>> good morning. from bloomberg's european headquarters, i am nejra cehic. this is bloomberg daybreak: europe, and these are today's top stories. asian stocks decline with cap pacing losses on new charges. will the allegations complicate a pivotal round of trade talks between washington and beijing this week? blame game. caterpillar and nvidia site slowing demands from china. equity futures remain in the red. inresa may abandons her deal the hopes of securing one with her own party. she faces a battle with parliament in a series of crucial votes today.

nejra: good morning, everyone. welcome to "bloomberg daybreak: europe." a lot of corporate's been bringing us so far this quarter -- let's get to the breaking numbers chart phillips. this can tell us a lot about consumer demand and china. we have fourth-quarter adjusted ebitda. the estimate was 957 million euros. that was a beat on the fourth-quarter adjusted ebitda for phillips. 85 euro cents. the fourth-quarter adjusted ebit a margin up 17.4%. a slight heat on the estimate of 17.3%. phillips reaffirming its targets. lastd a conversation quarter about the impacts of the u.s.-china trade war. phillips is reaffirming its

targets. full-year revenue coming in at 18.1 billion euros. phillips has a proposal to raise the dividend by 6% to 85 euro cents per share. take a look at the other numbers coming through. fourth-quarter revenue comes in at 5.5 9 billion euros. the estimate is 5.53 billion euros. the comparable sales up by 1%. the estimate was 4.1%. we are seeing some beats across the board on these numbers coming through. does that mean celebs is holding up? -- phillips is slowing up? perhaps the company has weathered those. we will be asking the phillips ceo who joins us for his first interview of the day in just 15 minutes time. we are waiting for numbers coming through from sap, but before we get to those, let's take you through what is happening in the markets. yesterday, we saw weakness in the u.s. session led by these

bellwethers of the economy. caterpillar with its biggest quarterly profit miss in decades. sales to the negative side. futures pointing lower, down .2%. week for text, but the dow futures in the negative. of course, we have the trade tensions weighing over everything. these new criminal charges against huawei means we are seeing the yen bid earlier. dollar pretty much unchanged at 109.83. if we take a look at sap, last quarter, this company, when they spoke to bloomberg, they were saying demand had been holding up fairly well globally. 2019 operating profit at 7.7 billion to 8 billion euros. the estimate was 7.97 billion euros. they have given a range pretty

much in mind with what the estimate was. revenue coming in at 7.43 billion euros. the fourth-quarter operating 2.55 billion in at euros. the estimate was 2.57 billion euros. s.a.p. targeting over 35 billion euros and more revenue by 2023. monson question for this company around the cloud computing segment, how the business spending has been going in that area. has it been affected by things like brexit with companies from voting some of their tech spending? we will speak with the ceo of europe's largest technology company. adjusted a big acquisition, too. you can catch that interview at 6:30 london time. let's get the check of the markets in asia with juliette saly in singapore. a panoply of issues weighing on markets today. good to see you. juliette: best -- yes.

weighing onuawei asia and send them and although we are doing a lot better than we were earlier in the session. japan has closed out the session marginally higher. the csi 300 up by around .2%. there was some news coming through on the china consumption policies from authorities today. hong kong still under pressure. australia closed out as well. business conditions are the worst since global financial crisis. as you say, it's all about these u.s. bellwethers. thes take a look at how likes of caterpillar, nvidia, and so on has played into the asian session. this buddy got a huge boost on the huawei news. ppg telecom has pulled out of rolling out its mobile network in australia, meaning it will continue to hold onto its vast monopoly.

they have a huge share over the market. micro, ining trend terms of the chip stocks, coming under pressure. it came through with its own disappointing numbers. caterpillar story playing into the asian session. 4.5%.u up by we have the u.s. to thank for an interesting day of trade. nejra: juliette saly in singapore. thank you so much. we are asking the question on amount iv -- on mliv, how hard does a chinese slowdown hit faangs? how hard will it hit them after that warning we already got from apple recently? reach out to us and the mliv team on your bloomberg. let's get the bloomberg first word news. anabel hasulius -- that in hong kong. >> donald trump said at the union address -- it will now

take place on february 5. they accepted nancy pelosi's invitation after the speech was the late because of the u.s. government shutdown. acting attorney general matthew whitaker says the program being conducted by robert mueller into russian interference in the presidential election is "close to being completed." and the trump administration blow tos toughest nicolas maduro, issuing new sanctions on the state on oil company. these restrictions block the regime from exporting crude to the u.s. nicolas maduro hit back. [speaking in a foreign language]

annabelle: theresa may faces losing control of the brexit process tonight. one amendment would hand the power to parliament to delay brexit to prevent a no deal divorce. the prime minister abandoned the divorce agreement she spent 18 months negotiating and threw the weight of our government behind a proposal to rewrite the bill. global news 24 hours a day, on , air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. nejra: thanks so much. just got some breaking news coming through. ana splitting its $5 billion order of 48 aircraft between boeing and airbus. this is something we will keep an eye on. ana holdings -- 30 boeing 737 max eight so that is coming through on the bloomberg now, but let's get back to one of our top stories driving the market today. filedrosecutors have criminal charges against huawei.

they are large the company has still in secrets from an american rival. filings of the latest escalation in a u.s.-china oiledoff that have r markets. peter elstrom, just take us through exactly what the u.s. lawsuits allege. sure, so the u.s. unsealed two different lawsuits against huawei. that is what we saw. one of these lawsuits was filed in new york, the one that alsoes bank fraud, and it accuses the cfo of the company, the one who was arrested in canada at this moment, of deceiving the banks into believing that they were not violating iran's sanctions. the other one is in washington thee, and that is where prosecutors allege that huawei employees tried to steal trade secrets from t-mobile, the

wireless operator there. they allegedly tried to still some technology that was used to test mobile phones. huawei thought that this would be quite valuable as they tried to make it better. huawei originally had blamed that transgression on rogue employees and a prosecutors really took that apart. they went into a lot of detail about how huawei was not actually disciplining these employees but in fact paying bonuses to employees who were stealing trade secrets from other rivals including the pair mentioned in this particular case, so these are the two different lawsuits the u.s. has unsealed. had a foreign ministry spokesman in beijing using very poetic language in terms of the china response, saying the u.s. has been a boring the -- ignoring the facts. mistaking each bush entry for the enemy and mistaking the shadow of a bow in one's cup as a snake.

impact thehis u.s.-china negotiations happen this week -- happening this week? peter: we had to bring different responses today. first of all, from the company itself, they said they have not done anything wrong in either of these cases. and denied any wrongdoing, they said they are confident the courts will actually come to that conclusion at the end of the process. china has taken a heart attack in this -- harder tack in this case. say these accusations against one way and some against other companies also are in fact an effort to protect the american technology industry and holdback china's own technology pollution towards higher valued -- technology evolution towards higher valued products and more sophisticated technology across the board. nejra: peter elstrom. .oining us is william porter

william, great to have you with us on this busy morning. as we talk through this latest issue in the u.s.-china trade tensions and also we hear from a number of companies across industries, the latest being cap life -- caterpillar and nvidia, sharing concerns about slowing growth in china, is that going to have an impact on european credit markets in 2019? william: absolutely. there are twolimbs to this -- two limbs to this. one is what's happening to the markets endogenously and the other is world trade. they are keeping slightly separate issues. for europe, it's critical, there have been problems in my view and the european business model for many years, which is an excessive reliance on foreign demand. this is a perfect example. at it is anook economy stands effectively on beingegs, foreign trade

very much one of them, and overly strong leg in the case of europe. the other question is if you can rebalance. that is enforced forced issue rather than involuntary issue. can you rebalance? some of the earnings you are getting later today will show a really good insight into whether that is happening. nejra: why are you bullish on european credit markets when there is so much concern about slowing growth in china? are you more bullish on china? william: i think china, it's obviously very impenetrable. you are often thrown back on proxies rather than some of the government data. ,f you look at the index electricity and so forth, it's not telling as gloomy a tale. some of the concerns are overdone. you are left with a lot of the politics. you can obviously create a war of the world's narrative out of this. have arties, however,

major stake in the current order. if they throw the current order over, all bets are off, but the chances are that it exceeds the eventual outcome here. and i think, therefore, we don't want to get too carried away with this. we remain relatively positive on european growth on the basis of that rebalancing can occur despite some of the headlines. nejra: you already mentioned easing,demand, fiscal consumer demand, and also corporate investment, so china is one part of the story. this against the backdrop of potential tightening liquidity as well. is the tightening liquidity going to cause a threat for the european credit market? william: the ecb, we can talk about their portfolio, but they are not really going to be the driver. the driver here is the fed. in my view, the fed, which had a lot to do with the slowdown in

asset markets last year, has been a tremendous reversal. u.s. money growth is starting to we accelerate sharply, and i think what we are seeing here is we are breaking away finally from the zero bound, and i think we can think more about money creation and the banking sector perhaps than in the public luck, thed with any activity of the fed in its portfolio, qt, and so on, seems to have less of a tightening impact. last month was extremely important for the fed and ultimately will dominate the ecb. been: bond tales have robust despite the increased issuance from u.s. treasuries. william porter at credit suisse stays with us. coming up, philips ceo joins us for his first interview of the day. lots of questions to ask, particularly around china. when you are traveling to work, tune in to bloomberg radio in the london area.

i am there every day from 8:00 a.m.. this is bloomberg. ♪

nejra: fedex has reported fourth-quarter comparable sales which beat estimates as the dutch health technology company launched a new 1.5 billion euros share buyback program. joining us now from amsterdam is frans van houten, the ceo of philips. good morning to you. frans: good morning. nejra: we are seeing a beat on the fourth-quarter comparable sales. your are starting this new 1.5 billion euro buyback. a set of strong numbers overall. new 1.5re starting this billion euro by that a set of strong numbers overall. i characterize 2018 as a

year of continued progress, and then of course, there is always growand takes, but we did 5%, and the profit improved on the basis points and perhaps most importantly, the order growth for the whole year and also in the fourth quarter was 10%, and i think that is driven by a strong commitment on innovation. we brought new innovations around connected care. in diagnosis and treatment. we are leveraging artificial intelligence and the data in order to make health care more productive, better outcomes, but the experience. perhaps a good example is the big order that we got from new york respite. newhe fourth quarter -- york presbyterian in the fourth quarter, which is a clinical analytics and decision support system that will be

applied at all the hospitals internetworks, so we feel proud about that and i think that underlines the traction we are seeing. nejra: do you expect this momentum to continue through 2019? believe it i underpins well 2019. now of course, it covers primarily our professional health care activities. on a personal health site, we still have some work to do, but there, we expect momentum to strengthen as we go into the year, so overall, we look at 2019 was confidence, and earlier in your introduction, you spoke about the decision for share buyback and a dividend increase. we do that on the basis of having confidence. we are now four years into transformation. we have seen for years of

strengthening of revenue growth. now wella payout ratio into the bandwidth of our a 6% dividendt increase would be a good proposal to our shareholder base . with regards to share buybacks, we look at the general economic environment and our own strength in our balance sheet and earning power and knowing that the current share buyback is about to finish this year. we decided that the program would be a sound capital allocation decision. nejra: in terms of the wider ofnomic backdrop, a lot companies globally have been coming out and fighting the slowdown in china as impacting their numbers. are you seeing signs of a slowdown in china and particularly in consumer demand from the world's second-biggest economy? to a degree, but as

you already pointed to, we needed to segregate a bit because the health care market in china is robust, and that can be correlated to aging population, lack of capacity. in fact, we have been growing double-digit in china for health care, for professional health care for hospitals, and i see that continue. it's a good market for us. and the consumer sentiment that you referred to actually have already been softening all through 2018, so for me, that is not a new phenomenon, and therefore, it will also not now create a new impact in the marketplace. nejra: yes. frans: still, we see good growth . for example, electrical toothbrushes, because there, the market penetration is really low and there are still plenty of opportunities to grow that category, and also our sleep

apnea and respiratory care products in a market that is very underdiagnosed will give plenty of opportunity to grow, so my own guidance to our own people is, you know, find the growth pockets, and you can grow the company. also, we have got some critical talks between the u.s. and china. of course, and the ongoing trade dispute. when we spoke to you last quarter, you talked about redesigning some supply chains, that you might be able to rebalance them going forward. you also talked about raising prices selectively. how is all that going? of course, first of all, it is a sad thing because it is all in a way extra work just to deal with this upheaval. we're making progress to rearrange supply chains. you don't want to fall in a situation where you need to have 25% leverage.

so some of the products that we were exporting from china, from the united states to china, actually, we will produce in china and vice versa, some products you were exporting from china to the u.s., we will manufacture in another location, so that we can still bring products to customers at an attractive price. affect inill take its the course of the first half of 2019. nejra: also, you announced the closure of a factory in the u.k. earlier this month. you said it was part of a global but i needut sites, to ask you about brexit. if we get anything short of a seamless single market customs union, what else could be a risk for your business? frans: well, let me up front say that we are very committed to the market. as many people there. nhs,e partnered to the

so that will continue. we did some acquisitions in the u.k. market, so we are not adverse of investing in the united kingdom at all. intoactory closure comes context of our wish to move from 50 factories to 30, and then obviously, something has to go into that context. where is it conducive to consolidate multiple factories in one location? and then the climate pointed to another european location. nejra: thank you so much. frans van houten, greatest did you this morning, the ceo of philips joining us for his first interview of the day. great to get your take on the numbers and broader economic picture. and more more companies coming out on china, a bit of a muted down day for the ms eia asian-pacific -- msci asia-pacific index. we are watching cable with

a crucial vote in the u.k. today. up next, brexit auto. theresa may faces a series of votes in parliament today which could shape the direction of the u.k.'s divorce from the e.u. this is bloomberg. ♪

nejra: taking a look at the world map in asia, you are seeing a mixed picture. strength in china, weakness elsewhere. overall, the climbing just a little bit, off by .1% as u.s. futures track lower as well. a number of economic the, caterpillar and nvidia weighing on sentiments. we have new u.s. criminal charges on huawei muddying the trade picture. annabelle jewel of -- annabelle in hong kong. annabelle: staying on that story, u.s. prosecutors have filed criminal charges against huawei accusing it of committing bank fraud.

the allegations against the technology giant may complicate trade talks this week. i am announcing that a grand jury has returned an indictment. federal crimes by huawei technology. the partial government shutdown will ultimately cost the world's biggest economy just $3 billion according to the congressional budget office was reported that the budget gap in the u.s. is widening. the department sees the deficit topping $1 trillion in 2022. the last time the u.s. had a budget gap that large was between 2009 and 2012 following the financial crisis. arabia expects to reduce output. energy minister khalid al-falih

spoke to bloomberg in riyadh. >> we broke it down to 10.2 in january. i believe our target for the february isw -- below that. there could be small adjustments in the domestic demand, so we will find out in february -- february. saudi arabia is going to be well below that voluntary cap that we agreed to. >> for the full six months? >> for the full six months. annabelle: global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. nejra: at all jewelers in hong kong. -- annabelle droulers in hong kong. here in london, annmarie hordern. let's start with you. a littlets started soft but the financial space

seems to be the want to focus on today. >> you have got it right. good morning to you. very, very flat trade for the market at large. very flat. but they belie what is happening in the financial space. there is one chart on your screen to show how the last four have defaults.s the finance index has come off four days out of five. looking at the indian markets today. the one space to focus on is the financial space. the financials are the ones you should be monitoring today when it comes to india. back to you. nejra: we had these disappointing results from caterpillar and nvidia, though others. critical charges on huawei. of ald be expecting more

reaction than what we are seeing. it's a bit of a mixed picture. i want to focus on the huawei decision. one technology is the biggest smartphone maker in china. infotech on the msci asia-pacific, down. you should possibly be seeing more pressure, but we still have the apple earnings this evening , sothe pivotal trade talks this technology is going to be crucial in the trading session. as wedollar north of 131 have the brexit vote them in brent crude hovering around $60 a barrel. the saudi oil ministers are going to cut more in february. one thing that did move off those sanctions and the news from the united states is venezuelan bonds. and that is when nicolas maduro, the then-president and now considering possible president depending on which

country's backing him, made that speech. we are seeing a rally, rally , rally, nothing like the past 10 years. to an thank you so much reporter and an niraj shah. -- annmarie hordern and niraj shah. a dramatic meeting yesterday, the prime minister effectively abandoned the agreement she negotiated with brussels and threw her weight behind a move to rewrite it, this as lawmakers begin voting on a series of amendments which could see brexit put on hold. let's get more with bloomberg's executive editor for international government, rosalind matheson, who joins us on the phone. is theresa may gamble going to pay off? rosalind: you have to describe it as a long shot. she has gone from a softer brexit, which would keep the u.k. more closely tied to the

european union, to win over labor lawmakers, and that didn't work. she is effectively ripping up her deal with brussels, and that potentially alienates a key ally in the irish party, so you have to call it touch and go given all the other amendments coming before parliament today. nejra: what happened if parliament takes over the whole process and how does the view from brussels fit into all this? rosalind: it is a separate amendment being put forward tonight which would hand parliament the power to delay brexit to prevent a no deal exit which seems to be what the majority of people do not want. across party amendment between the labour and tory lawmakers and the idea is to ain more time -- it is cross-party amendment between the labor and tory lawmakers. and the idea is to gain more time. theresa may spent 18 months trying unsuccessfully so far to get a deal.

if you give it to parliament, who is in charge? in brussels, they said to theresa may, you go away and find a solution. you come back to us with a deal that you think we can agree to. to she is possibly going come back to them by ripping up the deal with brussels. what we are hearing so far from european officials as they are saying there is little chance of persuading brussels to have a complete change of heart. the only thing that might be agreeable is giving her more time. , thankrosalind mathieson you so much. william porter, head of european credit strategy at credit suisse is still with us. you talked about the fact that a huge problem in the u.k. is that it is still having an internal conversation that ignores the e.u. more or less. this latest development confirms what you said, but yet you think it is a 75% probability we will get the deal. how with this latest development? william: we're talking about

having ripped it up. really, what we are doing, somehow, this has all got focused back to the irish backstop, which was always going to be a sticking point. the question is whether you can layer of european fudge on the backstop somehow with that forces some of the people who are currently against the deal to choose it. that theem is opponents of the deal are not coordinating around what they want to do instead. as you know, there are 14 amendments possibly up for selection, so it's very dissipated, the opposition. the game continues to be a simple single round game of chicken between the u.k. on the e.u. the u.k. has to work out what it wants to do. our question has always been what can you get to parliament? years, and wefive

reached the conclusion that the u.k. in some form was going to chicken out. we have pretty well discarded it. in the absence of a better idea, frankly, when it really comes push to shove, my view is they are likely to cling to the deal as a liferaft if the e.u. can give the fig leaves necessary to do so. mean thats this sterling credit markets followed the same trend as what will happen in european credit markets in 2019, which is that spread are going to tighten? william: broadly, yes. there is a general theme which is that u.k. assets are cheap. the equity market is building in round numbers. we heard from philips buying assets and the u.k. irrespective. sterling was exaggeratedly strong ahead of the 23rd of june, 2016, so part of that was due to happen anyway. and our view is effectively bullish on markets.

timing the end of this game. what happened is the fx market, going back to last week, really, has started to see through this and has effectively taken no deal but it off the table. that leaves some excitement as to the precise way the u.k. effectively chickens out, but the end results as far as the fx market is concerned is not in doubt. talk about how you want to value cable absent hard brexit. nejra: if you talk about europe as well because you mentioned the cycle, where are we in the europe? we had mario draghi basically saying that the ecb doesn't need more stimulus to combat growth was, but he -- woes, but he focused on factors impacting the eurozone. william: it's a risky moment. and therefore, where we are is going to depend on which part of the economy you are looking at. if you are looking at the consumer economy, we have unemployment effectively down to

precrisis lows. you have wages is starting to rise. 2.7%. so the consumer is pretty well thinkable money in the european economy, and you know, get a job by philips electric toothbrush. you get corporate investment, particularly as wages rise, starting to look more buoyant, and those three legs -- fiscal is baked in the cake now. the three legs i talked about the pretty good as you weaken the foreign half. nejra: you really love that philips interview. you keep referring to it here as we are talking about it. william: it is a data point. nejra: if we look at the various parts, ig, high-yield, etc., the trend you see in 2019, you are bullish on credit, you see spreads taken in, but where would you rather be? i think high-yield obviously gives you more bang for your buck if you are bullish on the economy.

a lot of the pricing distortions we saw at the back end of last year were liquidity-driven. if you think the fed has changed away -- i mean, it's only last month, december. it is still last month that we had a serious talk about a policy error in the u.s., and the parallel with 94 is exact, where we got a really mind changing payrolls number, and you have got to go back to 90 because that's the last time we normalthing like some fed hiking cycle. a really strong payrolls number, just changed the market's whole idea on tightening. we are ok with that. and actually, you are getting the growth, and the fed is talking off. the liquidity picture has changed. that leads to high-yield in the growing economy. nejra: william porter stays with us. and coming up on bloomberg, we speak to bill mcdermott, the ceo of europe's largest technology company, sap. that is as the company posted mixed earnings after spending

more than $10 million on cloud deals. bloomberg radio, on your mobile device or dab digital radio in the london area. i will be there with you. this is bloomberg. ♪

nejra: let's get a check on what's moving in the markets. in asia, equities -- growing concerns that its head in corporate profits. the main u.s. benchmark halted a three-day rally after caterpillar and nvidia blamed slowing global growth for disappointing results. and just a check on the pound as well. the u.k. parliament voting on amendments to theresa may's brexit deal with the e.u. today. they are set to debate brexit tomorrow. here is a look at what you

should be watching today. vote on parliament will a number of amendments to theresa may's brexit plan. watch out. after market in the u.s., apple reports earnings for the first time since it lowered its revenue outlook. the focus will be on how the company plans to grow its services business and reduce its reliance on the iphone. apple is just one of the tech giants. facebook, microsoft, and amazon earnings are do. it's a busy four days for shellshocked investors. joining us for more is alex webb and william porter, head of european credit strategy at credit suisse. great to have you early in the morning. we set up a story on apple and we saw it reverberate across markets. we got the warning earlier this year. are they going to confirm what they said? >> they will confirm what happened in the christmas

quarter. there will be a lot of attention on what is going to happen in the march quarter. for tend to make a forecast the subsequent quarter. it will demonstrate whether that weakness in china is essentially sustained, and therefore, that is why they are looking more to ist the service business doing. they will report the gross margin on that business, which will be an interesting data point, sacrificing the number of iphones that it's selling. so the weakness looking ahead is really the main concern for investors. nejra: on that weakness, what about the rest of the tech giants? is disappointment expected for them as well? alex: intel reported earnings. we have seen the chip sector is being a little bit weak. been quite resilient because it has huge exposure to the cloud industry and makes a lot of data service. that sector was not doing as well for the most recent quarter. we wonder whether that translate into weakness.

looking a bit further forward to google. nejra: i want to bring you in here because corporate investment and the corporate sentiment we have had with this earnings season, generally, it downbeat, with big bellwether industries like chipmakers. for that make you question 2019 or how do you factor into the bullish outlook? william: it's a good question because we are potentially at a very important turning point. i talked about rising wages. we have rising wages and ascetic economy and that is coming from one place, corporate profits. some of these tech giants are less exposed to that. as a general view, you need the economy to grow at this point. one of the keys to understanding europe throughout has been how leveraged it is. it is leveraged to world growth. is a dangerous moment. i cannot answer that completely

actually, but if the economy continues to grow, then you are going to replace expensive labor with investment, and that is always the critical swing factor in an economy is how the corporate behavior changes. it is much more volatile than consumer behavior or government, so that is probably the critical determinant to what happens next. watching this sentiment, watching investment intentions, it's going to be something we'll spend a lot of time doing. nejra: almost 4 billion has been pulled out of tech etf's. is the love affair over? >> it is a change in what sort of tech they are investing in. the growth stocks have been pulling less interest. apple would have been even worse if it was not considered, you know, it turns up on a lot of cash to shareholders. there is still quite a lot of interest in that part of the sector, but facebook is not as

interesting as it might have been six months ago. crediti know you look at markets more thematically and not specifically so much at sectors, william, but you must eye -- are there any pockets of industry causing concern at this point in terms of how they feed into the economy and your view on where we are in the cycle? .illiam: autos they are a value trade. if you get bullish on the european economy, there is value in the auto sector. the ecb has been clear on this. particularly the september meeting or maybe october. they talked about temporary downturn in the auto industry due to their real cliff on the pollution testing in september. so if you make a call that that is temporary, then autos are full of value. personally, i needed on that because i think there is something generational going on in the auto sector as well.

so that clearly is a concern in this environment. nejra: with that, we heard from some of the chipmakers that as the smartphone slowdowns happen, other industries will support them, autos been one of them. >> they talk about there being sort of $500 worth of silicon in a vehicle, but the innovation cycles are quite slow. years from the lifespan of a particular new vehicle. that affect is not going to kick in and one year or two years. it will take a while for that to translate into the semiconductor industry. companies have been more resilient than perhaps companies which had good exposure to cryptocurrencies or mobile phones. st micro did a little bit better than expected because it broadened its exposure away from smartphones to industrials and cars. it will not rise in one or two quarters. nejra: i want to come back to apple.

they put a lot of the blame for what was happening on china. is that actually misplaced? do they need to change their business model? >> china was the straw that broke the camels back. people are not buying as many smartphones as they used to. the replacement cycle, china had been dipping slowly, but the sudden drop-off really created the panic. memberse have had also from s.a.p. this morning, william, if we stay with the tech sector. some mixed earnings here. shifting to a cloud services after spending more than $10 billion on acquisitions last year. what sort of things do you look for in a company like sap to give you clues into the window of economic growth and how that impacts the credit sector more broadly in europe? >> there is some pretty intense sector, so in this

think you need a company that is adaptable, and of course, you need an environment that is overall supportive for them. sap is going to be right at the forefront of corporate investment. if you are not going to invest in software, you are not going to invest. it will be a very good bellwether for our thesis going forward. nejra: i know you want to jump in. is that what you want to talk about? >> they had said they did not need to do anymore deals. look at the way in which their growth was slowing and they all of a sudden out of nowhere have really hefty premiums and that created some concern amongst investors. perhaps it was not as robust as they might have hoped. they talked about the acquisition. obviously, you had mcdermott very enthusiastic about it, saying the price was justified. that's a question for the ceo.

thank you so much to alex webb and william porter. great to have you both with me on set. let's get the bloomberg business flash with annabelle droulers. annabelle: china weakness is spreading far and wide. companies from industry to tech have cited slowing demand in the world's second-biggest economy for upset in earnings. sent a gloomy signal when it posted its biggest quarterly profit shortfall in a decade. forbiggest maker of chips nvidia cited deteriorating conditions when it revised down its forecast. both companies slumped. the board of californian utilities voted to file for bankruptcy protection despite attracting rivals. elliott management has a proposal backed by $4 billion of bonds that could go into pg&e shares.

is putting forward its own plan. pg&e is expected to file for chapter 11 bankruptcy protection as soon as midnight tonight. bank of america is said to be ready to transfer employees from london to paris in preparation for brexit. willes say 400 people cross the channel next month including traders, sales, and support staff. the bank employees 4000 people in london and has rented a building in paris. not everyone is making a move. ubs says its venue is staying in london after brexit. and that is your bloomberg business flash. nejra: annabelle droulers in hong kong. thank you so much. we are seeing a bit of red on the msci asia-pacific index, but it is a mixed session overall, a muted reaction given disappointing numbers. u.s. futures lower, dollar-yen slightly on the back foot. the question we are asking is

how hard does a china slowdown hit the faangs? reach out on your bloomberg. this is bloomberg. ♪

good morning, these are today's top stories. stocks decline. new u.s. charges brought against huawei. when will the allegation complicate trade talks? nvidiaocks slide and site slowing demand from china. equity futures remain in the red . we speak to bill mcdermott, the europe's largest software company. theresa may abandons her own deal with the eu and the hopes of securing one with her own party. she faces a knife edge battle with parliament in a series of

crucial votes today. good morning, welcome to daybreak europe, we are under an hour from the start of cash equity trading. one stock we will be watching as sap, posting next earnings after spending $10 billion and acquisitions, that is europe's shiftedsoftware company toward cloud services -- services. company for cloud $2.4 billion early in 2018. joining us now, bill mcdermott, the ceo of sap. great to see you this morning and thank you for giving us some of your time. let me start with the acquisitions and quality tracks -- qualtrex.

when do you expect to see real business impact from that acquisition? bill: thank you for having me and good morning, ladies and gentlemen. we are excited because we are in the experienced economy. if you look at the biggest challenge is mrs. have today, 1.6 trillion gets forfeited every year in the global economy because companies that serve customers lose their own customers. it is five times more expensive to get a new customer than keep the customers you already have. in the erpleadership business, the end-to-end value chain which is all the operational data of the company, theadd on qualtrex which is experienced player. people can be him -- passionate about people outside the company

and when you combine experience data plus oh data which is the operational data you have the winning equation for a high performance business and we own the experience management space globally as a result of the move. nejra: what about the impact on the numbers? a lot of analysts coming out and saying the price you pay was too high. will there be a negative impact on the bottom line for 2019 when we look at the numbers, total sales be the estimates, you grow your cloud revenue but you see rs operating profit. is this acquisition will -- weigh on the bottom line? is anthis acquisition amazing move. let me share a few stats. talking about a company that is ,500 million in cloud revenue

outpaced their 2018 expectations, ok? this company is growing at 45% on a year-over-year basis without the synergy of sap and their cash flow positive without the synergy of sap. when you buy companies, yes, it does put some pressure on your free cash flow in the beginning. what you have to look at is the theth trajectory and recurring nature of the revenues in our country and gas company and leadership in the cloud. we announced 2018 earnings today. where we had incredible growth in the cloud, 40% on a year-over-year basis in q4 and we had a core business growing in steep double digits while total revenue and operating income also grew in steep double digits. we can handle diversification of our cloud business model. that is why we are growing so much faster than all the california cloud companies can manage thep

end-to-end value chain and now with the experienced management, we will run away with this marketplace. more: but you look to make acquisitions this year? in the short run, no. we are not looking for any large-scale acquisitions, the answer is no. what we have typically done is we have been very careful with our capital allocation strategy. we have not bought one significant company yet that has not outperformed the business case that we presented to the board of directors when we bought the company. we know what we are doing. typically, we retire the debt over a year or two and then go back to aggressive mode if there is something available in the market. we will be sitting tight for a while. we have all the assets that we need to win and i can tell you when we said today we will triple our cloud business between now and 20 -- 2023, just

like all the other promises i have made as ceo for the next 10 years, we will keep that one. nejra: keeping your promises investors surely like that. let me ask you about china. the ongoing trade war, we have had a lot of numbers showing a slowdown in the world's second-biggest economy. how is it impacting your customers in china? l: china remains the fastest growing market is on a year-over-year basis for sap. we have been a long-standing .nvestment in china we formed, i was in china last year, formed new partnerships with companies like alibaba and we expanded our footprint dramatically across china. there is no question that there is a tension in the global community over the tariff between china and the u.s. the one thing i remind people, we live in uncertain times and we manage a portfolio of countries, businesses, and industries and sap is resilient

throughout these changes because even in a tariff environment, companies will have to navigate their supply chains and the geopolitical environment so they can win and grow. they will need sap to do that. one of the great virtues of sap as we are at the top of the tech stack area when the ceo thinks about how am i going to digitally transfer my business, you're not thinking about stopping spend on sap. you're thinking about increasing spend on sap. if i need to take cost out, i need sap. if i need to grow, i need sap and most want to do both. nejra: spending on the u.k., has that been frontloading because of the approach of the brexit deadline and that -- could that slowing 2019? bill: we look at the brexit situation in an interesting way. we are prepared for all scenarios that could come out of brexit. our software will need to

accommodate any of the changes in governance and global trade that will result as a matter of any decision that ultimately takes place. our software will be front and center. i did see some frontloading, but newink there will be business now to accommodate whatever final decision takes place. sap has all the software accommodation and packages ready to go to help our customers soft problems, grow their business, and navigate these choppy waters. we are ready. nejra: bill mcdermott, ready to go as always, great to have you with us, the ceo of sap joining us. let's get the bloomberg first -- first word news. >> acting attorney general

matthew whitaker said the probe being conducted by robert mueller into russian interference in the 2016 presidential election is "close to being completed." the trump administration dealt its toughest blow yet to venezuela's necklace maduro issuing new sanctions on the nationstate owned oil company. these affected them from exporting crude to the u.s. thero hit back accusing u.s. of trying to steal venezuela's riches. theresa may faces losing control of the brexit process tonight. one amendment would hand the power to element to prevent a no deal divorce. the premised are abandoned the divorce agreement. she's been 18 months negotiating. votes on amendments to the bill are set to take place in the

commons tonight. thank you. joining usk you for from new york with that update. asian stocks are trading mixed with tech stocks facing losses after american prosecutors filed criminal charges against huawei, china's largest smartphone maker setting the backdrop for trade talks between the u.s. and washington -- china in washington this week. great to have you with us, lots of threads to tie together, we have the wall way issue and also warning signals from a lot of corporate's about slowing demand in china. not least from nvidia and caterpillar which we got yesterday. we just spoke to the sap ceo bill mcdermott. he was bullish. what is your view in terms of where we are with global growth and whether you should be tilted toward risk or not? chris: if you look back at your go, we were in a situation where

there was complete unanimity and a positive outlook on growth amongst investors. our feeling was the risks for all to the downside. it was difficult to pinpoint what was going to cause that downside risk to growth optimism but here we are year later and the pendulum has swung from uniform optimism to pretty profound gloom and despond and see. we can point to things like the bank of america, merrill lynch survey of fund managers which shows that expectations of growth and profit are as gloomy as they were in 2008, 2009. certainly comparable. we have come a long way. what happened here was partly trade, i think it is these other natural things. we saw the oil price go up considerably, we saw interest rate steadily going up.

it was incremental but realtheless, the negative interest rates were evaporating and all of this started to feed through to the system to the point that now at the other end thate -- we're seeing coming out in earnings expectations. this was a continuous narrative rather than something that suddenly sprung up. this where the sentiment starts to come back or do we have further to go to the downside? the big question. we have to learn a lot in the next week or two from the trade talks. unfortunately, for us as investors, that is the binary outcome. theve a slight hunch that stars are aligning more in terms of some sort of deal. not a resolution but some sort of deal which could kick the can down the road for a while. that would be a good thing for markets but we will see, we do

not know. in terms of the earnings season, we can get some more data points, lots of dots of information. we can start to join those dots and see what they tell us and the big question is, are we now seeing, we have had negative earnings revisions for four months. it has been going on a while. we are hitting, getting to the sharp end of that in this earnings season and we will see whether that is starting to moderate that negative sentiment. the downtrend in earnings forecast. or half we got a ways further to go? we also see how stocks respond to bad news and that will be telling in terms of how much has been priced in. the backdrop is central banks, we have communication from jerome powell, what language does he need to give around the issue of being patient and also on the balance sheet to keep equity markets supported? chris: this is the big good news and i mentioned the big bad news

about six or 12 months ago and people do not see the slow-moving story and that was about oil and interest rates. the fed has definitely got more dovish in the last couple of months. it will not be a surprise. nejra: will it stay that way? chris: just for the next few months, they will remain data dependent. the oil prices dropped, that will start to feed through. some of these big stories are starting to move from being negatives to marginal positive. if the u.s. is still going well and we have is your monetary policy, the cycle can extend at a time of gloom about economic prospects. environmenta better for stocks but we do need to get over some big hurdles before we get to that. area: what happens next, we asking the question on mliv, how hard does a china slowdown hit the things, you have big tech companies reporting, not at

least apple. chris: some of them were hit really hard. the news about huawei, apple will be in the crosshairs. we have seen some soft retaliatory action from the chinese. we will probably see more. some stocks will be under pressure and i think that is a known risk in markets is this high valuation among technology stocks, isretaliatory action fre chinese. we will probably see more. some stocks it sustainable in this challenging environment? we do see the price action in terms of recovery in tech stocks in the last few weeks from where they were in december. it was a particular sort of recovery and that makes me rather concerned. there are large sections of the market that are very cheap. furthertion, if we see falls in tech stocks, does that take on the whole

markets or will we get a sector rotation and that comes back through that economic news, economic momentum, maybe a easier fed, maybe a reflationary story returning to markets, big indicators like industrial growth and employment. you get sector rotation and that is great for allocators because it is something we can capitalize upon. buyingwhat would you be at this point? chris: we have been adding to our european allocations in equities which we see as pretty cheap. from positivee trade talks and downside not that great because they are beaten up. nejra: great to have you with us this morning, chris wiley, chief officer at connor broadly. the trump administration slept nude penalties.

slapped new policies on tariffs.

nejra: 10:20 a.m. in london, 40 minutes away from the start of cash equity trading. let's get more on brexit. in a dramatic meeting, threesome a abandoned the agreement she negotiated with brussels and through her weight behind a move to rewrite it area this is lawmakers begin voting on a series of amendments which could seat parliament take control of the process and block at no deal divorce. let's speak to one of those lawmakers, joining us now to my simon hall, a member of theresa may's conservative hearty. great to have you with us. is this gamble going to pay off? simon: i think a lot will depend on what ministers say at the dispatch box in the opening of

the debate and the close. -- some confidence that with this role of the dice does not succeed, there will be a future meaningful vote and that will be held in a timely way. we are allowing the closing stages of this process and that always is high-stakes politics. nejra: yes, and it is going to be a knife edge phot. in terms of the proposal side, will you be backing that? have lots of anxieties about it. i think it does open a pandora's box that for someone who has been weighted to the idea of a deal, that will depend on what ministers say. if ministers can give clear -- assurancet is that the second round of negotiations comes to a halt and it needs to come back to

parliament for another vote, there will be space and time in order to ensure that we do not by default fall into a no deal situation. there were some alternative plans being touted around at the moment by colleagues. encouragingly from both sides of the referendum debate. both those who voted to leave and those who voted to remain. those had some ideas about a new plan a and plan b and the brady amendment might be of the vehicle on which to hang those two for further discussions with the eu but i think what all of us want to see irrespective of party, irrespective of how we divide during the referendum, we want to see some topspin and some energy from governments, a clearing of the diaries and focus heart and soul on this in these closing weeks, 100%, 24/7. point forthere any

theresa may to try to placate erg, will they be happy to have a no deal brexit? simon: it is wrong to refer to a united amalgam. they are a group of conservative mps who have come together in support of exit. they do not have a unanimity of view. i think you're right, there is probably a dozen tory mps who have always believed that no deal is a good deal of itself. i would not support anything. i have been very encouraged in the last few days since friday lunchtime, tearing noises hearing -- coming from active members of the european research group who are prepared to roll up their sleeves and work on trying to get a compromise deal over the line. if that is a sign of the

conservative party now coming back together, having looked over the precipice, if you will, of a very significant schism, i for one will cheer that to the rafters. nejra: i would love to hear you cheer but from where you sit, all the -- what is looking more likely, theresa may's deal, no deal, or no brexit at this point or at least an extension of the deadline? .imon: i am perfectly relaxed a need to extend article 50 for a purpose, no one would think it is eccentric to extend by four to five weeks article 50. there is nothing sacrosanct about march 29 if it meant getting the right deal. --does go back and the way weight of responsibility will be on the two ministers opening and closing today's debate. the prime minister will be closing the debate. to make clear what the process

is if colleagues think this the last through of the dice, today's debate. there is that opportunity to stop no deal at a later date but somehow we sleepwalked toward it because there is no other raft upon which we can to ourselves. i think amendments which are designed to take part -- parliamentary control of the process are likely to find more support. i am hoping the government will be clear. i have -- do not want to see power rested away from the executive in the way the super bowl bulls amendment is suggesting. if that is perceived to be the only way of doing it, there are people who will vote for it. much, great you so to have you with us on the program. good luck with all the voting. let's turn to another developing story. the u.s. has slapped sanctions

on venezuela but the market is shrugging it off. seeing theons we are market saying meh to what is going on with sanctions. not just producing one million barrels a day, that is less than nigeria and angola. they do not have the market share to make that big of an impact when it comes to moving brent and wti which are benchmarks tarred -- tied to crude. the sanctions are targeting the to looke u.s. will need elsewhere. china and india can still feel that gap -- fill that gap. it is less about supply and demand and that is what we see moves in the market, it is about rerouting those tankers. nejra: great work, thank you. that is it for daybreak europe. the european open is next. we see some softness and the asian session. take a look at futures, unchanged so we could be

struggling for direction, lots of corporate news to digest. when you are traveling to work to an end to bloomberg radio. on dav in the london area. this is bloomberg. ♪

anna: good morning, welcome to bloomberg markets, the european open. we're live from westminster. i am anna edwards alongside matt miller who is in berlin. lame today the market say the china slowdown. asian stocks case you as losses following a disappointing first batch of text earnings. european futures point higher. the cash trade is less than 30 minutes away. ♪ anna: