francine: china and the u.s. agree to rollback tariffs and phases -- in phases. downgrades its outlook for the second time in weeks. and mark carney contends with the backdrop of political chaos. everyone heard good afternoon and good evening. welcome to "bloomberg surveillance." i am in brussels where i have been covering the european union's push to make the

financial sector to its part in fighting lemon change. -- climate change. a lot of the focus is on trade or what will happen between the u.s. and china. gold, always a good litmus test for risk. we can see the yield at 1.85. stocks gaining 0.4%. a lot of focus is on earnings. loose of ex conversation with the commerzbank she -- chief financial officer. don't miss that conversation after 10:30 a.m. london time. first, let's get straight to bloomberg first word news. >> in the u.k., the first cabinet resignation during an election campaign in a century. quit after aretary report that he knew about a former aides role in the collapse of a rape trial.

ae labour party also suffered blow with deputy leader tom watson announcing he will leave politics after 35 years. he has long clashed with jeremy corbyn over the direction of the party. willank of england probably keep rates on hold as brexit continues to plague the economy. it is expected to cut forecasts. be nexttion is who will to lead the bank? we spoke about the challenges facing the next boe governor. banking has become a very political job. understandsant he how banks are run. best to have someone accustomed to the political environment. >> escalating pressure on ukraine is what one diplomat described coming from the white house.

said heenvoy in kiev became concerned after rudy -- about rudy giuliani, saying it raise red flags after rudy giuliani attempted an investigation into one of donald's political rivals. that'sin saudi arabia, what to twitter employees have been charged with. they have been accused of helping the kingdom monitor dissidents. twitter says it is committed to protecting those who use it service and is applauding the justice department's actions. global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine? francine: thanks so much. let's kick off with trade. china and the u.s. have agreed to lift tariffs in phases. that itnt of relief

would come in would be the first phase and is dependent on the content of the agreement. markets rallied on the back of news. let's get back to our guest in ofdon, a managing director portfolio strategy and asset allocation at goldman sachs. great to have you. it seems every two days, the market is focused on a deal and then the deal is delayed. are we going to be in this holding pattern for a long time? on thesure, optimism trade deal has been critical in supporting the markets past few weeks. -- in the past few weeks. markets tend to trade every news flow and there is a risk things get delayed until years and. -- end. chancel think there is a that some of the tariffs will stay in place. building,ctations are

the risk of disappointment is there. does a partial deal mean for economic indicators across the world? >> good question. markets have rallied quite a bit ahead of economic indicators already. there is a certain expectation that policy uncertainty throughout the year has depressed growth. you see the manufacturing cycle. you see pmi being incredibly low. as policy uncertainty comes down amidst trade tensions in china and the u.s., there is an expectation growth will pick up. the question is if it will come through fast enough and to the expectations of the market is already pricing. francine: are you still expecting parts of the world economy to hurtle towards a recession? >> it is quite interesting.

you have europe going through a particularly tough period. you have china going through a weak growth patch. but the market come arguably, has discounted that -- market, arguably, has discounted that. one could argue these are the places with the most recovery potential. andee places like the dax chinese equities materially lacking because of the concerns on trade tensions and global growth. these could be places that do well. once you go through this recovery, the question is still what are the longer-term prospects? those places currently leading the market, they are still facing structural issues. a lot of clients we are speaking to our struggling to lift the

-- shift towards non-us arts. -- parts. francine: what could be a catalyst for a lift in stock prices? we have seen a rotation but it did not go anywhere. there have been three weeks or so where we had some cyclical rotation. it has been tentative. you see signs that tell you rotation is still mixed. for example, commodities are materially lacking. you have not seen as big of a bond a selloff, especially in the second part of the rotation. did, a goodrt, you sign meeting safe havens are reflecting better. from that perspective it will be data by data. we wrote a report recently

showing that the s&p is incredibly positively correlated with macro surprises. ofit is these periods rotation that can continue if macro data surprises. the key data will always be the pmi's. i think markets are expected about -- excited about the ratios starting to turn. francine: are you seeing strong consumer trends across the world? the concern about pmi's is that manufacturing impacts wages and consumers. you are right, there was a concern that the manufacturing slowdown would spillover. but the u.s. data and consumer is always the most important in the whole debate, and was actually good. labor market data was strong.

consumer data is holding up reasonably well. manufacturing was also strong. as of now, the template where you see a reaction from the consumer to weaker manufacturing data, that has not really happened. find is this easing of financial conditions managed to push down mortgage rates by nearly 100 basis points. that means the consumer is getting healthier as we speak. coupled with less policy uncertainty, you can't support even consumption growth -- can support even consumption growth. francine: christian from goldman sachs stays with us. coming up, we talk about negative rates. commerzbank downgraded profit for the second time in weeks. we are live in frankfurt. this is bloomberg. ♪

francine: economics, finance, politics, this is "bloomberg surveillance." let's get straight to the bloomberg business flash in new york city. , tiffany is looking for lvmh to improve its takeover offer. that's according to reuters. they seized a $14.5 billion offer as significantly --ervalues that undervalued significantly undervalued. both companies are declining to comment.

company ise canceling 1300 flights this week after a labor dispute, coming at an awkward time for the airline. they are warning of stiff competition from rivals and germany's economic slowdown. the walk is scheduled for thursday and friday. they report earnings on thursday. euronext is looking at potential m&a targets. they want deals to build scale and enter new markets. and are eyeing spain's bmd considering an offer. there are not formal talks about a deal. all involved are decline to comment. -- declining to comment. that is your bloomberg business flash. francine: commerzbank has downgraded its profit outlook, marking the second retreat in weeks but the chief executive officer as he grapples with rock-bottom interest rates and

increased competition. for more on all things banks and german, matt miller joins us from frankfurt. good morning, how much of this is about negative rates? t: i love the phrase rock-bottom interest rates, it's like, is there any such thing anymore? another 10 basis points below the -40. that seems to have thrown a wrench into commerzbank plans. not that we weren't all expecting that. nonetheless, they now see profit lower than it was in 2018. frankly, commerzbank has been cutting targets a lot lately. we put together a list of all of the outlook cuts we have seen. at least one thing comes almost every quarter. in the previous quarter, they cut their revenue outlook. before that, announcing job cut targets.

i have got a graphic of the whole thing. you can just see how often it happens. i am going over to talk to the finance chief in just a little bit. know going to give us, you , hopefully the final cut for at least his career. he is moving to danske bank next year. francine: thank you so much, matt miller. don't miss that interview at 10:30 a.m. u.k. time. meanwhile, ecb official robert holman says monetary policy has reached its limit. he called for government to step in with fiscal stimulus. >> monetary policy seems to have reached its end. going further negative will not have a positive impact on output. for this reason, fiscal policy has to take over. however, it should not simply an

extension of expenditures on social issues if it is to be productive. it needs to be in such a way that offers higher future output. so what exactly do you mean? what would that look like? >> very simple. in order to deal with the future challenges my country needs to younge and make sure that , dynamic enterprises surprise -- survive and prosper. what you need are public expenditures that help the youngsters. francine: let's get back to a christian from goldman sachs. when you look at investors and how markets play out, can europe take much more negative rates? christian: it is interesting.

over the summer, we saw a regime shift where, throughout the year, monetary policy was a boost to risk appetite. investors were incentivized to take more risk and you saw falling from like 100 basis points to zero. but in august, you saw a change were markets did not like yields anymore and that is a reflection of the search for yields meeting -- reaching their end. the market would not like it because it reflects a significant deterioration in macro. it would mean the fed abolishes their midcycle narrative and the backend flattens further and recession fears come in. as a result, lower bond yields from here will not support the market as much. if anything, there could be a temporary period of a

volatility. -- of volatility. francine: do you fear the markets will try to test the resolve of the ecb? christian: yeah, we got to that point now. monetary policy is close to the effective lower bound in europe. in the u.s., there are constraints with regards to doing more. as growth disappoints further the market again to go to a mindset where central banks are behind the curve and would try markets to respond to tightening financial conditions. the problem is, and as was factorssaid, a lot of that are depressing growth are structural and not easily fixed with negative rates. as a result, the next natural step is fiscal.

the question is if markets will shift their focus towards putting pressure on politicians and more liability on politicians to follow through. the question is if that would be at all effective. francine: and that goes back to is germany prepared to spend more fiscally. are they? christian: they are. the interesting thing is, in a lot of core countries, i think the fiscal spending has actually picked up. some are close to even marginally breaking the rules. at the margins there has been a shift towards more fiscal spending. the problem is the market likes extreme announcements and strong shifts and europe is currently not able and willing to deliver.

we think there will be more fiscal spending, but it won't be like a big eu wide subsidy or a large tax cut, which in the case of the u.s., was an incredibly strong driver. it actually lifted the rest of the world along. francine: christian, thank you so much. christian from goldman sachs stays with us. , it is a decision day. the bank of england posts its forecast at lunchtime. we talk about brexit and the upcoming election. this is blumberg. ♪ -- bloomberg. ♪

francine: this is "bloomberg surveillance." let's talk about the bank of england and exit -- brexit. the boe is expected to cut its growth and inflation outlook. it comes amidst a backdrop of political chaos as brexit uncertainty continues. we are back with christian from goldman sachs. how do you look at pound and how difficult is it to go back into the market when we don't know whether we can trust the polls ahead of the december 12 election or what happens with brexit. christian: political risk is always difficult for investors to assess.

they are struggling to clear the parliament. asset trading and across strategy has shifted since the election was called. we are quite bullish on cable so we still see upside from here. in the near term, it feels like cable will be range bound and it will be difficult to break higher without significant clarity appearing either at or before the election. to me, the investment opportunities are shifting a bit. at the beginning of the brexit uncertainty fading, clearly, cable and domestic u.k. blocks where the best assets to participate. going into the next stage of brexit, looking at ftse 100 could be more interesting because the pressure on cable is more limited.

ftse, which has a lot more revenue and dollar at the margins, is left suffering. sectorof that, the exposures are actually quite helpful. ,ou have energy, resources places that have lacked at the margins. you find the ftse 100 has been a big laggard in the recent rally. my sense is that if he do have some growth initiatives -- is that we do have some growth initiatives. francine: thank you christian, managing director of portfolio strategy and asset allocation at goldman sachs. coming up, plenty more on present trump and the administration. this is a bloomberg. -- this is bloomberg. ♪ the game doesn't end after that insane buzzer beater.

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that's simple, easy, awesome. say nba league pass into your voice remote to upgrade for a great low price - or go online today. francine: talking down the tariffs, china and the u.s. agreed to rollback tariffs on each other's goods and the

market celebrate. decision day for the bank of england. growth and no clarity on how brexit will play out. good morning and good afternoon, good evening, everyone. this is bloomberg surveillance. i am francine lacqua and i am in brussels. let's check on the biggest stock movers. >> we have a host of earnings. we are seeing some big moves and individual names. even though6.5% they trimmed their outlook for global demand of steel. news that the u.s. and china are looking to rollback tariffs, it is helping the entire commodities space. their orders hit a record.

for press even, they are one of the biggest losers, down 7.5%. earnings fell 25%. weakerpany is citing a macroeconomic environment. francine: let's get straight to the bloomberg news in new york city. inthe longest u.k. pay slump two centuries is coming to an end. the resolution foundation willcts basic weekly pay surpass 2007 levels by the end of the year. the think tank said it is not the time to be complacent. returning to precrisis levels is different for making up lost ground. the biggest producers in opec plus -- we have learned the

cartel and its allies are likely to stick to their current target. they are anticipating a supply glut. vienna int to meet in the first week of december. tax inis weighing a flat a bid to attract wealthy foreigners. there would be a flat rate of 100,000 euros and investing 500,000 over three years. rates fors lower businesses and households. tax on stock% options. back in 2018, the new york times reported three accounts of senior google executives having relationships with employees. some shareholders have sued the company over issues of workplace

conduct. global news 24 hours a day, on the air at tictoc, on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. president trump on the campaign trail after republicans suffered defeats in elections that signaled weakness for the party heading into 2020. trump decried the hao-ching impeachment inquiry -- the house impeachment inquiry. >> the democrats must be accountable for their crimes. now, corrupt politicians, nancy pelosi and adam schiff. and the crooked media have launched the deranged, delusional and hyper partisan impeachment witchhunt. francine: meanwhile, president

trump's lawyer said he is hired a legal team to oversee federal scrutiny of his dealings in ukraine. the former new york mayor denies any wrongdoing, saying his work in ukraine was solely as a defense attorney to defend my client against false charges. for more on all of this, joining us now is a senior editor in singapore who previously covered capitol hill for a decade from washington. to move to is going a public face in the near future. what would that actually look like? derek: you will see a parade of people that democrats think are there star witnesses to be able to establish a smoking gun on president trump was some kind of quid pro quo for ukrainian leadership where he and his allies were asking for them to dig up dirt on a political rival, joe biden, in exchange

for some money toward defense the congress had appropriated. that aid was held up as everyone remembers and there were conditions the democrats they were established in order to get some of that back. this is all going to move out of closed hearings, out of secrecy and into much more light. they are bringing forward some career civil servants who democrats think are beyond reproach politically. beould expect this will very, very, very combative. francine: is there any sign that any of this is actually moving senate republicans? derek: no, not at all, not even rightly. understand this is not the court you are going through. this is an impeachment process

in the elected house of representatives. if they move forward and a piece this president, it would go to the elected u.s. senate, which is under republican control. john kennedy, a louisiana senator, was on stage with donald trump last night. john kennedy would be a juror. he commented on impeachment directly. he commented on nancy pelosi directly and john kennedy said suck to pelosi, it must be that dumb. that is not the view of somebody who is keeping the most open mind in the history of the world on this. that is the view of someone tightly allied with donald trump and donald trump enjoys big favorability ratings across the republican party, somewhere in the 80's. it does not appear donald trump has lost major support among

republicans at this moment. the republicans control the senate and you need a good many of them to defect, not just one or two. francine: thank you so much. to have a take on what this means for the market, joining us now is a ceo. would you look at the impeachment process and what is being promised on the campaign trail, what does this all mean for markets? are increasingly macroeconomists and sector analysts with legal scientists. it is massive on a number of variables. something it is

so divisive and combine it with markets that have smooth curves? be a very is going to big issue. think between now and the elections, everybody want to put the brakes on anything that triggers a recession. i think that is what is driving the trade talks and the fact we still have a fair amount of stability in the u.s. i think the republicans will focus on a smooth economic journey until the election and then we want to see what will happen next. we expect more volatility. actually --en you is it too soon to start figuring out what it means for the economy.

the campaigns can change. you make and break promises on the route to november 2020. taimur: it is absolutely not too soon. we have been working on a no deal brexit even though the elections might be cloudy. we have been working out what different regimes in the u.s. would imply. if you swung to either side, the far left or far-right in terms of political outcomes. what does it mean in terms of tariffs and trade? what does it mean for economic slowdown? it is something we look at now. there could be some longer-term headwinds, regardless of what the next administration looks like. that thehe fact working population in the u.s. is slowing down. factors will be headwinds that in some ways might

overpower what happens in the elections. you have to model every single outcome because there is no idea where things will be. seecine: where do you worldwide the key sectors you want to be invested in? i know you focus on technological stock. how will that change the way you look at investments? taimur: i think it is in three ways with opportunities. there is a lot of regulatory risk around the firms in the technology sector in the developed world. you have a set of superstars in the emerging markets, whether it is flip card in india. there are superstars in emerging markets, where the regulatory pressure is last.

that is one thing. a second thing we are seeing, we , firms areme work presenting 5% of the value in the s&p 500 and these firms are increasingly in the private sector. private debt in public equity is increasingly the way you get to the heart of the entrepreneurial economy in europe and the u.s. notave worried about china just because of the trade pressure. therefore we have a low china forecast, which affects how we think about them in the geographical allocation scheme. francine: this is independent on if we have a trade deal? taimur: i think the trade

-- we are worried about depth sustainability. arerest payments in china 9% higher than the nominal gdp. we worry about credit growth being slowed down. then you have the long-term working age population decline in china. it goes beyond the trade deal though that certainly exacerbates things. francine: thank you so much. stay with surveillance. we will have more coming up, including earnings week. we will look at why companies are putting forward a cautious outlook. a little bit later, it is decision day. we will talk about monetary ,olicy with the bank of england along with brexit uncertainty. this is bloomberg. ♪

francine: this is bloomberg surveillance. i am francine lacqua in brussels. let's get to the bloomberg business flash and in new york city. two former twitter employees have been charged, along with a saudi national. they have been accused and helping them monitor dissident. alphabet is looking at how the company deals with accusations of sexual harassment amid conduct in 2018. new york times reported three

accounts of senior google executives having relationships with employees. some shareholders have sued the company over workplace conduct. the special education committee is considering these claims. an offer forirming a potential deal that could reshape the printing industry. it has not decided whether to accept the offer. citigroup has agreed to provide financing to xerox to purchase the company. it would need to take on $20 billion in debt. francine: thank you so much. it has been a big week for earnings and many companies are putting forth a cautious outlook. the german industrial giant has warned it could lead to a slowdown.

how would you describe the earnings season? i know it is different from company to company and industry to industry, but costs overall seem to be in check. tomur: i would say compared the previous quarter i agree with you. it has been anemic compared to 2018, whether you had the big sugar high of the corporate tax cuts and you did not have the overhang of trade tariff threats. i think companies have been beating their analyst consensus by a small amount. headwinds think the are definitely there, whether it is brexit, the fact if phase i happens and there are more threats, the fact that investment spending by companies, the fact the consumer rally in the u.s. is going down and the manufacturing investment slowdown is spreading a little bit.

i think there is a fair amount of headwinds. our outlook for 2020 global growth and beyond is about 3.3% driven by long-term headwinds on earnings. i would also say would you look at europe and germany in particular, i do worry whether germany has the economy -- things that really made sense for the prior 20 years, the combustion engine economy, and whether the next 20 years will look different. all the research we are doing software, things german companies might be one step behind on compared to the u.s. and china, it will be increasingly the driver of earnings and growth. i don't see that investment happening and the focus in markets like germany. time willhow much that be a real problem? under investments or underspending will be a huge problem for certain industry? how much do you look at that compared to how much some

industries get disrupted by technology? taimur: that is a great question. what it is really about is the fact that public markets are just less relevant than they used to be. you have all the drag of trying to report gap earnings on something that is not get good cap treatment. more variable cost if you are a software company. it is easier to run without going to big public markets. private markets are full of money, whether it is softbank, everyone is searching to eat yield going to -- searching for yield going to private markets. you understand the full picture of earnings and where the real drivers of growth are. intangibleslook at and you have to look at the private sector in countries around the world. where is the biggest

value? is there something that you look at and say this deserves more attention? taimur: i would say that some areas are like that. there are a bunch of emerging market opportunities, mainly in domestic super starts. companies that are resilient to tariffs and trade wars. companies that are not threatened by the fangs but exist and markets like argentina. they have built disruptive positions in the retail sector and in travel. we are quite enamored by them and we think they will have an ability to withstand headwinds we have been talking about. francine: thank you so much. joining usmur hyat this morning. have plentye will

more from the bank of england. this is bloomberg. ♪

francine: economic finance and politics, this is bloomberg surveillance. i am francine lacqua in brussels. it is decision day for the bank of england and it is expected to keep rates on hold at 0.75%. the central bank is likely to cut its forecast. , we are at the bank of england. what are we watching out for today? a new inflation forecast in what is called the monetary forecast report that will be delivered at 12:30 london time. the bank is expected to stay on hold. that is not necessarily what we are looking for. we are looking to see if there

is a split vote. --nomists expect a unanimous vote. potentiallyould vote for a rate cut. sayingf participants are the tilt the bank of england had in place might sound more dovish today. out there, forecasts hsbc, bank of america and merrill lynch are bullish on the front end. some who see a gentle curve steepening though don't necessarily see a split vote. also what mark carney says in terms of the updated forecast now that the brexit picture look so different and we are heading for an election in the u.k. francine: thank you so much. it is unlikely we would hear

from governor carney. we will see who the replacement is. bloomberg surveillance continues and the next hour. tom keene joining me from new york. don't miss our exclusive conversation with stefan ingalls. we will talk about the bank of england. meansl talk about what it for technology. this is bloomberg. ♪

francine: talking down the tariffs. china and the u.s. agreed to rollback tariffs on each other's

goods. markets celebrate. downgrades profits for the second time in weeks. decision day for the bank of england. mark carney contents with the backdrop of political chaos, lackluster growth and no clarity on how brexit will play out. good morning, this is bloomberg surveillance. i am francine lacqua in brussels. tom keene is in new york. we kicked off with a speech yesterday. he will take a bigger role in the commission. a lot of what the commission will focus on is growth. speak, we are getting some european commission forecasts. this is under the previous or sue to depart commissioner, that is happening in brussels -- soon to depart commissioner, that is happening in brussels. tom: there is a theme there.

we saw that in meetings. it speaks to the urgency the chinese say with the rollback of tariffs. have the we will implication of what happens if trade is resolved between the u.s. and china, what that would mean to the european forecast. china is tackling another key trade issue. it sentenced three people to maximum punishment for smuggling fentanyl into the u.s. it is blamed for thousands of overdose deaths in this country. reported ins u.s.-china trade talks. beijing said to have agreed to rollback tariffs on each other's goods in phases.

tariffseen a removal of imposed by president trump. re-giuliani is undercutting white house claims he was involved in u.s. foreign policy. he said his controversial work with ukraine was done solely as president trump's defense attorney. it is at the center of the impeachment investigation. the bank of england is expected to keep interest rates on hold. the central bank could also cut its forecast. howe is no clarity on brexit will be resolved. global news 24 hours a day, on the air at tictoc, on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.. this is bloomberg. currencies and commodities, it is up. futures are higher than they were one hour ago, up 15.

we are so close to 3100, i have to get out of cash. theeuro is not part of story. 12.46. how can the stock market be so good with eu headlines that are so grim. it is morning in china. enthusiasm like your when you look at stocks. in europe, they are climbing after china said it agreed with the u.s. to rollback tariffs on each other's goods in phases. tom: most interesting, to say the least. we have any number of themes to speak of this morning but certainly front and center is china and the message from beijing that things will be getting better on a tariff

rollback. here is a chart that has directly to do -- that directly has to do with the tariff war. i announces today as my chart of the year. this is custom tariffs collected by the united states of america and all you need to know, it is a five standard deviation move. that is extraordinary move. 1, 2, 3, 4, 5. i am not going to mince words. you rarely see what have heard called a hockey stick. it is a chart of the year. michael metcalfe knows this chart. charge of standard deviation moves for all of bloomberg government. we are thrilled with this. how big is this story out of

beijing. categorized on the government grind. how big is it that beijing is looking for some kind of agreement on potential rollbacks? have countries in crisis around the globe it is manageable, if it gets to five that is too many. what this means about china is they are trying to agree with the u.s. on something to get the phase one deal done. they will roll it out bit by bit. they will try to get one bit at a time. the key thing is to get some of these u.s. tariffs off their back because every chinese good is subject to a u.s. tariff. they are trying to get those rollback. bitproblem doing it hit by is that each point in time you could have either side say we are unhappy with things and are not going to go any further. that comes into the political climate in the u.s.

you have the u.s. president potentially saying i am not comfortable going further on tariffs. francine: michael metcalfe -- tom: michael metcalfe, you have a great chart showing china winning on the trade war. let's cut to the chase on macro strategy. michael: i think -- as we know, the trade news has been incredibly volatile. in the last 24 hours, we have gone from the talks will be delayed, we did not know where they were be held, to headlines this morning that a deal has been partially agreed upon about how to roll the tariffs back. rolling tariffs back is new. we were originally hoping for a truce. the question about the hockey stick is what does the other side look like? tom: we are going to jump positions with michael metcalfe.

michael: absolutely. i think markets will continue to price in. opening, itn your is time to get out of cash. francine: take me through exactly what we know so far. we understand china has been asking for a rollback when the enter the phase one negotiation or signage, something the u.s. has refused to say. >> this is the chinese saying this from the ministry in beijing. we need to see with the american response is. both sides have indicated they want to get to a phase one deal. donald has spoken about it often lee so he can sign something fairly soon with jie zheng thing. -- with president xi. francine: michael, what does

that mean for a possible roadmap to a trade deal? if you have a crystal ball, to this mean we will get a deal so i want to be long on this, or do you just wait for something to happen and change your forecast? michael: there is no such thing as a crystal ball when it comes to the trade war. what we have been trying to do is measure it tangibly by looking at the intensity. we also look at the sentiment. predicting it is very hard. negotiations go back and forth. we have seen it several times this year with the trade war. nevertheless, you look at the starting point for investors and even though market shares have been good, we know cash holdings are high. as a probability of a trade deal goes up, and headlines would suggest that, then you gradually

move back into risky assets and safe havens. francine: thank you so much. in the meantime, we are here in brussels. later this hour, and exclusive bankssation with commerce outgoing cfo. this is because of policy uncertainty and trade growth. warning that the bloc economic resilience won't last forever. this is bloomberg. ♪

francine: this is bloomberg surveillance. >> -- this is bloomberg surveillance. xerox has made a takeover offer. a deal between them could reshape the printing industry. providep has agreed to xerox with financing. likelypany would need $20 billion in debt to close a deal. commerzbank has downgraded its for your outlook. the german bank is struggling with rock-bottom interest rates and increased competition. it abandoned its goal of increasing revenue this year. francine: thank you.

we are getting more headlines. he is the eu commissioner for front -- financial affairs. we heard from him that the european commission had to cut its growth and inflation outlook over trade tensions and policy uncertainty. they are warning the block 's economic resilience won't last forever. let's get back to michael metcalfe of state street. exactly what we heard from pmi. how much of a concern is europe in this global growth scenario? lastel: probably for the nine months or even a year, we have consistently underestimated the impact of external forces on the european economy.

tumbled,recasts have we are finally getting there. this may well be the low. if we are finally getting toward the chance of a trade true's and a recession going down, yes, the european economy is clearly challenged right now. markets have discounted that, i would argue. the valuation of the equity market suggests investors have been ready for a slowdown or some time and now it has arrived. i think the question is what happens next? the forecast, as bleak as it looks, they are not getting worse. if you get a trade truce, the story might be the forecast nudges up. francine: overall, what needs to happen in europe, apart from the trade war between the u.s. and china to be fixed, or this

economy to do better? does there need to be significant fiscal stimulus from germany? michael: that still remains the missing piece and that is the big question. the one thing we know for sure is the ecb is more or less done all they can. it might be able to do some things at the margin, but the onus now, if the external headwinds fade, maybe you will get back to 2% growth with stronger fiscal stimulus. even though the ecb is asking more forcefully, there is that question politically about whether or when that will come. tom: there is a conversation coming up with commerce bank a few minutes. challengesthe other in the last 24-48 hours. how important is it to clear the banking system for relief from

negative interest rates? michael: the other challenge in europe and the outlook for the banks, this environment of slow growth and negative yields. it is very difficult for the banks. the ecb has tried to calibrate policy in such a way that it does not harm banks significantly. at the end of the day, europe needs growth however they can get it. that is why the focus will be on fiscal policy. the banks will do their bid we are past the point where there is concern the negative yield is doing more damage than stimulus. damage -- enough francine's point about gdp -- to amend gdp numbers or is it a financial debate? debate about is a the future of monetary policy and how you stimulate the economy.

we have beene having in japan for many years. let's say you don't get a trade truce and the economy does not recover, the question would be would bonds actually help? it might mean they need to move out of the spectrum as japan has done and move into equities. the limit ofe at monetary stimulus in europe and that has harmed the banks. aboutne: what do we know what the new commission, which we think will start working in about three or four weeks, what are the need to focus on? the need to fix immigration, is there anything the brussels can do to put europe on a stronger footing? >> certainly in this case it really is up to the domestic governments to comes to their

economies. there is an external issue around trade, there is a domestic issue around fiscal spending. the ecb clearly has a view on that. the germans have their own view, they are highly reluctant to move. signs around the margins in germany that they are willing to at least consider it or look at it. politically, the reality is for angela merkel that her coalition is in disarray. there is infighting within her coalition that is spilling out into the public arena. politically, given the fact there are big questions about what happens to her coalition once she steps down several years from now, they will have to be willing to consider it. there are signs around the margins of they are starting to look at that. to the bombshell,

the carefully written essay by the finance minister. let's dip into this in brussels. the finance minister of germany. >> anyone knows that building the banking union and competing it is key for growth. we need the banking union because we want to have more growth and more jobs. the change from the times we have had in the past and the future, it has to come from speaking to acting. there needs to be postal's about conditions that are necessary to be more successful. help tomy proposal will get the necessary progress and a

new debate on the banking union will start and it will be different from the past because it will be about what concrete can be done so we are not just doing nothing as we do today. juste european commission put out figures on the german economy. some worry about the german economic model. do you think this is overblown that germany is said to be in a crisis? >> germany is an economic situation. this is a competitive economy that is successful all over the globe. we are really strong if you look at exports and all of the services we are doing, not just in our country but in others. as we all know, there is a slower growth in the world economy today, which is mostly the result of trade tensions and

uncertainties we have in the world. if we get over this situation and there is an agreement, for instance, between the china and united states with trade, we will have more growth worldwide. this will help europeans and the german economy. we are still having a strong economic situation. there is an all-time high of employment, there are a lot of industries looking for more labor. we are desperately searching. we have some industries that are not able to serve all the demands. if you look at construction and other industries, which are important for the people of our economy in germany. this is a stable situation. we will have more growth in the next years. if the trade tensions worldwide are reduced, it will have a real impact on growth. >> thank.

-- thank you. that was the german finance minister. willingness to think more about the banking union. this was a significant turn for the european union and banks. let's get back to michael metcalfe of state street. bit of timete a talking about a banking union, exactly what germany wanted, whether this was a step in the right direction or something more. it is about the deposit guarantee scheme. when will they be ready to accept some of the liabilities? michael: it certainly sounds like it is going to be a positive development. before sort of been here with the banking union and we have not managed to get anywhere

near the line, to be frank. i think now that the ecb has taken on worldwide regulation, we are slowly stepping in the right direction. this will be a medium-term positive for the banks if they can get it done. the political world seems to be stronger than it has been before. it is constructive. as he also said with the second question, right now the external headwinds are quite high and they are specially high for the banks, given what that means about negative yields in europe. tom: this is so important. what was your response? german or ecb team actually say? as they look at this landmark essay by the finance minister in germany?

finance minister in germany? >> the question is the traction for it. you saw the italians come out quickly yesterday with their hands in the air as a response. you saw within germany some confusion again within angela merkel's coalition. that essay and his follow-up comments to bloomberg, taking some members of the german government by surprise. that also follows the german defense minister floating a proposal in northern syria that took members of the coalition by surprise. our story on germany's focus on the question as angela merkel comes toward the end of her term, how can the german coalition hold it together for the next few years? there are public cracks emerging. tom: how does it play domestically in germany? will this play domestically to the people? it is probably a bit too early to say.

obviously, the german finance minister carries a lot of weight. the germans for a long time has felt they are the ones holding europe together through multiple crises in various countries, including greece and so on. they have been the voice of order. proponentkel is a more so than emmanuel macron has been with his ideas of a combined defense force. it plays into the psyche of germans but there is a sense of fatigue in germany that they have had to carry the can for all of these years. that can factor into thinking. francine: if you had a magic wand and could fix something in europe, what would it be? rates or more political cohesion? michael: i think right now it would be negative rates and that is speaking from an investor point of view.

you have asked me for a magic wand at a crystal bar so far, i have neither. i would say negative rates. [laughter] francine: this is a harry potter theme. tom: we will go with that from europe. a number of time zones away, this is an interesting headline from a chinese news agency. it has to do with poetry but maybe more so -- it has to do with poultry and pork. withve another break chickens from the united states to china. this is bloomberg. ♪

francine: this is "bloomberg surveillance," and i'm printing from new york. one of our focuses will be with

the bank of england and the governor coming up with forecasts for growth and inflation, which is quite difficult because we have the elections on december 12 that because we have no idea what will happen with brexit. the campaign kicked off various parties. the labour party, nigel faraj's for votes.ampaigning we just heard from the chancellor making a speech in england at the -- england. the conservatives are trying to focus not on how much they will spend on key industries, not only about brexit but trying to move away the debate on what economy they want to build. it's a decision for the bank of a central bank is expected to keep interest rates on hold and cut outlook as brexit continues to plague the economy. for more on the bank of england, let's get back to michael roslyn -- roslland

still with us. we don't know what kind of form brexit will take and we don't know what happens on december 12. >> no. it is still very uncertain. what a difficult decision for them today which means they don't do anything -- can't do anything but sit on their hands. one thing you would expect from their guidance and forecast is that it is clear this uncertainty has had a bigger impact on investment spending than we first thought. you will see a little more caution and might back away from the idea that let's say brexit does get resolved, the rates will quickly go up. , think that's much less likely and the economy will do well if uncertainty is removed, but it may not warrant higher rates yet. helpswntrend in inflation more so. i think the bank of england is

on hold and if brexit gets delayed further, they may even ease. francine: do we trust oppose polls ahead of december 12 and do we have any idea if anyone can get a majority without having to form some kind of coalition? >> i'm at the point where don't trust any polls. i think we've given up trying to predict, but the polling out there shows the torrey party slightly narrow where -- narrower than it was. the brexit party is still a mix, according to some polls around 11%, which might shift over to rreys. campaigningn is today, and scotland was a place that delivered the election for theresa may last time around. the torrey's one a relatively high number of seats in scotland and they can't count on that

this time because ruth davidson, a popular tory leader is gone. brexit is not popular there. you have a mood of nationalism under the s&p so that might play into the sinking. 'sme polls say the tory only get three to four seats. we look at individual seats hand places like scotland, that's what we really need to look at. tom: are you suggesting scotland is the new dup? the dup was the marginal powerbroker the last go around. who will be the dup on december 13? >> you can look at the comments from nicholas who is the first minister there and you see labour has been a little smart there, not ruling out a second referendum on scottish independence sometime down the track. it's pretty vague.

that will probably resonate heavily with people in scotland, and that might draw votes toward labor in scotland in particular. that is why we feel that will play a significant role. the question is, for many people, if you vote liberal democrats, are you voting for labour? how do they get the votes from the other groups to form the majority in parliament. those are the two key once. tom: michael, -- ones. you,michael, while we have an official said it europe will lose london. they were talking about france is the biggest loser of brexit. on the futureate of the city. either way in the selection, does the london city win? necessarily --t i wouldn't characterize it as a

win-win. i think from the uncertainty about what the u.k.'s relationship will be with europe, you get a sense they did a banking union which would have implications also. the uncertainty has been damaging, but we can't savor sure until we know the results of the election and, secondly, what the future relationship will look like. , right now, it's difficult to call. there hasn't been much damage yet but there could be pending on which direction it takes. tom: this has been wonderful, michael metcalf, thank you so much. and thank you to my other guest's team from bloomberg news. in germany, industrial production keeps getting worse. output fell worse than expected,

.6% in september. manufacturing led the decline in construction and energy output increase. the german reports put a damper on improvement in the euro area and its largest economy. u.s. government is charged -- has charged two former twitter employees with helping the saudis in riyadh. a saudi national was also charged. only one of the three has been arrested. the other two are not in the u.s.. prosecutors say the saudis wired the workers hundreds of thousands of dollars. quarterly profit beat estimates at toyota. the japanese automaker reported healthy sales of smaller suvs in the u.s. and corollas at home. they have also maintained toyota maintain earning despite -- global demand. global news, 24 hours a day, on air and on tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries.

this is bloomberg. tom and francine? tom: it was extraordinary in the library of foreign relations on park avenue new york. ellen from morgan stanley and the from citigroup, john, former deputy managing director of the international monetary fund, all to listen to charles evans. in the centerpiece of this speach on was evans' a need to -- speech on a need to reflate. let's listen to a bit of that from yesterday. >> i'm not even sure what neutral is anymore. it may have moved it down on a short-term basis and we need to make an adjustment. i would say moving from leaning toward a restrictive stance as a path to leaning toward an accommodated stance. i think that's what we have engineered with our third rate cut in our last meeting. tom: he was fired up to say the

least. michael metcalf with us in london this morning. i look at this idea of a need to thisate and i don't think is cambridge economics, but we will try to. michael: it's interesting. you remember when we had the trump fiscal stimulus, everyone said the last thing the economy needs is extra stimulus. and there we are a year and a half later, in the central bank is the one providing the stimulus, having originally said they would get rates up to neutral. charles evans said it may be the neutral rate has fallen, but the reason why i think what the fed has done is important is because we know this downturn has been partly driven by sentiment.

it has been this negative narrative created by the trade war, with the uncertainty and impact on investment spending. what the fed has done, and they have done well, is that they have try to reflate animal spirits, and now we are waiting to see at what point that begins to impact the economy. they are trying to offset the impact of uncertainty on investment spending created by the trade war. francine: michael, do you expect the dollar to strengthen from here? that's an interesting question, because you might think the idea the fed is now finished the right cycle is that that would be a green light for dollar strength, but the dollars relationship, particularly against the euro, has broken down completely. in general, people by the dollar because they think it is a safe high-yielder. if we are transitioning into an environment where there are less tail risks, i thing the dollar won't do as well, even though

the fed is on hold. francine: michael, thank you so much. michael metcalfe of state street stays with us. coming up, we will have more on the fed, dot plots, and conversations with commerce bank's chief financial officer. that's coming up next and this is bloomberg. ♪ ♪

tom: "bloomberg surveillance," good morning everyone. it has been very interesting to watch the challenges for all german banking, indeed continental banking, none more so than the consecutive interviews mr. miller has done with the chief financial officer

of commerce bank. what you need to know is buried in the bloomberg reporting, the reality, the ecb is not helping commerce bank. it's not helping commercial banking across all of europe. has been twothis times in two weeks that commerce bank has been marked down. matt: that's right. they continue to cut targets, which leads you to ask the question, why not to it all at once unless the issue is that the situation just continues to deteriorate? stefan angles is here to answer that question. if we look over the past quarter, we continue to see cutting red if you -- cutting revenue targets, cutting profitability. is it just that the situation is deteriorating? >> i think you can take two separate points in time. flip -- one, we thought we

would have rate hikes through 19 and none of that has happened so that is one part. that is from the outside. we canond part is what see around the world that has been deteriorating through 2019. we already said that we will not achieve higher revenues in 2018 -- in 2019 then in 2018. that flows through the whole p&l guidance. changed our matt: the problem you cited as negative rates that keep getting negative after the ecb lowered again. there has been a crescendo of concern about negative rates. i spoke with david solomon, the ceo of goldman sachs, earlier this week and he said when we look at, history of negative rates, it will prove to be a poor experiment. how do we get out of it? stephan: i think that's the most

frightening question in all honesty. it's completely unclear how we , to at of this drama certain extent. i think that is where everybody is getting a little more scared by the quarter, because it's unclear how to reverse the situation to something that allows interest rates at the end of the day to do what it is supposed to do, steering capital flows in the economy, and a negative interest rate doesn't do that property -- properly. matt: at first, no one wanted to talk about passing this to consumers. -- we haveto hear started to hear that's not only from german banks, ubs, your crosstown rivals were talking to me about it, they did their earnings. when a german politician talks about passing negative rates onto the consumer, you know it must be bad. how can you do this? stephan: in general, the issue

is that the german banking system, especially, but the other european countries have deposits as on the one good funding source. thateed to keep in mind that might be a behavioral aspect of that. you want to avoid that you scare customers in bigger chunks so that all of a sudden your balance sheet starts to move more than you normally would have liked to move it. that is why everyone is trying to do it in small steps and getting closer to it. in general, it has been understood passing on parts of the negative interest rates to parts of the customers, not to hermann the german, but in general, you need to deal with the burden of these negative rates. you can say there isn't an excess of $200 billion of

deposits, is the wrong number, but apply -50 being the cost of that rather than a funding source and you pretty much have a good idea where the issue is getting more important by the day. matt: wouldn't you call this a crisis right now? if so, who can rescue you? christine lagarde is coming in to the ecb. the imf said negative rates are detrimental to banks. hi schulz, his coalition is losing power by the -- hi schulz, his coalition is losing power by the minute. who can do it? stephan: the general view is where we are on the micro, and we are on the path of the called late cycle. we shouldn't forget the ecb's initial goal for that kind of policy was to make sure we

protect other things, the european union and europe to a certain extent. i think that has been successful. the interesting thing is to what extent is it successful and to what extent does it really produce additional positive benefit? part of the discussion we are could cutht now interest rates instead of goose economy might make think people -- people think about their pensions and other things so they increase their savings rate rather than increasing consumption, which is i think somewhere the cause for discussion. that context, christine lagarde just started, and at least she has the normal 100 days to come up with ideas. she is in full grasp of the situation, and i'm optimistic she might come up with surprising ideas? -- ideas. matt: i went to the ecb to talk

to andrea about the banking union, which the push seems to be pushing to get banking over the 10 yard line, not the analogy you might not understand 100% because it's from american football, that the idea that if banking union is -- this could be a solution to the problem. are you optimistic for banking union now and do you think cross-border mergers, cross-border consolidation is the solution? stephan: the way you look at this is a bit of a one-sided view. i think the view of schulz was much more balanced in the sense he said part of the banking union also needs to be a level playing field and equal treatment of everybody. including how deposit insurance systems are handled between prominentlynd more in german between a more several banking groups. having one system would definitely help in the sense of making sure everybody has to take his own share of the burden

. secondly, i think banking union, which would make for a better, bigger european financial market, is something that we badly need and competition with the chinese and u.s. banking markets. i think the initiative is much is alsorded, but it clear that if we would have banking union, there is a long way to go. if we were to have banking union, it would probably make the system more efficient in total, which might well be consolidation and other stuff. matt: so another voice added to the list of tom -- list of people pushing for banking union, tom. the problem is it's very far off and consolidation is as well. back to you in new york. francine: i'm going to take it actually hear from brussels we will continue the

conversation on banking. great interview, matt miller speaking to a chief financial officer of commerzbank, stephan engels. they were talking about consolidation and the banking union. coming up a little later, caroline hyde in conversation with the facebook chief, sheryl sandberg, at the bloomberg summit in new york. you can catch that interview live on bloomberg tv and radio. this is bloomberg. ♪

"bloomberg surveillance" from brussels and new york. suddenly, s&p 31 100, michael metcalfe in london. where do i find the courage to stay in the market? theael: courage comes from fact that you are probably been too defensive all year and the tail risks you are worried about, recession trade war -- recession, trade war, brexit, that is where you get it from. you get it from the fact that people haven't believed the rally all year, and if recession risk is falling, there is hope around the trade war, that is the reason.

tom: you have huge knowledge, i know it is secret, about money flow. give us the picture you can about what people are actually doing with their marginal investment dollars. we've seen this odd situational year where it has been a little bifurcated. moneyve definitely seen go into safe havens like gold, money held back in cash, and what money has gone into equities has typically gone into the more defensive sectors and less cyclical sectors. i think that's the question. if that has been the main -- and obviously money has changed returns and fixed-income. my concern for the end of the year, going into the first quarter, is that some of the more defensive trades might be questioned and they might think about rotating back out into more cyclical assets. metcalfe, thank

you. francine, are we going to doze off during the bank of england press conference? no.cine: we never doze off. it's mark carney, he has a lot of stuff to say and he usually fields pretty punchy questions. he will have difficult things to navigate. we will have plenty more from the bank of england decision day, and we will get pound volatility. this is bloomberg. ♪ this is bloomberg. ♪

♪ tom: this morning, futures higher, yields as well as additional tariffs will be

removed in phases, according to beijing. china suggests a proportional and simultaneous rollback. the president is beleaguered after challenging elections. another day managing the impeachment message. it is not a hawkish cut. governor carney will go and then he will remain and that he will -- then he will leave an election driven bank of england press conference. "bloomberg surveillance." from new york. francine lacqua going continental in brussels as well. why are you in brussels? francine: i am brussels because there was an important speech by the commission of commissioners. he will have a very important role looking at all economic portfolios. i wanted to be there for his first speech outline the priorities of the commission. we have the new forecast.

he cut the forecast for the european union. this is because of policies he says and the trade war. tom: very good. a lot going on and the rebound. maria tadeo talking to the finance minister of germany in the last hour about managing forward the hope for banking union in europe. we hope for a good first word news. in new york city, here's our reporter. >> the european commission warns the worst may be yet to come. the executive arm of the eu cut euro area growth and inflation outlook. it says the bloc's economic resiliency will not last forever. it calls for 1.2% growth in 2021. germany and italy are seen as the slowest euro area economies this year. more progress reported in u.s.-china trade talks. beijing says both have agreed to rollback tariffs on each other's goods in phases. china ski demand has been the removal of tariffs imposed by

president trump. undercutting is o white house claims that he was -- he says his controversial work with ukraine was done solely as president trump's defense attorney. that work is now at the center of the house impeachment investigation. the bank of england is expected to keep interest rates on hold today. the central bank may cut its growth and inflation forecast. the policymakers compiled their forecast in the midst of political chaos. no clarity on how brexit will be resolved. global news 24 hours a day, on-air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine, tom? tom: equities, bonds, currencies, commodities right now. up come up. we got the second derivative -- up, up we go.

dow futures up 148. oil pretty much stasis. a risk on correlates -- excuse me, the risk of -- i will get it. my head is spinning. the risk on correlates this morning. vix driving lower. another added risk feel of a stronger chinese yuan this morning. francine? francine? francine: thursday that feels like a friday. beijing says important duties may be lifted in phases. the yuan is actually on the way up. gold on the way down. we see a lot of the havens actually flipping, including treasuries and gold. china says it agrees with the u.s. rollback on tariffs in phases as it works towards a trade deal. we have not heard the u.s. side. keep a night out for that in case anything changes when the u.s. decides to put out a

statement on the china-u.s. trade war. tom: let us introduce the chart of the year. last year, i did the twin deficit. that sort of worked out. increasing trade deficit against what the president would wish. this is on tariffs and this is a view into 2020 of the customs collection of the united states of america tariffs and other noise as well. what you need to note, we are offfive standard deviations a well-established trend of an ever-growing american economy. 5.2, 3, 4, if you see five standard deviations, that is to pardon the economic french, one hell of a move. this is an extraordinary chart of the impact we have seen of mr. trump's trade war. francine? francine: china and the u.s. have agreed to lift tariffs in phases, according to chinese officials. the amount of relief that would come in the first place is

dependent on the content of the agreement. markets rallied on the back of the news. with more on exactly what this means and the intricacies of a possible agreement is bloomberg's rosalind matheson, who is in charge of our international government reporting. when you look at this u.s.-china possible rollback of tariffs, how we only heard it from the chinese side, and it is still dependent on a deal. what is the likelihood we get this phase i deal signed? >> it is interesting to see that this announcement came from the chinese commerce ministry rather than the foreign ministry, which tells us that it is pretty serious, at least on the chinese side. we really need to wait and see how the u.s. reacts to this and how donald trump wakes up and reacts to this this morning. imperativertainly an on either side to get towards a deal but we are not actually at a phase i deal yet, which is a tangible agreement to rollback tariffs in phases.

they are hoping both leaders can sign that. we are getting some interesting comments about timeline on that. we are expecting this month, now we are hearing may be december. we don't know one that would be. it is all a bit -- when that would be. it is all a bit loose at the moment and it depends on how the u.s. reacts this morning to the comments made by the commerce ministry. francine: what happens after phase one? if we get phase i with a rollback of the tariffs, which china has always asked for, does it give us a roadmap to a bigger agreement? >> that would be the hope. rather than trying to bite off everything in one go, which has stuck them several times when they have gotten bulked down on issues regarding intellectual property. we will take this bit by bit, do what we can in each go. you can see that factors into what we were hearing a short

time ago from the chinese about a possible move on poetry for y for example,ltr which is important for the u.s. that also comes with its own perils, especially if it fixates further into the u.s. political cycle closer to the election in 2020. tom: thank you so much for your effort today. rosalind matheson, we greatly appreciate you this morning, head of our international government coverage. right now, the perfect guest. with the hong kong shanghai banking corporation and what you need to know year to date. ps up. no major house was more out front of the idea of buy stocks hsbc.of 2018 like congratulations to your entire team on just absolutely nailing this melts up.

how do you stay on board of what we are seeing now? max: it is quite interesting what we have just heard. two key takeaways with the trade war. ifsis, there is a lot of still out there. what i am hearing is it will be removed in phases. that can go an awful lot wrong during those phases. the other thing that i heard was , this will probably over a prolonged period of time. the problem i see at the moment is that markets, particularly equities, risk assets in general are actually pricing it in such a way that it will happen very quickly. tom: this is critical, max. this goes to my conversation yesterday with charles evans. thank you so much. that was a scintillating conversation with the president of the chicago fed. his talk, he wants to reflate

now, lower rates, inflation up. that means lower for longer generationally like we have never seen. is that what is really going on with the equity markets? lower for longer reprice? max: absolutely. i think that is absolutely the case. the problem we see at the moment i think, and we put this out a couple of weeks ago where we try to have a bit of a view into the beginning of 2020. we said there is probably a big basis for having a bit of a year-end rally for cyclical assets to perform better simply because those punitive base effects that we have had in the dollar for almost a 24 months and those punitive base effects that we have had in oil prices are very swiftly turning around now in the next couple of months. the problem is that that is pure arithmetics. by 25-35s have gone up basis points in about a month.

a love that trade that we were sort of advocating -- a lot about trade that we were sort of advocating has happened already. it looks likenow we are pretty close to the peak. now is probably the time to rather get out. francine: get out across the board, max? or in certain parts of the world? max: within our multi-asset allocation, we are going out particularly in equities and how yields. i think tom -- how yields. i think talk -- high yields. i think tom was talking about this paradigm been usually correlated at the moment. the risk on an risk off assets are hugely correlated with each other. it is not about idiosyncratic risk. it is much more about those two blocks. if you compare global high yields with the global equities on a risk-adjusted basis, if you

look at rolling returns on that, you can see that is virtually the same line and has been so over the past two years. we are underweight in the global equities, underweight in global high yields. francine: do you worry about something in the markets, max? i don't know if it is liquidity or something else may be coming from china. max: i am worried about, i feel a lot of wishful thinking at the moment. i feel a lot of people are saying this might be a cyclical rally, this might be a rally where we have to buy european equities. the problem with that view for me is that ok, if you buy european equities, other than having a short squeeze, you will need to assume that actually fundamentals probably in the euro zone out trust -- eurozone have troughed. that assumes that euro-dollar will go up. you see that eps particularly from a relative perspective in europe are getting crushed because of the stronger euro.

i see a lot of wishful thinking. tom: i have to ask this quickly. we went back and forth on cash. his catch and short duration -- is cash in short duration? max: we are actually much closer now to not buying cash but buying long-duration. the closer that is too absolute buying territory for me. francine: max, thank you so much. max kettner of hsbc stays with us. in the meantime, we are following everything to do with the brexit ahead of the december 12 election. jeremy corbyn under the shadow chancellor set out their vision for the economy during a speech in northwest england. we will have a closer look at stands for and what boris johnson on the other parties want as well. this is bloomberg. >> create the jobs of the future and we will have secretaries of state and government ministers that get it, understand it, that

are rooted.

♪ >> this is "bloomberg surveillance." let's get the bloomberg business flash. hp has confirmed that xerox has made a takeover offer but is not ready to say yet a deal between the iconic names and technology could reshape the printing industry. bloomberg has learned that citigroup has agreed to provide xerox with financing. the company would likely need at least $20 billion of debt to close the deal. netflix is promising to spend more on programming in the face of increased competition. the biggest streaming service already expects to spend $15 billion this year, more than any of its rivals. the ceo, reed hastings, says netflix is just getting started.

he says the company has been strong in series, now it is getting strong in movies. that is the bloomberg business flash. tom: thank you so much. it is a sunrise in washington, d.c. and that is in the direction of the capital, the library of congress, and off in the distance, suburbs like marlow heights. what you need to know is that there is no other topic this morning in american politics besides the suburban vote and the changing of political america. kathleen hunter joins us from queen victoria street here to look at the profound elections. we saw it the last time around. we saw at time around evermore. the suburban vote becomes absolutely key. what do the republicans need to do to regain suburban territory? >> it is a tricky position that republicans are in now. the types of voters that they are going to need to regain in

2020 if they have any hope of retaking the house or even trimming democrat's margin or keeping the senate is to really -- is the type of odor that -- voter that isn't necessarily a hard-core trump supporter. they are going to try to thread the needle between keeping close enough to trump that they are able to not alienate him with the base and with base voters, but also try to erase this trend wheree are seeing develop suburban voters, who tend to be more independent qamar moving towards democrats -- independent, moving towards democrats. tom: we understand the president has a hard-core electorate, as does any successful president. the virginia outcome, the margin of the governor going democrat years ago and now we see all of the virginia process joining the democratic party, that has got

to be something that can be replicated among selective states, right? >> i think absolutely and i think that is what democrats will be looking to do. the question for democrats is, you know, whether they take the lessons and trends we saw yesterday and apply them to the nominating process we have going forward starting in iowa in february. and really asking, who is the candidate best suited to win over these voters in november 2020? francine: kathleen, so the impeachment process becomes much more public next week. what does that actually mean? kathleen: i think what it means is that it will be a lot more in the public consciousness. to this point, it has obviously dominated the airwaves and been a topic of conversation in washington. for the average american, it will be much more in the public consciousness. for republicans, the risk is -- they havehis been demanding all along that all of this take place in the

public sphere. it does not look like any of the evidence coming forward will help trump or exonerate him or the people associated with him. the risk for republicans is whether we start to see the support for impeachment grow even more and/or the support among republicans for the president and opposition to this effort begin to erode. francine: are we seeing any signs of that? is it moving senate republicans? kathleen: so far, we are not necessarily seeing signs of that. i do think that yesterday's election had some flashing warning signs for republicans that we could seat eroding -- see eroding some of the support among senators that will be critical to keeping the president in office as this moves forward. the trial does happen in the senate if the house votes to impeach. none of the signs yesterday would be reassuring for republican senator's for sure. as far as the polls, i think among republican voters, the

opposition to impeachment thus far and the support for trump has been very resilient. i think that will likely keep republicans in a trump's corner. francine: thank you so much. kathleen hunter there, bloomberg's u.s. government reporter. we will have plenty more on the 2020 elections. coming up later today, caroline hyde in conversation with facebook's chief operating officer, sheryl sandberg, at bloomberg'sbloomberg's summit i. you can catch it live on bloomberg tv, on radio during the 9:00 a.m. our in new york, 2:00 p.m. in london. this is bloomberg. ♪

♪ monetary policy seems to have reached its end. going further negative will quite likely not have a positive impact on output or inflation. for this reason, fiscal policy has to take over. francine: that was from her interview with the austrian national bank governor, robert yesterday. the commission warning that the economic resilience will not last forever. let's get back to max kettner from hsbc. when you look at germany as a microcosm of the concerns we have for europe, is 2020 the euro banking union and will we see more fiscal stimulus from germany? max: as a german, i like to look

at germany. we have just talked about it off air. for the fiscal stimulus aside in germany, it comes back to what i said a couple of minutes ago. i think that is a little bit of wishful thinking in the market really that is partly to do what the law says, that actually we are restricted of having too much of a fiscal impetus in germany. and also has to do with the entire environment. that's actually what you heard from germany so far, is that whenever we hit a recession, then we should be able to steer against it. the communications at so far that we have got was not that ok, now we are going to preemptively try to sort steer up the economy. it is much more going towards the direction if things turn more sour, they are after as a reaction function to that, as a reaction to that, then thereafter, they must be able to steer against it. it is not something preemptive.

it is a bit wishful thinking to me, whoever wants to bank on a massive fiscal stimulus package from germany. if you want to see something in the euro zone, i think it needs to start from germany, because they are after, then all the other countries can follow suit. that is wishful thinking, i think. tom: max kettner with us from hsbc. important conversation after listening to mr. solomon the other day. why conversation out of berlin -- what a conversation out of berlin. we will advance the conversation with goldman sachs in the 8:00 hour. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tom and francine from brussels and new york today. tom will have plenty more on the markets. your conversation with charles evans was interesting and you

put that in context with the eu lowering their forecast for inflation growth for 2019 and 2020. we will get back to your markets, but first, let's get straight to the bloomberg first word news. be oneu.s. and china may step closer to her interim trade deal. beijing says the countries have agreed to a phased rollback of tariffs on each other's goods. since the start of negotiations, china has demanded that president trump lift punitive tariffs. those duties now apply to the majority of chinese exports to the u.s. the u.s. government has charged two former twitter employees with helping the saudis spy on dissidents in real. asap -- riyadh. a saudi -- has been charged. formerdi's wired the twitter workers hundreds of thousands of dollars. in germany, industrial production keeps getting worse.

fell to a- output worse than expected number in december. manufacturing lead the decline. construction and -- output increased. the longest british pay slump in more than two centuries is coming to an end according to the resolution foundation think tank. basic weekly pay and the u.k. will surpass $661 billion by the end of the year. that is a level last seen in 2007 after adjusting for inflation. the end of the downturn is likely to be seized on by boris johnson's conservative party during the election campaign. global news 24 hours a day, on-air and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine, tom? tom: thank you so much.

. a most interesting conversation yesterday with charles evans of the chicago fed. he has been he in numerous speeches, including a key speech in frankfurt a few weeks ago, about the needed to reflate, about having a full throttled effort to bring inflation up. let's listen to charles evans. charles: if negative interest rates were a helpful signal and i think that is part of what it is, because they keep backtracking on what reserve levels are actually being hit. if you lend out more, then you get more credit or whatnot. the design is challenging. our adjustments have not been anywhere, you know, large enough change the dynamics substantially if there was a big negative shock. we would have to respond. i would expect other countries would have to. tom: very important question. i believe that question was from someone from morgan stanley, who was there with john lipsky and others. really interesting conversation in these tumultuous times.

max kettner with us from hsbc bc capitalg us from ci markets on foreign exchange, bipan rai joins us this morning. we are in an extraordinary place. what does the dollar do given equity melt up, the clearing of worries come etc.? cibc?re a dollar call for market has been outperforming the european japanese markets for several years now, so there really is no reason for an economy like the u.s. has seen, a massive scale of u.s. dollars out of the economy. tom: well said. this is the heart of the matter. it has been an all u.s. effort and we are waiting for em and the hsbc world to pick up. andyou make a call that em

international will finally pick it up and up? max: i don't think so. the dollar call for me, at least from my perspective, from the multi-asset world, is cyclical. if i look at the trade-weighted dollar, about 60% i see as either em or cyclical. if that rally now picks up further steam, if we see further rotation or higher yields, that sort of cyclical rally probably would suggest that we see another -- lower in the dollar and that would support it. i don't think that's the case. particularly with regard to yen, if you have seen the dollar in the last couple of months, it has been broadly range bound from a bit of an uptick about two months ago. that has not helped em. you have seen since the start of the year, emerging-market hard currency bonds outperforming.

you still have seen developed market equities outperforming emerging-market equities by double digits in a world where things are probably fine, we are getting more rate cuts by the fed. what more do you want? why are you not buying em? in that world, it should be outperforming. we wereesn't, if approaching melt up territory and if in that world, em does not perform, with our cautious view, i really don't want to be overweight em. francine: overall, what do you think is priced in the markets? bipan: what's preston -- priced in? francine: his a trade resolution priced in -- is a trade resolution priced in in the market? it all depends on what the market thinks will happen and that will just market. bipan: i don't think so at this point. we can look at recession indicators that have worked in the past. the yield curve, it is inverting

for a different time this time around than it has in the past. the fed tighten policy by too much. the term premium has gone negative. i would argue that recession likely is not priced in at this point. i do not think there is justification for that view. i think we are still a bit premature when it comes to talking about a recession in the u.s. and whether or not the dollar has already weakened because of that. francine: ok, but how long can the u.s. economy actually withstand this trade war with china? bipan: right. for that, i am watching the consumer and employment sector in the united states. we are worried whether this manufacturing slowdown will make it to those of sectors. if that happens, it might be time to start worrying about if we are seeing in material slowdown that is a bit longer-lasting in the united states. bipan, i look at all of this and i sum together the

multi-asset call. this is the most unloved bull market known to mankind. we need to rationalize. i want to take your foreign exchange synthesis of what cibc market.this great bull how do you have the courage to stay in equities? bipan: you look at the liquidity pumped in the system over the last 10 years. tom: a wall of money. you are nodding your head, max. john templeton told me this 35 years ago up in toronto. is just a wall of money. bipan: absolutely. you look at the way central bank balance sheets have expanded, it is unprecedented. i hear them talking about if this person is elected next year, equities will sell off. the only time equities sell off as if we have a fundamental down orthat is slowing

of policy has been tightened. tom: thank you so much. max kettner with us and bipan rai. bipan rai has got a powerpoint deck that is like 85 pages long. i was up all night watching it as well. market movers, there they are, some of the stories today. wrapped around those market movers is a continued melt up with a vengeance in the last couple of hours. points.yield up 5 basis 30 year bond up five basis points. it is a mix of equities stories along with simply a massive risk on trade. stay with us. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tom and francine from brussels and new york today. we are counting down to the bank of england just minutes away from the latest decision. central bank expected to keep interest rates on hold and cut its growth and inflation outlook as brexit continues to plague the economy. let's get straight to nejra cehic, who is outside the bank of england. how difficult will it be to give us a new forecast on inflation growth given all the uncertainty out there? nejra: that is a good question, francine. now we are heading for an election in the u.k. and all the scenarios the bank of england might have had for brexit are up in the air. doesn't just go with a

government forecast and the government scenarios -- does it go with a government forecast and the government scenarios? does it go to the end of january, or do we get more guidance on that? a lot market participants are expecting is that we might get a more dovish outlook. we are expecting a cut to growth and inflation forecast for both 2020 and 2021. economists expect there to be a unanimous 9-0 vote to hold rates today. are we going to get one or may more mpc members voting for a cut? there are a number of people in the market that expect cuts to come in 2020. they navigatewill the politics of this all? well, the bank of england and mark carney always say that they stay out of the politics, so no doubt, although it will be

the same comments that come out today. another way that politics affects the bank of england is in terms of mark carney's successor. there are big questions over what the next government will be. could we get a labour led government. that puts the successor to mark carney in question. he was meant to stand down at the beginning of 2020. he will no doubt be asked in the news conference as to whether he has been asked to stay on another term. there are a lot of names in the hat to succeed him, including helena morrissey a andrew baileynd -- and andrew bailey to name a few. tom: wonderful briefing as we go to the bank of england. still with us, max kettner and bipan rai. i know it is a non-meeting come on election meeting, but a lot of people -- non-meeting, an

election meeting, but a lot of people writing about rate cuts to come. someone out there it is assumed they have to come down as well. max: i think they have trying to be out of that pack for too long, right. what you have seen with gilt yields is sort of the same thing that you have seen in g10 and globally. if you look at the correlation endwo year -- at the front of the curve and 10 years, the average collation globally has been spiking this year. that tells you both from a monetary policy perspective, you have seen this global synchronization but also a globally synchronized slowdown. tom: where is the united kingdom? bipan rai demanded i do this chart. it is not in his powerpoint, the only chart that is it. trade-weighted pound sterling. this is a candidate for chart of the year a couple years ago. brexit with the blue circle. down we go. it shows a weaker united kingdom. we never mention this.

europe.n-ification of people asking questions about the japan-ification of the united states. . will we see a japan-ification of britain? bipan: before brexit, i would have said not. you probably would have seen that type of melee sort of delayed other but. after brexit, if they are staunchly against immigration, we have to consider it, absolutely. francine: where do you see the vote going? if we have a couple of dissenters arguing for a cut, what does that mean for the pound? bipan: i think the pound should decline if we get a couple of dissenters because it potentially sets up a rate cut for the next meeting. if we are tying the bank of england's policy stance to the brexit negotiations, we have to remember that the withdrawal agreement deal still expires at the end of 2020.

we might be entertaining another cliff edge toward the end of next year. if that is the case, we have to look at an investment climate that might not be conducive it for a lot of companies to spend in. if you look at the united kingdom labor market, we are starting to see some signs of softening. we see some dissenters, including notably from saunders, who was a heart before. that sets up a cut for next year. francine: where do you see pound going? max: i need to form a base case around this. i need to see where things are going. the problem for me is that probably from a sort of active perspective and for what we are investing in in our space, probably having a view on gilts and u.k. equities. we are shying away and being very neutrally positioned. quite frankly, if you look at the last three months for example, you have seen the correlation breaking up between small-cap and large-cap stocks and sterling.

that was one of the last things that i could rely on. if you see brexit going either wait, you can at least play this sort of relative performance in equities. not even that i can rely on at the moment. if i look at the durations in sterling, much of that does not make sense to me at the moment. i think that is a bit of wishful thinking baked into the cake. i would not get overly jubilant on that. tom: excuse me, do central banks blink when they see lower economic growth now? or are they so set in their ways, they are ignoring 1.9 percent u.s. gdp and carry that forward to the other nations? bipan: i think there is none market of, the equity might be thinking so we have to make sure equities are moving higher. tom: unbelievable. bipan: i absolutely do think that. equity markets we have seen it mentioned several times by central banks, different central banks. equity markets matter now.

tom: is it just an asset bubble? max: it is not an asset bubble and i completely agree and they have told us that themselves. some of the papers from the boston fed, they asked the question of whether the fed has a third mandate apart from inflation and labor markets. does it have a third mandate, namely, financial conditions? they are telling us they are sort of getting into having a third mandate. tom: sort of. max: if you look at what is financial conditions, it is a function of yields and primarily equity markets on volatility. they are telling us themselves. tom: we have to leave it there. you guys have been great. max kettner and bipan rai. bank of england, we will do that at 7:00 a.m. any carney press conference has value as well. into the 7:00 hour, look for important news out of the united kingdom. worldwide, this is bloomberg. ♪

♪ this is "bloomberg

surveillance." -- >> this is "bloomberg surveillance." unicredit's three-year transformation plan is showing results. the country's biggest bank posted better than expected percent rise in first quarter profits, higher trading income and fees more than offset lower earnings from lending. for the second time in just weeks, commerzbank has downgraded its full-year outlook. the german bank is struggling with rock-bottom interest rates and increased competition. in september, commerzbank abandoned its goal of increasing revenue this year. cfo stephan engels spoke with matt miller in frankfurt. stephan: everybody is getting a little bit more scared by the quarter because it is unclear how to reverse the situation to something that allows interest rates at the end of the day to do what they are supposed to do, which is steering capital -- and the economy and the negative interest rate does not do that properly. i think that is pretty clear.

>> that is your bloomberg business flash. francine. ? francine: thank you so much. commerzbank has downgraded full-year profit outlook. it marks the second retreat in just weeks by the chief executive as he grapples with the negative interest rates and increased competition. this as the german finance minister, olaf scholz, reopened the debate on consolidation as a potential solution to the continent's banking troubles. olaf scholz spoke to bloombergtv. olaf: losing the banking union and completing it is key for growth in europe. we need to hold this -- we need the banking unit because we want to have more growth, more jobs. francine: commerzbank chief financial officer stevan ingles also emphasized -- stephan engels emphasized the banks fears of negative rates in an interview with matt miller. stephan: everybody is getting a little bit more scared by the quarter because it is unclear

how to reverse the situation to something that allows interest rates at the end of the day to do what it is supposed to do, which is steering capital flows in the economy and the negative interest rate does not do that properly. i think that is pretty clear. francine: matt miller joins us now from frankfurt. what exactly is a level of angst because of these negative rates? matt: it certainly has been growing. it has expanded outside of just a german bank executives. . we have heard for a long time deutsche bank complaining about negative rates and commerzbank as well. i talked to david solomon a couple of days ago and he says that he does not think this negative rates experience will be viewed positively when we look back in history at it. the concern now i think is a, for the immediate period, how do we pass these costs onto customers? that's what bank executives have been talking about in germany. we just talked to stephan engels as you saw there.

he says they have been passing it on to corporate customers for some time. they will start passing them on to middle tier businesses and very wealthy retail clients as well. deutsche bank is also looking for ways to pass them on. the bigger issue is how to get out of negative rates. ceo atay, i asked deputy deutsche bank how exactly that is going to happen. he did not really have an answer. no one really knows how to advise christine lagarde on backing out of the situation that mario draghi has put the ecb in. how much matt, pressure does it put on business models? will it force banks to consolidate, especially domestically? matt: the problem with banks consolidating, as you well know, is that the executives at these institutions claim that they cannot really do it with current regulation. someoneeard this from

at unicredit, ing. they need banking union to be completed. it is great to hear olaf scholz talk about it but it is a long way away. francine: thank you so much. our very own matt miller with that great interview with commerzbank. we are counting you down to the bank of england's rate decision. it will be interesting to see the dissent, how many people in the mpc want a rate cut. it will be interesting how they navigate the political uncertainty. watch out for any pound movement. mark carney is up next. this is bloomberg. ♪ sometimes your small screen is your big screen.

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the u.s. and china will rollback tariffs in phases as they move towards a deal. the european commission cuts its inflation and economic outlook. cut?e resist a rate bank of england out with its latest rate decision forecast in moments. welcome to "bloomberg daybreak" on this thursday. i'm alix steel. the surprise, they do not change their benchmark rate coming in. unexpectedly, you did have two dissenters to actually vote to cut rates by 25 basis points. that is a very surprising thing. a new forecast coming out. it used to be the inflation report. now it is the monetary policy report. it will be a lot for the markets to digest. they see inflation at 2% in two years, 2.3% in three years. they keep all their bond purchases the same. they continue to say