♪ >> good morning from bloomberg's european headquarters in the city of london. i am nejra cehic. this is "bloomberg daybreak: europe." a good call. china and the u.s. negotiators agreed to continue discussions towards a phase i agreement, but the global times says they differ on how much tariffs should be cut. blockbuster debut. alibaba stock jumps in its hong kong debut, the city's biggest listing this year. carrie lam does not make new concessions to protesters in her first comments after the local elections. glass more than half full. jerome powell strikes a positive message on the economy but reiterates the central bank is not on it preset course. data points, including consumer

confidence today, will add to the debate. ♪ nejra: welcome to "bloomberg daybreak: europe." the market moves we have seen overnight in asia have certainly faded on that brief optimism in terms of the u.s. and china holding a phone call that we hear went well. they are continuing to talk about phase i. msci asia pacific index still integrate. hong kong underperforming -- still in the green. hong kong underperforming. gold unchanged. we saw all three u.s. benchmarks hit record highs in yesterday's sessions, s&p 500 index, dow jones, and nasdaq. futures not giving us a lot of direction. the 10-year gilts continues to edge up -- 10 year yields

continue to edge up. the yen hit a two week low but dollar-yen steady now. onto the top story. the u.s. and china have agreed to stay in touch to resolve remaining issues to get a deal. incomes after a phone call early this morning during which the vice premier, robert lighthizer, and treasury secretary steven mnuchin discussed core concerns. meanwhile, goldman sachs recommends buying the chinese yuan on a bet that the u.s. will rollback tariffs. we were told it is one of the bank's favorite fx trades. joining us now is james bevan, cio at ccla investment management. goldman sachs likes the yuan to reflect optimism on a tariff rollback.

james: i would certainly still be looking at the luxury goods segment. sales in china are important. we know that the chinese portfolio still has a very large amount of cash. the financial repression means they are not allowed to spend the yuan overseas so i think they will be purchasing more because i investment goods -- si-investment goods in the form of luxury handbags. nejra: how likely do you think that is? do you think we see phase i and that a tariff rollback? james: i worry that phase i is people.ily easy for to agree with however, i think the bigger picture issues, whi ch essentially relate to mr. trump's concerns that the chinese simply do not play fair, and therefore are not open to

the conversation of free trade at the western world takes for granted. they continue to subsidize exports. i think the u.s. concerns on those issues remain very real. nejra: in terms of the december tariffs, the big question is whether if we don't have phase i, president trump goes ahead with increasing those tariffs or he actually does pause them? how are you implementing that sort of outcome into your portfolio in your investment? james: i remain very focused on quality, meaning i want high return on capital employed. i am not counting overly on growth. for example, the street is looking for around 10 percentage points of corporate earnings growth, the s&p 500 and for the year after. i think those numbers are too strong. means i believe that we will see the s&p 500 essentially nexto 3.5 thousand points

year but i am not in the procyclical camp. nejra: where do you prefer to take your cyclical exposure globally? james: if you want to talk about cyclicals, you need to think very carefully about the good-quality banks. if we get a more positive yield curve with recovery in the global economy, i think the players like jp morgan are very well positioned to make a lot of money. i think that the banks in europe are a favorite trade for a number of players but they are too risky at the moment. nejra:nejra: in terms of taking a procyclical stance, i believe you think there is more height beta -- high beta in parts of the -- market? james: from a contrarian point of view, you want to buy when news is worse. between a disconnect

cycles of economic prospects, cycles of market valuations. i look at the valuations of companies like samsung and ic excellent long-term seeortunities -- i excellent long-term opportunities. nejra: are we at a bottom in 10 year treasury yields? will 10 year yields rise far enough to sort of hurt the case for holding equities? james: i think that they will rise and they certainly hurt the case for bonds but i don't think they will rise far enough to hurt the case for equities. we could reasonably assume there is a shift up in bond yields. i have stress tested what that might mean for valuations. i think we can see the u.s. 10 year yield get back to 300 basis points. 400 basis points is a completely different ballgame. a 400 basis points, we have reduction in economic activity prospects and we have increased cost of debt generally, which

would be very hazardous. nejra: james bevan stays with us. let's talk about alibaba, up around 7% after its debut on the hong kong stock a change. the company has raised more than $11 billion in the share sale. our reporter is at the hong kong change. great to have you with us. tell us a little bit about the share price performance. the shares rose as much as 8% after opening at 187 hong kong dollars. that's higher than the ipo price of 176 and a slight premium to the new york listed adr's. we have analysts remaining bullish on alibaba with the price target average at about 225 for those adr's. there is a lot of enthusiasm as well, given not only the marks for the company but also hong kong, which is home to two of asia's most valuable companies.

alibaba was management, including the ceo -- alibaba's ceo was flanked on stage by a chief executive. i can't forget the mascots who were dancing while shares debuted. celebrity or aa message by video. given the enthusiasm ahead of the debut, we saw the retail trench -- bloomberg intelligence expects the share sale will allow for alibaba to narrow the valuation get with amazon. alibaba trading at about 22 times forward earnings compared to amazon's 46 times. nejra: that is the outlook for alibaba, but what about other tech companies? what they follow in alibaba's footsteps -- will they follow in alibaba's footsteps to list in hong kong after this outcome? >> you have the hong kong -- paving the way for alibaba's secondary listing.

they relaxed the rules around dual class shares. that technically could help tech unicorns considering hong kong when it comes to listing. when you look at alibaba's potential journey ahead, there could be a review of its eligibility to join the hang seng index, which currently does not allow for dual class structures. there is the potential for -- next yearin the which would enable mainland investors to join in mainland funds. they made up about a third of international buyers. with this path been charted by alibaba, hong kong certainly hoping that more companies will come here ahead of a very cheerful charlie. he says he is -- charles lee. he says he is confident. nejra: thank you so much. james bevan, cio at ccla investment management is our guest host for the hour. are you buying alibaba shares?

interested at all? james: certainly, i look at the valuation of technology in the states. i think the segment there is a trading at 20.3 times. i looked at the equivalence in china. that valuation i don't believe is warranted by forward prospects. i view the best of the chinese tech giant's really good rally. nejra: alibaba and tencent quite different companies. do you like them both? james: absolutely. nejra: are you sort of betting on the chinese consumer? what is your rationale? james: i am not betting on the chinese consumer. i am betting on the companies in global terms being able to execute their cause out of china. i think the trade talks are a much more supportive environment for people to think constructively about the valuation of these players, who are very capable of justifying shareholder enthusiasm. nejra: you talked about u.s. technology as well. yesterday, we saw another record for the s&p 500, nasdaq, and

dow. it was led by tech shares. . what is your view of u.s. tech at the moment? is it still favorable or on a very selective basis? james: i think it should be very selective. i was never a supporter of netflix and clearly did not make the money i could have made. on the other hand, i have been a long-term supporter of amazon thealphabet, microsoft, and players who are clearly in the tech sector but not necessarily recognized, like visa, mastercard, who absolutely are at the forefront of the big payment.contactless nejra: james bevan will keep running with us for the hour. coming up, we speak exclusively to the irish finance minister. don't miss that interview at 1:30 p.m. london time. a glass more than half-full. jerome powell strikes an upbeat tone on the u.s. economy but mohamed el-erian says markets will be tempted to renew

pressure on the central bank. what does our guest think? find out next. this is bloomberg. ♪

♪ nejra: this is "bloomberg daybreak: europe." let's check in on the markets in asia. juliette saly in singapore has more. good to see you. a bit of optimism on a headline level. >> sending asian stocks higher for a third session on those trade headlines and also of course that merger monday madness we saw coming through from wall street. gher, gains on the mainland, too, and australia ounce.g a good ba hong kong underperforming. carrie lam offering no new concessions to protesters, the first time she has spoken since those weekend elections. my chart showing what we are seeing in the yuan in terms of implied volatility.

the one-month implied volatility falling below the three-month measure. this is coming of course on the back of this trait optimism. goldman sachs says that you should consider buying the yuan, as they expect the u.s. will rollback additional tariffs on china. mark cranfield says if you have any risky positions to add before the end of the year, the yuan is starting to look more and more like a positive carry trade. nejra: thank you so much. jerome powell strikes an upbeat tone. he is confident that policymakers can extended the record u.s. economic expansion while signaling interest rates are on hold. he said at this point in the long expansion, i see the glass as much more than half-full. with the right policies, we can fill it further. he also reiterated his caveat the policy is not on a preset course and the fed would adjust if there were a material change in its outlook. if 2019 was the year the yield curve went mainstream with un-inversion sending a stark recession warning, then 2020 is

already shaping up as a welcome return to normality. a global bond rally this year it drove the yield. this happened for the first time since before the last financial crisis in 2007. in europe, germany narrowly averted a recession. the bellwether yield curve has steepened after coming close to inversion. joining us from dubai is bloomberg's bond reporter, liz mccormick and james bevan is still with us, our guest host for the hour. great to see you. let's kick it off with you. a lot of attention to this steepening we have seen in global bond curves. we have seen some flattening recently in the 2s/10s. what has been driving the shift back to steepening from un-inversion earlier this year -- an inversion earlier this year? >> there are a couple of factors driving the steepening. it has not been a straight line.

number one, like you shared, jerome powell and his colleagues have kind of made it clear that after these three rate cuts that rates are on hold. they have also made a high bar for tightening. there's not much sign the curve will flatten for tightening. some people call it tail risk that has been keeping demand for a long in treasuries and keeping yields down all through the sovereigns, even in germany. trade risks from the trade war, brexit. that is kind of helping giving a little bit of steepening to the curve. people think that will continue into next are. nejra: do you think that will continue into next year and to what extent? james: i certainly think we will see further shifting of the yield curve. i think 10 year yields will continue to rise. 10 year yields have to get to 2.5 in the states in the next 12 months. i don't think the fed will shift policy for a whole year. in the european context, we still have this ridiculous situation of negative nominal

rates. we have $17 trillion of debt globally. that has a negative return for investment. that i think is completely inappropriate in the context of global economic outlook. nejra: i am glad that james has brought up europe. when we talk about the global steepening, bloomberg has been writing about treasuries, u.k., japan. in europe, the picture and prospect of further steepening is a bit more complicated isn't it? >> right. number one, the european central bank is kind of seem to be a little better limit of monetary -- a little bit at the limit of monetary policy. the current president is pushing even more than the past president, mario draghi, for fiscal stimulus. it is more of a mixed bag. if they do quantitative easing when they buy bonds, it's

because they kind of seem to find every way a new set of bonds to buy. if the ecb does more qe, that could pull long-term rates down. that would definitely fly in the curve. it is a bit -- flatten the curve. it is a little bit, gated. -- a little bit complicated. nejra: the prospect of qe and forward guidance from the ecb rather than further tweaks to the deposit rate that makes the difference. in the u.s., what sort of bets are people putting on? who is out there betting on the curve steepening? well, it is interesting because i spoke to one fund manager. he feels like although you never know, there is always risk, that in many ways the main scenarios that could play out, the one we have talked about, it will steepen. even if things get worse, like jerome powell said, he will adjust as needed.

the bar is high for tightening. if things kind of weaken and he eases one more time or the central bank, that will help steepening. ann neutral is thinking it is win-win for steepener. blackrock says they think the curve will steepen in 2020. this is the time of year where we get a lot of the best traits for 2020 from a lot of the wall street banks. it seems like at least for now if people trade. -- a favored trade. nejra: a favored trade. you said you expect to see the fed key policy on hold for at least a year. is that because of the strength of the u.s. economy or because you think u.s.-china trade talks will come to some sort of neutral or positive outcome in 2020? james: i think the u.s. economy justifies it. i do worry that the fed needs to have a perspective of the u.s. dollar debt supply condition

rather than the u.s. domestic economy. too many economies have borrowed and dollars. if we -- too many economies have borrowed in dollars. we may see very significant financial distress, particularly in asia, where most of the borrowing has been going on. nejra: you have been looking at various things, including the ism's new orders. the nexte about how steps in the ism might impact your equity strategy. james: there is a bifurcation in confidence data in the states generally between those signals that include the equity markets within them and those that simply look at the real economy. the signals that include an element of equity confidence within them are all saying, this is marvelous, the economy is healing. there is a self reinforcing cycle of optimism bound into

what is happening with equities. you could argue reasonably that the reason that equities have done so well is that the federal reserve and treasury have provided a a lot of credit into the market during this quarter. nobody had anticipated that. that drove up equity pricing as opposed to there being a real economic benefit driving corporate earnings. it against that backdrop, it may -- against that backdrop, it may well be that sentiment begins to unwind. we are not entirely clear where this is going. for me, it is about sticking to quality. it is about sticking to secular growth rather than pure cyclicals. i think the steepening of the yield curve is there for the long haul. nejra: ok. how supportive is the credit environment? do you favor equities over credit and the environment we are in right now? james: i absolutely do.

i believe equities are much better placed than credit. we have only had the imf report out for two or three weeks in which they said if we have a downturn equivalent to half of the severity of the global financial crisis, $19 trillion of debt would not be covered by underlying earnings. that demonstrates the extent to which we now have a very large number of so-called zombie companies walking the streets where they are unable frankly to be able to discharge the opportunity to grow, but they are still there depressing prices, causing relative deflation, not being able to award shareholders. nejra: jerome powell has talked several times about how sustainable the economic expansion is at the moment in terms of not being too worried about imbalances right now. but if we bring that back to the yield curve as well as a recession signal, do people think the inversion that we saw earlier this year was a reliable indicator of recession or more false positive?

iz: well, of course, there is a lot of views. it seems like many people are still very positive on the u.s. economy. it is one of those false positives, which has happened before. he says the u.s. and the global economy will not fall into recession. of course, the inversion, which happened this year, is a leading indicator as far as it will not happen right away. many people are saying we are just not going to see that recession. it seems like jerome powell is trying to make sure that does not happen. nejra: liz mccormick, bloomberg's bond reporter, joining us from dubai, and james bevan from ccla investment management stays with us. let's get the bumper first word news. >> a former white house counsel -- in front of a federal committee probing president trump. they claim donald mcgahn is

covered by presidential immunity but he has been ordered to testify at the panels. in the u.k., the chief rabbi is suggesting people avoid voting for the labour party. that is due to anti-semitism that he says is sanction from the top. he is not explicitly calling on people not to vote for the --ty, but he says british concern about the prospect of a labor government. lam is notg, carrie offering any new concessions. it is her first public comments after pro-democracy forces won a landslide in local elections. for dialogue in line with a plan she outlined more than two months ago. for us now is to properly follow up on actions proposed, including community dialogue. after these five or six months,

hong kong people have realized very clearly that hong kong can no longer tolerate this chaotic situation. everybody wants to go back to their normal life and this requires the concerted effort of everyone of us. >> those are your first word headlines.

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♪ nejra: this is "bloomberg daybreak: europe." i am in london. let's get the bloomberg business flash with annabelle droulers. >> alibaba jumping on its first day of trading in hong kong. the strong showing is not only a win for the company, but also hong kong's exchange. the city being hit by the violent antigovernment protests. alibaba raised about $11 billion. it is hong kong's biggest stock offering since 2010. westpac's chief executive has resigned. there were allegations of the biggest violation of money laundering laws in australian history. the financial crimes agency is accusing the lender of more than

23 million breaches. paymentses the tech that facilitated child abuse. huawei's prospects in the u.k. taking a hit. news looking for a broadband equipment supplier to reduce reliance on the chinese telecom giant. it's other main supplier is nokia. that is your bloomberg business flash. nejra? nejra: annabelle droulers, think you so much. charles schwab has agreed to purchase td ameritrade for about $26 billion. is a deal that will reshape the retail brokerage business. >> it is a deal that is only made possible by this zero fee world we are currently living in. first, the details. it is an all stock deal valued at roughly $26 billion. charles schwab owns about 50% of

the market share when it comes to advisor custody asset. td have about 20%. that means together, 5 trillion assets. earlier this year, they all announced zero fees when it comes to commissions. it has to be an economy of scale. with that scale, analysts worry there will be a lot of antitrust concerns. i want to go over the part that really interests me about this deal, the fact that charles schwab essentially broke td just to buy it. they offered a 17% premium to where ameritrade currently trades at. when you look at what the stock prices it looked like earlier this year, ameritrade was more expensive. 17%et these shareholders a premium was really expensive for charles schwab. look what happens in september. they announced they will slash commission fees 20. td plummets much more than o.arles -- fees to zerp

td plummets much more than charles schwab. for this discount broker, a really big discount. nejra: thank, dani burger. sticking with deals, europe has seen its fair share of activities. europe think has been on an .cquisition share -- europe in , has been on an acquisition spree. europeanwe have seen buyers announcing $58 billion of takeovers globally this month, more than triple the same time lester. busiest november -- time last year. busiest november since 2015. more than half of the volume came from purchases of u.s. companies. -- itrted with quite started quite slowly. what is this flow of m&a activity in europe telling you?

james: and a lot of it has to do with the regulatory positioning of the u.s., which is relatively open to takeovers. in europe, there are a number of constraints on being able to take over a company, protection over minority interest makes takeovers quite difficult. in terms of the industrial logic, i would say the transactions we are seeing are absolutely focused. these are out about -- these are all about building value for shareholders. i worry that if we get into an environment where people feel more optimistic, you may see size becoming important. size does not always imply more profitability. certainly does not imply keeping your eye on the ball. yes to the current deals but a question mark over forward deals that might be announced. nejra: is there a question mark

about what it tells us about where we are in the cycle? james: i was at the opposite. if you are at the end of the cycle, prices would be very full. the marketplace is a value on the company that we can't make sense of. i think they are incredibly capable set of entities in terms of driving shareholder value. they could see genuine opportunity to add value over the long term. another set of people who say, you know what, we like the idea of scale to scale, that is not going on about. like theu said you do luxury sector in terms of a bet on perhaps a positive outcome from u.s.-china trade talks. h a stock you like? james: absolutely. i do believe that it is well-placed for the longer-term. i worry generally about the

climate of demand. at the moment, we have british politicians talking ground they about wanting to spend more money when in fact we have a surplus of demand. this is not really about needing to ramp up demand. it is much more thinking about supply, productivity improvements. many of the more conventional players continue to find real trouble. nejra: with the supply and productivity argument, i hear it a lot. in terms of observing corporate behavior at the moment, are you satisfied with the way companies, whether they are choosing to return capital to shareholders via buybacks and dividends versus whether they are spending that money on actually investing capital expenditure and perhaps inorganic growth. james: i worry about companies that issue debt in order to buy back shares. i think using shareholder

capitalizing to buy back shares is a well trodden route adding value for investors and something we can reasonably be comfortable with. i do think that there is an interesting challenge about the number of companies that still do not have positive free cash flow. those companies are going to find it very difficult in an environment where i would suspect growth remains low. is the state's about to accelerate? is it going into recession? 2% real gdprved growth in the states at so-called full speed. now we regard it as the new normal. instead of people thinking we are heading towards recession, people might say this is bumping this along the way and the climate is relatively modest growth and low inflation. i think we will see more of that. nejra: will we see an inflection in earnings? james: i think in corporate earnings or household earnings what we will see is on amelioration of the outlook. i think we will see corporate

earnings growth around five percentage points in 2020-2021 rather than the street's estimate of 10%. in terms of wage earnings, we will see households continuing to earn more money. i don't see a shift up in the unemployment numbers, which would be eight critical lead indicator of emergent problems. nejra: let's turn to the u.k. and have a discussion about that. we are of course in the election period now and boris johnson and jeremy corbyn are tapping messages from past campaigns to help with the december 12 elections. the conservatives sought to play abour -- of an smp l most polls give the conservatives a double-digit lead. james bevan from ccla investment management, let's have a discussion about this. how are you investing around this? making not an fx trader

bets on whether the conservatives come out with a majority. how are you approaching elections? james: there are implicit bets in what is going on here. i think mr. johnson will be the next prime minister. i would say there is a 45% profitabilit -- probability that he is an outright majority based on the current post. in terms -- polls. in terms of the promises he is making, which are outlandish, they remain outlandish. there is this a great expectation that governments will spend more money and all the problems will go away. that is not a magic money tree variously referred to in the media. we have to get a reality check that the only way that we are going to drive a better outcome for the u.k. economy is to invest. as you rightly identify, that takes a lot of time. jeremy corbyn's numbers from my perspective don't stack. i worry about this great expectation that the baby

boomers deserve more, when actually, they are taking more out of the system at the expense of the younger people coming through. we have an aging population. andeed to be quite brutal say far too much money is tied up in property assets in the u.k.. i would be advocating a 1% wealth tax on property because i look at the hard mathematics of the u.k. economy and we need to put more money into the system. nejra: if we come out of the election and we get the outcome that you think of polls are indicating, what is the outlook for the u.k. economy structurally beyond that? do we quickly see an increase in investment. do we see spending that? is actually going to help? -- investment? do we see spending that is actually going to help? james: i am not clear on the. he will get the withdrawal agreement over the line and that we simply move the focus to the next negotiation, which is the

so-called free trade agreement talks with europe about the longer-term relationship. he has indicated that he expects to have all that done by end 2020. i think that is a joke. there is very probability -- very little probability that he will get those stocks done by the end of 2020. what is our future relationship with europe going to be looking like? do we really want to commit arch capital until we know what the outcome -- hard capital until we know what that outcome is? hard if you have a european focus two-putt hard money on the table. hard: with borst -- to put money on the table. nejra: interesting the statement you made about baby boomers. he has made the emphasis bringing back the idea of the dementia attacks. if jeremy corbyn were to implement some of the policies

he has talked about, does that hurt the u.k. as an investment destination? james: it does. there is an age to buy. relatively old people vote for the tories. jeremy corbyn has clearly caught onto the fact that he needs to have relatively what people say, i'm going to vote for mr. corbyn . as for mr. corbyn's plans for the economy, the expectation that he would like to reallocate 10% of the company's value to the workforce away from the shareholder is unambiguously bad news from the stock markets point of view. for that reason and that reason alone, one has to say that administration would be bad news for stocks. nejra: great to have you as our guest host this hour. joining us from our bloomberg partner in mumbai and we have annmarie hordern.

great to have you with us. ing as prime minister modi has announced labor reforms. we hit new highs on the stock market. >> yes. good morning to you. yes, we have done reasonably well for ourselves. . they have called off a little bit but still going strong -- they have cooled of a little bit from the highs of the day but they are still going strong. there is either talk of the really large or formal or a reform being implemented by the and in government. the momentum -- the indian government. almost everyone believes the government is not too much attention to the capital markets. almost every week, as i said, we have had a discussion on reform being implemented. these labor reforms are a big shot in the arm not just for existing companies but the attempt by india to woo a lot

large global majors to set up their manufacturing. let's see how it goes through. back to you. nejra: great roundup. thank you. a lot of the moves that we sought early in the asian session are the optimism around u.s.-china phase one deal have faded a little bit. comingls are really under some pressure, particularly iron ore. iron ore having a sharp decline after yesterday's surge. it is down more than 1%. up, somed is actually analysts are really calling the rally on gold. it is down some 6% from the six year high in september. a lot of this has to do with some latest data looking very bearish for the gold market. this comes as chinese consumers seem to be just shining gold -- gold.ng

capital markets say this has to do with growth concerns and rising inflation. on top of this, we have india as well in a funk. we usually see an uptick in gold demand but it has been unusually weak. couple this together with the fact that this is -- you know, the consumer demand for gold. . gold may be using its a llure has a safe haven asset. nejra: heading for its third month of gains for global equities. thank you so much. out lungs -- outlooks and forecasts for 20 are coming in fast. rbc says they are more cautious than any time in the past decade. we discussed why next. tune into bloomberg radio live on your mobile device or dab digital radio in the london area. this is bloomberg. ♪

♪ nejra: "bloomberg daybreak: europe." this is "bloomberg daybreak: europe." -- nejra: this is "bloomberg

daybreak: europe." uncharted territory as well rbc wealth management because the current business cycle. how should investors be positioned going into next year? joining us now is frederique carrier, head up investment strategy at rbc wealth management. let's just talk about the case for equities. you see further upside in 2020. what gives you the conviction that equities will continue to move higher? frederique: we see higher grounds for equities for next year for several reasons. it seems that the recession seems to be probably more than a year away. monetary conditions are still good. we hear from lenders and borrowers around the world that growth goingty of around, which is good news. tight monetary conditions have proceeded recessions in history. this is not the case at the moment. they u.s. consumer is the main driver of growth in the u.s.

we believe it can continue to spend. household balance sheets are a lot healthier than they have been. 7%.ngs rate is about housing crisis are back to precrisis levels and unemployment is at a 50 year low so good conditions for the u.s. consumer. if you look at the internals of the stock market, they are also positive. earnings growth has stabilized. forecasts have stabilized. we are also at a more reasonable level than they have been. h of the stock market is also quite healthy. it is not just a few large stocks driving stock prices higher. all of this leads us to believe we are likely to see markets go higher next year. nejra: is this a globally or markets going higher led by u.s. equity markets? frederique: probably led by the u.s. u.s. is very pivotal to global

equities. nejra: you are more cautious than you have been in the past decade? in what sense? does it menu are putting protection on -- doesn't mean you are putting protections on -- does it mean you are putting protections on? frederique: when markets seem to be overreached, we might put some protection in markets in their portfolios. nejra: what is causing the caution? is it where we are in the cycle? is it uncertainty about central-bank policy staying loose? what is causing caution? james: several -- frederique: several factors make us very vigilant at the late stage of the cycle. the yield curve has inverted. that has been very well documented. also the fact that bull markets tend to peak ahead of recessions , sometimes as much as a year before. it is possible the market will peak in 2020 and that's why we have to be particularly vigilant.

nejra: we were having a discussion about the yield curve earlier in the show. we saw it invert in august for the first time since 2007. since then, it has gone back into positive territory. a lot of wall street is betting on a steepening trades for 2020. is that something you are considering as well? does that make you more positive? frederique: the yield curve de- inverts before a recession. the signal has been given in the summer and we keep that in mind. nejra: ok. you are saying that you're expressing your caution perhaps in terms of sectors and geography. can you talk more about how you are allocating across sectors right now? frederique: we don't take a very big sector bets. one sector we are interested in is industrials, in which we see huge technical advances. technological advances which will change the landscape for these industries in the next 5-10 years.

these changes are being reflected in valuations today, so it is important to look at these today. nejra: if the changes have been reflected in valuations today, does that mean that the --uations are getting frederique: it depends on the sector. some of these technological advances include automation. very large cost advantages with that. 3-d praying, big changes at -- 3d printing, big changes as well. the industrial sector has been really in the crosshairs of the u.s.-china trade dispute. we have seen a number of companies having profit warnings. valuations are very distressed at the moment. if you look at the sector valuation relative to the s&p -- s&pthe lowest level 500, it's at its lowest level since before the crisis. if you think of the industrial sectors next year, it will be

less impacted by the presidential election, perhaps otherocratic -- then cyclical sectors -- than other cyclical sectors. valuations are attractive. good opportunity to look at these companies, which are using these strengths to their advantages. you have to be more selective, perhaps more defensive part of the sector. we feel there are opportunities which are interesting. nejra: certainly interesting the point you make about them being perhaps a bit more protected from a democratic sweep in the u.s.. part of your thesis is that these are companies that stand to benefit if there is an improvement in u.s.-china relations. what if we see a deterioration in talks? does that change your thinking or thesis around industrials? frederique: we will oscillate détente andods of higher tensions.

we think this is the scenario going forward. we have to take a long-term view. at times, it will be more difficult in terms of that dual political area. nejra: so you think that the détente we are seeing will carry through. in what way? are you expecting phase i to lead to phase two and perhaps even a roll back in tariffs? frederique: not an imminent signature of the phase on. we expectantly in quarter one -- we expect it late in quarter one. we don't think phase ii will be signed before the next presidential election. that might be enough to put fears at ease in the short-term. nejra: if that happens as well, we could see bond yields rise on increased optimism. at rbc wealth management, are you favoring equities over bonds at the moment in a sort of multi-asset portfolio? in both areas in

terms of sovereign yield, we think that fears about global growth will continue to weigh on yields. we do not see them increase materially and we prefer the quality credit side of things. we prefer to take interest-rate risk as opposed to credit risk. and within credit, to really focus on the quality. nejra: what is your expectation for the fed in 2020? are they on hold or do we see cuts? james: we see -- frederique: we see one more cut and then hold. nejra: frederique carrier, head of investment strategy at rbc wealth management talking us through their 2020 outlook. the u.s. and china say they will aim to resolve issues to get to phase one of a deal. more on that next as some of the market reaction to that in the faded.ession has coming up on bloomberg, we speak exclusively to the irish finance minister. don't miss the interview at 1:30 p.m. london time. remember, bloomberg users can interact with all the charts shown using g tv .

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nejra: good morning from london. these are today's top stories. a good cult that china and u.s. negotiators agreed to continue discussions toward a phase one agreement. u.s. futures have gained. has jumped in its debut. newie lam does not make concessions to protesters and her first comments after the local elections. class more than half full. jay powell has a positive message about the u.s. economy.

♪ let's get to some more data here from germany. k consumer confidence comes in at 9.7. that is a little bit better when but the survey was expecting. take a look at how the futures market is positioned. the top 600 in europe gained more than 1% yesterday. and in the u.s. we saw records. all of this around optimism of u.s.-china trade talks. markets, get to the let's speak to wade from

blackrock. it is not really the consumer who is the problem in the global economy right now, is it? >> yes, it is the manufacturing part of the economy that has been in recession. this is further evidence for growth. in germany, we are seeing indicators showing signs of bottoming out. this is the latest evidence of that. signs ofhas shown stabilization in manufacturing. supports the pickup and inflows we have seen into european equities in the last couple of months. nejra: are you concerned at all about the manufacturing sector. germany just avoided a recession in the third quarter. but it is not like the outlook is rosy. >> we are not out of the woods just yet.

when it comes to market sentiment, manufacturing, part of the -- economy being in contraction has been worrisome this year. now what we are starting to see is investors trying to catch up. only four more sessions to the end of this year. their positioning is still quite defensive. we see interesting exposures that were previously not allowed. starting to gain traction. nejra: hold that thought. let's check in on the markets in asia. a third session of gains here in asia. we had that positive news from wall street and trade headlines.

the nikkei finishing the session up i tenths of 1%. the hang seng underperforming, as carrie lam offered no new concessions to the pro-democracy protesters. the first time she has spoken since the elections on the weekend. seeing upside in onshore currency. goldman sachs saying this is a currency issue look at buying. we are awaiting hong kong trade data. this is the purple line you should be focused on, which is hong kong trade which we are expecting to see down take again. again.tick the fourth is looking scary. nejra: thank you so much. what is not looking quite so

scary right now is the state of global equities. the s&p 500, dow, and nasdaq all hit records, led by tech stocks. we have seen some of that optimism in the asian session fading a little bit. u.s. futures flat at the moment. europe that seeing a huge amount of direction. seen the trade fate elsewhere. the 10 year treasury yield sitting pretty. looking a little bit unmoved. let's talk about the top story. the u.s. and china have agreed to stay in touch to resolve remaining issues to get to a phase one deal. it comes after a phone call this

morning. core concerns were discussed. chineseaccording to the commerce. that is the goldman socks -- sa chs call. are investors you speak to, either in the words or actions, showing that they believe we will get phase one and perhaps even more into next year? >> phase one is looking more likely now. that is evidenced by the pickup in it inflows that we have seen. the overnight call and the news --aking out is the race is most recent ebb and flow. it is quite unmistakable.

december 15 is when a nether round of tariffs are due to take and. we could see further escalation. that, we can go beyond the phase one deal. phase two or maybe even phase three. the long-term strategic confrontation between the u.s. and china is not going to go away anytime soon. they are two superpowers. we are seeing people continue to build portfolio resilience. conviction and resilience. december 15, as he .2, such a o, such aate -- point t crucial date.

if we see an increase in the tariffs or any signs that there might be an escalation or talks deteriorating, do you get a sense that investors, who have been putting money to work in europe and china, are quickly going to take that money off of the table? or have they not been putting money on with such conviction that they would be able to leave if there? >> that is a great question. to answer that we have to look at positioning of some of this exposure we have seen so far this year. i will give you one example. european equities have been impacted by level trade headlines. more recently, we have seen inflows. we are talking about slightly less outflows coming from european equity funds.

even though we have seen inflows coming back up, it is an under owned position. that is turning out to be the dark hours -- force. -- horse. should the task again on the 15th of december, which is not looking likely, if that were to happen, investors are still significantly under owned in these exposures. nejra: would you be on board with goldman, who are betting on strength? >> currency stability is very important. we have seen greater stability compared with two years ago, when we had instability around currencies.

what is more interesting in our view is the significance of the under owned status of china assets. china has the second-biggest economy in the world, second-biggest equity markets, second-biggest bond market. it's foreign ownership is only 2.6%. that is likely going to attract significant inflows. that and our view is more interesting to look at rather than looking at currency. nejra: very interesting. let's talk about alibaba. around 7%iant is up after debuting on the hong kong stock exchange. the company has raised more than 11 billion u.s. dollars.

honge kamaruddin is at the kong exchange. great to have you with us. kansas up. up.atch us stock remains the most actively traded on the local board. tocent has been bumped down second place. alibaba shareto performance, the share price opening at $187 in hong kong. it is consolidating around the $188 level. an auspicious debut for alibaba. it could increase total funds raised. that would boost cash-rich

to $44 billion after some -- what some are calling a symbolic share sale. nejra: sophie kamaruddin at the hong kong exchange. thank you so much. that's get the first word news with annabelle droulers. in the u.k., a rabbi says people should avoid voting for the labour party because of anti-semitism. he says british jews are concerned about the prospect of a labor government. noor says anti-semitism has place in the party. a former white house counsel must appear before a congressional committee. that is the order from a federal judge. been ordered to testify to the panel.

in hong kong, carrie lam is not offering any new concessions. the move risks further protest after months of unrest. the plan has already been rejected by protesters. us now is toty for properly follow up on actions proposed, including community dialogue. after these months, people in hong kong have realized that hong kong can no longer tolerate this chaotic situation. everybody wants to go back to their normal life. this requires the concerted efforts of everyone of us. >> this is bloomberg. nejra: annabelle droulers and

hong kong. come up, the glass more than half full. -- powell strikes and up by upbeat tone on the u.s. economy. when you are traveling to work, tune into bloomberg radio live on your mobile device. this is bloomberg. ♪

nejra: we are 42 minutes away from the start of cash equity trading here in europe. agreed to buy has $26merica trade for billion. >> this is definitely an industry changing shakeup. it is a deal that has only made possible by cutting those fees to zero.

i went to give you some of the details. they will purchase td. it is roughly valued at $26 billion. schwab already owns about 50% of the market share of register advisor custody assets. you get about 5 trillion in assets. it is a zero fee world. we had all of these brokerages cut their commissions a couple of months ago. analysts say this raises antitrust concerns. i want to talk about what really interests me in this field. schwab broke td justified. look at earlier this year. moretrade was actually expensive than schwab. that is a very expensive offer.

you see share prices tumble. schwab saved $6.8 billion on this deal. definitely a pretty sizable discount for these croakers. let's get the bloomberg business flash with annabelle droulers. >> westech's chief executive has resigned. allegations of the biggest money laundering in australian history. is financial crimes industry accusing the lender of 23 million breaches. huawei's prospects in the u.k. are taking a hit.

u.s.-based spenders will be among the bidders. the other main supplier is nokia. the company is calling out amazon. comment.e clients to that is your bloomberg business flash. nejra: annabelle droulers and hong kong. jerome powell strikes an upbeat tone. he is confident that policymakers can extend the record expansion while signaling that interest rates are on hold. he sees the class as much more than half full. reiterated his caveat that policy is not on a preset course. the fed would adjust if there was a material change in the outlook. 2019 with the year at the yield

curve went mainstream. 2020 is shaping up as a welcome return to normality. in europe, germany narrowly averted a recession last quarter. lei is still with us. blackrock is one of the houses expecting this to happen. why do you expect this further? >> if you look at the shape of the curve, it has been very flat for a very long time. the front-end is anchored by policy. for either cutting rates or hiking rates extremely high, which means we are anchored at this point for in time.

is shape of the curve exposed to the movement on the end. you have to think about the sentiments that we have seen coming through. investors becoming a lot more calm as far as their asset allocation trends. that is why we are seeing the curve likely to steepen. the front end is firmly anchored. nejra: it is interesting, because there was talk about some signs in the market that could be increasing pressure on to cut rates. daysve had nine straight of flattening. do you think the market will

lose patience with the fed on hold? >> so far what we have seen is once the communication being on hold came out, the market adjusted to it quite well. without a significant taper attention reaction. in the u.s., the consumer part of the economy is very robust. i think the pressure to cut rates is not so significant. nejra: have you observed investors savoring equities moreover bonds in the past month or so? if so, or those flows coming from u.s.-based investors or global investors? >> we have seen a distinct presence -- preference for u.s. equities. especially by u.s. investors allocating toward u.s. equities. there is a bit of seasonality as well.

the fourth quarter gathers a bunch of the inflow. nejra: when we talk about the yield curve, the steepening has not been isolated to the u.s.. we have seen it in the u.k., japan, europe. in europe, the picture is of little bit more complicated. there are those who say the steepening of the european curve because ecb policy will be less about the deposit rate and more about forward guidance weighing on the lower end. >> i would absolutely agree with your observations. the correlation between u.k. bonds and u.s. bonds. maymonetary policy outlook

not be on the same path. we have yet to figure out .hristine lagarde's policies i think the jury is still out. guidance will be on how effective it will be in flattening the curve. i think that is our conviction for a european curve. nejra: what about the u.k.? there you could see the steepening if we get the spending plan coming through that the tories and the labor have talked about. people start to question whether e. get hikes from the bo >> as we head to the election, there is a huge amount of uncertainty. nobody really knows what could happen. even though we have a distinct

lead in the polls. we don't really know what could happen to the election. it is also important to focus on fundamentals. we seek further potential downsides. the -- expect of the boe to remain on hold. we are starting to see flows coming back and. -- investors are becoming more comfortable. nejra: great to have you with us. thank you so much for joining. up, the irish finance minister. don't miss that interview later.

it looks like we are heading for a fairly flat open after we saw gains yesterday. this is bloomberg. ♪

anna: good morning. welcome to "bloomberg markets: european open." i am anna edwards live from our european headquarters in london. the cash trade is less than 30 minutes away. ♪ fading enthusiasm. gains and futures pare despite consensus between u.s. and china negotiators on a phase one trade agreement. open sesame. in its's stock jumps hong kong debut, a