Are investors finally buying what Governor Carney is selling . And bracing for the fed. The dollar rally fades in the path of the likely qe unwind. The fomc meeting kicks off today. Matt take a look at how markets are prepping. We are half an hour away from the start of cash trading. Futures are down across the board. It should be said that u. S. Equity indices hit new records, just barely, yesterday, and we saw the asian gains as guy pointed out. They will be interesting to see how the trade goes. Take a look at the bund trade. It is more interesting to look at a slightly longerterm shot. This is the yield over the last three trading sessions. You can see we have steadily climbed our way up from a three handle to four and a half. Bund yields, although right now not moving much, are over the last three days climbing about half a basis point. An interesting look there. Guy another record for the s p, another record for the dow. But the real story inequities is whats happening in the nikkei. Overnight, we saw a surge past the 1000 mark, moving up nearly 2 . We havent seen a move like that in nearly a month. It looks to be based on a couple things. First of all, whats happening with the yen. More importantly and i will show you a chart on this later Japanese Equities tended to rally when we get an election called. So thats the story in the nikkei. Generally, we are seeing the dollar on offer. A for much of currencies trading higher. Up euro is up, the pound was through the rally is beginning to fade. The dollar in advance of whats happening with the fomc is trading softer. And the other thing you want to mention is whats happening with iron ore, another move to the downside, trading down by another 1. 31 . But the real story is whats happening in equities, a big surge in japan. Plus fresh record hit in the u. S. With the s p and dow. Less catch up with the first word news. Here is juliette saly. J juliette in the u. S. , President Trump will use his address to the United NationsGeneral Assembly to call on World Leaders to confront north korea and iran. Trump , who has been critical of the human in the past, will need to build a Broad Alliance against the two countries his administration considers the greatest threat. Speaking yesterday on andrm, he said red tape mismanagement have helped the organization back. A former Trump Campaign chairman Paul Manafort was reportedly wiretapped by u. S. Investigators under secret court orders before and after the president ial election. According to cnn, citing unidentified peopl, the continued into early this year, including a period when he was known to have spoken to President Trump. Meanwhile, the New York Times is reporting that Robert Muellers prosecutors told metaphor in july they plan to indict him. Hurricane maria has weakened to a category 4 storm as it there is down on caribbean island nations still recovering from irma. It is the third major weather system to strike the area in just two weeks. The u. S. Northeast is expected to take a glancing shot from hurricane jose. China has increased holdings in the u. S. Treasuries for the most in almost a year, an indication that Government Policies have curve the capitals like. The capital flight. It rose to 1. 17 trillion in july. Japan owns 1. 11 trillion after the biggest gain in almost four years. The u. K. Prime ministers attempt to silence Boris Johnson and the Brexit Debate has backfired. Theresa may told journalists that johnsons intervention over the weekend had not been authorized, and insisted she was in charge of the government that had agreed. But johnson responded by giving an interview in which he openly discussed brexit options and appeared to leave open the possibility that he might quit in protest at her handling of the issue. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. This is bloomberg. Matt juliette, thanks. Dollaryen halted two days of gains ahead of the fed meeting, where it is expected to give details on winding down the Balance Sheet, according to a bloomberg survey. Policymakers will leave rates unchanged, while keeping on track to lift the benchmark rate in december. The pound snapped a twoday rally after the bank of england governor gave a speech in washington that was less hawkish than some feared, more than some hoped, maybe. He said the central bank may need to raise rates in the coming months, but any action would be limited and gradual. Joining us to discuss this, mark cudmore, mliv macro strategist. Lets talk about the fed. Some have called the feds tightening ineffective, but i wonder if you look at the chart that has been thrown around a lot over the past few months, financial conditions easing despite fed rate hikes. We see financial conditions here in white, hikes in yellow. Maybe the fed isnt trying to tighten financial conditions. Maybe they are just trying to store up dry powder. Its interesting that you say that. I think most of the market is agreed on what the conditions are in the u. S. And with the situation of the economy is. The economy is doing well but there are no signs of inflation. The way the market is diverging, theres a 50 chance of a hike in december. One camp says, you know what, the fed isnt that worried, inflation is not a target, they just want to normalize well they can, well the economy is doing well. The other part of the market is going, wait a second. How can the fed possibly hike when overall inflation seems to be moving away from target and hasnt hit target in such a long period of time . I think the division is in the reaction function, and not the assessment of what the trend for inflation is. Guy lets turn and talk about whats happening with the bank of england. I got this chart from your colleague, richard jones. Miners trading at 99. 21, a 40 basis point move to the downside. Mark, why is this time different . Is the market finally buying what carney is selling . Well, some people have these kinds of extremes have been fading in the past because they keep on not sustaining for a long period of time. At the moment, the bank of england rate curve is pricing in a good brexit outcome, and brexit negotiations havent been good. It is pricing in good data. Of price for perfection is, you know what, the brexit path hasnt been going perfectly. I do think that at some point enough of the market will doubt. On the other hand, i will say that the doubt in the last few days from the bank of england, given that it was followed up by a trade that guided hawkish like, and carney, even though the market didnt think he was super hawkish, emphasized the same story that there will be a need for rate hikes. Overall, i think the guidance is shifting. Maybe it will only be one hike, but they seem determined to deliver it. It is too early to try getting the the narrative of bank of england cant continue on a proper rate hiking cycle. Thats a story for another day, if it comes. Matt we have new highs in new york, but Goldman Sachs is calling for a 4 drop a year and because the tightening, not only in the u. S. Tightening in england, tightening in europe, tightening around the world. A lot of people are starting to jump on that bandwagon. Morgan stanley as well said it will bring equities back down from record peaks. Think theres any reason to be particularly bearish right now. The Structural Dynamics of the market are still very good. There is tightening at the margin, which is important, but overall the liquidity is there and growth is strong. That said, i think the gains going into the end of the year will be much harder than we have seen, which is generally a very easy market for bulls. We will see some dips, but they will probably be bought, and it wont be the start of a new bear market, but it will be more rocky up and down. Where we finish the year is a crapshoot, because you dont know if its the day where we had a 3 correction or a 2 rally. Either way, it will be quite volatile until yearend. Guy a quick one. We will talk more about japan in the moment. What is your take on the move third 20,000, the snap election . Does this change the narrative in any way . Well, why would anyone, first of all, want to buy yen at the moment . Normally yen gets a rally, vote with it being targeted by north korea, it is vulnerable. That is good for the nikkei. And now we are seeing retailer investors alley and as well. They are lining up for the nikkei to get a sustained rally. Whole have to say, the yen as a safe haven story when it is the one being targeted phrases if you question marks. Mark cudmore, mliv team. Fantastic coverage throughout the day. Useful insight throughout the session. Analyzing go. The u. K. Rate debate continues throughout the day, including an interview wite half without imposing at 10 a. M. London time. Later, bloomberg talks brexit with the former u. K. Prime minister, tony blair. Is he capable of creating a centrist party . Those are the key questions we need to find out. Up next, we will take you live to tokyo, with shinzo abe weighing and on the possibility of a snap general election, as you have been hearing. That is generally a good for Japanese Equities. Will talk about that next. This is bloomberg. The open is 18 minutes away. Matt welcome back to Bloomberg Markets european open. To go to singapore for the Bloomberg Business flash and juliette saly. Juliette matt, toys r us has filed for bankruptcy as the retailer failed to keep consumers from abandoning stores for the lower prices and convenience of online shopping. The chain said it has secured 3 billion in financing to stay open while it restructures. The bankruptcy filing is the latest blow to the brickandmortar retail industry. Paribas is among Financial Companies exposing a Fund Management tie up with axa. According to people close to the matter, they are studying the feasibility of combining the Money Management unit with axa. Both declined to comment. Bloomberg reported last week that access is still reviewing its unit and has reached out to competitors. Goldman sachs has named ken kitchener as ceo outside of japan. Foras been the president the region since 2013 and is a 20 year goldman veteran. And aston martin has become the latest British Company to call for clarity on the u. K. Governments brexit negotiation. Says it needs the guidance within the next six months as it seeks to avoid trade tariffs and remain able to recruit Skilled Labor after britain leaves the european union. We understand there has to be a period of discussions i wouldnt like it for more than six months without starting to get some inkling about where it is going to go and where terrorists are going to exist, and probably for everybody, how are we going to deal with Skilled Labor . Juliette and that is your Bloomberg Business flash. Guy thank you. 13 minutes until the market opens, an interesting session in japan. Hase minister shinzo abe indicated he will decide on calling a snap election after he returns from his u. S. Trip. Moreconsidering a vote than a year earlier than many had anticipated. The nikkei up higher, strong session. For more, lets go to our Japan Politics editor, andy sharp. Andy, the chance is pretty high we get this election. Can we start to handicap what the outcome is going to be . Well, as always, it will be abes party that gets the most seats. Whether he maintains his Ruling Coalition is something to be seen. There is one unknown factor in this election, the new Political Party that may be formed this month, a popular tokyo governor. Party may feel it across the board and that could put a dent into his hopes. Overall it should be a comfortable win. Ratings haveroval recovered halloween the serious scandals. Who is his biggest rival . Is there any opposition that has even the slightest chance of squeezing a foot in the door . Not really. Is going to have a chance of winning this election, its just a question of the size of the win. It could be a low turnout, which would help his party. Guy a final, quick question. What does this mean in terms of policy . Obviouslys of policy, there is north korea in the shadow of this election, but in terms of economic policy, he is reported to want to raise the tax as planned to 10 . And using funds to help with education and people with young families, to help with the demographic issues of japan. Its a question of whether he follows through with that rise and puts it toward the younger people, but the finance ministry , they want to try to get the Fiscal Health back in order. We will see where it goes. And for the boj it could mean continuation of their policies. Matt andy sharp, our japanese politics editor, joining us with talk of a snap election in japan. We are minutes away from the open of european stock trading. Up next, a look at the movers, including heineken, as mexican sells a 3 billion stake in the dutch brewer. This is bloomberg. The open is just 10 minutes away. Matt welcome back to bluebird markets the european open. Lets take a look at the stocks that could move in todays trade. First off, heineken. The dutch brewer had a stake sold off. The mexican brewer which had 20 of heineken when it sold does eques has letos go of 5. 2 of the state at a 3. 5 discount. That says it wants to monetize some of its holdings and take ,dvantage of some Capital Gains tax bonuses it gets in mexico for capital repatriation. Selling its heineken stake. We will take a look at that stock in the open. Guy mesmerized by those pictures. Ryanair, a fairly decent move. The mess up over the scheduling see what i want to longterm effects this will have and whether we continue to see the market discounting it as we start to understand the nature of the damage it has done to the brand. Keep an eye on the fx story as well. The dollar rally is definitely trading into the fed, which is fairly interesting. The other thing to mention is whats going on with cable. This is part of parcel of whats happening. This is where carney started speaking yesterday. This bige this back leg up, and then we trade sideways. We have retraced around half of what carney did to the fx rate. A trading map, we are still crucially above that 1. 35 level. As we were hurling earlier, hearing earlier, cautious that it will be overdoing it, and will fade this sentiment we are getting. Matt . Matt just to get back for second to the ryanair story, and ryanair will be canceling flights over the coming weeks . Guy yeah. Matt they are only going to tell customers a few days ahead of each canceled flight. So if you have a Ryanair Flight two weeks from now, you wont know until a few days before if your flight has canceled. Guy the pressure is mounting to make sure they are more transparent in which flights they are going to cancel, to allow people to make alternative arrangements. That is where the pressure is coming, because many people would argue is unacceptable, why cant you give people transparency on which flights you are ultimately going to cancel . Matt rather than leaving them high and dry a few days the war they are supposed to go on a trip. That make sense. I just want to quickly mention. German stock esf will be selling its colonized business colonized business for about 2 billion, 1. 6 billion euros. Solvebasf, as well as ahead of the transaction. Bsf has already have a pretty good year, up 24 year to date. The dax has had a pretty good year, and this month has been the best month ahead of the german election. Keep your eye on the dax as well. We are back in two. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Guy lets talk about what is happening with this market. Minutes from the market open. To be anything as exciting as the session overnight out of japan. It looks like the fair value calculation for this point in time points to a fairly steady open. We saw another record dow close, another record s p closed yesterday. Europe marking time. The meeting starts today, finishes tomorrow. That is a big deal from the market point of view. Speaking of study, that is exactly how investors are betting the dax is going to be into the german elections. This chart is on the bloomberg. As i mentioned before the break, but dax has had a best month this year, up 4 , up 9 , outperforming the stoxx 600. Those gains look set to hold into the election. Guy lets look at where we are. Flat open, in and out of positive territory. The ftse 100, the pound a bigger fact than the ftse is. Are look, we are flat. Stoxx 600 down. 2 percent. Cap down. I guarantee the market is watching a number of interesting trends right now, many centered around Central Banks with the politics in japan not to be ignored. Lets find out what the details look like below the service. Monroe is with us from aviva investors and he said , what the central bankers need to try to avoid the taper tantrum. A rerun of the taper tantrum you saw from the federal reserve. The have all got this problem. They want to be taper tied not taper tantrum. Stocks in europe set for a mild opening. Financials up by. 4 . Look at the portuguese government bonds, Irish Government bonds. On daybreak, saying that ready for much more compression, even when the European Central bank begins to taper. Stocks rising, financials up. 4 . How do you play catchup . Do you believe mark carney is going for a slow and gradual rate hike, what does that actually mean for the marketplace . Sterling has regretted, that is for sure. Carneys words is that the Global Equity and Interest Rates may be rising. Meaning Monetary Policy has to move to stay still. Analysts are catching up. They are remaking, the consensus on the bloomberg as we stand is 129 for the fourth quarter. Hsbc raise their view, mitsubishi at a higher level. Jordan rochester, ever the standout, points to 1. 40 with a risk on sterling. Today, and option auction today. In thegilt futures market. We are also releasing a story on the bloomberg. Consensus from the market. 11 out of 45 analysts we surveyed you have 11 saying they expect a. 25 rate hike. Rp you havekind of had riproar you have had on the paper in terms of if that is one and done from the bank of england or could it be more . It is not one and done from the bank of england, it is suggested, but there is more to 2018. N the quarters of i am on my way to radio. They dont want to listen to you. Guy of course they dont. The dab radio crew are lined up. Lets take you to the move screen to show you what is happening inside the european equities. Heineken,entioning trading down around 4 . Ocado trading down, as well. This is the chart for the last month. The rize cap over here and i wonder if it is being filled this morning on the numbers. Actually that is happening. There is one there, back on the lets go back to the movers screen and show you what is going on on the upside, nice , trading strongly, as well. Fadinghe dollar rally is as the feds policy kicks off. The central blank bank is start expected to unwinding its Balance Sheet. There have been four rate hikes adding up to a one percentage point game this cycle since gain since 2015. Bloombergs indexed has eased by almost the same amount. You can see from this chart. G btv 40. A senior investor at aberdeen, james, what do you think about this . It is along the same contrary in lines as when they stop qe, we still have bond prices rising rising, what is going on here . James what is going on . The same i ask myself question because it does seem some of these moves dont make much sense when you add them together. The fed has been hiking for a few years, shall we say at a slow and steady pace, but in the last nine months of that cycle, we have seen financial conditions head in the opposite direction. I think there are multiple hasons that have happened. Forward expectations of what the fed will do farther down the road have come off a bit. There has been a political story with respect to what trump has been able to achieve and that has had a fiscal element and that has a direct impact on the economy. Some of those stories have unwound, that has come out of the market and it gives the impression make it look as if things have changed dramatically for the fed. The main reason they are not pushing back against that at the manus and the reasons i have been hinting at with respect to taper tantrums and not wanting to have too much to beon what we expect the announcement of an unwind of the Balance Sheet. Matt obviously, it is better then as they raise rates, maybe they dont want to tighten financial conditions because they cant get inflation up to their targets anyway, so they might as well incubate that baby inflation that they have. Let me ask about bond prices, because that is an interesting issue. Review expect the yield on the 10 year to go after the fed announces what kind of announcement you expect in terms of the pace of unwinding and how do you expect that to affect pricing . James again, this is a tough one. We are in uncharted territory here so it really is tough to work out how it is going to pan out. I do think the market is underpricing the unwind of the Balance Sheet. Im not sure it is one of those things the fed makes an announcement this week and suddenly bond yields spiked. I dont expect that. I think this is it trip affect, there is less buying, less duration being taken out of the system and to double down on that, the treasury needs to issue more supply. I expect an announcement from the fed saying they will commence their unwind process as soon as october. I expect bond markets will be largely unmoved in the ,hortterm but going into q4 and there are a few other things going on, european treasury supply comes back, that will get larger in the future as the fed is not reinvesting those proceeds and i expect highs we saw at the start of the year. Guy in theory, this slows the u. S. Economy down, shouldnt it . Why do yields go up, why couldnt they go down . James come on, we are not that good. Us is not that scientific, not that precise. Guy do we even understand whether yields go up or down at this point . James not directly. It is not that easy and it depends on how people are positioned going into it. Expectations and a myriad of other factors. Should not underestimate how important the boj policy has been for treasuries falling this year, not rising. Selling all of those bombs to the boj, they need to buy something because liquidity is abundant and they see a a lot of value in treasuries and european government bonds because they will have a reasonable return of what they can get from jgb. About the feds policy in isolation, but the reason i think yields should be heading higher is the direction of travel for all Central Banks now is different or turning. The ecbs still buying, but added increasing pace now and we expect them to do something so in the future. The boj has stopped being a quantitative policy. They dont control the amount of money that goes in, just the price. If the market takes them at their word and they are credible but they are, you see evidence, they are spending less and less. The pboc, their Balance Sheet is constant at the moment. You are seeing a very different environment today and i expect that to be valid vastly different in 12 months time. Matt how big a deal is the pboc for you, james . Huge deal. Really is a huge deal. It is so difficult to forecast exactly what is going to go on. I think they have multiple chinese authorities in general, not specifically the pboc, they have multiple goals and some are mutually exclusive and they have to ebb and flow in how they manage. It is a bit cliche almost to say you have the Party Congress going on and nothing will happen until then. That is reasonable, but we have already seen the journey of the that carries a pain threshold for the pboc and they have just started to change aings like pushing the fixing little higher and just started to take some of that froth out of the yuan because it had been depreciating relatively aggressively regardless of a move to a more consumption driven economy, they are not there yet and they still rely heavily on exports. Not just in terms of the net export contribution to the gdp but in terms of revenue contribution which gets recycled domestically. After october, it could get interesting. Matt james, you will stick with us. Atior investment manager aberdeen investment, here with us. Up next, an investors guide to the german election. How will that move which sectors depending on the outcome . Join us this sunday, we will bring you the election outcome and what it means for markets in special programming from 4 30 p. M. U. K. Time, 5 30 on the continent. I will be on the roof in front of the reichstag and brandenburg gate. This is bloomberg. Guy 14 minutes into the equity market session. Its see where they are going today. Not anywhere in a hurry. The meeting starts today, markets have had a decent move, as well. A little bit of marking time understandable, decent move overnight. Decent move out out of japan. Nikkei up 2 . A snap election to be called over in japan. Which, the german election this sunday is likely to see the ruling democrat led bloc come out ahead. But who will they form a coalition with and what will be the outcome for the markets . Of what fundakdown managers and analysts have to say, havent me . We . Matt yes, a tie up with the liberal party in germany. Cuts andport tax education spending according to analysts we spoke to. This could boost tech, construction and real estate firms. Joining forces with the fbp and the greens, that is a socalled jamaica coalition, could way negatively on the Auto Industry according to this group. Finally, another grand Coalition Party and thes social democrats, a continuation could benefit domestic stocks from a consumer standpoint, as well as financials and autos. Still with us is the Senior Investment manager at aberdeen standard investment. James, what these think about the possible coalitions here . Is there one that you are hoping for, one that you are betting on or does none of it change your investment the cyst much thesis . James certainly one i am not hoping for, certainly one seems more likely which is tied up with the ftp. It does feel they can no longer credibly separate themselves from the cdu when it comes to elections because they have been taking decisions alongside them in the coalition. Saw how that incorrect did impacted the liberal democrats and i think they will likely go for something more leftleaning, a little more euro friendly in prescription and they have not been able to credibly get that message across this election. I dont think as it stands, they are likely to enter a grand coalition. Sdp presumably makes the the likely bedfellows for merkel. The interesting thing there with respect to the relationship with europe. We heard from the ftp a have a couple of red lines and one of them is the notion of some fiscal polling at the european level and that really does seem to fly in the face of what macron has been saying in france and this makes this this Macron Alliance a little more difficult and strained. Matt what does this mean for what i take away from that, i spoke with the head of the fdp in studio and he said he is all for giving the greeks a cut on their debt but he wants to throw them out of the monetary union. What does that mean for peripherals, which did so well yesterday after portugal . James they really did, the upgrade wasnt something people saw coming so it caught market on the hop. I dont think there is an immediate read across. It is not something which the coalition has announced in youber or novembers time, have peripheral spreads blow wider but i think that some of the positive stories go along going along with europe, some of it is based on hope rather than expectation and i think some of those positives having the shine rubbed off them as reality bites. We have already seen that in the u. S. , as i mentioned earlier. There are high hopes and the political system we have to operate in, and the realities of Party Politics and some of the economic on the ground realities in europe change that situation. You can certainly put the italian election into the same category, where it is tough to see the incredibly positive outcomes that some have been hoping for or expecting. Guy some decent move in the bund the last few days. What is it trading on . This is the german election and you have the pillar of the german economy, which is the bund, and the two are completely unrelated. So i am wondering what is going to move the bund from here and how mispriced you think it is given the economic reality that we have in europe . Of bund. 4 represented representative of the economic story . James no, Central Banks have thrown so much, there is no way to draw an economic conclusion from that price signal. So of course, and specifically in europe, the bund has a flight to quality aspect which reflect that while periphery isnt doing incredibly badly at the moment, there are still concerns the npls are improving, but the politics are. Till pretty fractured guy so what i can take from this is that while the market believes the european story and has overweight europe in equities, maybe that fades a little bit. Look at the bones and what bunds, and that communicates you that while a market believes there has been a change, it is not convinced that change is sustainable and of significant magnitude to really start to change the economic environment in europe . James the more interesting point is the market isnt forced to choose. This is the point of why risk parity has been such a profitable trade. He dont need to choose between safety and pro se quick count he procyclicality. Need if there is no opportunity cost for investing in bonds, you can buy dax, you and you ares covered. That is the dangerous mindset and one of the risks down the line. A lot of people are invested like this and we have seen one or two trading sessions in the past few months of policy influx, where they have a positive correlation but the prices are falling in both bond and equity markets. That so far has been a dip everyone is willing to buy but maybe there comes a time when people arent willing to buy that it. Guy james will stick around. Up next, we have your midcap movers and again, dont forget to join us this sunday as the results of the german Elections Come in. We will bring you doubt come and what it means for markets. Matt will be covering that with anna, 4 30 u. K. Time. This is bloomberg. Welcome back to Bloomberg Markets, the european open. I am matt miller in berlin. I want to get the Bloomberg Business flash. We will go to sebastian salek. Sebastian toys r us has filed for bankruptcy as it has failed to keep customers from abandoning its storms. It secured 3 billion in financing to remain open while it restructures. It is the latest blow to the brickandmortar retail industry, reeling from store closures, sluggish traffic and the threat of amazon. Bnp paribas is among Companies Exploring a Fund Management tie units. Asset frances largest banker studied the feasibility of combining bnp with accept. Ands reviewing its unit reaching out to competitors. That is your Bloomberg Business flash. Very much. You lets find the midcap movers. Nejra lets start with a record high for you group, an independent Energy Supplier in the u. K. , rising as much as 10 point 3 . Up 6. 5 . First half revenue, and the company seeing for your ahead of expectations. In terms of the others, it is about rerati8nng. Tullow to outperform credit suisse, up 2. 3 . Stanleyo boss, morgan upgrading itt to underweight. The biggest drop in four months, down 2. 8 . Guy thank you. Up next, ripping up the sterling script. We discussed the outlook of the pound as estimates are revised after the best week since 2009. Let me show you this chart. Here, i want to show you the move we have seen in short sterling. Look at the ride we have seen here. This is the unreliable boyfriend. The market didnt believe, now we have a major pricing story coming through off the back of what peter had to say and mark carney backing that up. Is the unreliable boyfriend being believed . Morning, story this the nikkei surging past 20,000, big move coming through for the japanese. Does that have legs and where should we take economics yet and is that good for the japanese economy . We will discuss that with james. The conversation continues. Matt the nikkei surges past 20,000, japans Prime Minister is said to be preparing to announce a snap election. What will an extension of abeno mics mean for markets . Fx strategists forced to revise their pound forecasts. Are they buying what mark carney is selling . Bracing for the fed. The dollar rally fades in the pack likely qe unwind has the twoday fomc meeting kicks off today. Welcome, i am matt miller in erlang. Guy johnson is in london. The 30 minutes since trading day. Lets see how equities are shaping up. The ftse trading positively, 7254, wasnt that long we had a ago we had a 74 handle. European equities doing what the fair value calculations predicted, going nowhere in a hurry. Sterling has retraced around half of the losses it generated a run clock yesterday afternoon as Governor Carney started talking in the u. S. Certainly the trade to be watching, isnt it . Matt fascinating to watch Central Banks and their effects on currencies, currencies are so pivotal to the equity moves we see in todays markets, as well. The pound snapping a twoday rally as investors took profits. Yesterday was dramatic following sincerrencys best week 2009, this after the governor of the bank of england gave a speech in washington that was less hawkish than some expected. Mark carney said the central bank may may need to increase Interest Rates in the coming months, but he said any rate hike would be limited and gradual. The remain considerable risks to the u. K. Outlook, which include the response of the households and businesses and Financial Markets to developments related to brexit. The npc will respond to these as they occur. Guy meanwhile, ukip politics. The brexit row deepening after this man, Boris Johnson, gave an interview over the weekend in which he discussed leaving office. The Prime Minister is said to be looking johnson behind her brexit vision before she delivers that key speech in florence the next day. Still with us, Senior Investment manager at aberdeen standard investments. James, lets talk about the short sterling strip. This is the contract, lets talk about effectively, will they or wont they . Will they, wont they . They will. The question is, this move here. Do i believe that, more critically do you believe that . Or do youe this fade this . Do we price out the rate hikes that have been priced in . James i want to believe it. I have been long sterling for some time and saying the bank of england shouldnt have cut rates in august last year and should take some of that back over the past weeks months. Six months. I believe the bank of england has gotten to a more sensible outlook of policy, managing what they can understand as opposed to the ghost in the closet him if you like. , closet, if you like. But you have rightly described that chart as the unreliable boyfriend and we have seen carney specifically, his viewpoint he seems to want to be like a tennis player, jumping from one to the other. But that means he has been throwing froth signals for years. Remember, he guided us that when ,nemployment was 7 unemployment is 4. 3 as we sit here today. That is huge economic improvement that he previously had expected would lead to some sort of tightening and hasnt. Since 2008, since the crisis, the biggest drop in output in 100 years, inflation has averaged around 2. 35 . Missed their target consistently over a long period of time on the high side and have eased policy throughout that. Forbes has demonstrated conclusively in my opinion, that inflation in the u. K. Has had nothing to do with the outlook, unemployment and everything to do with the currency and yet, the bank didnt seem to appreciate that when it double down in august of last year by cutting rates again. Add that together and i have no idea why this week and i can argue, why now . They said it was up here, they been lowered and lowered again, and we are still falling. What is it that has changed . James i have no real knowledge. It does seem to me and this is something we mentioned off air, the timing of the migrant numbers coming out and immigration has fallen. Guy that takes us back to the wage story yes and no. When brexit first happened, there was uncertainty about is this demand shock or supply shock and how does that pan out . Demand,eeing there is a but it has been relatively small and the supply side is certainly the lack of investment is a supply side story and the lack of Skilled Labor is a supply side story, the lack of available labor and if you had immigration on that, this that is also a supply side. The right thing to do is to hang on say this looks inflationary over the next two years. Lets take a little back. Matt does it matter that boris causing a always scandal or that theresa may isnt good at winning elections or that tony blair calls for another vote . Do these things matter to you as an investor or do you think these two years of negotiations would always have a lot of uncertainty and regardless of the players . James unfortunately, they do and i wish they didnt. They do matter. Not necessarily in shaping my view or longterm investment strategy, but we have to be congress and of what markets are up to because we dont have infinitely deep pockets and we dont want to invest in an irresponsible way with respect to our clients. Thanks can change and if you are not cognizant of marginal changes along the journey, you wont realize the picture is vastly different. Tony blair, that does not really matter, his views on europe are well known. The fact he is still saying these things it is not a seat huge surprise. He is not a part of government, this is shouting from the sidelines. I dont think he has a huge amount of credibility after his prescriptions for the relationship with europe when he was in power. James. Ang on, we have tony blair on the network at noon, i hope youll tune in to see what he has to say. What do you expect from the boris, theresa may interaction . Will she be able to rein him in by friday . Does she need to . James that is a difficult one. I have seen new stories this morning saying she will be forced to make a speech which doesnt have anything in it because it seems the interpretation of what boards johnson has said is he is Boris Johnson has said was that he was unhappy with what was going to go in her speech, i. E. To soft with regards to brexit. I dont know, im not sure much of this really matters. What matters is what happens around the negotiating table and the extent to which we can get a clear picture of what it is that they are prepared to allow us in terms of softening of their stance or if, indeed, they are not prepared to soften their stance at all on the european side and we have to have a take it or leave it offer. Those conversations going into negotiations are more relevant than the public posturing which goes on. Guy is it one and done, and when does the rate hike come . James i dont think it is one and done. Governor carney was reasonably clear about the fact that it would be limited and gradual, but expected to be more going on. Guy do you buy the dark argument and this is where i can draw a line between the brexit story and the Financial Markets, the governor was alluding to the fact that a potential break is now lower as a result. In some ways, he has less wiggle room and this is where you can draw does that mean because in some ways, the data doesnt support this. How do i tease out the global reflation trade . The Global Economy is now moving along at a fairly steady clip and that is what is corralling being notral bankers exception, and separate the u. K. From the . How do i make the u. K. A timefic story, at the same as looking at the data and saying some of that will be the global reflation trade and some of it is not . How easy a task is that . James the k has had a different inflation process for some time. Inflation has been above target, which in a has not been the case in other places. The big issue here, and this is something that touched on earlier. Inflation isnt behaving as central bankers would expected to and i think there are lots of reasons for that and almost all of them are out of their control. Inflation is not the king they should be looking at. That is a bum steer. What is the right price for the cable . James i can dollar is undervalued, so i dont think cable is the best expression. I think eurosterling is the best expression. Something 83, 84 would make more sense. Guy james athey, Senior Investment manager at aberdeen standard. He will be carrying on conversations with us on dab digital radio. You can find it on your bloomberg and on the radio player. Go to the u. K. Function. We will carry on with the rate debate throughout the day. Man, nowpeak to this former member of the bank of englands Monetary Policy committee. Bloomberg will be talking brexit with the former u. K. Prime minister tony blair. Up next, a dramatic reversal fortunes for the pound. Why traders got it wrong with an fx analyst who has had to review his forecast. That is next. This is bloomberg. Matt welcome to the european open. I am matt miller in berlin. I johnson in london. Lets get the first word news with sebastian salek. Sebastian President Trump will today use his maiden address to the uns General Assembly to call on World Leaders to come from north korea and iran. Build ad to brock Broad Alliance between two countries his administration continues the worlds greatest threats. He can to a committee on u. K. Reform, he said mismanagement have held the organization back. The United Nations has not reached its full potential because of bureaucracy and mismanagement. While the United Nations on a regular budget has increased by thanand its staff has more doubled since 2000, we are not seeing the results in line with this investment. Emphasized that the u. S. Still intends to withdraw from the Paris Climate Accord according to three people familiar at a private breakfast. The comments come after the climate chief said the u. S. Had signaled it wants to seek new terms from within the agreement rather than withdraw outright and then negotiate. Hurricane maria has weakened to a category four storm as it bears down on terror be an island nations still recovering from irma. It is the third major weather system to strike in two weeks. Expectednortheast is to take a glancing shot from hurricane jose. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more. Han 120 countries this is bloomberg. The pounds grammatic reversal of fortunes have left analysts straining to catch up. Estimates for sterling, its best week saw it again 3 . Doves are on board. Change their outlook on where the bank is heading. One of the latter is the head of global fx strategy at rbc europe. Adam, good morning. Angst for taking the time. Why are we buying what carney is selling now . He has not exactly been the most reliable of predict ors hardware this bank is going to be moving policy predictors of where this bank is going to be moving policy. Adam it is not just carney sending the message, it is even the most dovish members sending the same message. The default position, if you like, is now the bank will raise rates in the november meeting and the eye on us is on stopping them. Even more dovish members and i think that is giving markets a degree of confidence that is where policy is going. Guy what has changed . Head scratcher for me. I can understand the argument, i just cant understand the timing. Adam the really really the question is not if we are on a cycle here, but whether it was right in hindsight to deliver that cut over a year ago in the wake of the referendum, and on balance, the way we see things from here is that cut probably and it istified probably on balance right to take it away. That is as far as we go at the moment and i wouldnt want to see that beginning of a sustained tightening cycle that sees rates on a steeper trajectory from here. In answer to what is changed, not a great deal between nothing and a quarter of a percentage point. Matt matt miller in berlin. How has the progress in the breck brexit negotiations affected Monetary Policy . Adam for the moment, i think it is peripheral. The ecb focuses mainly on the Monetary Policy target, getting inflation back down to its 2 target. Brexit editionhe fx the Exchange Rate and import prices, there is an indirect link there. The focus isment, on conventional policy and conventional policy target of getting inflation down to 2 . There is, we think little question in the mediums of inflation sticking within its 2 target given the lack of broader measures of inflation pressure. We have seen wage growth and beyond the transitory impact of higher import prices, there is little risk and the policy has to be tightened from here. Matt let me ask you about the policynship between boe and ecb policy. That currency pair we saw climb in poundeuro prize terms and come down so sharply over the last few weeks. How do you expect mario draghi affects mark carneys thinking . Adam we still think on balance, eurosterling goes higher, and i think it is important to distinguish between this part of a sustained tightening cycle in the u. K. , or europe for that matter, and a reversal of what now appears to be an unjustified rate cut a year ago. If we are right in thinking this is just a oneoff production in reduction in stimulus, we have say most of that is in the price of sterling and therefore, going forward, the outlook is a lot more balanced. We still think there is an take huge amount to go for in sterling once you have the one height priced into the forward curve and our expect patient is eurosterling goes back to trending steadily higher. If there is no real obvious economic effects, will the temptation to go one . Adam no because the impact of incremental rate increases becomes larger the more that is delivered. An impact more of coming through on actual borrowing costs, which is likely to be limited to the First Quarter reversal. The hurdle is quite high for rate hikes beyond this simple reversal of last augusts cut and with growth coming in on the main indicators, now well below trend, little sign of Wage Inflation coming through and most of the inflation impulse still appearing to be transitory, we think the hurdle is quite higher for going beyond that one simple reversal. Guy always and 10 tension to extrapolate a temptation to extrapolate. Adam cole, thank you for your time. Up next, Donald Trumps most important day on the world stage could be coming up. We will preview his first stage in front of the u. N. General assembly. That is next. This is bloomberg. Welcome back to Bloomberg Markets, the european open. I am matt miller in berlin. Donald trump will call on World Leaders to confront north korea. Nd it ran, which is iran it is trumps first address to the United NationsGeneral Assembly. Yesterday, he said the world will see very soon whether the u. S. Withdraws from the iran nuclear deal. Is our us for more congressional reporter kathleen hunter. What are we expect from this speech . Will he tone it down, will it be diplomatic or will we see some explosive, bombastic campaign era donald trump . Kathleen that is the thing to watch. Im thinking back to his arizona speech a month ago and people thought, that will be about immigration and he came out and torrent all of these tissue shes issues and it was bombastic. That is the element to watch. We know what trump looks like when he is at a campaign rally, what he sounds like, what he sounds like when he is speaking to supporters, when he addresses congress, and it will be interesting to see what he sounds like when he speaks to the u. N. Group he didnt have a lot of high regard for in terms of his comments during the campaign and so i think he called it a Good Time Club it will be interesting to see whether he shows an amount of reverence towards the group or deference towards the group and tries to appear as more of a traditional diplomatic world leader on the diplomatic stage or the trump we have come to know. Lets talk a little bit about health care. The Senate Republicans are having another go. This time will it be different . Kathleen i keep calling it obamacares last stand. It is a little deja vu here. The issue we have now is the deadline,to 30th which under congressional budget rules, if they dont pass something by been out of the senate, basically the whole thing is scrapped and they have to start over, passing a new budget resolution that allows them to pass something with 51 votes. The likelihood of them starting from scratch and going through the process again is very slim. They have put themselves in the position where they have 12 days to get 50 votes together for a health care bill. The details that if are still sketchy and we dont know what is in it, the Congressional Budget Office hasnt had a chance to score it yet. We dont know details about how it will affect health coverage. Getting that together is difficult. Guy and if they get that through, they will own it. You. Een hunter, thank it is bloomberg surveillance. Matt and i are off to dab digital radio. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Sterling strength pushes forecasters to rip up scripts as connie repeats his rate hike rhetoric. Our markets finally buying what the boss is selling . President trump is set to call on World Leaders to confront north korea and iran when he addresses the u. N. Later. How will he fair at his biggest diplomatic moment to date and the u. S. U. K. Prepares for the