nejra: good morning from bloomberg's middle east headquarters. this is bloomberg daybreak: europe. thanks --s to -- angst. shares plunged as much as 8.5% in extended trading. wild swings in the yen and the aussie. surprise from china. the taiwan tumble. european futures and japan remains closed today. risk appetites across the board. as opec gets a head start on cutting output. washington adds to the turmoil.

no deal insight. the new congress is sworn in. warm welcome to daybreak europe. apple warned about profits and the reverberations went wild. there is major confusion in the currency market. i want to show you what happened with dollar-yen. dollar-yen crashing in seven minutes. it took seven minutes to barrel its way through levels that have held for 10 years. what set off this crash? thepple warned about china, scurry to the havens came into play. dollar-yen also moving quite aggressively.

juncture against the aussie dollar. you can see we have come all the way back. the flash crash proposition has got two legs, if not three. money flows to the havens. 10 year government bond futures trading at a one-year high. the cash market will open at 7:00 a.m.. as many flows -- money flows into yen, could that push the bank of japan to react? this is the after-hours trade. what a demolition. the china economy is the reason behind apple's slowdown. is this a truth and reconciliation moment for apple? have they been slow to tell you the truth? cutting their sales outlook because of the weakness in the iphone, laying it squarely at china's store. fromtakes us to a warning one of the first five cuts we have seen this morning, morgan

stanley cutting the price target to $211 versus $236. that is the context of your markets. juliette saly will tell us more with an in-depth look from rout.ore on that asian good morning. juliette: the equity market still closed today in japan. they will come back online tomorrow. it has been a long holiday week. that crash in currencies, that move into the yen could have been caused by algorithms. perhaps japanese retail investors trying to find a place to put their money. you have seen the australian share market do very well. equities looking very strong on higher commodity prices. it is apple suppliers that have been hit hard. 0.61% -- then by kospi down as well. there have been downgrades not related to apple, but companies

in theeley automobile hong kong session. let's have a look at stocks in detail. it is these apple suppliers that have been under pressure. now down 1.8% in taipei. citigroup saying this is its actual topic for the greater china semiconductor group, saying it has a leading edge in technology. this company in a share markets in china, this is a tesla supplier. we saw tesla hit as well. that cut coming through for its model three sedan and also below estimate deliveries. in australia, it was these commodity players that lifted the asx 200. these particular mining companies coming through saying its expansion packs show its lithium outlook is a strong. a front runner in the region today. thank you very

much. today we ask that question, what do apple's woes mean for risk assets going forward? news get your first word with debra mao in hong kong. debra: congressional leaders and president trump have failed to strike a partial shutdown of the enteringrnment, now its 13th day. the president says he remains willing to work with democrats and has invited them to the white house for further negotiations friday. democrats take control of the house later today and are said to vote on a plan to end the shutdown. without funding trump's border wall. opec oil production dropped by 530,000 barrels a day last month. it is the sharpest pullback for nearly two years. survey,g to a bloomberg

saudi arabia trimmed output byte 400,000 barrels a day in december. iran also saw a reduction. investors remain concerned the cartel will not cut enough to make up for another surge in u.s.--- u.s. shale supply. will makentral bank adjustments to reserve ratios. the pboc says loans with a nredit line of less than -- yu m will qualify for cuts. policy easing could release up to 400 billion in liquidity according to the china international capital score. china is said to be back in the market for u.s. soybeans. china's biggest food company is asking for soy prices for february and march delivery. renewed interest comes as officials from the two countries are scheduled to sit down in

beijing next week for face-to-face trade talks. 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. manus. manus: thank you very much. let's get more on the apple story. citing weakness in the chinese economy as a key reason for revenue decrease. while we anticipated some of the challenges, we did not foresee the magnitude, particularly in greater china. trading was temporarily suspended. we have our opinion tech columnist. good to see you this morning. what is the significance of apple slashing its forecast? is a truth and reconciliation moment? should they have told the market sooner? >> certainly they could have primed investors. they have been putting their head down in the sand saying

everything is going to be fine. it has not been. we have known at some stage the was going to be a big correction in iphone sales. the recognition they really are slowing. what apple has managed to do is tighten the ratchet on getting higher prices for iphones, generating more on sales from services, and hoping that in the meantime they will get a sales burst from india, perhaps, or they might be able to hold out until 2020, 2021, when they start to come to market with some sort of smart glasses. really the slowdown in china has meant that truth has come sooner than they might have anticipated. >> the world wants to know what's happening with iphone sales. you can tell up with fantastic new products in gadgets, but if beast is shuddering, that is going to irk investors. was this shakedown in the

supply chain as you have just heard from julie. do you think this is the start of the reverberations, or is it nearly done? it is problematic for the growth of those supplies. have seen the impact on suppliers. what apple has been doing as it tries to squeeze more profit out of the iphones it is able to sell, it turns to the suppliers and tries to squeeze them on pricing. they have already felt a lot of pain. the extent to which apple is able to squeeze more dollars out, it seems unlikely. at a certain point, suppliers are going to say, we have to make some sort of profit. the pressure is no one apple, less on the supply chain. apple.show and tell at our bloomberg leading columnist, thank you for joining us. what do apple's woes mean for risk assets going forward? joined the debate with the mliv team and myself.

with me now is my guest host. the cio at royal london asset management. what do apple's woes mean for risk assets? >> good morning. nice to see you. i think it has been an issue for some time that we recognize it. slowed demand for apple products. i've been surprised how well apple has managed to maintain the revenue and the margin profile they have had. of -- handsets have stagnated over the last three years. what apple has managed to do is optimize that margin. that is what your colleague is talking about. we have seen the realization that in order to continue to grow in the technology space, you have got to innovate. you have got to have a product people want. what we have been seeing is that

actually come of the next generation has not been -- and demand has started to fall off faster. prior tohas been doing this, putting more upgrades, more handsets, trying to keep that going, but it was interesting, i was joking with my wife last night, this is the first christmas we have gone quite a bigre is user of apple in our household. we have not bought a major item. the lack of innovation has come through, we has a household are not seeing the need to purchase or upgrade as fast as we might have in the past. >> therein lies the point. alex is saying, hey, maybe they're going to give us some new products. the reality is we need to be buying and upgrading iphones. i want to take you to the global reverberations that have shaken the market. it is not just apple.

, are youffany, daimler -- it is a cliche question. do you believe you buy these moments of weakness in the market? is this a value proposition? what do you reckon? >> if you're talking about apple specifically or more broadly the market, on the apple piece, i have got to see the multiples you're talking about, i need to see innovation that's going to justify the growth rate. if you are talking more broadly about china and the trade aspect , we were on together in december talking about the china affect and the trea turner affect yet to be seen, well here it is. you see it from a number of companies. it is a wake-up call to president xi and trump that they need to work through these issues. coming into the top of this hour, you were talking about the

central bank of china move to make lending easier in the banking system. that will be interesting to see how much that is really translated to the economy. what we have been waiting for from a strategy point of view is to see the chinese government provide more stimulus as clear evidence of a slowdown. we were looking at a number of stats showing that slowdown in china. we have really been waiting for response from the chinese government to help with additional stimulus to their economy. that will give you greater anfidence to back countertrend rally more broadly in markets across the world. manus: what would be the biggest piece of that? we debated yesterday with the number of guests. fiscal latitude, etc.. what would be the most significant piece of stimulus you could see coming from the chinese that could reverse the

demolition we have seen on apple and maybe even on the market itself? , and that is less liquidity in the china market, liquidity is more important elsewhere. it is more to do with china, markets are becoming more open to international investors. i do not find myself supporting the position of mr. trump very often. -- called outoff not unreasonably the issue of access on a consistent basis. we welcome chinese companies into the united states. some of his trade commissioners have been less supportive of them investing. likewise, the quid pro quo is he wants to see international companies be able to invest in china on an equal footing. issue, wet remains an are going to struggle to see the strong demand growth out of china one might reasonably expect.

more broadly, globally, and i have talked about this for a year, the impact of liquidity controls. i was on the other side of the pond before christmas. i was surprised at how few --ple really appreciate it knocking on the door with half $1 trillion of liquidity withdrawal am across the u.s. markets. we heard it in the u.s. markets when the fed said the relative rate of change may slow, but liquidity withdrawal and the u.s. israel and the fact that mr. draghi has said we are moving to a neutral position from a kiwi perspective in europe, it is interesting. there is something about the pressures of liquidity in markets more generally. manus: that's going to be a challenge for 2019. up, ubs chairman says technology will be the key to

shape the banking sector. we bring you that exclusive conversation next. if you are traveling to work, tune in to bloomberg radio on your mobile device or dab digital radio. this is bloomberg. ♪

manus: let's give you a quick check on these markets. reverberation from apple has had monumental impact. dollar-yen breaking levels -- what happens next from the bank of japan? could they be forced back into qe? dollar against the yen moved by nearly -- a 10 year low on aussie dollar.

you have dollar turkey again. these were in the eye of the storm. these emerging-market yes -- currencies. nasdaq dropping by 2.7% on futures. the apple share price dropping by 8% in after hours trading last night has really forced a review in terms of tech and u.s. earnings want to 19. by 2.8% even though you saw a big drop yesterday. it is about global growth. nymex crude levels lower this morning. let's take you to our mliv question of the day. apple's woes. what does it mean for risk assets going forward? joined the mliv team. those are the questions of the day. let's talk about banking. european banks are stuck in a deep bear market. --is the second worth worst-performing sector in the

stoxx 600. the has fronted shakeups at banks. bank, andank, danske at ubs succession planning is also underway. francine lacqua speaks to ubs' chairman axel weber about the future of european banking. weber says going forward the challenge at ubs will be to adapt rather than be subject to disruption. >> i think the industry is in the middle of a transportation. the first years after the financial crisis, largely so. many, including ubs, have changed their business model. over the next 10 years, there will be different trends that shaped the industry. technology is one of them. the business model will be challenged by disruption. the question in the future will be, can ubs rise to the

challenge and transform themselves rather than be disrupted? we see disruptions in many industry. i think banks will continue to face the challenges. we will rise to the challenge. we will adopt what is good through financial technology. the business model will change. it will become more technology driven. it will become more client centric. the domain will be the clients. >> how do they not become obsolete? get disrupted his banks that have in their business model a core model that has no distinguishing. took riskslike ours on one business area because we are the largest player in the world in wealth management. content matters. content will matter even more in the future. the client experience will change the technology.

clients are getting more educated about financial markets through technology. clients are more risk sensitive. have a different interaction with the banks. thanks that would assimilate that into their business model that continue to provide content and the industry leaders. >> do you think ubs is a blueprint for european financials? >> we would not want everyone to move into wealth management. nobody has the core strength in the home market we have. it is a very lucrative market. also because of the small size of our home market, we have a very early forced to be international. this internationality helps ubs. >> what are the risks associated with wealth management? >> we are seeing an opportunity. if you look at what we have recently announced, we actually think the current trends in the markets will continue to produce one byproduct of this qb and

monetary policy easing that is unwarranted. an increasing difference between the best performing in the economy and the least performing. inequality is going to rise. it will continue to produce very high income and very high wealth in many of the parts of little men will continue to feel left on the sideline. that will provide opportunities for banks that can -- on the most affluent in the society. ubs is one of those banks. manus: that was francine lacqua speaking with axel weber, the chairman of ubs. the full episode airs tonight at 7:30 u.k. time in london and hong kong. my guest host is the cio at royal london asset management. great lines from axel weber,

saying we don't want everyone involved in wealth management. how do you look at the banking sector? we have put together the value from the kbw bank index along with euro stocks banks. they both have a trend. is there anything in european banks you would like to court? or is it just too early to reengage? >> he made some important points i would agree with. ubs was one of the first to move and addressed its problem with investment banking in the post financial crisis issues. it focused on its core business, wealth management. it clearly understands the importance of technology in order to provide outcomes to customers. the one area i disagree with him, being a customer and an organization not royal london, we think it's going to be an increasing need for all numbers in society in terms of investment solutions and outcomes for long-term savings.

well he is focusing at the i think technology will enable people to compete in that space. more broadly, the opportunity in wealth management is recognizing the transition from outcomes for ,etirement were probably known as we move into contributions where the risks its with the policyholder in the pension plan owner, people will want a better understanding or certainty about what retirement what -- might look like. we see structural opportunities for wealth management. more broadly for society as a whole. one thing own want to understand from ubs is, where the strategic priorities for the banks? outside of wealth management, what are they going to do? think that is what the strategy was supposed to have been about earlier. maybe not to your liking.

the cio of royal london asset management stays with the daybreak team. money markets are reeling out a fed hike. we debate the fed. ♪

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manus: welcome back to "daybreak europe." look at that big chunk of green. australia. it is a ray of light in a sea of red. gold miners are bid. aussie dollar is at a 10 year low. as you move up the map you see those flashing signs in asia. you move into china, battered and bruised. you have a couple markets still closed. japan is closed. you are looking at the apple affect across the equity markets and the supply chain. with an aussie dollar at a 10 year low, gold is bid at a six-month high. these markets in

more depth. let's get to our partner in mumbai. and reporter has returned. -- annmarie hordern has returned. a warning sign hit the markets from asia, the u.s.. let's get to india and see what's taking us up. -- picking us up. >> earlier in the day i would have said we are battling the asian storm very well, but not quite. we are half a percent lower for each of the key indices as we speak. no doubt impacted by what is happening. the banking index is down. money markets are the big casualty as well. maybe because of the fall on the belief there would be waivers in india. the rupee in the bond markets have corrected.

on the prettiest of mornings for the indian markets. you mentioned apple. i want to bring up this one point. the apple effect is not being seen in india. you would expect it with stocks coming off across the board. impacted have been sentiment was. they are not really correcting too much. a couple suppliers of apple products, i would have thought even these would have come off. they have not. the apple affect not being seen in india, but the markets are lower. manus: maybe it is a little bit overplayed. thanks very much. annmarie hordern joins me now. my favorite number is seven seconds away. it took seven minutes to rip through levels we have not seen for decades on yen.

how very lent his volatility -- volatility? >> you can see the one week volatility absolutely soaring above 10% for the dollar-yen. we also have volatility spiking. the number you said, seven minutes, ripping apart trading ranges we had for a decade. what we saw in february was investors establishing trading boundaries with dollar-yen and other g10 trading peers. is that going to be similar to what we are seeing now? if this investors deciding new boundaries for dollar-yen? dollar is going to be key to look at. i want to look at oil. brent crude giving up gains it made yesterday. spiking 5%. opec slashing production, cutting the most in almost two years, led by saudi arabia.

this is due to information from bloomberg survey analysts and ship tracking data. it is also due to unwanted losses from libya and iran. they were not even supposed to start cutting production just yet. they were supposed to kick off this week. we are seeing them cut production. we could expect more. the saudi oil minister says they are willing to cut deeper. manus: and they certainly pulled out the stops. we saw a big drop in december. thank you very much, team. let's get to our mliv question of the day. join the debate. apple's woes. what does it mean for risk assets going forward? jump in at tv plus. here is a look at what you should be watching for today. 9:30 a.m. in the u.k., construction pmi's for december.

the gauge is expected to go down, but stay above the level of 50. 2:00 p.m. london time we get the automaker report. will the figures continue to be bad? a tough year for the auto sector in terms of tariffs and the present in china. this afternoon the new u.s. congress sworn in at 5:00 p.m. london time. the first vote is to pick a speaker. nancy pelosi is expected to regain that role. congressional leaders and president trump have failed to strike a deal to end the partial shutdown of the u.s. government. remainsident says he willing to work with democrats and has invited them back to the white house on friday for further negotiations. democrats take control of the house later today and are set to vote on a plan to end the

shutdown without funding a border wall. openking the president to government. we are giving him a republican path to do that. why would he not do it? joining us now from hong kong is our senior international editor jodi schneider. what is the latest? day 13. are we any closer to resolution? >> not really. it is day 13 of the partial government shutdown. that meeting at the white house did not go well. neither side seemed to change their opinion. the president still wants his $5 billion for that wall at the border with mexico. thecrats challenged homeland security secretary's account of a crisis at the border. they will vote after nancy pelosi will be voted in as

speaker of the house, and she will put on the floor two bills. one that will fund eight of the departments that are closed for the rest of the fiscal year. the other will fund the department of homeland security on a temporary basis. that is where this border dispute lies, to give them time to negotiate. they are going to include $1.3 billion for border security. president trump says that is not enough to build that wall on the border. they remain far apart. mitch mcconnell, who will remain the majority leader this congress, says this could go on for some time. he does not expect an easy resolution unless one side blinks. meanwhile, the government and the institution remains closed -- smithsonian institution or means closed. manus: staying with the united

states, the federal reserve watchers are going to keep an eye on tomorrow's data, the payroll number. the fed chose janet yellen, ben bernanke, jay powell, it is the american economic association. a cio at royal london asset management joins us -- is still with us. , and thed is listening president has suggested they should be listening more, do you think they are going to be irked in anyway by these messages from apple and the ceo talking about the impact of the slowdown in china and the world? the pmi's, the data we are seeing around the world. >> i think that is what i was saying at the back end of last year. the reality is we should be prepared to change our view as the economic data changes. i think you have important data out today with i sm. you have pmi's calling through. whether that slowdown is more

broad than just china specific. i think apple is more of a corporate story than we have seen in other places to suggest that broadly speaking, economic slowdown is evident. it is having a ripple effect from china. i think it is liquidity and the fed is a cornerstone of that. thes: i was looking at piece written on fed goals today. it is a business barometer. the size of the federal reserve are seen as tumbling or declining. the cleveland fed season 24% chance of a recession. you are looking at five of these fed districts in total now under pressure. how do you see growth in the united states in 2019? how much of a slowdown are you expecting? >> in terms of economic

slowdown, i think our expectation is gdp growth has been tempered, in some ways by the increase in rates in the u.s. we do cs get into the neutral zone, which is what the fed was talking about last year. what surprised markets is how hawkish howell was in december -- powell was in december. there is an opportunity for him in 2019.o rate hikes the dot plot will change. more broadly, the question is going to be less with the fed, more as to what happens without central banks. the fed have put themselves in the position where they have firepower. should we see economic slowdown. there is rest of it -- less of an opportunity for the ecb, the boj, and the bank of england to respond in light of where rates are today.

part of the debate you and i have had over the past year is when does fiscal stimulus pickup the bat from monetary stimulus? trump tax reforms provided the opportunity for powell to push on. we have not seen that opportunity for other central banks. fiscal stimulus has been less anticipated. the one thing you talked with me about before was brexit. certainly the chancellor here is going to need to recognize the need for a fiscal stimulus if we have a hard brexit. the fiscal stimulus aspect is the piece we need to keep an eye on this year rather than the monetary stimulus. manus: you mentioned the word brexit. we are looking at sterling under a little bit of pressure this morning. do you think we are going to have this vote pass theresa may's exit legislation in the middle of the month?

do you think the risk of hard brexit is rising? >> you are always charming. thank you very much for that. statistics say the risk for hard brexit has gone up. that is evident in the most recent data. whatbservation i make is the bank has been trying to do is establish what are the three or four issues we want clarification on, which may make it easier to build a coalition at the center towards a deal. it is very clear the message that came out of europe before christmas, we are not up for renegotiation. clarification may help. the backstop is the biggest one in ireland. that is where the focus will be. manus: yes, can i travel forwards quite simply on a number of occasions. can i ask you a look on terms of being possibility parliament

will be given a series of options? for example, if you don't want that, a little bit of something else. it might even be a la carte. is that a good scenario, or is that bad? actually the one thing markets up or is a vacuum -- abhor is a vacuum. which is where we are today. sterling has been the fall guy and where pressure has been felt most evidently. as for some clarification as to where we might be, i would expect to see an improvements in terms of that expectation. a bit of sterling strength. we thought we would get more resolution. the data yesterday showed there is more pressure ahead. manus: we're going to get more data later today. you stay with me. you are with royal london asset

management. coming up, we talk more about the fed and the u.s. economy. with the dallas fed president. coming up this morning, crude climbs. opec production plunges by the most in two years before its agreement to cut supplies got started. ♪

manus: this is "bloomberg daybreak: europe." let's get you a business flash. >> tesla shares dropped in new york after the electric carmaker announced it is slashing prices by $2000. the cuts come after the company delivered fewer model three sedans than expected. tesla seems to have shaken what elon musk tagged production hell, upping production from the fourth quarter of 2017 to more

than 61,000 in 2018. sources tell bloomberg saudi arabia's national commercial bank and riyadh bank our search key seeking -- are seeking a potential merger. it could be the biggest bank merger for almost three years. automobiles have tumbled in hong kong as morgan stanley slashed its price target. citing rising inventory levels. bloomberg intelligence says we global auto demand and trade uncertainty but carmaker valuations under pressure. manus: thank you very much. now to opec's production. it plunged by the most in almost two years even before the deal to cut supply started. by 500,000 barrels a

day. iran was targeted by sanctions on two of the biggest libyan ports were shut down. joining me now is our middle east energy editor. good to see you this morning. how much further does opec actually have to go to reach the pledged reduction to 1.2 million? >> they pledged to go down 800,000 barrels. the other 400,000 was going to come from outside of opec. there are still 660,000 barrels to go. they're going to get there soon, even though the uae and iraq took this opportunity in december to boost production of it. still have pledged another 450,000 barrels to cut. if the uae and iraq come in line, they will get their. plus they get the other outages from iran and venezuela.

manus: that is something the market is not that focused on. the market is much more focused on the pmi's, much more focused on -- why do you think crude is under pressure if we are at this site of tightening in terms of supply? >> supply and demand is not factoring into the crude market. it is the fear. the fear of recession, china growth, demand growth. every negative headline that comes across, you see the oil prices are kind of running in tandem with the s&p 500. that is something opec and its allies are not going to be able to address. manus: we have that line from the president saying he is responsible for this drop in the price of oil. about opec and russia

and the allies. what do they do? for as much as you underpin the $55, of brent and sustain suckers toives shell. >> it is really not clear. they have taken an optimistic view or aggressive view of how fast shale will grow and they have come up with their 1.2 million a barrel cut to address that. the issue is if shale surprises again. they said they would come into an extraordinary meeting and try to balance the market as it goes. there are problems in the shale patch itself in the united states. maybe they get lucky and he was production curtails a bit. shale is the juggernaut they're

going to have to look at for many years to come. manus: if there is an extraordinary meeting, i'm going to bring you into the opec scrum with me. i will push you forward first. that is our middle east energy editor. keys for 2019.he let's dig deeper into the other threads concerning the market. our executive editor for international government is ross matheson. good to see you. our guest hostess from royal asset -- royal london asset management. ongoing iran sanctions and how that's going to play out in 2019. we had waivers granted on iranian oil. that is going to come back on the agenda. talk me through the waivers of risk for 2019. >> we can expect u.s. pressure on iran is going to continue. the strategy is to put a noose around iran, to squeeze out

yemen and syria and iraq and to force it back to the negotiating table. sanctions have not had much of an impact so far. we will see more affects as the year goes on. the key is to see how that impacts the economy and how the leadership responds at home and the pressure it feels domestically. the big thing in terms of escalation would be for it to resume production of nuclear fuel, a potential flashpoint to watch is the straight through through whicht crude passes. manus: the other story we are --cking is the china-apple apple blaming china on the slowdown. the progress for u.s.-china trade talks, the delegation is on its way to beijing next week. do you think stories like apple

and tim cook setting out his story in regard to apple weaken the u.s. advantage in those trade talks? >> certainly it is a big issue for the market. the impactw how real is of these tensions on markets and on companies and economies. you are seeing china pmi start to weaken. you are seeing export orders fall from china. you're seeing weakness in fed indexes out of the u.s.. apple won't change the trajectory for the white house. trump is saying he thinks talks are going well. the risk is china comes up short on what donald trump is expecting and we see tariffs resume the first of march 2 months from now. so far ise seeing nowhere near the big structural changes the u.s. is asking for when it comes to issues like the allegations of forest technology

dransfer and ip theft. -- force technology transfer and ip theft. outlining thed is pragmatist guide to 2019. are you buying gold? are you interested in yen? are you being more defensive in the equities you put cash to play in? or are you going to cash? what are you doing to protect yourself from the pessimist's guide to 2019? >> in terms of deployment, in the equities space, our view is that the strategy you want to observe is one that is focused on cash flow. cash generation. quality at a reasonable price. what people are under appreciating is the amount of financial leverage in businesses

today. rise start to see the cost in the u.s., that is going to feed through. that is why we have been more cautious, particularly in the states this year. moving into 2019, depending on the direction of travel for underlying rates globally, that stress is going to continue. to your point around gold, gold is an alternative store of value to cash. you don't generate any revenue from that. we tend to prefer to hold cash as a defensive asset. on balance, the preference for equities and quality equities, cash and fixed income. bars: i can get you gold and keep them safe under the bed. thank you to our executive editor and my guest house -- guest host for the past hour.

quick check on the fx markets. the most obvious risk off is in dollar-yen. ♪

manus: good morning from dubai. this is "bloomberg daybreak: europe." apple angst. the iphone maker slashes its outlook. 8.5% inlunge as much as extended trade. the tech giant's warning triggers swings in the end. markets in japan remain closed. the risk appetite soars across the board. oil-rich treats from a two-week high as opec gets a head start on cutting output. washington as to the turmoil.

no deal in sight to end the shutdown. a very warm welcome to daybreak europe. let's give you breaking news first. it is the christmas report card. this is where it counts. the full year price sales of 3.2%, that's better than the market had originally expected. pretax profit comes in slightly light on the estimate. 715 million pounds. the estimate was for 724 million pounds. when it comes to the christmas trading period, it is in line with guidance. 2020, theysales for see them being 1.7%.

three weeks prior to christmas, sales made up for a very disappointing november. this is an important reprieve. the bad news is already into the stock. the stock fell 19% in december. bearish updates from a load of retailers. is for the christmas period through december 24. that is critically important. from one bellwether of the u.k. high siding the global market. the reverberations from apple downgrading. let's have a look at paris, london, and frankfurt. frankfurt falling into a bear market. all markets are lower. perhaps not as viscerally as you saw in the asian session. apple cut their outlook. $84 billion is what they are going to earn. the reverberations were profound.

they were shown him across the bond market. u.s. bond futures have been trading at a one-year high through the morning. let's have a look. italian government bonds slightly better this morning. 10-year benchmarks bonds in the priced at a quarter of a percent. a couple different things going on in the u.s.. the gap between three-year and isure paper, which many say the better or has more veracity when it comes to benchmarking a recession in the united states of america, it is a postcrisis low of 18.6 basis points. this is the excepted indicator. apple telling you something more about the state of the global economy? could we be closer to a bigger slowdown? we can debate that. juliette saly is standing by with the reverberations asia --e from the apple asked

angst. >> we have been watching suppliers and they have really hit trade in south korea and taiwan. taipei, i should say. the taiex index has been seeing a lot of weakness. we had strong commodity prices. australia did well. index downia-pacific for a second session and now holding at levels we have not seen since october. one other stock we have been watching has been in the hong kong session. that is deal he. had a price target for morgan stanley cut, which has seen it fall by the daily limit of as much as 10%. konghappened before hong opened so we knew it was going to be a bad day for the stock. certainly continuing to be sold off in late trade. when it comes to currencies, we have been talking about that flash crash in currencies, which has sent the yen surging as high as 8% against the market of

currencies up against the dollar by 1.7% with a 107 handle. the aussie dollar was one of the currencies sold off against the yen. at one point against the dollar, falling by $.68 for the first time in a decade. the south korean you one, the worst-performing asian currency down by 0.8% against the greenback. that is on the back of the fact you have these worrying concerns about a slowdown coming through from that apple call. sell $63.6seas funds million of south korean equities during yesterday's session. a lot happening in the currency market in asia. manus: thank you very much. the latest from singapore. a red headline. this is the guidance for the year. is setting the tenor for

2019. setting the guidance lower. that is the red headline. 723 fromidance cut to 727. we have been talking about apple and the reverberations around the market. i just showed you london, paris, and frank for. frankfurt has the biggest exposure when it comes to tech. dialog semiconductor is down over 7%. this is a reverberation from the apple outlook. infineon is down on trade. we will see how those semiconductors reverberate this morning. we have that downgrade in terms of price on apple already coming through from morgan stanley.

a little bit earlier during the asian session. they are not the only company to have anxiousness in china. fedex, starbucks, tiffany's, the rollcall gets longer. let's get your first word news with deadly humphrey in dubai. leaders andonal president trump have failed to strike a deal to end a partial shutdown of the u.s. government, now entering its 13th day. the president says he remains willing to work with democrats and has invited them back to the white house for further negotiations on friday. democrats take control of the house later today and are set to vote on a plan to end the shutdown, but without funding trump's border wall. opec oil production dropped by 530,000 barrels a day last month. according to a bloomberg survey, saudi arabia trimmed output by 420,000 barrels a day in

december. libya and iran some reductions of more than 100,000 barrels each. both through unplanned losses. investors remain concerned the cartel will not cut enough to make up for another surge in u.s. shall supply. manhattan home prices fell in the fourth quarter with the median slipping to less than $1 million for the first time in three years. condo and co-op prices declined to $999,000 in the three months through to december. continuing to allow demand -- china has landed a probe on the far side of the moon. the first-ever spacecraft to reach the surface that faces away from the earth. the people's daily newspaper reported the probe, named after the mythical moon goddess, landed at 10:26 a.m. beijing

time. nasa's new horizons spacecraft has sent back images of the most distant celestial object ever explored. the object is made up of two spheres joined together looking like a red colored snowman. 1.6 billion kilometers beyond pluto. 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. much. thank you very apple has lowered its revenue outlook. citing weakness in the chinese economy. the ceo said, while we anticipated some challenges, we did not foresee the magnitude of the economic deceleration, particularly in greater china. trading was suspended and shares slumped in after-hours trade. we have our opinion columnist

alex webb. a shocking level of truth and reconciliation, or was it expected but they kept putting off the inevitable? >> if you look into the supply chain, in hindsight, you could have read some of the tea leaves. if it was really expected we would have seen any number of analysts cutting their outlook on the company. that really did not happen. too much bullishness around apple. as much as the suppliers have suffered today, the reaction has not been that considerable. you brought up the share prices for infineon on and dialogue. down,are expected to open but they have been down 27% over the past year. some of the problems in supply chain have already been priced into the shares. manus: certainly the analysts, one come through

this morning from morgan stanley. unsaid in this statement in your opinion? china from focus on a hardware perspective. the thing apple has been talking about for years now is they tried to shift the narrative, perhaps they would get a more generous valuation. they want to be valued as a software company. they did not talk about the fact that in china they have huge problems selling phones. they are not allowed to sell itunes movies or tv, books. there are a lot of apps they have difficulty selling. google accounts for a lot of services revenue because it pays thee in order to be preferred search engine in safari. google does not exist in china. it does not have the same multiplier effect in china that it does in europe and north america.

growmeans it is unable to that highly lucrative part of its revenue as rapidly. secondly, they have been talking about india for some time. india is a growth pillar. that has not materialized. manus: it has not materialized yet, as some would say. we will see what gets delivered in terms of sales this year. our bloomberg tech columnist, alex webb. today's mliv question, apple's woes, what does it mean for risk assets? a contagion? or is it retrospective? is a historical data and a reality check? truth and reconciliation that apple. join the team. i will as well. my guest is the head of fx strategy at -- good to see you this morning. well done on the move. good to see you.

what do you make of the apple story this morning in terms of risk to the world? risk, it is being used as an excuse to sell risky assets and get into safe haven assets. it is continuing a trend we have seen were investors are using every piece of negative news to establish a safe haven position. you are seeing japanese yen and swiss francs depreciate. i think yen is undervalued. i think that's going to continue to be the case. consequently, yen appreciation has just begun. although dollar-yen trade is at 107, i would not be surprised to see dollar-yen continuing to trade at lower levels. if you look at yen in terms of real effective exchange rate levels, it does trade very cheap. as a result, i would not

recommend anybody to go in buying a depth on dollar-yen anytime soon. manus: we are trading at 107.16 today. when you see the kind of fear -- virulency let's e, does that say flash crash to you? suggest -- i think this is a structural issue in the market in the sense that before you had market makers obliged to make markets. now because investment banks are no longer trading, you know longer see that excess liquidity provision. when we have periods of low liquidity like the beginning of the year, you tend to see these flash crashes. it is not an issue confined to yen or the aussie. we saw it in sterling a number of years ago. it is an ongoing issue which

regulators have not been able to get their heads around. certainly for the moment it is a classic risk off move. it is likely to continue. manus: how low can that -- i had one debate with one guest who said towards 100 is a possibility. a significant upping of qe by the bank of japan. >> a moveu reckon? toward 100 as possible over the year. i would not doubt that. regarding qe from the boj, the problem is what are they going to buy? they are running out of assets to buy. that has been the case if you look at their qe volumes. they have been able to buy all they wanted to do so in the last number of years. increasing qe from the boj is not going to achieve an awful lot. it seems to me they are at a stage where they're going to have to throw in the towel and say their efforts to reap -- reinflate the economy are failing.

given where yen trades in terms of valuation, we are going to see more pain over the year. manus: one thing that struck me was the lack of aggressive moves in yuan. this is a china story. myt is -- i am looking at bloomberg and it says one year swap rates in china are the lowest since 2016. it has probably drop since before you woke up. level sincelosing 2016. that tells me this market expects china to cut rates. is that a possibility? do you think the yuan will bust seven? >> if you look at dollar yuan, it trades in a very tight range. what we saw on the ground the fourth quarter was that the

chinese were running down their fx reserves again. intervening in order to prevent further weakness. my view is we are going to see w yuan lower-- dollar by the end of the year. the chinese threat is in deficit. that is the first time in 30 years. i'm not usually associated with currency weakness. chinese authorities have kept an.lar you one -- dollar yu they will allow for more weakness over the coming year. regarding rate cuts, it is an absolute possibility. we are going to have a data block out for the next six weeks getting over the new year period. once we get more data, i would think markets will begin pricing in rate cuts in the second half of the year. rate cuts at this point are a distinct possibility.

manus: stay with me. short and to the point. we have much more to get through now. they are coming in hard and fast. the lines in terms of the analysts. it takes a big statement to move the price targets. versus $222.87 i'm talking about apple. goldman sachs moving their price target to $140 from $182. these are big moves. there is the after hours on apple. $146. got 140, morgan stanley, $211 versus $236. reappraising the state of play at apple. ♪

manus: 7:21 a.m. in london. what is the market going to make of the big announcement from apple and from next? cut, 723 versus 729 on the guidance. from 727on pounds million. one of the first stores to report christmas sales. after a disappointing november, trading in the festive period was in line with guidance. a bit of a silver lining and a small downgrade. what do you make of the numbers? >> it does not look bad given the pressure we have had on retailers from brexit. a small cut, but not as bad as some people are expecting.

pricing, i of thought that was interesting when they talked about what they managed to achieve. >> there was a lot of discounting around before christmas. next interestingly does not go on -- it did a small black friday production. it did not go on sale until after christmas. that is not going to be the case for other retailers. it may look ok, but it is what impact that discounting have on the margins. manus: thank you very much. parsing the numbers from next. my guest host is the global head of fx strategy. he is still with us from geneva. taking the numbers and making a jump, andrea just mentioned brexit. we have one week until the parliament vote on theresa may's version of exit. germany is caught in a vice.

125, 127. do you play sterling at all at the moment? what our clients making of sterling? are waitingoint we to see what is going to come from the vote. trading sterling is very difficult simply because we are at the mercy of every headline from brussels or london, etc.. rangee been in this 130 for the past month or so. sterling has traded on the weaker side rather than what are oversold metals. certainly investors, the best aey can do is trade with relatively small position. volatility is such that you can get stopped very quickly. from this point onward, sterling

is basically uninvestable. mainly because we just got very binary event coming on the 14th of january. we have to see if theresa may doesn't get her vote passed, the question is, what's next? my assumption would be she would then go and extend article 50. that may give a rally for sterling. it is all context dependent. 50she is extending article to give everybody more time to prepare for a no deal scenario, sterling is not going to do a lot. we have to see what the europeans say following the vote on the 14th of january. from this point, if you're going for a long sterling position, has got to be a small one. manus: we have a lovely headline, pound declines. cable is at the lowest level since april 2017.

eurosterling is beginning to pump this morning. it is up 0.6%. show,uickly, to close the as we look at the pmi, italy is a stagnating, europe is having a tough time. can the ecb hike 2019? .> it is looking unlikely the ecb may fallen to the trap the boj had, which is after growth inflation dynamics start to roll over, they are caught in a trap where they can't raise rates. at this point, growth is slowing, but we will have to see. it is looking less likely we see a hike at this stage. manus: thank you very much. good luck. a quick recap. you are going to see tech in europe come under pressure across the board. apple.en price cuts for you have morgan stanley at $211.

goldman sachs on the money $140. anna edwards and matt miller take you through the next half-hour. ♪ ♪

♪ >> good morning. welcome to "bloomberg markets". i am at matt miller here in berlin. is less than 30 minutes away. ♪ >> the iphone maker slashes its outlook for the first time in almost 2 decades on a slowdown china. shares plunge is a much is about