates are in some of the things we have talked about, low returns going seekrd, investors need to

out asset classes that perform differently. we think in that role, hedge funds still have a place. you want to have a diversified basket of hedge funds and different return streams but we think it's an important place. >> is now a good time for the wealthy clients? >> well, that's very interesting. certainly we are seeing that -- in more general, a move toward private assets, away from not just holding stocks and bonds. when we survey other families, they are looking to put 50% of their assets into alternatives. there is a trend. >> for equities, or for effects? what is your favorite asset class? like is i think what we this mix of the global equity overweight with stabilizers like the 10 year treasury.

we also like u.s. dollar, sovereign bonds, which have a nice feel. >> with you do with bitcoin? we are looking at it slide. what does the coin do with that? >> well, fortunately, when this all started a year ago, we were very consistent about saying -- this is not a store value, this is not a means of exchange, this is something to stay away from because if it ever gets big, the regulators will crackdown. the crescendo of questions from the media and talking to people around the world probably peaked somewhere in january and has been flattening since then. sides,ed at it from all including the mining of cryptocurrencies, using as much as ireland. this is clearly not something that was sustainable. are marijuanaere

stocks and other sectors that get this kind of hype. we are lucky to have an investment process that waits for things to mature. most of the portfolio assets measure the risk and reward so we don't get caught up. >> it's like around the world in 60 seconds -- what do you do? can it start normalizing? >> i think they are going to want to see more action from the ecb before they move. members ofth several the ecb, i think they are starting to talk data dependent and they could be more hawkish or more dovish but the signs are pointing toward the data dependency making the more dovish. >> is it italy dependent? >> i think there's a belief that the slowdown around germany is

related to the emissions standards and that there will be some bounce back but generally the economic growth has slowed not just because of domestic reasons but the importance of trade with emerging markets. they see that in the data. >> are global chief investment officer from ubs. "bloomberg surveillance" continues in the next hour. tom keene joins me. we will also speak exclusively to the finance minister of germany. that conversation in 30 minutes from now. this is bloomberg. ♪

francine: tech tanks.

technology leads the charge into the red. rebels fail to secure a no-confidence vote in theresa may. deutsche bank shares hit a record low amid concerns that the german giant is being drawn deeper into the basket scandal. i am francine lacqua in london. tom keene in new york. i know you are keen to talk deutsche bank. i think what is interesting is what is happening to mark carney. he could actually move pound. brexitwering a political question, but still going through the various scenarios. tom: you get these outside shops. these are not separate from this, let's bring up the deutsche bank chart to show the carnage back a year and a half. it is getting dicey from 16 and

down to eight. toncine: let's go straight the bank of england, governor mark carney addressing the u.k. parliament committee. >> we've got a lot to get to this morning. questions to particular witnesses, and short answers. governor, if i could start with you. farwithdrawal agreement, so your assessment on the agreement and the ability of the bank to achieve its objectives. >> we have emphasized from the start the importance of having some transition between the current arrangements and the ultimate arrangements. we welcome the transition arrangements in the withdrawal agreement. note ofsay we also take

the possibility of extending that transition. toterms of our ability discharge our functions, there are a couple of aspects of the withdrawal agreement. ability as our opposed to having no deal. a series of transition issues we have highlighted, and we can go into those specifically if you want, but i will leave it at the aggregate. it continues the supervisory cooperation agreements that we have currently with european authorities, which is essential given the size and complexity of the u.k. financial system. it would, we would expect, and this is something we will give a greater view on when we provide a response to your letter, it

would support economic outcomes. forecast assumes not just the specific withdrawal agreement but a smooth transition to an average of out and spirit that gives some idea of the direction of the forecast. >> last week, the prime minister talked about three essential scenarios. in the analysis you are going to provide to parliament, are you going to look at those three different scenarios? >> we are not intending to look

-- to provide additional analysis on the third scenario, which is no brexit at all. we will look at the following, which is no deal, no transition brexit. theuld stress that his work ftc does. their job is not to look at how things could go well, but what could go wrong. that will be a worst-case scenario of no deal brexit. our job is to make sure the financial system is able to withstand any shops associated with that. there will be that analysis. that will be commentary comes out as part of the financial stability report. secondly, in response to your atter, we will look at scenario related to the

withdrawal agreement. to a scenario as opposed full forecast because i think the political declaration of which we are going to hear more relatively soon will still have a range of potential outcomes, important things that could be negotiated. assumptionsake some about how that could come out. i would expect there would be a range of potential outcomes. we are working through that right now on an accelerated timetable. referencee able to relative to our november forecast and relative to a simple baseline, which is

the forecast prior to the referendum, which was just a trend of that were cast the last me, youn your letter to referenced a scenario which was a transition to wto. our assumption has been that we should look at that. the work we have done so are suggests principal value of looking at that is it demonstrates the importance of some of the assumptions that .ave to be made is thattion has to be in 20 months would we be ready to have in place all the custom arrangements that are necessary for a wto trading relationship

with the european union. we have to make assumptions on that. depending on the assumptions you make, that could look like no deal, no transition for a seamless move to wto. we will expose all that so you can have a proper assessment of it. >> thank you. you touched on the declaration there. you will incorporate the official declaration as far as you can. i want to look at the existing economic or cast. detail, itending remains our best guess as to how the economy might evolve. you will see within that, in our

last vision report that there is already some signs of the past move or two of uncertainties around a no deal. our own intelligence from companies around the country suggests that had we got nearer to the point of withdrawal, that has had a more material adverse .mpact on some companies brexit uncertainty is the single largest headwind they identified. fact thatnding the the details of the deal remain to be agreed, we are seeing

greater impact on the behavior of companies in particular over the last month or two. that could make for a somewhat weaker fourth-quarter then we saw in the third quarter and certainly a more volatile path for outlook in the next three months. this might not be something , butre able to set out now do you have a sense of what major judgments you need to take in order to model the economic impact, the assumptions that need to be made, the things that are still -- that require judgment because they cannot be certain. that arey elements of what is the end state? beenorking assumption has a free an average of the politicalt

declaration will allow us to focus more precisely on what that end state will be. that will be helpful. that will possibly reframe our forecast to some degree. the other key aspect is the path of transition to that state. our working assumption so far has been off of a rather gradual 15 year transition to that end state. >> can i just take this opportunity to pick up on a couple points. analysis we will give you is a forecast -- not a forecast, a scenario. we can stretch it out to five years, but it is not something

that others would produce, for example treasury, which is the long-term comparative static. what is relevant to those longer terms, and what we are transitioning to will include questions such as the level of services accessed, including non-financial services, so how much equivalents is granted. trade in theto nature of the trading arrangements of goods, is it free trade, are there rules of origins requirements, some of those things that are very relevant. they are relevant to the long-term. you will see less of them in our forecast because the impact happens more often. it is something we are transitioning to.

ones that wee the can. >> governor, you said repeatedly that they no deal brexit is an unlikely scenario. do you still hold that view? we are going to find out relatively soon. [laughter] not.me of us may or may >> we are going to find out relatively soon. the important thing for my financial policy committee perspective is we have always view that thishe might happen. it might be very unlikely.

we have been preparing for it since the day after the referendum effectively. confident that we have in place all the metrics we could have in place. parliament has acted with alacrity and responsibility on the most important statutory incidence. this is making progress, but it is not fully resolved. , we will next week provide as much information as is needed to make judgments about the capital liquidity position of the bank. perspective,ility we have operated on we have to get the system ready. the forecast in the november inflation report does not include a no deal scenario. it has always had a no deal, no

transition scenario. time we make our next february, wech is will have to know where we are headed. francine: that was governor mark carney with nicky morgan trying to figure out exactly what the boe is looking at in terms of scenarios. that is what the governor is saying. he recently went to brief the cabinet. scenarios on extreme stress tests were leaked. he was very clear that they were not forecasts. i want to point out to our global audience that these are two stellar people. his chief economist is andrew

haldane out of sheffield and warwick, who is arguably the most acclaimed working central-bank economist in the working world. francine, i would mention efrin ice or 70 these. it is remarkable what is going on in england to see them together. francine: governor carney saying the boe is welcoming the possibility of extending the transition. if you look at it from a market perspective, the different possibilities are key for investors as we have looked various reports from banks. 8% lasthe pound dropped month. joining us is janet henry, hsbc

global chief economist. thank you so much for joining us. if you look at the different scenarios, what does it mean for gdp? it is all about what carney can do. will he have to raise rates? >> i think he was clear that with the bank of england has in their forecast is not a no deal, no transition scenario. as he made clear, if it is a smooth transition, and they can assume that come it does not alter their current scenario, which in the november report, did not include the fiscal stimulus that is due next year. if he is wrong on that assumption, i think he was clear that they cannot be confident on what they will do. a indicated that if we get big currency decline, they may have to raise interest rates, which is what they indicated before the brexit vote in 2016. you cannot assume that if you

get a sharp move in the exchange rate or it looks like the economy was to interior rating, don't assume they can provide stimulus. they may have to raise interest rates. the most likely reaction would be if there is a currency move, they wait to see what is happening to the underlying economy. francine: i like this. we have an economy expert and a political expert. what are the chances of theresa through thethe deal legislature? --i think they look better they are better than they look. the illusion on one side that voting down the deal would produce a better deal, i think this kind of illusion has been unraveled. the second illusion is that there will be a second referendum, and brexit will not happen. i am not excluding the possibility. it is not zero, but a number of

things would have to happen for that to come about, including that theresa may is going to be the prime minister in the next three weeks would actually ask the european council to postpone the article 50 deadline. i don't think this is going to happen and even if parliament majority in a favor. i don't think theresa may would say let's do it. my sense is it is deal or no deal. it is that binary choice that becomes clear, and parliament might vote yes. let's look at your writing in the financial times on the ballet in britain. from a financial perspective, brexit has been a nonevent so far. gap at thestriking exit announces arrived at.

onxpect the european summit november 25 not only to agree to the treaty but also to 'srengthen mrs. may negotiating position at home. what is the gap in on november on-- going to happen november 25? mightssume theresa may ask the european council to say it is probably a good idea if you were to reduce some of the uncertainty. about no is talking deal or no brexit. if we have a three-way deal, the only way to get a three-way deal into a yes or no decision is to reduce three options to two. you cannot exclude no deal because that is what happens if you vote against the treaty. this illusory idea of we can

have another deal needs to be taken off the table. i think the european council will take that off the table. tom: we have mark carney speaking and his chief economist as well. know the dog and the frisbee, where he laid out for monetary wants like you that behavior economics matters. it was a brilliant paper. it is talking about the dog catching the frisbee. it is not supposed to happen. it happens. what is the behavioral thing you are watching for? >> there is a lot to cover there. as mr. carney was just telling us in the testimony, there are nine members of the mpc, and they will all have their own views, the same way the fomc does in the u.s.. a lot of those are not just about political players in what

is likely to happen. they also have divergent opinions on exactly what is going to happen within the real economy. there have been surprises in the recent data. in europe, qe3 was very disappointing. u.k. gdp in the third quarter was very strong. a lot of that was the summer wedding,nt, the royal barbecues, has set her. the data has already been soft. changeppears to be some that wage growth is picking up, inflation coming down, and retail sales have been disappointing. that the the behaviors bank of england is about. tom: i cannot say enough about reading andy hall, whether it is a dog and a frisbee or his other papers. they are always informative and entertaining.

i want to tell you about james gorman of morgan stanley. important conversation we will see today. really looking forward to this with erik schatzker as well. city, taylor riggs. taylor: shares of deutsche bank fell to an all-time low today. more than half of the $230 billion in suspect funds handled by the bank was funneled through another lender. that person identified the lender as deutsche bank. that could make the german bank liable for penalties. boston scientific has agreed to buy btg for $4.2 billion. that represents a 37% premium over the company's closing price yesterday. btg makes medical technology devices for doctors in the field of cancer.

plans tonounced gohsn. goes in -- francine: we caught up with the french finance minister who said he is not in a position to run a company. >> i would have all the necessary discussions with the people that are in charge, and we would take decisions as soon as possible to ensure stability and long-term visions for renault and nissan. that was the french finance minister speaking in brussels. joining us from berlin, our bloomberg opinion columnist. the concern is that he was seen as a rock star. he put this alliance together. with him falling from grace so badly, where does it leave the

alliance? >> very tricky question. i think france has been caught flat-footed by what happened in japan over the last 24 hours. totally unexpected news. a lot of clarification needed about the specifics of what has been alleged. a lot of uncertainty. a lot of mistrust. there has always been a lot of tension within this alliance. yesterday, he was effectively thrown under the bus by nissan. today and set to me choose an interim chief executive. francine: details are now emerging about some of the legend financial transgressions. does it throw the car alliance he built into turmoil?

could we see it dissolving? >> there is certainly a risk. hopingrs were there would be a deepening of this alliance, leading to a merger of renault and nissan. that is probably not going to happen now. that has put downward pressure on the shares. a complete reversal also seems unlikely. the two companies share platforms. they purchase parts together. they use a lot of common components. as a result, they generate cost savings. on doing all that work, which took many years to put together, it would not be advisable for either company. tom: is the alliance successful? >> i think it has been successful. came in, nissan

was successful. he built this alliance with renault and generated significant cost savings where justressures for spending keep increasing. electric vehicles, autonomous vehicles, it helps to have economies of scale. renault would find it difficult to go it alone in your. nissan was struggling. despite what nissan said yesterday, i think a lot of that was due to mr. ghosn. francine: thank you. we will be back with janet henry of hsbc. coming up, our conversation with a lot schulz. this is bloomberg. ♪ bloomberg. ♪ [ phone rings ] what?!

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see the grinch in theaters by saying "get grinch tickets" into your xfinity x1 voice remote. a guy just dropped this off. he-he-he-he. francine: this is bloomberg surveillance. the bank of england governor mark carney his testifying in front of the u.k. treasury

select committee. we have been following it closely. we have been following it through our markets live blog. go on to live if you are a user. he is outlining the case for an interest rate hike after a no deal brexit. it is the fourth or fifth time he does this in great detail. i don't think people seem to be buying that argument. they are talking about pound falling, inflationary, the one thing markets want to know. tom: it is a pound generation, clearly hanging on every word that mr. carney mentions. i would say with the pound churning within this 1.28 range, what we saw last week with prime minister may's government threatened, higher is a big deal. francine: it is a big deal.

let's get to taylor riggs. taylor: bank of england governor mark carney is weighing in on brexit today, being questioned in parliament. the central bank has been asked to assess any agreement or agreement with the sterling.aker 16 house democrats have come out against nancy pelosi's bid to be speaker of the house. they say it is time for new leadership. no challenger to pelosi has come forward. democrats will vote on speaker candidates next week. airlines around the world will be able to question going today boeing today about

its 737 max jet. the two deadly wildfires in california could cost insurers up to $13 billion. those estimates include damages to property and cars and business disruption. the fire in california killed at least 79 people and destroyed thousands of homes. 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. i am taylor riggs. this is bloomberg. francine: thank you so much. now to germany. angela merkel announced her fourth term as chancellor would be her last, making decembers cdu conference one of the most important votes in europe for years. henry and us, janet wolfgang which out.

do we underestimate the actual impact this vote will have on german politics for decades t o overcome? is important.this this is one of the most important political events in germany right now. it is a race between two. it is between a conservative, , and quiteeuropean conservative and quite pro-european. it is an unusual mixture. we have the current general secretary of the cdu, and she is very much like merkel, pro-european, but not outwardly so, but not really conservative. she is a centrist. one course would be the continuation of what we have now, pro-immigration, pro-eu in the sense that we are going to

be pragmatic but not very visionary about it, the way merkel has been running things. she has not really solved any of .he problems get he might eat into the support of the far right. he might change the way the eu works. francine: what are the chances of him being elected? does he have a perception problem inside the cdu? is he seen as the ugly banker? that is an issue, not so much for the cdu itself. this is a conservative party, not necessarily a blemish. it is in the media. my hunch is this is not the issue that will dog him. he was out right and open about his earnings. it was not secret. ofdid not come out as part

an investigation. it is hard to say who will be elected. there are polls that have him ahead. there are polls that have her ahead within the population at large and among cdu voters. is ahead atn is he this point. he has had a fantastic start to his campaign. merkel is not lobbying much. she is not even told her favorite candidate that she was taking the step to withdraw from the leadership race. it does not seem that merkel is a fixer in this game. i think she can work with both candidates. this,ne: let me ask you if you look at the future of europe, what is more impactful, this court italy? italy? >> i think germany will shape

bit more. italy could still be the source of a crisis. italy will not shape it because italy has taken itself out of the mainstream debate. the mainstream debate is happening between germany and france. we have seen marco coming out of those discussions with an agreement on a year-long budget. the path of reform to the eurozone is very slow, possibly too slow. it is happening between germany and france. that is the one thing we can count on. tom: wolfgang, you are one of our great observers of germany. let me bring up a long-term chart of the collapse of their bank. i want you to explain to our audience what deutsche bank means to the german people. is this a big deal to the people , or could they care

less about the decline and fall of deutsche bank? >> i think you, tom, care about it more than most of the germans. deutsche bank is seen in germany is very much an international bank. he used to be seen as the of germany itself. that has changed since even before the financial crisis, when deutsche bank became ever more international. it has vastly reduced its domestic businesses, so most people if they have loans or bank accounts no longer bank with deutsche bank. it is a huge issue for germany because if something were to , it iswith deutsche bank a liability for germany and the eurozone. ,hat would be a massive issue so the health of this institution is of great importance. frankly, it is not an essential part of the political debate. tom: if that is the case, why

can't there be consolidation? almost about jobs and approach?listic why can't these banks merge? >> i think that is ultimately what is going to happen. when i say the german political system, it is not something people will talk about. politics is different. german politics and german bankers are closely interconnected. there are cross relationships going on. there are competition issues, may strange competition issues, but a merger between the two largest banks would raise issues. i would assume that the weakness of the sector will force restructuring. we have been talking about consolidation for 20 years.

i predicted it, and it did not happen. i would be careful to predict it now. you look at the way these things are going, and this cannot continue. francine: what does all this politicking mean for the ecb? >> what matters next is what happens to the dollar and if we are in a world where the fed is still tightening, i think that will be what continues to move the dollar higher. i think what is happening politically matters for the medium to long-term outlook for europe. short-term one is what is happening with world trade. the euro area is a low growth economy. any dynamism comes from the world trade cycle.

it will be slowing down from the start of the year. if the euro is moving, that can influence exports, but it is not the primary driver. i think investment is the other area. last year was a year of phenomenal growth in europe. this year, we hope to see further acceleration, but where the political uncertainty is likely to continue is on investment spending in italy. you have seen some tightening of lending standards that will impact investment spending most likely in a negative way. tom: interesting times. wolfgang, thank you for joining us. your perspective on germany as well. henry will continue with us. that interesting mixture between transactions and mergers and acquisitions. look for that.

please stay with us. in london and new york, this is bloomberg. ♪ bloomberg. ♪

tom: bloomberg surveillance again. francine lacqua in london. i am tom keene in new york. the tech blowout in america, the knock on effects worldwide. peter garnier joins us. i love your chart and research note on the output gap. we are priced to march of 2001 perfection, and then we go back to just before the 1973-1974 recession. are we all priced as we were in

and does that mean we are going to enjoy a bear market? >> i don't think we're that overstretched. i think the output cap is -- gap is what the fed is looking at as they begin to change their view, and we think they will hike in december. the question is whether they will hike to or three times next year or maybe only once. we are leaning towards only once. the output gap is just a measure of u.s. activity. u.s. activity looks quite solid at the moment. we expect this trade war between the u.s. and china to have an impact on u.s. economy and the package.from the tax tom: what are the correlations that interest you now? >> obviously the selloff in

technology, we see technology being discounted. we saw growth stocks would be hit as the growth sentiment comes down. that ties to china and links back to europe. the reason we see europe so week is brexit and italy, but the connection to trade link between europe and china has been deepening over the years. everything depends on what happens to china. the g20 meeting on the 30th is very important. it is simply that the growth has been discounted. i expect the bias will be coming in 10% lower from here. if we look at the names, they are quite solid. been amassing free cash flow generation.

is prettyat attractive given the profile of what you are looking at elsewhere in the equity market. francine: what should pessimists trade in the u.s.-china trade dispute? what acid classwork equity sector? or equity sector? >> one of our potential wild that's for next year if things go south is the whole corporate credit space could spook investors. potentially a downgrade because that has shockwaves and ramifications. bbb has seen the most growth in corporate debt issuance. that would be the wild bet. underweight cyclicals for sure.

i think what people are getting wrong is they are so negative on china. most of that has not been on the ground in china. i think china still has ammunition. when we get late in q1, i think that stimulus the government has been incrementing will start helping. that is why we are staying overweight china. francine: when you look at the trade tensions between the u.s. and china, who has the most to lose from an economic standpoint? has saidthorities that the direct impact on growth is larger in the u.s. than china, but it is a lose lose proposition. seen -- it is not to say china is going to lift the global economy the way it did in 2010 or 2016, but it will offset

some of the damage from global trade. tom: the world is coming to an end. with peter. the chart that shows february where we hit correction, the yellow mark. we get nowhere near correction. a sprightly recovery. we are still nowhere near that the plunge yesterday. bad is the latest in more -- uproar in equities? >> overall the fundamentals are not we cannot the delta is not negative enough for me to be scared. it is quite healthy. here is we do not get that major breakthrough at the g20 meeting. we will see the hike in u.s.

tariffs on chinese imports on january 1. that will weaken sentiment. realize the fed is becoming more dovish. then i think we could see an extension, not a major equity rally, but we could see equities supported in that environment. that would be my path going to work over the next -- forward over the next three to six months. francine: thank you. janet henry stays with us. coming up, we speak with francesco verraci. coming up, we will go back to your markets. rally ons markets will a day when stocks are tracking asian stocks lower. this is bloomberg.

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tom: bloomberg surveillance.

good morning. francine lacqua in london. i am tom keene in new york. many stories continue to drive conversations. janet henry with us of the hong kong shanghai banking corporation. that means she is the world expert on china, as you can only be at hsbc. meeting,l be a g20 photo opportunities, and then what after the meeting? >> after the g20 meeting, i think it is unlikely that trade tensions ease materially. i don't think there is one single deliverable that can come out of that meeting. on the first of january, u.s. sanctions on china and paris will rise from 10% to 25%. we are waiting for the announcement for auto tariffs. it is a reasonable assumption , it 2019 starts the year

still seems likely that increasing tariffs will come through. tom: with all the legendary, historical contacts of hbc, the assumption is china will adapt, adjust, amend to these tariffs and extended their timeline. do you agree with that? >> extended their timeline on? tom: they will be patient. >> i think they will be patient. we are talking about the chinese economy that has a lot of long-term plans. is of the areas of concern china 2025. there are plans that go beyond that. what we have seen in recent months is that while a lot of the policy announcements have been a consequence of what is happening on trade, we have seen elements of fiscal stimulus tax

cuts. we have seen an easing of monetary policy. on the trade front, the last couple months of china data on export have been pretty good. it is not just the front loading , if you look more broadly, they have been holding up better. francine: do we have a debt problem worldwide? crisis,e financial countries are much more indebted. >> they are. the way we got out of the crisis is by leveraging those parts of the economy that did not previously have debt. in developed economies, it was the deleveraging of the private sector was offset by leveraging up the public sector. we have a much higher degree of debt. one of the reasons why interest rise very fast,

particularly in those areas sensitive to short-term interest rates. it is a constraint on growth. it is an ongoing issue that is weighing on growth and will ultimately weigh on long-term growth. tom: thank you so much. coming up, we will look at this important linkage in the equity markets and the turmoil into bonds with high yields giving way to higher yields and lower bond prices. is a perfect morning to speak to the board. from new york, this is bloomberg. ♪ bloomberg. ♪

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the japanese yen slightly stronger. shares of apple enjoy their own bear market. high-yield bonds may finally give way, price lower, yield higher. in this hour, george 40 of wells fargo. democratsicans and love the lame-duck. good morning, everyone. surveillance"berg from our world headquarters in new york. i'm tom keene. francine lacqua is in london. governor carney was speaking with andy haldane. what was the message, francine, you saw, beside his delegate brexit ballet? >> that's what i saw, the ballet. this is something that governor carney has become quite used to. the most important message is members,now he briefed and we need to model all case scenarios.

so at this point there are three scenarios -- no deal brexit, the deal goes through parliament, and something else. we need to be mindful of the forecast, scenarios. this is what the markets want to know. depending on each scenario, the pound could rally or fall. >> right. we have headlines just out coming across the bloomberg. the prime minister will travel to brussels to meet with mr. juncker. this occurs wednesday evening for brexit talks. who does she represent when she travels to brussels this time around? >> she is trying to keep it together. i don't know who exactly she represents, because she has a very divided united kingdom, a very divided conservative party. i'd say she's trying to muddle through. i think we saw the prime minister saying yesterday the bill is strong. she seems to have fended off any kind of rebellion for now. i imagine she travels to brussel

pushing a compromise that parliament could accept. >> we will see, those headlines just breaking, on the travails and travels of the prime minister. right now, a data check with trepidation. after all, yesterday futures were a -19. dow futures were at -154. we do have a correlated risk off, but not as much as you'd think, with euro churning and american oil with a slight miss over the last two or three days. not sooned gold as well, much correlation or panic, francine. trackingt stocks are what we saw overseas in the u.s. you can see that european stocks are falling, treasuries advancing, the dollar edging higher. i think investors are still pretty nervous about the technology sector and trade.

this month, angela merkel announced her fourth term as chancellor would be her last, making the december's cdu conference one of the most important votes in europe. they haven't provided any rest bite, with the bloc's biggest economy shrinking. we also have the small matter of brexit. the german federation of industry warning that britain crashing out of the eu without a divorce would have disastrous consequences. let's go straight to our germany bureau chief, in berlin, joined by the german finance minister for an exclusive conversation. over to you. >> ghi, francine. who better to talk to about this than the german finance minister and the vice chancellor? thank you for joining us, first of all, mr. chancellor. you describe yourself as a friend of the british. how do you see the developments over the last week in britain politically?

are you concerned that what's happening there? >> i hope that there will be a majority supporting the idea of an agreement with the european union, because everyone knows it would be a hard brexit, a big loss for the u.k., but also for all the rest of the european union. it would be very good if everyone understood it is necessary to agree to the things that are now on the table. >> you mentioned hard brexit. how much -- how likely is that given the week and is the german government preparing? >> i'm always very optimistic. think we know that the alternative is not really good, so we hope there will be an agreement and that there will be no hard brexit. andre preparing for that,

this is just because we are not knowing what happened. we hope that we will be successful. >> we just heard that the prime minister will be traveling to brussels tomorrow for discussions. to what degree do you see any wiggle room or more discussion over the agreement on the table to make it more palatable for people in the u.k.? >> it took a really long time to get where we are, and i think it is now more worth trying to discuss how there could be a majority in parliament. >> and what about the political agreement? we are supposed to hear more about that today? what does germany want to see in that? >> we want to have a good relationship with the united kingdom, between the european union and the rest after brexit. we know we will be neighbors, that we will be together on the

even if wentinent, are not together. >> you played a leading role in the discussions over the eurozone budget. you were just in brussels yesterday, and said that -- you whatou are an optimist, are the biggest remaining obstacles to this from your point of view? >> everyone knows that we have to do something after the big economic crisis. a lot of things have changed. we now have this european stability, we have the resolution mechanism, we have better routes but this is still something to do that makes it like 80% of gdp produced

after brexit. we have instruments to act in a difficult situation. budget, which was proposed by the french we are seeing how it could be susceptible for euro members and also for the other states in the european union. >> one of the complaints from some of the member states haven't been detailed enough -- when can we expect there will be more meat on the bones and to what degree is germany willing to contribute from a financial point of view? already in theed french government meeting this year that it should be within the framework of the european agreed aboutw we the idea that it should be part of the european budget. this will start in 2021 for the next seven years, in this is the

time where we have to take the decisions. the more important step for us it to the linking budget, and this makes it more promising. youurning to italy, do think the commission can persuade italy to reduce its debt without imposing penalties, and if they have to go down that road, do they have the political will? if we are together in the european union, together in one currency, there are a lot of that are part of the responsibility of the different states. to deal with the debt of 130% of gdp, which is tasked of any italian government, it is

something much more difficult. it is not just the european union giving advice about what to do, to be aware of the situation, it's also the italian government and parliament that has to think about that situation. it is much more difficult to have a political strategy that is convincing the financial to come with the european union. we will have a debate because the rules are not just an invention of someone, they have reasons. those reasons are part of the reality. >> mentioning the financial markets, you have said that the financial markets would be the ones to penalize italy if they don't get their budget in line -- when does that lead us to

another debt crisis? there is a big support for the european union, a big support for the euro, and you hear this from the head of government, from the prime minister, many others. this will be part of the political strategy. good -- this quite is going 100 years into the past. we know that we have to deal with the situation, but any time there's a different government able toe, we should be deal with the situation. i think there are some questions that have to be solved, for instance many of us might not have known in the past that there's not really a support for the unemployed and italy as we

have within germany, france, and the netherlands. question,bout that there's nothing you cannot understand -- the more important question is how to put this into the strategy that fits with the abilities you have according to haveeeds -- you have to sovereign debt. >> speaking of reforms, have italian banks done enough to get their balance sheets in line? >> they did not, so there is progress we can see looking to the past and comparing it to the situation. it would be not a right view on this data and we can say that nothing happened. a lot of progress was made. >> turning to the banks in

germany, there has been a lot of discussion for the need for consolidation -- what is your view? think they must sit to the , andtry and banking sector looking at germany with the size of its economy, i think we need the banking sector of the financial industry that is able to manage the needs of the global economy. about thed to ask you strength of the coalition in germany as we wrap up. it is something people outside of germany wonder about. do you see spain in this coalition until the end of this term? elections,e last there was a mentality of other thernments without

democratic party and we very much support that because of the results of the last election, which were not very good for the cdu and the social democratic party. but in the end, no one was able anduild the government, then we took the responsibility and now a the people lot of the things have convinced it, we havehould do a lot of grievances about progress for the people and for our country, and if anyone speaks to that agreement, i think it will continue, and this is the main question to answer in the future. >> thank you so much for joining us. tom, back to you. >> thank you so much. chad thomas in berlin with the former mayor of hamburg and the finance minister for the republic of germany. right now, the stock market has and this gives us a

quick brief on the market. what correlations do you see? how tight are the markets straining and how much is self? >> there was quite a bit of correlation in the stock market likerday, something around fell, the s&p 500 stocks but if you look within that, all 67 technology companies were down on the day. if you look at the nasdaq 100, something like 90% of the names were down. it looks like a continuation, where the high-growth names, the darlings of the last five years or so, are getting chucked overboard.

it's not a particularly nice environment for investors. >> what do you say to a dour s&p 500, barely near correction, nowhere near bear market? can we use the traditional andics of 10% correction 18% bear markets, or is that from another time and place? >> no, i think those are reasonable metrics. let's put things in perspective , here. vixmodal reading of the since it was implemented in 1990 is 12, but the average is about 17. to we are essentially moving is the most common regime, which is a low volatility regime, which tends to be much higher volatility. and that's not necessarily a bad thing and it's not necessarily

abnormal, given that we are moving from an environment where monetary policy was unquestionably accommodative back towards normal, given the aggregate level of accommodation that has been provided over the last seven years, which has helped produce abnormally superb ,eturns for financial markets just from a passive perspective. one of the reasons passive has you wereell is that never challenged if you are running a passive portfolio -- you made money basically every i think we have reached that point. >> talk to me about returns. lower going to see returns than expected for a long time to come? >> it depends, right? i certainly think it is safe to of that the s&p return

financial assets, particularly equities, as lower over the next five years than the previous five years. expectation is that the next half decade will look like the next half decade then i think they will be lower than expected. metrics,ook at various whether it is the cyclically adjusted pe, which is relatively elevated, or the market capitalization as it pertains to gdp. you can look at things like allins, corporate profits, of these metrics are very elevated. in one word, maybe it's an anomaly, but given that they all are, that is kind of telling you that markets are pretty richly guided. does that mean that we go off the edge of a cliff? not necessarily. but low returns moving forward make sense. >> thank you so much, great work

on cross asset analysis. someoneure to bring you -- wells fargo security head of the credit strategy. are we correlated now to the bloomberg, making a big deal about high-yield spreads, more high-yield than it has been before. does that signal a different kind of -- not crisis or panic, but weakness in equities? >> i think there have been two very big shifts this year, tom, and it really starts with what we've been talking about. driver, andhe key they incentivize investors to move back towards cash -- that has left him money available for everyone else. the march back towards cash is real. -- this is the chart

the total bond fund of the , no yieldrtfolio reinvestment, the great on the bull market. george borgwarner genius all through here. then we get into this significant role over. this red circle is an approximation of three years of coupons. that's the death of a bear market. are we in the bond bear market? >> we are in a bond bear market, but there are places to hide, places to protect capital. our central strategy all year long has been focused on front-end, short dated material. you want the highest yield possible at the fastest rate possible. if you can do that you are generating positive total returns. a three-year maturity high yield is up 3.5% year to date. there are safe places to hide in the bond market but you need to be toward the front end and in

short maturities. you need to be reinvesting that coupon at a very fast pace. >> i'm thinking of moving on to the triple leverage. i'm going into the libor fund. >> breaking news on "bloomberg surveillance." you will be staying with us. coming up, our exclusive interview with morgan stanley chairman and chief executive. this is bloomberg. ♪

♪ >> theresa may continues the battle for her brexit deal. she's expected to meet with jean-claude juncker in brussels tomorrow. edwards edwards spoke exclusively with the u.k. opposition leader jeremy corbyn yesterday. >> we will keep our options open. our pressure now is on the government not to attack the deal that theresa may has brought back. we will vote against it in parliament if it comes up in its current form. >> on what conditions would you support a second referendum? >> we will come to that when we know what's happening with this deal first. the priority now is a deal, and after that, if the government can't command a majority as it clearly cannot, you ask yourself

-- if the state doesn't have the majority, the people need to decide who runs this country. >> it seems that you could argue that there's quite a lot in the deal that does reference a customs union, albeit in the back drop, a future that envisions quite close ties with europe. why not back theresa may's deal? uswhat does it do but put into a customs arrangement for several years that we have no say over whatsoever and can only leave with permission of the eu? >> that's the backstop. >> well, why is it there, if she doesn't intend to use it? also, it doesn't deal with the question of northern ireland. but where's the border going to go, other than a different trading relationship?

what about labor mps who decide they think it's in the national interest to back her deal? what do you say to them? >> i would say to labor mps, as we sit downto them, those tests. we do not believe the deal meets this test. we believe it is our duty to hold the government to account, and we will vote against it. i believe all the labor mps will vote against the deal, and it will be defeated. ♪

♪ >> this is "bloomberg surveillance." tom, shares of deutsche bank fell to an all-time low in frankfurt today amid the scandal, estimating that more

than half of the $230 billion in suspect funds handed by the bank was given to other lenders. dealns familiar with the think it could make the german lender liable for penalties. some of the banks and pitfalls in the next six months -- have a look at deutsche bank. record low for the shares, there's also a general market selloff. consensus a bit of a that the bank could make $1.5 billion next year, maybe. target oneuro cost revenues of $25 billion. the revenues continue to slide. not going to make an r.o.e. of 3%. issue you've got is

understanding why the valuation is there. our a bit of a sideshow, litigation guy thinks that billion dollars of risk is outstanding, which isn't that much. i think they have bigger fish to fry, and the biggest is topline. >> if you look at european banks in general, is worst-case scenario price dan, whether it be brexit or lower interest rates? >> we are now at the bottom end of the trading range, discounting the cost of equities. trade risks, italy, greece, there are plenty of things -- you could say it's cheap but i struggle with catalysts and there's no momentum. the one thing we do know is provision charges will be lower than consensus.

the thing we don't know is what will happen. >> are they going to have to go out and get cash? are we really pricing in shared delusion in the next year, and even into 2020? >> are we talking deutsche bank? >> i'm talking them all, the sector as well. i know deutsche bank is starting to clash -- >> no, i don't think we need capital. the smaller of banks, there's still a question. they definitely need cash, a very good way of getting the balance sheet. the problem is there is no growth. outre returning a 50% pay and you have no topline momentum. >> have you seen the paper that explains how these guys make money? i haven't seen it. factors the

majority of the european bank balance is retail. you aren't making a fat margin but you are on mortgages. the problem is it is not going back up. the cost base is a huge retail network. that is why we are in low to mid single digits. the negative rates, it's more to do with wholesale banking then the majority of what european banks are. >> thank you so much for the update. jonathan tice in london. a busy day. here's your first word news. >> the bank of england governor mark carney says the central bank welcomes the possibility of extending the brexit transition. carney is being questioned about the split today by the u.k. treasury committee. he has often said that a transition is needed for financial stability. carney also said that they need to look at brexit scenarios.

airlines around the world will be able to question boeing today about issues with the 737 max jet, the model involved in a crash in indonesia, apparently involving the flight safety system. anding stock was battered, investors are worried the company could be held liable for the crash. and the deadly wildfires in california that cost insurers up to $13 billion. those estimates include damage to property and cars, as well as the cost of business interruption. the fire in northern california accounted for the bulk of the damage, killing at least 79 people and destroying thousand. 16 house democrats have come out against nancy pelosi did to be the next speaker of the house. they say the time has come for new leadership. representative -- so far no challengers have come forward. democrats will vote on speaker candidates next week.

global news, 24 hours a day and at @tictoc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. >> thanks so much. it is so interesting, the things affecting america -- the collapse of the denver broncos and the philadelphia eagles. our bloomberg chief washington correspondent joins us on the collapse of speaker policy. kevin, i don't see it. is this just boredom before thanksgiving? are the votes really there to nudge nancy pelosi into retirement? >> long-term, know. in the short-term, this is the political headache -- the letter that came out yesterday, 16 democrats are voicing opposition. i was talking to sources, aides to democratic members who oppose speaker pelosi. they are serious about this. first and foremost, there is a lot of procedural sidesteps that minority leader pelosi could use

to become speaker, and that is -- that's ultimately what you will do. >> backup for the mass. there's a million democrats in the house who been saying this for three weeks, 16 is a small number. >> yes, but it puts her at a disadvantage, because she needs to get 218. when you subtract that from the magic number, the majority number, in order to get confirmed, that would mean she would -- i do want to get too wonky -- republicans not showing up, or actually getting republicans to vote for her to be speaker of the house. this is the same procedural ,urdles that republicans use so there is precedent. the aids i talked to in the democratic party say do you want a situation where for her first major showing speaker poulos he need to get republican votes as opposed to democrats? when we aree about

going to hear from robert mueller, if at all. >> no one knows, we are still waiting to see when he comes. the president has finished those written answers, everyone is speculating about what that might mean. you have theterm, speaker elections on thursday, the week after thanksgiving. when a sorry, the government 7 as they december robert mueller investigation wraps. >> thank you so much. our guest is that ahead of public documents, and also a guest from wells fargo. you will listening -- you are listening on the esteemed speaker of the house. why does she matter? explain the urgency here for policymaking. >> i take issue with what you say -- the democrats do -- they did pretty well against the chargers.

there's always next year. in terms of nancy pelosi -- i agree that the outcome is that she will be speaker just because there is no alternative -- she needs 18 votes, republicans will have 234 or 235. that means she can probably lose a few votes. however, this is politics. they want to get some concessions from the future speaker of the house so they need some reforms on chairmanship, on committees. they are probably using this as leverage. imagine a policy perspective, the impeachment risk increases if policy is not the speaker. if you have a less experienced, more green speaker who's able to hold on to the progressive left, there's the risk increasing. >> let's go to the great morning must-read.

cantrellight up libby alley. . "a growing contrast between national politics and what's happening in communities -- a two-party lock on politics and entrenched incumbents,'s system of super enfranchisement of the wealthy and the disenfranchisement of the poor, but they also manifest increased trust in nonpartisan alternatives." is two-party dead? >> i mean, it is difficult in our electoral system -- it's constructed around parties. it is hard for us to imagine. local terms, a viable third party -- i don't think it's dead. what you are seeing is a democratic party with this speaker vote, each of these parties are having an identity crisis.

it's not to say that they won't morph and change over time, but i think as of now the system is so predicated on two parties that it's hard to imagine a viable third party. does foreign policy of the trump administration change, given their hold in the senate and what has happened in the house? and tradereign policy policy, which we think will continue to be a risk in terms of animal spirit, those actually continue unabated. the reason is because, of course, the executive branch and the united states has unilateral authority around foreign policy and trade policy. so yes, can the congress be a check to the president on both of those areas? sure, theoretically. but will they, especially now that the senate is more trump? the republican caucus in the

senate, it will be more beholden to the president, elected on his coattails. they are less willing to be critical of the president. i don't think foreign policy changes. even if republicans had cast the look,rs of congress -- the deficit is a real issue. you will start hearing republicans talking about the that tax cutsdea paying for themselves is not coming to fruition. we are seeing trillion dollar deficits expected in the 11th year of the economic expansion, very unusual. i think tax 2.0 is off the table, and it will be off the table in a republican-controlled congress. >> libby cantrell, you will stay with us. target, always a bellwether for america.

light, but far more important, -8% on comp sales, moving down to a five level, no question about a slowdown. we will have much more on target through the day. one of the most popular guests on bloomberg radio, looking forward to pwc on all those empty commercial spaces that are out there. count them in whatever city you are in. this segment is from london, from new york, coming back on high-yield in fixed income, this is bloomberg. ♪

♪ >> this is "bloomberg surveillance." that get the bloomberg business flash. one of the most influential american bargain hunters is reaching the bottom. he has bolstered a 3% stake in the market value which was cut in half this year as the center of a bond manager prompted billions in redemption. the form now says it is consolidating some fixed income inequities. the new ceo of victoria's secret has hired the president of a separate label to take over the lingerie maker. victor is secret has been under scrutiny for failing to keep up with shifting market demand, especially involving themes of female empowerment and diversity. in london, -- has risen to a

record high. halftory surged by almost and now takes the average londoner more than 14 times the average annual salary to buy a home, the highest multiple ever. and that's your bloomberg business flash. francine? tom? >> thank you. let's consider yield in price reallyorge borghi, which maps out on the slope basis where we have been and where we are. , allis the high-yield etf yieldgony of a big, fat -- there's this extended bull market, no one can lose money. we are not back to the agony of 2016, but we are getting there fast. this is what people want. they want a 5% coupon. ,> if you look at high-yield

it's at 7%. right now high-yield as an asset class is around 7.15%. the drop in prices have pushed up yields and we are seeing a containable range. -- absolutely. today's high-yield market is different than 2015. putnam --mith that high-yield markets are totally different than 30 years ago. >> absolutely right. companies are pretty well-managed, high-yield had an year,of $175 billion this and companies that don't need to borrow a lot of money have relatively limited leverage and are very cash generative.

this is a relatively healthy group of companies that are getting wildly overlooked and unfairly penalized. there are different points of pressures in the market -- there is very high leverage with no protection, and at the high end of the spectrum, in the investment-grade world, it's about refinancing risk. there's almost $2.5 trillion of debt agile to mature over investment-grade companies -- the government is going to borrow as much over that same period. there needs to be more that is done so you need to be careful about who you lend to today -- this is not the collapse of 2008. this is not the canary in the coal mine that says all corporate bonds will start defaulting tomorrow. the leverage structure is totally different today and i think you are getting

paid pretty handsomely to lend to the right company. >> so george, how do you choose the you went to? how do you choose the right company? with very you start simple metrics. look at the companies that need to borrow the most in the shortest amount of time. one of the reasons the more popular credits are under pressure is because they have very big maturities. the market is going to be willing to lend to them -- there's an ample amount of money to be lent and they want to extract a fair value or risk premium because we know those companies will be a little compromised. some companies have as much as 50% of their outstanding debt maturing over the next three or five years. the economy is slowing and interest rates are higher than they were. credit is a more restrictive environment. the challenges of borrowing are

going to be there. but there are a lot of companies that are fully leveraged out. they have borrowed a lot of money and they are very much in the deleveraging mode. they are fixing their balance sheet, redeeming debt, trying to take a little more debt friendly, mainly because they have to but fortunately they have the cash to do it. we can find a lot of companies that fit the metric, offering attractive yields, and will do pretty well over the next 12, 24, 36 months. >> thank you. he will be staying with us. bloomberg users can also reuse the charts tom and i have been sharing. them and you can also change them and send it back. this is bloomberg. ♪

♪ >> good morning. "bloomberg surveillance" 5000, and aller that linkage is leading into the increased income market.

is the bloomberg, barclays, all bond index from 2000 with dividends reinvested, the giant bull market of an age, and this flatness -- we have forgotten over what terms -- that's what this is about. >> right. the average bond investors, three quarters of their return comes from kerry -- the coupon you earned and reinvest it. manager,d investment equity, fixed income, real estate, you are about withesting your dividend hopes of some capital appreciation. that future bull market is over, at least for now. those coupons become absolutely critical to both defending you

against any potential capital loss in generating incremental returns. when the fed is raising rates you are supposed to be capturing those higher coupons as they emerge, but you are also supposed to look outside of basic treasuries. you need the extra income to rates this increase in and that is exactly what the chart says. you have a sideways moving bond market but it's the coupon that keeps you in the game. george, do we need to get used to the lower returns for much longer, and will it change perception? yields will typically imply a more challenging environment for stocks overall -- you get the basic principle of the higher discount rate and as the market rate prices, the

forward expected returns actually go up, not down. different investors have a different response, the more price oriented investor runs up, from bonds as yields go but the more dedicated institutional investor -- they are active buyers of yield as the price falls, and that is what we have seen this year. huge rotation in demand, a forward-looking return for bonds actually getting better. >> thank you so much. timely on the clipping of coupons. later today, erik schatzker with james gorman. this is bloomberg. ♪

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market. pressure in global equities. goldman cash will be competitive. bedman sachs says -- will below average in 2019 but the cash will be competitive. target misses on sales. deck.uy and kohl's are on welcome to bloomberg daybreak. i'm alix steel. jason kelly joins me. david westin is off. let's get like to some earnings. best buy is raising their full-year guidance for 2019. 90 -- earnings, solid, $.93 a share. outlook, best buy is pretty good. ?re you looking at gold jason: i