♪ from agood morning bloomberg european headquarters in london. i am nejra cehic. this is "bloomberg daybreak: europe." these are today's top stories. underwhelmed. and the euro gains rebound after mario draghi unleashes a controversial stimulus package, but he emphasizes the limits of monetary policy. treasury school again as reports of a trade agreement and strong inflation data from the u.s. the s&p 500 closes near a record. 75% chance of recession. the u.s. is on pre-election recession watch as president trump democratic proposals on health care and energy in yesterday's debate.

♪ welcome to "bloomberg daybreak: europe." we end the week with a risk on. the msci asia-pacific index with a fourth week of gains. the s&p 500 yesterday closing within 0.5% of that record high, lifted by this report of a potential interim deal between the u.s. and china. the 10 year yield goes up another basis points. we have risen more than 20 basis points this week, the biggest weekly gain in that 10 year treasury yield since 2016. 108.14 is where dollar-yen sits. the market seemed to take the

easy be decision as -- ecb decision as dovish. 5% higherended 0.0 yesterday. brent heading for a weekly drop with the iea warning that opec faces a looming surplus. that's get back to the ecb. mario draghi delivered his final stimulus package after overcoming an unprecedented revolt from projectors. the risks surrounding the euro area growth outlook remain tinted to the downside. we still think the probability of a recession for the euro area is small, but it has gone up. outlook andeconomic continued prominence of downside risk. governments with fiscal space should act in an effective and timely manner. we have a mandate.

stabilityprice and we don't target exchange rates period. nejra: let's take a look at the headline announcements made yesterday. the deposit rate has been lowered further into negative territory, now reaching -0.5%. the restart of qe has been the main point of opposition. draghi succeeded in pushing through a bond buying program worth 20 million euros per month starting november. the ecb will exempt eggs from deposit rate charges under a two -tiered system. finally, interest rates on tltro's have been lowered, improving conditions for making long-term loans to banks. today we are asking the question, will ecb easing help end the euro suffering? reach out to us. joining us now is lucy macdonald , cio of global equities at allianz global investors.

valentin marinov as well from credit agricole is with us here onset. welcome to the show. let me start with you, lucy. how much more of a lift can we get to european equities from what mario draghi announced? lucy: it was more or less what people were expecting. i don't think it will be a huge lift. i think the open ended nature of qe is the most helpful thing. really for europe, it is more about trade, which we will be talking about later. i think this will support on the margin but it is not -- it actually has got to be trade which helps europe. nejra: the opened ended nature of the qe seem to be what the markets are fixated on and why it was taken devilishly. we saw the reversal -- dovishly. -- your usual

run-of-the-mill qe, i mean, if you can call it this way, if indeed the issue limit is unaddressed and using the pace of 20 billion, using the available assets could run for no longer than 12 months. the stock that, versus flow dynamic that usually occurs when a central bank announces qe would mean that at least in the near term yields in the euro zone will continue to creep back up. a lot of natives are already positives for the bonds. on that particular point, draghi may have under delivered. i guess that, plus the extensive, there was like five questions about bank profitability and negative rate. the negative impact of negative rate i think suggested where nge tearing scheme -- tieri

scheme will help the ecb cut rates further. they may not be that far off the ultimate lower bound. nejra: in the reversal rate -- and the reversal rate. valentin: indeed. taken as a whole, investors will sell euros. the rightdid not get incentives to start selling -- stop selling, so they have to take profit. nejra: we saw bank stocks underwhelmed by the announcement on tiering. mario draghi made the point, look, you can't keep criticizing ecb banks because you have structural issues and issues with costs. does he have a point? lucy: yes. we have said for some time that the european banking system needs to consolidate. it never really addressed the

balance sheet like the u.s. did post crisis. nejra: in terms of where the euro goes from here, how much more strength could we see off the back of this meeting? especially bearing in mind we have the fed coming up next week. valentin: the official price reaction reflects positioning mainly. the short squeeze we are experiencing at the moment may have further to go. euro-yen, euro swiss are attractive lungs in the case of n the case ofongs i the euro. it is not a game changer for the euro. it is a positioning squeeze. for at to continue to turn into an upward trend for the euro, the u.s. data has to change. we have to see tangible evidence that what draghi announced yesterday is indeed helping the economy. we mentioned the equity side, to see a reversal of the euro funded carry trades. euro investors have been buying everything which is not in the euro zone. with the measures, if indeed euro assets start to look more

appealing on the equity side rather than the fixed income side of the trade, you would argue that renewed inflows into the euro could help it keep it supported. in the near term, it is mainly about positioning. at think it is safer to assume go to 1.20,n could maybe even higher. euro-swiss also looks oversold at current levels. nejra: another message that came through loud and clear was fiscal, fiscal, fiscal. i took it to mean when it comes to monetary policy, it is less whatever it takes and more like as good as it gets at this point. how hopeful are you that we will get the fiscal measures mario draghi kept calling for an that the ecb has been calling for for over a decade? lucy: slightly more than we were a year ago. we are beginning to see some signs of more emphasis on fiscal policy. we are seeing it in china.

we are seeing it a little bit in the u.k. i think we are beginning to see it happening. once you get a few more involved, i think it becomes easier. it seems to be the obvious next step. the borrowing factor is the level of debt in some areas. that is the necessity of keeping growth going. nejra: in terms of yields as well, we have talked about your outlook for the euro. where do you see yields going from here? even though we saw the reversal in bund yields and they moved higher, 10 year btp yields close higher after hitting a record low. valentin: you could argue they will stay closed or at a lower rate. part of the story is a lack of growth and inflation in the euro zone and the effort by draghi and company to continue to

support the recovery by announcing more qe. from that point of view, unless something changes materially, either growth improves, , weation outlook improves see a surprise o the fiscal side. the low yield environment may actually persist in the euro zone. the big risk, there is risk of the euro zone.of from that point of view, i mean, it is all connected really. if you are a euro zone investor and your returns at home are not great, at best you can continue to use the euro to find carry trades or purchases for an asset. that will continue to be a structural negative for the single currency in the coming years. nejra: lucy macdonald and valentin marinov stay with us. mario draghi might be leaving

the ecb with a final stimulus package, but he faced unprecedented opposition in the governing council. we speak exclusively to one of has more hawkish colleagues, robert holzmann. let's get the bloomberg first word news with annabelle droulers in hong kong. >> good morning. the u.s.-china relationship was the focused during last night's democratic debate. joe biden invoke to the legacy of obama as he challenged the policies of bernie sanders and elizabeth warren. he said if washington did not act, beijing would end up making the rules. >> the problem is not the trade deficit, the problem is they are stealing our intellectual property. the problem is they are violating the wto. that is a different issue than whether or not they are dumping agricultural products on us. we are in a position where if we don't set the rules, we infect are going to find ourselves with china setting the rules. >> the chances of a u.s.

recession before the 2020 election are now at 75%. that's according to a billionaire money manager. odds have risen based on the changes in the yield curve. yields on the two-year treasuries exceeded those on 10 years in august before flipping back this month. the u.s. storm threat is rising again. warnings have been declared for the bahamas, which was just battered by hurricane dorian. different models have it moving up the east coast toward florida or into the gulf of mexico. doj officials see a need for a lower limit on japanese government yields. some reportedly put that level at -0.3%. they say allowing yields to fall to freely would contradict the banks policy pledge to target a level around zero as part of the boj's efforts to stimulate economic activity and price growth. a summer of

record-setting temperatures, europe is hoping to become the first carbon neutral continent. --icials met in helsinki meet in helsinki over the coming days to sweat out the plan. urszula of a delay in said this week that protecting the environment is our generations defining task, adding it is a moral, human, and political obligation. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: annabelle droulers in hong kong, thank you. coming up, meeting in the middle. could the u.s. and china come together and agree to a deal, an interim one at least? trump says he is open to that. more on that bloomberg scoop next. when you are traveling to work, tune into bloomberg radio live or on dabbile device digital radio in london. this is bloomberg. ♪

♪ nejra: this is "bloomberg markets: european open i am nejra cehic in london. let's get a check on the markets in asia. juliette saly in singapore has more. getting a liftu in risk assets at the end of the week. juliette: it's been a pretty good full week for asian equities. we are on track for a fourth weekly gain on the msci asia-pacific index, which is tracking at its highest level since the end of july. we see yields rising in the region, although japan's finance ministers said they are not considering more stimulus. the yield on japan's tenure up by six basis points. the nikkei on its longest winning streak in about two years. australia flatly higher heading into the close. we have a number of markets closed today including south korea and china for the mid autumn festival. when it comes to movement in hong kong, the hang seng index is tracking at a six-week high.

we have seen a lot more money coming back into hong kong in the past week. shares, the hong kong h so those chinese firms up by about 0.6%. hong kong dollar continuing to ighd at a six-week h as well. the share market has been hit by the process -- protests. ka properties it downi kai properties down. nejra: great insight as always. thank you so much, juliette saly in singapore. let's get the bloomberg business flash with annabelle droulers in hong kong. >> thanks.

u.s. and chipmakers have urged president trump to ease the ban on sales of huawei. in a letter seem by bloomberg, the semi conductor industry association encouraged prompt action for sales that do not implicate national security concerns. trump had promised to loosen restrictions on huawei export license and's after meeting with jie zheng paying in late june -- jie zheng paying in late -- xi jinping in legend. -- late june. it is now valued at $4.4 billion. uber sold above the number of a junk bonds in its debt offering as a public company. they raised 1.2 billion dollars compared to a target of $750 million. that will help uber find its purchase of a dubai-based competitor as part of a plan to expand its global footprint. billionaire carl icahn is

heading to the sunshine state. the 83-year-old will move his home and business to florida to avoid new york's higher taxes. he will joan -- joint fellow wall street -- join follow wall street migrants to the state, which is one of several with no income tax. nejra: let's turn to trade and the trumpet ministration is considering offering china an interim deal that would delay and even rollback some u.s. tariffs. bloomberg has learned that in exchange, washington would like commitments on intellectual property and agricultural purchases from beijing. it comes as negotiators from both countries are set to me in the next few weeks for talks in washington. it is still under consideration and president trump is yet to sign off on it. president trump: it is something that people talk about. i would rather get the whole deal done. we have taken in many many billions of dollars of tariffs. i would rather get the entire

chinese deal done. nejra: a possible deal has been moving markets, as trade optimism offsets the steps taken by the ecb. treasury yields moved higher and are at their highest level since early august. the 10 year yield reef we dipped before rallying again and is at its highest since early august. it is still almost a percentage point from where it was at the start of the year. we have jumped more than 20 basis points this week. lucy macdonald from allianz global investors and valentin marinov are still with us. there this signed that could potentially be an interim that there could potentially be an interim deal. lucy: if there is a resolution on trade, it will actually be non-us rather than u.s. equities which are likely to -- more. as to whether there is a resolution, i think the pressures on the u.s. have risen.

are going to impact more on the u.s. consumer. that is where the votes are. some slowdown in consumption is providing a little bit more pressure and you have also got the lyrical timetable as well. i think the pressure -- political timetable as well. i think the pressure has risen on the u.s. side and obviously there is pressure on the chinese aside. it is definitely deceleration. there is higher pressure on both sides to come to at least some interim deal, although the long-term, these issues will not be resolved very quickly, i.e. intellectual property and the agriculture industry. these issues will remain. there is more pressure to have a resolution. nejra: equity markets perhaps are getting ahead of themselves in the hope of this interim deal. a lot of the is to do with the optics -- a lot of it is to do with the optics.

are the risks still much more tilted to the downside for equity markets, at least over the next six months for you? lucy: the expectation of a trade deal had gotten very pessimistic. i think we are starting from a very low level on the probability of a trade deal but also on growth. a couple of weeks ago there was more recession talk, people thinking that no resolution would be reached. dollar whipped sort of yesterday. goldman saying that u.s.-china trade and not the fed is driving the dollar. with that in mind, they say the yen is screaming as the one major haven that is still cheap. it is looking at its worst week since january. is dollar-yen the way you would want to trade these trade tensions right now? valentin: could be. it is one of the primary reasons for the fed to turn more dovish,

is to cut rates in july, whether crosscurrents coming from the trade war between the u.s. and china. i guess purely from a tactical point of view, the assumption would be that if indeed there are signs that the two sides at the negotiating table are moving closer to a compromise, the fed may concluded that potentially the outlook may start improving down the road. given that, at least for now, the u.s. economy seems quite resilient. against this backdrop, treasury yields may have further to go to the upside. the currency that is the dollar cross remains dollar-yen. what you could also do here, certainly given that the euro in sympathyding with the yuan -- in sync with -- u.n.

francfrom that, swiss looks very expensive to me with s&p'shout as and pete -- involvement. as the fears in the markets seem to dissipate in trade war, brexit, italian political risks, you think there is not much need to buy gold. you think the correction we have had there may continue as well. the dollar i think is likely to continue to benefit from its dual role as a high-yielding safe haven. there is only so much you want to sell the dollar against carrie currencies. the dollar carries. pretty decent still. . nejra: does the dollar continue to benefit against the yuan? do you still see that reversing and a weaker yuan? valentin: we may not be out of

the woods just yet. the problems have been delayed but not necessarily resolved. we expect the traded deal negotiations to drag on a bit longer. as a result, we think the risk for the yuan may be on the downside. on the upside as chinese officials have willing -- have indicated they are willing to use it in the process. we are not out of the woods yet. positioning and tactical are really risk on positions exploding that abatement in global geopolitical risks. nejra: thank you so much for joining us. valentin marinov from credit agricole, thank you for joining us. lucy macdonald from allianz global investors stays with us. with millions of dollars at stake, how much longer can the most loved shares of the year continue to get beaten up? when you're traveling to work, tune into bloomberg radio live

on your mobile device or on dab digital radio in the london area. this is bloomberg. ♪ devices are like doorways

that could allow hackers into your home. and like all doors, they're safer when locked. that's why you need xfinity xfi. with the xfi gateway, devices connected to your homes wifi are protected. which helps keep people outside from accessing your passwords, credit cards and cameras. and people inside from accidentally visiting sites that aren't secure. and if someone trys we'll let you know. xfi advanced security. if it's connected, it's protected. call, click, or visit a store today.

♪ nejra: this is "bloomberg daybreak: europe." i'm nejra cehic and landed. out of favor equities are having their moment of the sun. they have registered their best run since at least 2002 amid a dramatic reversal and momentum. is this a quick rechecking -- rejigging or a prolonged change? who better to talk about this event dani burger? >> you know this issue is near and dear to my heart. the crowded momentum trade. has broken this one at the bottom has been really popular this year because a lot of the bond proxies, safety sox, lower

about -- safety stocks, lower volatility stocks live in this basket. in the past week or so we saw that sharply reverse so momentum falls almost 10% over the past week while value, cheaper, unloved stocks gained about 7.5%. will this rotation last? what's to come? to really decide that, we need to look at the factors that drove this. it was in large part because of the central banks. you have to look at what the factors did compared to yields. the 10 year yield in the blue. you can see it closely tracks value in the yellow. when we finally get this a reprieve of low yields, -- this reprieve of low yields, we see -- a rates have finally found forward, dissertation could continue -- and this rotation can continue. jp morgan agrees.

those are the fundamentals but what about the technicals? ofre is a whole swath traders out there that trend follow. this is a rate mimicking gr -- strategy of trend following. this strategy crashes, having its worst run since 2015. when this happened in 2015, we also saw a lot of stoploss is triggered. that means the yield -- stock losses triggered. -- this happened about a month out. we may be able to expect some of that happening. . it is both fundamental and technical here. nejra: let's get back to lucy macdonald from allianz global investors. some great insights from dani. i want to get your take on if rates have found a floor, then

we could see a continuation of what we saw this week. do you think rates have found a floor? lucy: that comes down to whether we think of trade talks will have some resolution -- the trade talks will have some resolution. if that is the case, there will be less pressure on rates. they will start to go the other way. that is key really. for thet that means rotation in the market, that is what you need to see. you need to see that there is less downside to earnings. some of the stocks which have been derated on that basis can find a floor and start to recover. i think we are relatively early. there is natural for a trade deal but it's not there yet. as far as earnings are

concerned, there still could be a little bit more downside , as this quarter in particular there has been some more impact coming through on corporates which are yet to be reported. nejra: when you look at a rotation like this over a week, which is a relatively short time span, are you tempted to participate in that? what strategies would you use to participate at this point when you're looking at this rotation in factors that we have seen? lucy: you take some action before and having the barbell within the portfolio. we have been very aware that the bond proxies have been becoming more expensive. as that has been happening, we have been taking some profit out of the defense area. having defense of exposure in those areas. some areas of health care are more interesting on that basis. on the other side, reinvesting

that into areas that have been derated but where there is less profit downside risk. if you can find companies that have been derated but have a more diverse business in terms of vertical and geographical exposure, then that is more interesting. investing from the expensive defensive into some more interesting but diversified cyclicals. that is really the barbell. that has certainly protected the portfolio. the marginis then on when you get sharp moves, seeing if there is potential to either sell something that s a big rereading. rereadating. i think just keeping it quite balanced at the moment waiting to see whether we get resolution on trade. nejra: so you are looking at

more diversified industrials for that moderate cyclical exposure. you are also looking at small caps. lucy: yes. i think small caps are diversified in themselves if you are just adding a little bit more exposure in the area. it seems to be a way of getting a little more exposure into that progress can, select -- probe pro risk,ctively -- selectively of course. nejra: lucy macdonald great to have you. let's check in on the markets around the world. joining us is our partner in mumbai and in london is annmarie hordern. the latest retail inflation data stays within the central bank's medium-term target. helpingenign inflation boost expectations of a rate cut next month? >> good morning. even the industrial production numbers were very low -- very

robust compared to the estimates. because you have had a good run this far, they have not had as strong a reaction in the session today. the last four days with the weekly performance likely to end in the green, that is probably a healthy sign. the macros turning slightly more favorable from an indian bowl perspective. -- bull perspective. for now, flat for the day and for the week as well. nejra: thank you. you are looking at the wider markets, how they are digesting the trade optimism and what we heard from the ecb in mario draghi. >> it is clear we see some of this trade optimism eke into the markets this morning. the s&p 500 rose to just under all-time highs after bloomberg news had that scoop out about the u.s. administration looking at offering a limited trade agreement to china.

the ecb unleashing fresh stimulus. we have japan's nikkei up nearly 1% and the broader msci asia-pacific benchmark is higher as well. foreign-exchange, we see some strengthen em currencies -- strength in em currencies. commodities, iron ore trading at about $96 per ton. china the number one destination for iron ore. that is used in everything from automobiles to mobile phones. ype of trade deals will boost these metals. this happened in the early 1990's, early 2000 and before the financial crisis in 2008. oil is not arguably signaling a recession. actually, opec is trying to boost these prices and arguably

its struggling. top economists, investors, policymakers seem to be concerned. jeffrey gundlach saying we have a 75% chance of a u.s. recession ahead of the election next year. it does not look like oil is signaling it this time around. it is likely coming from something like the trade war and economic damage we are seeing around the world. nejra: great to have you with us. thank you so much. let's get the bluebird first word news with annabelle droulers in hong kong -- bloomberg first word news with annabelle droulers in hong kong. >> u.s. officials have discussed offering tr china and interim trade deal. it would delay and even rollback some u.s. tariffs in exchange for chinese commitments on intellectual property and agricultural purchases. president trump said he would be open to it but would prefer a lasting agreement. president trump: it is something people talk about. i would rather get the whole deal done. we have taken in many many

millions of dollars of tariffs. i would rather get the ente chinese deal done. if we are going to do the deal, let's get it done. >> the u.s.-china relationship was the focus during last night's democratic debate. joe biden invoked the legacy of obama as he challenged the left-leaning policies of bernie sanders and elizabeth warren. he said if washington did not act, beijing would end up making the rules. >> the problem is not the trade deficit, the problem is they are stealing our intellectual property. the problem is they are violating the wto. they are dumping steel on us. that is a different issue than whether or not they are dumping agricultural products on us. in addition to that, we are in a position where if we don't set the rules, we in fact are going to find ourselves with china setting the rules. >> the u.s. storm threat is rising again. warnings have been declared for the bahamas, which was just battered by hurricane dorian. different models have it moving up the east coast toward florida or into the gulf of mexico.

boj officials see a need for a lower limit on japanese government yields. some reportedly put that level at -0.3%. they say allowing yields to fall too freely would contradict the bank's policy pledge to target a level around zero as part of the boj's efforts to stimulate economic activity and price growth. and after a summer of record-setting temperatures, europe is hoping to become the first carbon neutral continent. officials meet in helsinki over outnext two days to flesh th eplan. ursula von der leyen said this week that protecting the environment is our generation's defining task, adding it is a moral, human, and political obligation. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: annabelle droulers in

hong kong, thank you so much. and number of key things in europe. aret up, finance ministers gathering in helsinki for the euro group meeting and we also get trade balance stickers for the euro area. afternoon, we get u.s. retail sales numbers for another indicator of how the u.s. economy is doing. golfy, the women's tournament tease off today and scotland. we speak to the austrian central .ank governor, robert holzmann he is also the ecb's newest governing council member. we will be hearing from him on the latest steps by outgoing president mario draghi. you will not want to miss the interview coming up right here on "bloomberg daybreak: europe." we heard there was quite a bit of pushback on mario draghi's qe announcement. when you're traveling to work, tune in bloomberg radio live on your mobile device. this is numbered. -- this is bloomberg. ♪

♪ >> you do not have to buy it. >> you just said that two minutes ago. you just said two minutes ago they would have to buy in. are you forgetting what you said two minutes ago? are you forgetting already what you said just two minutes ago? i cannot believe that you said two minutes ago that they had to buy in and now you are saying they do not have to. you are forgetting that. >> anybody like a grandmother who has no money, you are automatically enrolled. >> automatically enroll people regardless whether they choose to opt in or not. if you lose your job, for instance, has health care plan would not out medically enroll you. you would have to opt in. my plan would. i am fulfilling the legacy of barack obama and you are not.

>> that would be a surprise to him. nejra: that was one of the highlights of the democratic party debate in houston, texas. 10 of the leading candidates competing to challenge donald trump for the presidency next year took to the stage to debate on everything from health care to criminal justice reform. this was the first time front runner joe biden, elizabeth warren, and bernie sanders all shared a stage. core cpi rose more than expected last month to hit a one year high, signaling that inflation was already firming i had a fresh tariffs on chinese goods -- ahead of fresh tariffs on chinese goods. investors are abuzz over the risk of a looming u.s. recession reiteratedndlach has his warning that the chances of a recession before the 2020 election are now at. 75%. . the ceo says the odds have risen based on changes in the yield curve. joining us now is steve blitz,

chief u.s. economist at ts lombard. let me cut to the chase. you think the fed should cut 15 basis point in september. why? robert: absolutely -- steve: absolutely. first of all, the inversion of the curve is problematic on a lot of different levels. one of the things that would bep in u.s. economy would to get the dollar weaker. the funds rate is one of the highest policy rates if not the highest policy rate in the world. the fed really has lost control of the curve. it needs to reengage itself with the yield curve and have some impact on the two year and they are not going to get there if they just cut 25. the problem is that the hawks on the committee are very happy to wait. ure if they ease

financial conditions, things will get better, the curve will right itself. that ship has sailed. that game is no longer in play anymore. as a consequence, the fed needs to sort of jump ahead here. the longer they wait, the more they will have to jump later on. nejra: i guess the counter argument to that would be they do not leave themselves in a kind of leeway if we get into a severe downturn. let me just show you one chart in terms of bloomberg has done a story of a green, yellow, or red with u.s. economy. one green light is that jobless claims have historically steadied before spiking before a recession. we have not seen that spike yet. does the jobs market justify a cut in the magnitude you're talking about? steve: i think we have to go

back one step from where we are now and the easing cycle. in the past, the fed waited until it actually saw signs that the economy was really slowing down before it really started to ease aggressively. we are in a very different world right now, even by the fed's own admission. they have already been more proactive this year than they have been in the past. they understand that if they wait too long for these signs for these signs to say unemployment going up, it is too late. they are so close to zero, the way to keep the economy going -- and remember, the fed chairman said he was going to be tough on inflation. the way you get inflation higher and keep the labor market hot, which is how you get inflation hotter, is by acting, going early, and acting big while the economy is still expanding so that you have it your bullets -- your bullets in effect have more

impact. if you wait until the economy starts to slow down, you are too late, you are already in a recession. nejra: we should not get excited by the core cpi number from yesterday? steve: i saw that number. when you break it down, year-over-year, commodity prices excluding food and energy was only up 0.8%. what was up? rent and medical services. yes, that's inflation, but those are things people have to spend money on. that is a tax on consumption. it is not as if -- so what you are doing by saying tax on consumption is that those prices are going up, wages are not going up as much, right, so you are reducing the amount of money you have available for discretionary spending. that is not what i would call -- if you could ever call inflation good, that is certainly not good inflation. nejra: understood.

people who might take the other side of a argument point to the strong consumer and say the slowdown, recession in manufacturing not spilling over into services. does the manufacturing slow alone really concern you? steve: it does. the manufacturing sector is not as big in the u.s. economy as it used to be. -- value value outed basis, it is still -- in the united states. manufacturing matters. services is made up of a lot of different industries, including the one we are sitting in right now. all of these industries have reactionerent functions, so to speak. manufacturing is in contraction. if manufacturing stays weak long enough, something like 14% of real value added to gdp is coming from manufacturing, as i said, far and away the largest industry. spending from that -- as

spending from that starts to fall off, at spending on services begins to fall off and eventually spells out. we have had three straight months of service sector unemployment, excluding -- service sector employment, excluding health, going down. the consumer is not an entity in and of itself. it is non-industry. it may seem like -- it is not an industry. it may seem like it. it depends on employment and income. increasingly, stability in the equity market. the minute you lose any of those , spending will disappear very quickly. nejra: at is also a lagging indicator. call of jeff gundlach's a 75% chance of recession before the 2020 election. erat's your recession-omet telling you? steve: not as high as 75%, that's for certain. is less than 50% at the moment. i would say it is 25% right now.

let's see what the fed does this coming week and at the end of october. and say theans back same old fed loses this positioning, i think you start looking at it as at least a 50-50% chance of recession next year. the fed still has control in terms of whether or not the economy goes there. it is up to them. nejra: all right. thank you for joining us. steve blitz, chief economist at ts lombard, great to get your thoughts. mario draghi delivering his final stimulus package after overcoming an unprecedented dissenters. the ecb president sounded the alarm over the growth outlook and the euro area. bloomberg spoke exclusively to robert holzmann, austrian central bank governor, on whether the president made a policy mistake. to question how

effective it will a further monetary easing in these various areas be is not something where orstarted to reach the end the effectiveness of it. . think this was a major reason will have an effect on the economic outcomes? are the risks already higher than the benefit that emerges? or at the level of a decreasing further the deposit rate, what will be the effect on the marke interest rate compared to the alternative of do nothing? on the forward guidance, how --h it is necessary now to the future president coming in or how much one should lever freedom there. these things were discussed in

an open manner. these are tentative arguments. nejra: would you say -- >> would you say some of the members of the council left thinking maybe we made a policy mistake today? we should not have done this? robert: i'm sure this idea across to the mind of some people. it definitely crossed mine. my take is that as things change, also this forward guidance, the policy may change, not tomorrow, but after tomorrow, but i would not think that it is now there for the next decades. nejra: that was the austrian central bank governor, robert holzmann, speaking exclusively to bloomberg. . you can watch more of the interview later in the show. bloomberg users can interact with the charts shown using gtv chartswse recent featured and save charts for future reference. when you're traveling to work, tune into bloomberg radio live on your mobile device or on dab

digital radio in the london area. we will unpick more from that ecb meeting and mario draghi's news conference on the latest headlines on trade. this is bloomberg. ♪

at comcast, we didn't build the nation's largest gig-speed network just to make businesses run faster. we built it to help them go beyond. because beyond risk... welcome to the neighborhood, guys. there is reward. ♪ ♪ beyond work and life... who else could he be? there is the moment. beyond technology... there is human ingenuity. ♪ ♪ every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. take your business beyond. shery: good morning from

bloomberg's european headquarters. these are today's top stories. underwhelmed. booms reversed gains and the euro rebounds after mario draghi unleashes a controversial stimulus package. we asked the austrian central bank governor if you made a stake. >> it definitely crossed my mind. this policy may change. not tomorrow, not after tomorrow. i wouldn't think that it is now there for the next few decades. nejra: a deal before the deal? white house officials have

discussed an interim trade agreement with china. investors put risk back on. 75% chance of recession. the u.s. is on pre-election recession watch as president trump attacks democratic proposals on health care and energy in yesterday's debate. ♪ nejra: welcome to daybreak europe. what a day it was yesterday. 5/10 of500 close about 1% below a record. risk assets getting a list. talked aboutcoop a possible interim trade deal before that face-to-face meeting in october. we saw gains in european equities. they were moved around a little bit by the ecb decision and mario draghi's news conference afterwards. banks not taking the news on

tiering that well. yesterday, we saw gains of 2/10 of 1%. we do get a similar magnitude in gains in some of the benchmarks. global equities in general are heading for a third week of gains. certainly some risk coming back onto the table. -- optimismultimate about trade is leading that. we saw yields move lower initially. the tenure btp yield hitting a record low. 10-year bund deals as well. we saw the tenure btp yield close lower. it looks like we could see a bit of a change today with yields actually moving. we could see the 10-year bund yield continue to move higher, judging by these futures. some disappointment in the markets in terms of what mario draghi proposed.

the qe number was lower than some expected, lower than consensus. the positive side was the open-ended comments. the fact that issue were limits have not been discussed was seen as not so dovish. a lot of other details we will get into this -- in the show. we sit on a 178 handle. 10 year treasury yields have jumped more than 20 basis points this week. let's check in on the markets in asia with juliette saly in singapore. great to see you. you were saying earlier, four weeks of gains in asian equities. it is certainly looking positive today. juliette: absolutely. the msci asia-pacific index on track for a weekly gain of 2%, adding to last week's 2% gain. very good fortnight. very good for weeks for asian stocks as well. we are seeing yields higher as well. japan's 10-year note up.

the prime minister saying they are not considering more stimulus. the nikkei closing out the session higher for a ninth session in a row. it's longest winning streak in two years. up by around 1%. pretty flat on the asx 200. asx -- hong kong stocks getting a boost this week. a few markets out of action today for the midautumn festival. no trade in china to react to that bloomberg scooped. no trade in south korea either. let's have a look at the currency moves. we have been seeing moves in the offshore yuan. a lot of volatility as well. the fixing volatility has been near the lowest since the currency was reformed in 2015. it's worth noting that this rally you've seen in the want to be coming to an end. b.n.p. paribas saying they are not that optimistic that these olive branches you've been seeing from both sides are actually going to lead to a lasting trade deal. they are saying it will flare up again. of stepsake a series

er. they thanked china will not deliberately weaken the yuan to blunt the impact of higher tariffs because that would agitate the u.s.. at least in terms of some of the olive branches we have been seeing this week, the yuan has been holding onto that strength. nejra: thank you so much. has delivered his final stimulus package after overcoming an unprecedented result -- revolt from president was. he found -- sounded the alarm over the growth outlook in the euro area. >> the risks surrounding the euro area growth outlooks remain tilted to the downside. the probability of a recession for the euro area is small. it's going up. in view of the weakening economic outlook and the continued prominence of downside risk, governments with fiscal space should act in an effective and timely matter.

we have a mandate. we pursue price stability. we don't target exchange rates. period. atra: joining us now is head wells fargo asset management. initially, the decision came out. it was taken as dovish. it seemed to be that what the market saw was less dovish. the fact he was talking about the limit for monetary policy. the fact that they have not discussed the issuer limits even though they unveiled this qe package. did that concern you? >> absolutely. it was possibly a bit of a surprise that they didn't discuss it. it's a hot topic. it's a difficult topic for the central bank to get through. in a way, he has left something for christine lagarde when she comes as a discussion. that clearly was something that the market reacted to. it limits the scope of what they

can do in terms of qe. nejra: now, this so-called open-ended qe, how did that make you feel about investment grade boones -- boones -- bunds? >> it was a big package yesterday. the markets are starting to price in a lot on the sovereign side. inped probably by liquidity august. we saw more of a rally than we thought on the government side. so we actually put on a small short. we have kept that for now. that was the right call, i think. in a way, there were few surprises yesterday. it was tense. players were looking for 20. we got 20 billion in terms of qe std of potentially 30 or 45 as other participants were looking for.

i do think a bit of a backup in rates was expected. we are seeing that now. in terms of credit spreads, i think, you are still seeing a nice pickup in terms of yield against governments. that puts credit in a good space. , think the package yesterday even if personally i don't think it will help on the inflation front, i do think it is designed to help dampen volatility in months to come as we start seeing more troubled economic data. nejra: we discussed how it was a controversial package, particularly when it came to the kiwi. we have just heard from one of the dissenters of the stimulus package, austrian central bank governor, in an exclusive interview with bloomberg. we asked him if he thought the decision to ease was a policy mistake. -- verys a variant intensive and constructive discussion at the council. i could find out how people

interacted. everybody listened to the others. discussion which one takes the arguments of the others seriously. but coming with your own arguments. it was a push back. it was a constructive one. in which one tries to come up with a common solution that not everybody agreed with. >> what was the disagreement about? not everybody agreed. what was the disagreement? >> it was about the question, how effective will further monetary easing in this area be? is it something where we started to reach the end or is it still the effectiveness? i think this was a major reason why pushback took place. to question if monetary quantitative reasoning moving further into negative territory would have an effect on the economic outcomes or are the

risks already higher than the benefit that emerges? or at the level of decreasing further the deposit rate. what be the effect on the market interest rate compared to the alternative of doing nothing? on the forward guidance, how much is necessary now to counter the future president coming in? much freedom should be there? these things were discussed in an open manner. these are alternative arguments to which i contributed. >> would you say some of the members of the council left thinking, maybe we made a policy mistake today? >> i'm sure this idea crossed the mind of some people. it deftly crossed my mind. change can if things

also this forward guidance, the policy may change. not tomorrow, not after tomorrow. i wouldn't think that it's now there for the next decades. >> when you look at the market reaction to it, the market seems to think we are headed to kiwi infinity. -- qe definitively. do you think she has been locked into a dovish tone? is there room to reverse some of the policy? >> this is a hope. this is not knowledge. i hope we are not locked in. i hope there is room to read discuss it in the future. my take is that she comes from a different environment, has a different way of acting. i don't think she's a weak person who would say, i'm locked in. i'm not allowed to do anything. nejra: that was the austrian central bank governor speaking exclusively on bloomberg. guest is still with us. do you think that lagarde will be successful in getting that fiscal stimulus that draghi

talked about again and again in the news conference? >> that will be her main task. i think that's why she was such an interesting choice as central bank governor. political her experience and her contacts on the political side. it will be her mission to get some of the countries that have been reluctant so far to come up with fiscal stimulus. there are countries that have the scope to do fiscal stimulus. , infrastructure could be a good investment for germany. it really is going to be her role to get that going. nejra: holtzman was referring to the reversal rate in that conversation. what you heard in terms of the tearing yesterday and the whole package in general. are you positive on european banks here? do you think it's not all about what the ecb is doing, they have structural issues? >> i think it was positive for

the banks. it does address some of the concerns the market had in terms of the rates that they had in deposits. it's helpful. does it resolve some of the more idiosyncratic risks that are still in the system and some of the regions that were maybe a bit slower in terms of addressing their banking system? italy. no. i do think that the banking system is in much better shape than it was a few years ago in terms of capital. for me, it's an earnings issue on the european banking side. guest stays with us. coming up, meeting in the middle. could the u.s. and china come together and agree to a deal? trump says he's open to an interim deal. more on that, next. this is bloomberg. ♪

nejra: it is 7:15 a.m. in london. this is bloomberg daybreak: europe. let's get the bloomberg business flash. here's annabelle droulers in hong kong. >> thanks. u.s. chipmakers have urged president trump to ease the ban on sales to while away -- huawei . the semiconductor association encourage prompt action for sales but do not implicate national security concerns. he had promised to loosen security after meeting with president xi in june. cloud player has raised $525 million in an ipo. the company which helps websites distribute content priced shares above and already increased target. it is now valued at $4.4 billion. that is your bloomberg business flash. nejra: thank you. meetingseuro group

taking place this morning in helsinki. groundadeo is on the with the swedish finance minister. hey, maria. >> good morning. we are indeed in helsinki. ministers are meeting a day after mario draghi announced that buffer package. i'm joined by the swedish finance minister. good morning. cleardraghi made it very that it's time for fiscal stimulus. what are you going to do about this? >> it's a big problem. too many big countries are entering a slowdown in the economy with big minuses and deficits in the budget. it's a big public debt. this is a huge problem for the european economy. more countries should have spent more time during the good years to pay off the public debt. now we are where we are. all countries need to have moderate fiscal policy. there are several countries that

should not have more public debt. maria: when you look at countries that need to spend, we are hearing more voices that say, it's germany. germany needs to get spending now. is that what you think finance ministers will focus on today? >> maybe they should have focused more in the last years of spending less and paying off their public debt. there's often a lot of push in germany. maybe they should have spent more time to pay off their public debt. maria: i'm guessing that's a reference to countries like italy. we have a new finance minister today who will be joining you. what are you hoping to hear from the new italian government? >> i'm really looking forward to meet with him. i know him very well. i know he's a good european. i'm sure he will have a sound fiscal policy. i'm looking forward to that. maria: do you feel relieved by the fact the conversations tone around italy appears to have shifted from being very vocal against european rules to saying, we need to work together? >> i'm really hopeful when it

comes to the new italian government. i'm hopeful to meet the middle -- new minister of finance. we need italy as part of the european family. i think we can embrace each other. maria: i have to ask you about brexit. that's a big elephant in the room. we have a hard deadline coming up very quickly. how ready are financial services, pension funds, ready for this? companies and countries have prepared for a hard brexit. we all really hope we will come to a solution. i hope that the brits will decide not to leave with a hard brexit. maria: today, the commission has said, we need to step up preparations for a no deal brexit. how are you going to prepare for them with the rest of your colleagues here? what is your top priority? >> in sweden we have prepare for a long time, both from the government and companies.

i'm concerned about the smaller companies that are trading with great britain. not with other countries. the newd to learn rules. for small companies in europe that have not prepared for brexit, this is the time to do it. country,eaking of your how are you seeing the economy towards the end of the year? do you expect to see it pick up? i have to ask you again about the currents -- currency. how concerned are you about it? >> we are seeing a slowdown in the economy being -- economy in sweden. we have had very high growth rates. we are looking for weaker growth. this is something we have forecasted for some time. we know there is turbulence in the markets right now. the swedish currency is a smaller currency. it is often effective when there is turbulence in the financial markets. this is one of those times. also, the swedish central bank says their monetary policy is one of the reasons why our

currency is where it is right now. maria: negative rates continue to be a big conversation. do you see that is some -- as something that be counterproductive for the economy? >> well, it's difficult to discuss monetary policy in sweden. it's very sensitive. the central bank is very economists. if i discuss what they are doing, the parliament will sign -- say i'm doing the wrong thing. maria: thank you so much. always good to see you. that was sweden's finance minister. she said a very clearly. countries need to bring down the deficits. this is not a free lunch. a reference to italy. she says the conversation around that country has become more positive. there's a new finance minister who is making his debut today. nejra: a wide-ranging conversation. thank you.

let's talk about trade. the trump administration is considering offering china an interim deal that would delay some u.s. tariffs. bloomberg has learned and exchange washington would like commitments on intellectual property and agricultural purchases. negotiations are set to begin in washington. it still under consideration. president trump has yet to sign off on it. >> it is something that people talk about. i would rather get the whole deal done. we've taken and many billions of dollars of tariffs. i would rather get the entire chinese on it. if we will do the deal, let's get it done. a possible deal has been moving markets as trade optimism offset the steps taken by the ecb. our guest is still with us. how is your risk budget looking at these ebbs and flows we are getting in the trade talks? >> i think we are still in a

fair amount of uncertainty with regard to the trade talks. we still have uncertainty around brexit. there are still risks in the system. from my perspective, they are not resolved. haven't got ae very high risk budget at the moment. we are being very careful in terms of stockpicking. that's really what we are trying to do in the portfolios. now, if you look at what happened in the ecb yesterday, that gives us some confidence to keep our position in financials. we are positive on financials. we have a slight overweight on the triple beside on the credit books. that is supported by the ecb. we don't want to take too much risk because of these uncertainties. financials, doan you have much of a rotation more towards cyclicals at the moment?

investors, at equity we've been talking a lot about the rotation we have seen this week from momentum to value. has that been reflected in credit markets? >> for me, we are not being compensated for the cyclicals. we are still underweight industrials and consumer cyclicals. going --hat they are there are going to be opportunities coming up in the next few months from that perspective. one thing that is interesting to note, there has been a change in terms of policies for some of the corporate's we invest in. particularly, a wake-up call at the end of last year in terms of fed volatility. mega-capssome of the in the u.s., looking to address a degree of leverage. that's good for credit markets. nejra: do you think 10 year treasury yields have found a bottom? it has driven a lot of the rotation we have seen an equity markets. 20 basis point jump in 10 year

yields this week. the biggest weekly jump since 2016. we are still 1% lower than we were at the part of the year. -- start of the year. >> we touched on the liquidity effect over the summer. some of the procyclical hedging that happens on the red side. that drag down the yields, particularly in the u.s.. have we bottom out? it depends on the economy. it will be data dependent. we will have to see. perspective, amy bit of a jump in yields is a good thing. nejra: great to have you with us. that's it for daybreak europe. bloomberg markets: the european open is up next. when you are traveling and to work, tune in to bloomberg radio in the london area. i will be joining you there from 8:00 to take you through the equity market open in europe. we saw a modest lift in the stoxx 600 yesterday with largely led by the defensive. look at how futures are

performing right now. we saw them slightly in the front foot in terms of ftse futures. cac 40 futures up. this is bloomberg. ♪

anna: good morning. welcome to the european open. i'm anna edwards. the markets say rotation or reaction? value stocks continue to gain, but investors don't know whether it's a long-term change or knee-jerk response. the cac exchange less than 30 minutes away. ♪ anna: siding with the dub, the euro rises with bonds after the controversial stimulu