manus: good morning from dubai. this is "bloomberg daybreak europe." today's top are stories. u.s. stock futures initially humble on fears a trade deal could be cut short, but stabilized as bloomberg reports a currency packed could be included in a partial deal. boris johnson holds talks with his irish counterpart as leaders look to compromise over border impasse. in the debate over stimulus. we will speak exclusively with a governing council member on the controversy surrounding the central bank policy. in another exclusive, we will hear from the dallas fed

president. don't miss it. manus: warm welcome to "daybreak europe." times we have rocked from 1% up to 1% down. it's amazing how those numbers come alive. is there a deal on the way? between china and the u.s.. nejra: if we get a partial deal, how long could that sustain any gains we might get in risk assets? would it be enough to turn around the economic damage that has already been done? manus: indeed. let's get straight to these markets.

let's get straight to the oil market. actually, let's get to the fx market instead. one -- theof the yuan is at a high. the bears were champing at the bit to sell the currency. if there is a currency pact , thatn the u.s. and china could give you some solidification in dollar yuan. at the bottom of your screen, you have the aussie dollar against the u.s. dollar against ground zero for trade. it is about the durability of the deal. how long can it stay? if it does, it may well help the aussie. good morning. i missed you. nejra: it has been such a while. 10 days i was away, you were away before that. looking at futures, you pointed

to the volatility. we have seen this in today's session. we are ever so slightly weaker on u.s. futures after we did see the s&p 500 gained yesterday on optimism for a trade deal. conflicting headlines. traders not knowing what to make of it. we have seen treasury futures, we have seen money move into 10-year note's. that 157 handle. dollar weakness across the board. perhaps on trade optimism. that is what is giving cable a lift ahead of boris johnson meeting in a last-ditch bid for a brexit deal. manus: breaking news from phillips, fighting headwinds connected to health care underperformance. they are giving us guidance into 2020. growth will be between 4% to 6%. for the third quarter, the adjusted ebit at 583 million euros. this is a company which has

really honed its skills in terms of what they do, health technology, health care is a critical part of it. they are talking about headwinds in the global economy. personal curve. that is the underperformance. sales, 4.7 billion euros. let's get your first word news. >> turkey has launched a military incursion into syria to force kurdish militants away from the region. ankara has fought separatists for years, repeatedly warning it will not allow the creation of a kurdish state on its southern border. president trump was asked what he would do if turkey wiped out the kurds. his response, he would wipe out turkey's economy. now to brexit. orest johnson -- boris johnson

is set to hold last-minute talks. we have three weeks until the u.k. leaves the eu. each side blaming the other. if the leaders cannot reach an agreement, brexit talks could collapse entirely. more trouble for bowing. boeing. 737 jets still have to be grounded. the plane maker is setting up a repair center for the aircraft. this is after the federal aviation administration ordered -- on 30,000 flights. numeral -- rugby world cup matches have been canceled because of the impact of a typhoon. tournament organizers are not holding. it is the first time ever matches have been canceled in rugby's top competition.

global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists and annick was -- analysts in 120 countries. this is bloomberg. our top story, a week after drama featuring investment curves and an nba uproar, trade talk between the u.s. and china set to resume later today. the u.s. is looking at rolling out a currency pact as part of a partial deal. next week's tariff increase suspended. the currency was negotiated back in february before talks between the do nations fell apart. -- the two nations fell apart. nejra: it will be followed by likenegotiations on issues intellectual property. the double ration -- the liberation will come as a

delegation arrives in washington to resume trade talks with robert lighthizer and steven mnuchin. we are asking the question on mliv, what is the best way to trade negotiations? reach out to us and the team on your bloomberg. joining us is sarah hewin. great to have you with us. if we get any sort of partial deal, whether it does include a currency agreement or not, would that be enough to halt the slowdown in global growth? a partial deal? question. a very good if we reach this stage, maybe three months ago, it is possible. it could have been significant. business isw is operating according to uncertainty and any accord is

not necessarily going to deliver the predictability and certainty they require. unfortunately, through this whole dispute, we have seen steps forward, steps back, reconciliation, then new tariffs being imposed. i think we are at the stage where businesses are extremely cautious. the agreement is probably factored into a certain extent. that pricked ability is just not there. creditability is the issue. i breaking news story from ecb, set to buy ra pharmaceutical. it has been recommended by the board of ra pharmaceutical. cash.all in that is an agreement for the deal. at $22.70 yesterday.

$48.aid an interesting one. we will see how it opens. mini-deal, itis is all about whether it endures. -edal, what a mini happens next on the yuan? the dollar has been a haven. the yuan has been one of the levers the chinese have used. deal intoa mini currency for us. >> it would be you on positive. we are not expecting a substantial depreciation, looking for yuan to stay below $.70 on the dollar. that is the medium-term outlook. iswe get no progress, that potentially negative.

the expectations talking to market participants is that the next round of tariffs, the increase that is due to take place, that that will be suspended. progress, weee will see the dollar strengthen. nejra: if we see what you have mentioned in terms of the suspension of the increase in tariffs due in october, perhaps impact as well as pause on the december tariffs, what more do you expect in stimulus? >> we have already seen quite a substantial degree of stimulus it essentially -- and essentially through tax cuts or spending commitments. there is certainly more to come. we think what we need to see now is that really gaining traction

in the economy. relatively soft data. we think september is going to be looking better for china. the fourth quarter probably looking better than the third. the direction of travel is right. the stimulus that has taken place so far this year is only just starting to come through. we need to see more fiscal to get us up and running. a nice turn higher. that's why i want to have a look at this chart. i want to take a glass half-full scenario. no new tariffs in the next five days. these are services in europe. these are services in the u.s. manufacturing. is it a mini deal, does that create a floor? how long between -- before these big to turn higher on a mini deal? sarah: it is going to be difficult to get to an immediate turnaround.

the concern has been all along about the slowdown in trade. clearlywdown which has affected manufacturing. we see manufacturing contracting in the u.s., europe, china, and now starting to affect service sector activity in the nonmanufacturing sector. we still see that growing at a reasonable pace in the u.s. and europe and china of course. deterioration that is the worry. i'm not sure we are going to see an about turn anytime soon. series tend to deteriorate before they improve. if we do get an agreement, it sets a good trend for the upcoming month going into 2020. hewin staying with

us. coming up, we will speak to the governor of the bank of england. this is bloomberg.

nejra: this is "bloomberg daybreak: europe." the ecb's latest stimulus package has caused a split among policymakers. it also ignited debate around the limit of central bank actions. among those making this case is the bank of finland governor leo varadkar -- bank of finland governor olli rehn. he has argued interest rates may hamper the impact of monetary policy. francine lacqua is joined by olli rehn himself. >> good morning. i am delighted to be joined in finland by the governor of the bank of finland.

thank you for giving me a little bit of your busy day. hasoup of central bankers issued a memorandum which criticizes ecb policy. do you agree or not agree with the bank -- agree? the debate is whether the threat of deflationary spiral -- >> they have the right to express their views. former fed chairs like ben bernanke and janet yellen offer monetary policy analysis. this memorandum of central bankers in europe, the main has been not there potential deflation. i do not number it -- i do not remember it. there was a clearer threat of deflationary spiral in the end of 2015, 2014.

for instance, european economies weren't about that. -- warned about that. they took up and expanded asset purchase program to contain this deflationary spiral. successful inas the sense that it restored financial conditions in europe and supported growth, helped us avoid a deflationary spiral. decision,ent policy what does it actually mean for policy? does it become less effective? on theas some effect policy impact because communication and guidance is such an important part of monetary policy these days. at the same time, there are

asferent views and different regards the economic outlook. myself am a product of democratic custom and football teams. i value communication. united, you tend to win games. >> mario draghi is not listening to advice from the committee. what does that mean for markets? how should markets interpret? >> this is greatly exaggerated in the sense that the monetary -- but certain sensitive ,ssues such as qe resuming

asset purchases, is for the governing council to decide. extraordinary in this. >> there is so much pushback against negative rates. there seems to be a government council at a split. do we need policy review? that is something christine lagarde as the president of the ecb will decide. my reading is she has indicated we could start a review of monetary policy. i find it important to analyze or a population factor,t of a

conditions operating in the environment of monetary policy. is the treaty, price stability. i would find this kind of discussion important. it would also enhance understanding of our strategy and improve consistent communication. >> you mentioned christine lagarde. do you think she will be able to bridge these divisions? >> she has many abilities. one of her great abilities is teambuilding. that is something we are certainly counting on. conscious policymaking and communication by the government counsel. >> has the ecb reached to the limit of what it can do to spur

economic growth in the euro area? is it down to fiscal policy? >> no, that was also the message of more recent decisions by the ecb. it is important that all policy areas do their part. one is fiscal policy. the approaches differentiation in a sense, but there are countries that have a fiscal in an effective and timely manner. that. that don't have they continue building buffers in the financial sector. if the place has accommodative monetary policy, it is important to use policy to avoid and imbalances in the

economy. far, it has come very .hine -- very shyly what will be the catalyst? >> that is something member states need to discuss. on inis discussion going member states. let's see how these things work out. it is important we send minutes to the member states. it is important those countries invest in infrastructure. especially fiscal infrastructure and transformation, which is the challenge for all societies. >> there is growing concern you might not have enough room to keep qe going. is now the time to start talking about changing the limit?

>> it will not be a problem. i will not create any problem out of this. it will continue to work and we will see. >> what are your concerns about negative rates quick the haveive rates macroeconomic conditions. we created 11 million jobs in europe since 2015 when the crisis was contained. at the same time, there may be side effects and that's why we steps to improve the transmission of monetary policy through the banking sector.

>> we had some data points, including in germany, a little mixed, but they point to a situation that is worse than the ecb's protections. do you see downside risks? >> i see that we have downside risks. we have already downgraded our economic forecast, forecasting a recession. longer period. there are risks, especially the war of expanding the trade between the united states and china. in particular, which is affecting europe as well. is theer risk possibility of a hard brexit.

most,ld hit britain for but also harm the european economy. that is why her neck -- our economic forecast includes downside risks which we have been taking into account. , thank you for the interview. with that, back to you in dubai and london. nejra: thank you very much. from debate on the ecb to debate on the fed. several officials pushed for a signal on limits to easing. coming up, robert kaplan joins us for an exclusive interview. don't miss that at 1:00 this afternoon london time. you are traveling to work, you know where to go. bloomberg radio live on your mobile device or dab digital in the london area. there is the team with your first word. all getting ready.

with a live shot of london. varadkar and boris meet today. is today the defining moment for a brexit deal? ♪

from the couldn't be prouders to the wait did we just win-ners. everyone uses their phone differently. that's why xfinity mobile let's you design your own data. now you can share it between lines. mix with unlimited, and switch it up at anytime so you only pay for what you need. it's a different kind of wireless network designed to save you money. save up to $400 a year on your wireless bill. plus get $250 back when you buy an eligible phone. call, click, or visit a store today.

nejra: this is "bloomberg daybreak: europe." nejra cehic in london. manus: i'm manus cranny in dubai. the un security council will meet later to discuss turkey's incursion into northern syria after ground troops crossed the border after hours of airstrikes against kurdish forces. for widespread condemnation. turkeynt trump warned not to destroy the kurds. -- wipe outke his economies if he does that. i've already done it once.

i hope that he will act rationally. manus: for more, let's bring in our reporter for the middle east and africa. a warning shot again from the unitedrump, states did not give turkey to green light. have you any thoughts in terms of, is this the u.s. stepping back from an open mandate to rdohan.ne -- e >> this is not about destroying the syrian kurds immediately, this is about the u.s. trying to appease their nato ally, turkey. they have said they understand turkey's concern about the relationship between their own kurdish separatists and the syrian kurds, but at the same time, they don't want to give the impression they basically

he can godent erdogan in and do whatever he wants. nejra: what does this mean for the fight against islamic state? big concerns the and we are hearing american officials coming out and expressing that concern exactly, because the kurds -- or the alliance the kurds lead has been the key component in the success against islamic state and syria, and the kurds now hold several thousand islamic state militants so if the militants get released, for example, or they can't get destroyed by the turks, that could lead to a resurgence of a long state in the region. manus: this goes to a broader -- thetive, the u.s. attack on the aramco facility. pulling back

slightly from the syrian situation, this, one could say, is a wholesale political withdrawal from the middle east at this juncture. riad: i think it shows president trump is very uncomfortable, because he is aiming at his own electorate, very uncomfortable with having american troops fighting in the middle east. he himself has called them silly wars. i think that tells you something of his perspective on using the u.s. military, putting the u.s. military in harm's way, as americans like to say, in the middle east. nejra: thank you for joining us, our executive editor for the middle east and north africa. let's get the first word news with selena wong in beijing. a currency pact with china is part of a partial trade deal, the latest policy the u.s. is looking into. we've learned the move could see a tariff increase suspended,

which would be the first phase of an agreement with aging. it would be followed by negotiations on core issues like intellectual property. now to brexit, and prime minister johnson is set to hold last-ditch talks to security all. negotiations have stalled recently with three weeks left until the u.k. leaves the you the atmosphere has turned sour in recent days with the two -- if they can't read some fourth -- leave for some agreement, the brexit talks could collapse. more troubles for boeing. cracks ons have found 5% of 737 jets. they will have to be grounded due to the structure connecting the plane to the fuselage. this after federal aviation ordered checks on planes that had taken more than 30,000 flights.

announced faster than expected growth, brushing off the impact of the protests in hong kong. third-quarter sales rose over 20%. the company, flagging a remarkable performance of louis vuitton. despite a drop in consumer spending in hong kong, the group improved sales in the europe and the u.s. two rugby world cup matches have been canceled, including the england-france game expected as a typhoon, tournament ruler -- organizers aren't ruling out further disruptions. this is the first time the top competition has been canceled. all games will be marked as draws. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thank you very much, selina wang in beijing. how far is rate reduction

campaign should extend while agreeing to cut last month? the minutes from the fomc september meeting, agreement that the downside risk to growth had "increased somewhat since july," and they thought this was due in part to trade concerns but some thought the signal limits the easing cycle. jerome powell reiterated why the facesy aces risk -- risks, overall it is a good place. i want to take you back a year and i want to say this to you. last year, you talked about the neutral rate. they were to raise rates by 25 basis points. the fed wants to indicate to the market maybe we should tell everyone we are nearly done. are we in the foothills of another policy error communicating in that way?

that is the kind of thing they wanted to tell the market. >> fed officials have clearly worried about the gap between where they see rates going and what the market is expecting. real challenge for communication and something that needs to be addressed over the next few days and weeks ahead of the late october fed meeting. i think the issue is, of course, that the uncertainty over the global economy is paramount and that comes out in the fed minutes. it is quite a difficult set of circumstances that we have ongoing uncertainty over brexit and there is possibility of some relief on the trade wars. fed policymakers are worried there is going to be a slowdown in investment, business wetiment will be damaged and see that coming through on the

employment side, as well. --far, in's claimant employment seems to have held up well and policymakers in the fed work comfortable with what they see for consumer spending, household spending, and they did remark on stronger housing activity as a result of low rates. a mixed view came out of these minix and a lot depends on what happens -- minutes and a lot depends on the global economy. policymakers have little impact. nejra: given what you've said, does that mean you lean more in the camp that perhaps we are going to see the fed at least go some way in matching market expectations rather than delivering a rate cut this month and stopping? sarah: we certainly expect another rate cut to come soon, and i suppose chances are rising it comes at the end of this month. we are not convinced the fed needs to continue on this rate easing cycle. there are still reasonable signs

of strength in the economy. does seem to be having an effect in housing sector. it is the manufacturing, business sentiment, and consumer side holding up well. we think the fed probably doesn't need to take rates all the way down the next few months, and can probably afford to pause in 2020. manus: and certainly it is not a done deal for the markets. you've got this 25 basis points at the next meeting. -- myan powell says colleagues and i will soon announce we will add to the supply of reserves over time. probably at the shorter end of the curve. and sounds and acts like a duck, is it a duck? is this move qe or not? have i shot the duck? sarah: i think powell was very clear to make sure this wasn't

qe in his view. of course, qe is a monetary policy tool. this is a measure to address the disturbance we've seen in the republic it in recent days --repo market in recent days. the question is, how quickly and how much on the balance sheet? we will be looking for that as we approach the fed meeting. nejra: you've expressed in your view the fomc is more likely to concentrate on go through -- concerns in the near-term. some gdp growth used to signal recession but now, the store seed is around 1%. would you agree? structural and demographic reasons exist for thinking full speed for the economy is closer to 1%. we are some way away from that, and the fed is very keen to make sure we don't get too close to

it. we are likely to continue to see easing as long as there is nervousness about the economy stalling. growth very much takes precedence over inflation concerns. ,e've seen core cpi above 2% core pce comfortably below. manus: can i ask, there is a greek -- great disagreement about the dollar high. the view is trump wants a weaker dollar. does a trade deal in your mind deliver a weaker dollar or as a chief economist for the americas , how much impingement has a strong dollar been, if at all in your mind? ofah: it is one of the aims the white house to go for a weaker dollar. a trade deal probably would be

helpful in that respect. if we don't get a trade deal, we will see increased risk sentiment and that would tend to be dollar supportive. in terms of what it means for stimulusd the level of am a we have to be cautious about expecting particular boost to growth and the dollar moving down a few cents. the external sector is not is what is driving the economy. it is very much domestic demand. there is some relief from the stronger dollar and import prices are softer and that is helpful. it means real wages can continue to grow and underpin this consumer spending recovery. deal, that may well see the dollar is slightly slightly but we don't

think this is a major factor in the growth story. nejra: sarah hewin, stardard chartered chief economist for the americas and europe. agreement on the final elements cappingurrency bloc, negotiations. they are to be unveiled later today. maria tadeo is in luxembourg where finance ministers are meeting. what kind of deal are we looking at and does it make the difference that people are looking for? maria: that's the question. it is a small budget. it is something that has been in the making for two years. it has been watered down many times and there is a deal now which the french government, who have obviously put the idea forward many times will tell you is good enough. it can always get bigger. we are looking at a pot of money, 20 billion euros used to facilitate investment, promote reforms in the euro area but can

20 billion euros help the european economy in a time of crisis? the answer is probably no but the positive spin on this, in particular from the french government, the macron administration, agreement at the euro area level could always get bigger. fors: elephant in the room the whole european economy is of course brexit. how concerned are the finance ministers? concerned, and they also know the data coming out of europe is not looking weak -- looking weak in particular when you focus on germany. every finance minister i spoke to from the italian to the german finance minister, they told me they believe a deal as possible and that is the best if to leave theway european union in a way that is good for both sides. in particular, i asked him if

he's willing to put money to work to engage in fiscal spending to help the german economy and he told the idea there is a crisis taking hold, a recession is too pessimistic. the growth in germany slows but it has to do with external factors. the hope from the german government is they don't have to engage in fiscal spending now, but the german economy will pick up. the problem is that the data is going one way and it is south. it is not looking good for germany, the idea they will put money quickly to work, it is very unclear. i didn't get that impression yesterday. nejra: bloomberg's maria tadeo in luxembourg and sarah hewin, stardard chartered chief economist for the americas and europe is still with us. financeing that ministers expect a deal. what is your base case for october 31? extension or resolution on the irish border? sarah: i think a resolution,

which is what everyone is hoping for, does look difficult. our base case is there won't be a deal, and boris johnson -- the u.k. government will need to ask for an extension. we are coming close to that date now, the 19th of october. we've probably got an 80% chance of that outcome. a small chance a deal may be agreed, let's see what emerges from talks this afternoon. if there can be movement on the issue of or -- northern ireland staying in the customs union with the eu, that is the real stumbling block here. we give a small chance, small risk there will be no deal agreed and somehow, boris johnson will not ask for an extension. there is a small chance the u.k. could still leave with no deal at the end of the month, but i think that looks increasingly unlikely.

thes: can i step back on conversation francine had. he brought up a number of issues, when it came to recession risk, he says he does not see it in europe. in the event of a harder brexit, which is not your base case %enario, and tariff escalation from the u.s., with that tip europe over the manifest most? sarah: i think it would be very risky for the euro area. our own forecast for growth for next year is .47%. it wouldn't take much to tip the economy into recession. the no deal brexit is a big risk. tariffs from the u.s., we'll find out more about those the brexit skt doesn't disappear. an extension is our central case. we could face a cliff edge

question in january next year, trade, the degree of uncertainty is damaging to busess sentiment and activity in the euro area. manus: esion of confidence. thank you for being with us this morning. sarah hewin, standard chartered bank. headwinds keepal prices lower. we will discuss the risks affecting the old -- oil market next. ♪

manus: this is matt:." -- this is "bloomberg daybreak: europe." nejra: oil is falling for a fourth day but paring losses as pessimism take hold, but because of an expansion of arican crude inventories. stockpiles in the u.s. grew for a fourth straight week.

speaking to bloomberg, shall's ceo said oil prices weren't representative of real-world risks. littlemarket is a mystified by trade wars and the glut of shale, so it has become blase about geopolitical risk and not representative of the real picture. nejra: joining us now, the managing director and energy strategist at rbc capital markets. is the oil market blase about geopolitical risk? >> that is the case. you have two sides to the market. it has been several weeks since the major attacks and we've learned several lessons. one is a lesson on vulnerability. the other is a lesson on unwavering resilience. on one hand, a corner of the market says if there is ever a time to price in geopolitical risk, it is right now because

you've seen a significant amount of risk play out in the market this year. venezuela, iran. barrels a, 200 5000 day from ecuador. the other side, a group says we just saw the biggest supply outage we've ever seen in history of the oil market and over three weeks, production has come back. why would you price in supply disruption risk? there are two sides of the equation. there are look at it, a lot of things that could potentially go wrong on the global scale in production. we believe there is not enough supply disruption risk premium in the market, either. manus:eeou, michael. let's give this a graphical context. the biggest weekly drop last week since the middle of july. aramco came back online. what needs to happen?

if a deal is struck between the united states and china, how would that translate into higher prices and if so, where could i get you? russell says a trade deal and angst goes on and on and on, we will be at $50 next year. take me to the other side of the trade. michael: one thing that is important as we think about the oil market, this is a sentiment driven market right now. fundamentals of the oil market don't look bad at the moment. there is production coming online, but demand -- even with pockets of weakness, it looks steady on a global basis. sentiment is the major issue in this market because if you get a trade war resolution. when you look at the investor positioning in wti, there is not very many shorts in the market. there is so much geopolitical risk. the key on the other side of the equation is there is also a very low degree of -- in the market because there are so many wounded bulls.

there is a lot of laziness on the sideline waiting to be deployed. if you look at investor life in wti is, it is lower today than at $26 a barrel in 2016. if you get a trade war resolution, the macro backdrop to look better, you will get some more investor interest into this space and that should support oil price. nejra: what is the physical market telling you? michael: one of the major things we've seen over the past several weeks is a major spike in freight rates. this has a lot to do with the sanctions the u.s. put on a number of chinese tankers, which has tightened the supply side of tankers but we've seen buying from south korean refiners, japanese refiners, buying north american crude, mexican crude, south american crude. it is a mad scramble for crude right now because when you look at disruptions, a lot of these

refiners on the consuming side of the equation in asia have been trying to shore up energy. when it comes to energy security, will the saudi's overproduce there opec number 10.3 million barrels to restock specifically? michael: based on what we are datag using our partners' or balloon site, ai data, we are seeing the saudis have seen inventory levels revert back pretty close to pre-attack levels already. you can say they are in good shape from an inventory perspective, so the focus here is what types of crude are being sent to customers in places like asia. that is the key component of what is driving the physical market in the near term. manus: michael, thank you. , energy strategy at rbc capital markets. the debate over stimulus.

we will hear more of our our guest.ith ♪ everyone uses their phone differently.

that's why xfinity mobile lets you design your own data. you can share 1, 3, or 10 gigs of data between lines, mix in lines of unlimited, and switch it up at any time. all with millions of secure wifi hotspots and the best lte everywhere else. it's a different kind of wireless network, designed to save you money. switch and save up to $400 a year on your wireless bill. plus, get $250 back when you buy an eligible phone. that's simple. easy. awesome. call, click, or visit a store today. nejra: good morning from london,

i am nejrcehic. manus: i am manus cranny line from dubai. this is "bloomberg daybreak: europe. u.s. stock futures crumble on fears trade talks could be cut short.