London time boost the odds . Keep an eye on that speech later. President trumps suggestion that rhetoric is debt could be wiped out spooks wall street. The comments back. We will discuss. Move, you have barely anything happening here. Ibex. N eye on the it was a big move to the downside and we saw it replicated in other Asset Classes. Keep an eye on how spanish markets are digesting what we got overnight. Lets talk about the gmm and what is happening around the world. Asian markets had a good nights sleep. Nothing really happened overnight apart from some weak retail sated sales data. That was pretty much it. The dollar has gained action traction. Im wondering whether europe comes back with a bank this morning and delivers some surprises. We will watch the market open. Could be an interesting start to the day. An interesting session. Lets get a first word news up eight update. Selfie we are starting with puerto rico which faces a Government Shutdown at the end of the month. That is according to the island treasury secretary who is calling on congress to provide billions of dollars in emergency funds. President donald trump had suggested that the leader of the u. S. Commonwealth might wipe out its 74 alien dollars of debt sending there already beaten down benchmark to a new low. Donald trump he had total confidence in his secretary of state. In response that Rex Tillerson had considered resigning over the summer and referred to the president as a more on. In a hastily arranged News Conference tillerson said he had never considered leaving his job and was committed to the role. The u. S. Has won the agreement to amend south koreas trade deal which america had blamed for increasing its trade deficit. Start the process. Although no announcement was made regarding how the pact toht be amended will work resolve outstanding mentation issues. The saudi king is seeking an understanding with president latimer couldnt to extend and Vladimir Putin to extend a trade agreement. The bank of england head of brexitsion has said a transition deal must be reached by the end of the year. Sam woods also said that although theresa may has pledged to secure a twoyear transition time after brexit in march 2019 the eus position is not yet clear. Such an agreement is seen as key to providing assurance to Financial Firms as they prepare for life after the uks withdrawal from the European Union. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Guy thank you. Catalonias president has kept the rest of spain guessing if and when he will declare independence. In a statement he reiterated an offer for mediated talks while attacking the condemnation of the illegal referendum. Speech, themade his politics have been a catastrophe and ignores the mentally millions of catalans who do not think like them and have been victims of police violence. Countedy claim to have 2 million votes for separation but the votes have be independently verified and the catalans have not presented a final result. In markng in bring cudmore. We discussed over the last two days the market is struggling to understand what is happening and how to price it. Yesterday we did see a more pronounced rocket reaction. We had the s p story overnight. Have much detail as you pointed out on many occasions. The bulk of their revenue comes from out spain and outside catalonia. Has it seems like the ibex fallen a long way. Revenuesy many of the are from outside spain. If this seem like there is a risk pricing and we make it a peaceful outcome. Investors do not know which way will go and the tail risk is large. While it seems that the government is in someway backing off a little bit and saying they would like some mediation, they want negotiation that does sound good. The more negative view is the half got it very strong and gone thisgressively and help referendum even though the Central Government said it would be unofficial and fought to have it and fought with the police and it will be hard for the government to back down and accept nothing. Takery that they have to some concessions from the Spanish Government and if that means an official referendum in the future that could be dangerous. This a spanish issue or a wider issue . Mark definitely a wider issue if they get another official referendum. If there is any chance that therenia can succeed is a massive issue. Spain is one of the largest economies in the eurozone. It is instrumental to their industry, their trade. It is a blow to the spanish badomy but ssa it sets a precedent. There is a bad precedent set if catalonia 60s in leaving spain. Succeeds in leaving spain. It does not mean that you price in more negativity now. It means you keep watching them. Guy theres a piece worth reading on the issues in eastern europe. Thepresident s comments on markets got people wound up yesterday. Officials were quick to walk it back. An overreaction or do i need to worry about what is happening in that market. It is seen as offering active it is a bigld and chunk of change were talking about here. Mark it is bigger than any sovereign market. 3. 8 chilean dollars. I think it was a bit of an overreaction. It does show shifting sentiment that we have this mass amount of leverage and people do not know what to do with it. The manyy when you get market in america. The tail risk that something funny might happen in the future but this is an overreaction. They are not going to wipe out this dead anytime soon. Guy you see mr. Powell speaking, i imagine that will have a lot of attention paid to it later on today. Readingsthe surrounding the fed take our putting the candidates in two buckets, duff or hock and i think back to what happened in jackson hole and what record yellens candidacy. Are we looking at this the wrong way . Mark some have raised the issue about should we be looking at this from the end about who will support capture form and who will be a vocal supporter of trump and maybe you are right. We should be looking less in terms of their policy and how it will fit with trump. Where does the personality fit . Perhaps two stages of the process. Maybe the announcement of who will get the job and we should not be looking at policy, we should look at how they click with trump. Will they be dovish or hawkish . People feel that kevin were she is more fitting with the trump again t still the favorite. He is a hawkish policy member. Guy thank you. Great analysis throughout the morning. Seeing this on the mliv blog. We will bring you an exclusive interview with spains economy minister coming up to coming up. We will carry it on Bloomberg Radio. Is ready toit extend its deal to curb oil supplies with opec that when will that happen . It expires next year. We will hear what president putin had to say on that matter. That is next. This is bloomberg. Guy 7 43 a. M. In london. We are counting you down to the market open. Thats get a lumber is this flash lets get a number business flash. A Metals Business is learning to raise 1. 5 billion in their ipo. A stakeany which owns in warsaw will trade in london and moscow. Biggest Russian Company since may 2013. Todman sachs has agreed lease offices at a new building in frankfurt as it seeks Additional Space ahead of the uks departure from the European Union. The bank agreed to lease space on the upper floors of the tower that is being built in the citys financial district. 10,000 square meters of offices, enough for 1000 workers a spokeswoman for the developer declined to comment. Deutsche banks head of passive investments is leaving the Asset Management unit as the lender reorganizes ahead of an ipo. He will depart by the end of the year. The head of alternative assets active products will cohead the investment group. A spokesman declined to comment. Uks theme park operator roman entertainment have approached Seaworld Entertainment about a deal. Railing which runs legal land parks saidegoland seaworld has received interest from other possible suitors. That is your bloomberg is this. Lash Vladimir Putin qualified that he would not decide until near the end of the current packed and that takes place in march. What we were able to do to get with opec i believe is for the benefit of the whole global economy. Whether were going to extend the agreement will depend upon the way the administration will evolve in the global market. I am not ruling this out but we are going to act upon the realities that will develop by march 2018. That sounds like you are in favor of extending beyond march. The end of march is not far away. i think this is possible. You know this quite well. And important to entertain caution in such a public forum with many countries that did not join us. They are quite positive to respond to what we are doing today in reducing our production. The libyan leadership stated recently that it is considering the possibility of having the libyan producers join our efforts at least the part that is being controlled by the powers which have made such a statement. This. Ody is aware of and to understand the need for such joint effort. We will have to look again at the way the Global Energy makes looks like in march 2018. We maintain contact with their keep partners, with opec, and main producer nations. I hope well have the honor and pleasure to receive the king of saudi arabia in russia. We are going to talk about it so we are maintaining this constant dialogue. It taste on the realities. In march 2018 we will make our decision but i do not rule out that we make we may extend the agreements. Room likes in this stability. Everyone in markets like stability. If you were to continue to decide to continue production cuts, could you see the extension lasting until the end of next year . Putin while i am saying we do not know yet if we are going to extend or not and the question is being asked when we will extend. Once we decide to extend or not, that is when we will decide on the time frame but speaking about the possible extension as a minimum toward the end of 2018. Guy that was Vladimir Putin speaking on a panel. Welcome the saudi came king to moscow for the first time. A saudi monarch has never been to moscow. Something to be attention to. Joining us is great white. Oil is set to be top of the agenda. The commentsnt for on the extension of the opec deal yesterday . He was playing it a bitcoin a bit coy. He had nothing but good to say pact. The he is disposed toward extending it and the saudis are eager to see the agreement extended as well. The indications are positive for an extension and march. Need out do both sides of this meeting in moscow today . Landmark meeting for both sides. There has been decades of tensions in relations. On the saudi side the extension of the oil deal is the immediate issue they would like to see. I do not think we will get an announcement publicly. They make clear that their markets are going to have to wait several months to get an official announcement. For somes are looking assurances from russia on protection for their interest as the civil war winds down. The battle against Islamic State is successful. There is a lot of tension over the role that iran will play in syria. Saudi would like to see the role limited and russias position is uncertain so that is a big issue for relations and on the russian side, there is a big ratification of putins newly increased role in the middle east as a major player in a region where russia had fallen out of the ranks of important powers in the last couple of decades after the syria interventions that succeeded in cementing assaults position. The russians are in the driver seat in the solution going forward. It is a positive sign. Interesting to see the middle east in russias sphere of influence. There minutes away from market open. We will take a look at the news in treating a court including Deutsche Bank shaking up its Asset Management leadership team. And plenty of others to think about. Days thursday, exdividend in the london market. More details next. Bloomberg. The open seven minutes away. Guy lets look at the stocks we have been paying attention to. Deutsche bank reorganized their management team. Watch to see if this has any impact, there is a lot of folk this on Deutsche Bank whether they can deliver. They have been talking about a company that is batting down the half hatches. A bunch of u. K. Stocks go ex dividend. You can find them on your bloomberg. They can change are on timing to the top and you and a with a list of the day. You end up with a list of the day. Of the fact that a bunch of stocks are going ex dividend. If you take a look at what is i screen, with the we you will get this screen telling you the market is not expecting to do much today. We are seeing a small dig up in spanish bond yields. The attention to that. Pay attention to that. The opening is minutes away. This is bloomberg. Qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq we are down by. 3 of percent. Asiaquiet session in overnight. We did not see much of a sense of direction from asia. I wonder if the cattle and story can provide a catalyst in europe. The ftse 100 rarely budging. A lot of ex dividend. Moving. Stocks after a near 3 move downside yesterday we are not bouncing back. That one. E on lets find out what else we are keeping an eye on. Upper what is the most key issue, probably the banks. Relocate. Ell seek to clarity concerns remain muted create we have market noise rather than financial losses. The question for you is this, we are talking about anything as aggressiveaggressive that could be the next issue. Where do you want your money . Cut the lawn goes for independent stocks. You are seeing yield touching levels we have not seen since march 21. They are not at blowout levels. You are seeing the euro coming back towards this 200 day moving average. That had to do with dollar renaissance. Aberdeen Asset Management have no doubts this morning, shorting italian bonds on european Political Risks as they simmer. They push electoral trends back into focus. That is the view from aberdeen. Confusion according to foley. We bob along at this level. And ioley was with anna this morning. This is your gilt market. You are looking at the gilt futures. You can hardly call that rocking it out. In case of Political Risk around europe, it is going to be perhaps one of the most pressing into issues over the next six months. Where do you want to put your money . Lastuestion is, can she towards christmas . Askared to sign up to theresa may to go. What does that mean for sterling . What does that mean for gilts . What does that mean potentially for brexit . 60 that she lasts until march 2019. No huge move on that. People have fared much harder. One example. He weathered three years. I am off to Digital Radio with carol and have her. With caroline. Guy the companys ceo is talking about leaving. You can see that. What the mov screen is highlighting, w bp is exdividend. Let us change this to percentage change and see what we can see. Exdividend which are just noise. Manus is right. To highlight what is happening with the Spanish Banks again today. They are trading down. Another is trading lower. You have them Trading Software as well. So spanish assets do look like they are opening a little softer once again, so we are seeing just a little bit of pressure once again just creeping into the spanish market. I want to go back and have a quick look at my wei screen and see what the ibex is doing. Not down by as much as. It is only down by. 1 , pretty much in line with the rest of europe after that big move yesterday. Nevertheless, the banks, as manus highlighted, certainly continues to feel the pressure in terms of the way the market is treating the catalonian situation. The news keep coming on the story. The catalonian president keeping the rest of spain and the market guessing on if and when he will ultimately, if he does, declare independence. In a televised statement, he reiterated remarks meanwhile, and s p of the secession crisis. The most prosperous region. In his speech, he called for dialogue. Holding out this issue of a unilateral independence declaration as a kind of threat . Is he pushing for remediation here in a more official vote . Essentially, the reality is that in the space of 24 hours, he has gone from the leader of an independent nation and ready to go full ahead no matter what that means. Let us take a step back and try to talk the question on who is going to mediate. The administration would hope you would get involved, especially after that sunday violent crackdown. That you is saying the hoy the e. U. Is saying this is a spanish affair. It seems the chain of events have not gone their way. Again, who is going to mediate . Who will recognize this republic . Has been deemed illegal by the constitution. The votes are still being counted. A lot of question marks. We are not getting any specific from the catalonian administration. We know the parliament will reconvene on monday. What does it mean for unilateral declaration of independence . He simply did not say. Guy absolutely. Keeping his cards close to his chest. The Catholic Church is being asked to become a mediator in this process. Rajoy going to play this story and deal with the next few days to try and keep the situation onsite from his point of view . Totally. Who really is a man does not like to make the first move. He likes to react. He will see what comes down to. Whether catalonia goes full ahead. If they go full rogue, it will discredit overthink your if our viewers, let us go back to basics. This is based in a referendum that was deemed legal. No one thinks it is that. Rajoy is just going to wait and see. The king coming out and saying we need to stay united. This is not about him. It is a matter of state. We will have to stay united. The European Union saying we trust he will come up with a solution. He is saying he has got the upper hand here and he is not going to make a move until they make it first. Guy thank you very much. Our correspondent in barcelona. We will bring you an exclusive interview with spains economy minister later on at 9 00 a. M. U. K. Time right here on bloomberg televisions it will be carried on Bloomberg Radio as well. We will try to get some answers and a sense of where the spanish economy is headed, how much of a blow to confidence this ultimately is, and whether or not it will impact the trajectory of the wider spanish economy. We will get a sense from one of the senior officials within madrid administration. Interestingly enough, we have spanish debt later on this morning, which will give us another sense of how the market is shaping up around this story. Peter chatwell is the head of european rates strategy at the zoo who international, and its sitting with the onset now. We do not know a lot. Could flow into a slow burn story with madrid maybe offering a referendum down the road. Peter you price it in the form of uncertainty which of volatility into the car, so this means you can actually position for more spanish volatility by looking at some interesting ways of trading on the curve. Essentially what this means is you buy longer dated bonds, and if you can, you can sell out of your intermediate bonds or short those intermediate bonds, do the opposite on some lower risk curves. And then that puts you into some they ares which asymmetric to these current set of risks. Spanishl perform if yields recover and tighten back to germany, but they perform a lot further. Example, if the Spanish Government was to acknowledge there had to be a greater degree of devolution, if that were to have a negative impact on the spanish fiscal outlook, that could result in guy what if Nothing Happened than we stay where we are now . Things have changed a little bit. How does that position stack up in that kind of scenario . Peter if nothing happens, we stay in this period of uncertainty and you get investors moving out of their positions. In the spanish curve. You would get you would still get real money investors deciding i do not understand what is going on here. I was invested in spain. Now, i am am invested in spain with a degree of catalan devolution. I do not understand what ratings impact that will have. I will put my carry trade on elsewhere. So they will move into italy. They will move into france. They will just move away. You see the shape of the spanish curve change, and that will be how you can profit from these. Now, in spread terms, this would mean that spanish spreads stay relatively wide, and i think, a mildw, we would have widening trajectory going forward, just as uncertainty would mean that there is a lack of desire to buy the dip there. Guy we are trading 133 over. Is that about the right price . Peter personally, i think it is cheap. I am appeared to look through this volatility. Investors had to think about the market and do not want to get caught buying a position to early. The way i see this panning out is i do not think catalunya has a mandate for independence. Less than 40 of the electorate actually wants independence, so i do not think that is a mandate. Mandatereally it is a to have negotiation and to push for further autonomy for the region, which ultimately would not be credit negative. Guy what is the ripple effects of the credit . We are focusing on the bank this morning. What is the ripple for the market into the credit space . Ther i would think that market would be following the credit space. So if the banks are under pressure here, typically, Hedge Fund Investors on rider spreads would be to sell some of the government paper. This could be how we are moving. Catalantainty in the carte region guy rippling out of that . That is interesting stuff. Peter chatwell, head of european rates strategy at mizuho. Plenty more to come. We need to discuss what is happening with the fed chair stored. We have an exclusive interview with outgoing vice chair stan fischer. He has got a few interesting comments. He is talking about the characteristics of the person that is needed to take over if it is not janet yellen. Maybe it will be janet yellen. We will wait and see the we will hear from stan fischer, up next. This is bloomberg. Guy 8 15 in the market. The market has been opened 15 minutes. A dominant theme in the markets right now. President trump has said he will announce new fed chair in the coming weeks. Followed by powell as he is being reviewed as the gop alternative to yellen. He speaks later today. Take a look at the agenda, coming up. He speaks back to 2 10 today, london time. Stan fischer spoke exclusively with bloombergs tom keene. Choice, clearly, of the president and the administration. That decision is up to them. Namesare candidates use are in the newspapers. You notice how important they are. And it is really not appropriate for me to get into deciding who is going to be the next chairman. I would suggest that is probably true. Brendan murray would disagree with you. If wee basic idea here have the turmoil we have in america, and the Economic Uncertainty in our theories, will that maigret us towards a world based system will that migrate us towards a rulebased system . The attraction of a rolebased system is very large purity find yourself having to define all the time when it is appropriate to diverge from the rule, because the rule of do not anticipate the rules do not anticipate the strange things that can happen in the economy. Even such things as three hurricanes in a row, which is not a huge surprise, but it happened, and it changes policy. Rules are a good guideline to the basic path you are taking, where you are trying to go. I would not run Monetary Policy on the basis of rules where you would strictly go down, look at this equation, say thats it, and lets get rid of the central bank. You can find the role on the terminal. It is a nice little function. That was tom keene speaking to the fed vice chair, stan fischer. Powell is speaking later today in new york. Also speaking today, george. You can watch both of those on live on your bloomberg. Still with us, peter chatwell. He joins us from mizuho. How to you see it . Think it is currently overpriced in terms of where he it is perceived of being in running. I remember him being particularly hawkish. Made some mistakes. The main problem being grappled with on the fed up the moment. Guy nobody in the fed understand inflation. Peter are we likely to get someone who particularly misunderstood it . I see it as less likely, so i would see powell as more likely. I would see that yellen is probably viewed as being longer odds, less likely than she probably should be. Also very interesting about this idea of being rolled based becauseules they only work when you understand where these others ones are. Mrs. Powell iny, the blue. Yellow and cohn on this chart here. Are we looking at this the wrong way . Should the starting point not be is he a rate policy or is rate policy double hawk . Should we be starting from the point of where do they stand on regulation . Yellen created her candidacy for a second term at jackson hole where she went all out on the issue of regulation. Peter it is true. It may be she has to rephrase some of what she said. May be talking more about optimizing the regulatory stance , transition of monetary sayings, rather than that she does not want to see regulation rollback. Guy is this just a bit of fun . People making active decisions on pricing based on this . Peter the curve is certainly doing this. Guy ok, i knew you would say that. So then my next question is, how accurately is the curve priced right now . Peter i think we have gone back to the position where the u. S. Euro has gone to dovish. It really flipped when Jerome Powell was put into the list. That was when we when the fiveyear part of the curve started to rally. And i think this is probably is considering how things will pan out. We have got a weaker dollar. It means any fed chair is going to have more opportunity to put Interest Rates up. Let us not forget yellen was on the dovish side. In the chair, she saw they were coming toward the end of the cycle, felt the need to start tightening policy at any opportunity given so they would have room to cut rates after that. Now, i do not see, even if you get another dove in the chair, whether they would have enough confidence in the transmission of Monetary Policy, in how the economy is working to keep rates very low here. Guy institutional framework of the fed is pretty important. Peter that is how it is perceived. Guy the reaction function is interesting. Peter chatwell, still with us. A bloomberg you are customer, you can do what i am about to do now, which is punch in tv. Youre going to get a page that looks a little like this. Tv, radio, the event coverage we have got coming up. Go look. Williams speaking at a banking conference. The workforce conference, pretty fascinating stuff in terms of understanding the inflation story. Tv. Into those individual spaces and get great optionality as well. 22 minutes into the session. This is bloomberg. Guy welcome back. Youre watching the open. We are 24 minutes into the session. Here is sebastian salek. Sebastian the group is controlled by a russian billionaire, planning to raise 1. 5 billion in initial public offering. The company, which owns the power producer, coal mines, and a stake in retail will trade in london and moscow. It would be the biggest share sold by a Russian Company since may 20 13, when btv bank sold a state. Goldman sachs has agreed to build a new building in frankfurt. The bank agreed to leave space on the upper floors. It is being built in the citys financial district. According to two people familiar with the knowledge of the matter, they have enough for 1000 workers. Topokesperson declined comment. Deutsche bank head of Investment Unit afterthe bank they have a planned public offering. That is according to the units ceo. Assets andternative the cio of active products will cohead the investment group. A spokesman for deutsche Asset Management declined to comment. That is your Bloomberg Business flash. Take a quick look at the markets and see exactly what is happening here. It is interesting. We are seeing european stocks down thing back. Bouncing back. The ibex is outperforming quite significantly this morning. It had a big down day yesterday. Unsurprising that maybe people are looking for a few opportunities. Let us show you what is happening here. This is the ibex mov screen. You are getting some of the Energy Stocks moving significantly. Santander trading higher. So you are seeing a bit of a turn. The market is looking for a few opportunities that it could bid back into after such a big drop to the downside. There is a lot of external trade here. 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. Guy catalan credit warning as s p puts the region on negative watch. Looking forward to that conversation with francine lacqua. A game of thrones. Jerome powell gaining favors in the betting markets as trumps picked for the fed chair. A speech at 2 00 p. M. Today. Municipal met down. President trumps suggestion that puerto rico o. A. T. s debt be wiped out spooks puerto ricos debt be wiped out spooks wall street. Welcome to Bloomberg Markets european open. I am guy johnson in london. 30 minutes folks into the trading day. How are things shaping up . More from the ibex. We are trading just sub 10. We have come back some way after yesterdays big moves to the downside but not a long way yet. We are seeing a little bit of bottom fishing coming in some of those stocks, which in many cases have been global exposure. Maybe, we are overdone on the downside. Ftse gaining on the upside, which is interesting considering are a whole lot of exdividend for the ftse consider as well. Me move my launchpad out of the way. I am seeing a little bit of a move in cable, which is maybe worth paying attention to. You are seeing the movie the downside as you can see here. That is maybe a reaction to what we saw yesterday. Watch, and see whether there is any clear sense of direction. Let us talk about puerto rico as well and what is happening in the united states. Hit a record bonds low after President Trump suggested the u. S. Commonwealth could wipe out its municipal debt. Bond prices raising losses after officials did that. Can we really take President Trump at his word . The market reacted so quickly. I have been checking with one of our credit guys this morning. It was a question with peter chatwell. Was there a move out into my yields . Move in bonds. He it is an interesting space to watch. How good is the market wayt now to changes in the the counterparties see things . You have got trump making these comments. Puerto rico the socket slammed. But then, as you have got this search for yield going on, which is pushing people into places like infrastructure and quasi bonds. It turns out that maybe they have not. When you sit back and take a has at the markets, is the search for yield now reached as far as it can go . Peter i am afraid to say no. What we look at is the Global Central BankBalance Sheet where we project when that will peak. Even though the fed is now starting to reduce its Balance Sheet, the ecb is still going to be increasing the Balance Sheet. Until at least the middle of next year. The boj will still be increasing the Balance Sheet. Significant excess of money that is trying to find a home, a yield. This mentality, we think it is going to be in place probably until the start of 2019. That is something to bear in mind. The low volatility grabs the yield, by on dips mentality is still going to be in place. Once the Balance Sheet started start to come down, that is when we will move away from that. Guy couple of things happened yesterday which struck me as interesting. We have got this move here and we have got a big gap lower in the spanish equity markets and a bit of spread widening come through. Volatility is incredibly low right now. Peter yes. Guy we have not seen we do not get moved like this very often. If we were to start to see the ibex is a 35 market. If we started to see such a move in the s p 500 or a move in the u. S. Treasury market, kind of, how fragile is the market around that in terms of peter a very good question. Volatility is essentially an asset class. Guy it didnt used to be. Peter no. Guy it is now. Yield,there was enough dividend paying stocks, that it would give you a return. In a hunt for yield in a world of negative Interest Rates in qualitative easing, volatility has become a more important asset class. So, if we were to get volatility rising, it would take a lot of people out of the shorts of volatility, realize volatility had arrived, and take people out of the shorts of implied volatility, and it would mean you get that kind of a short, shock in volatility in various parts of the Financial Market, which would then there is a good degree of correlation in Financial Market volatility across Asset Classes. So then, it becomes something broader. That is when it becomes really interesting. If this chart that you have got , if thatrto rican bond was to be on a systemically more important asset class, if it were to cause treasury selloff, then it could have a more significant impact. That is why the question about did it start to infect highyield in the u. S. . That was really important. If it doesnt start to, than the idea of there being a Chain Reaction across Asset Classes starts to get interesting. It would be something that i think you would see investors trying to take protection against. Guy and then you start to ask questions about the validity and whether liquidity exists in some of these markets. You have got a lot of excess cash sitting out there. You look at bank of America Merrill lynch survey, and managers are sitting on a lot of cash, so they say. I talked about this with the mliv guys as well. Doesnt the market come straight back in because it has this cash position . I think that is interesting that is what we are seeing in spain today. There is no onward move here. Markets have got a lot of cash knocking around. It is looking for opportunities for a big selloff. Let us go. Peter there is a spanish bond auction this morning. I would not expect the market to be rallying before the bond auction. It is. We had to accept that the market perceives it has gone too far out. It will be going back in. Now i agreed. This mentality is not going to be going away. That is why when we had the center selloff of all of the major government bonds, it was a dip. It was bought. This mentality is going to mean that 10year german yields from around 45 basis points currently, they are going to end the year at 20 basis points. More money is coming into the system. It is going to mean that that gravity yield just gets stronger. Guy let us move on and talk thet the u. K. , talk about gilt markets. Theresa may facing renewed calls of course for her resignation. It was not exactly a perfect speech yesterday. ,f you are a west wing fan listen to it. Hijacked by the they leave their job. That triggered a chronic cough. Two happened. Left are struggling to get her words out. Was not exactly a great performance, but she did her best to avoid talking about brexit, to be honest, giving it only a brief mention with some reassuring words. Peter, i want to go back and take a quick look at where we stand on the pound this morning, because what we are seeing is a little move softer on the cable rate, and youre seeing that coming through elsewhere in some of the other classes as well. The pound softer against the euro as well. There you go. Have we we thought we may be priced in everything with the u. K. , but there are so many on unponderables . A reasonably solid government in the form of Jeremy Corbyn . Point where i do not know what to do next, so i stepped back. Peter the government is going left. , they are is corbyn trying to chase the youth vote. We had a Tory Party Conference and itime minister, involved announcing spending measures. The market needs to a. To that. The market needs to adapt to the weaker real economy. The growth side is not looking good at all. The only positive or optimistic area was the u. K. Economy. The manufacturing side was having some small benefit from the weaker sterling, and it is a relatively small part of the economy, but the consumer is in a very bad position. It is going to get worse because the real wages are falling for the working age heart of the population, and we have got the uncertainty of brexit, which means the Service Sector can go sideways at best, and the Service Sector is the most important part of the u. K. Economy. The bank of england is wrong indicting us to a guy is it going to be a policy mistake . Short rate, pricing in, november is a good deal a done deal. Is that a mistake . Peter that is the trade to put on, the policy error trade. If they do not, it is find you have a bit more term premium in gilts curve, but i do not see how the market how the economy can sustain tighter Monetary Policy. Guy so if they go, you price in the fact that that is a mistake. Interesting stuff. Peter, thank you very much indeed. Peter chatwell at mizuho international. He will be joining us on bloomberg Digital Radio and on 00 a. M. At 9 00 a. M. We are in barcelona next. This is bloomberg. Guy 8 43 in london. 3 43 over in the big apple in new york. Let us get a bloomberg first word is update. Here is sebastian salek. Sebastian puerto rico faces a Government Shutdown, including halting its hurricane recovery, according to a secretary, who is calling on congress to provide billions of dollars in emergency fund. President trump suggested they might wipe out their municipal debt, sending puerto ricos benchmark bonds to new lows. Has said he has total confidence in his secretary of state. The common came in response to an nbc news report that Rex Tillerson considered resigning during the summer and referred to the president as a more on. In a hastily arranged News Conference, tillerson said he never considered leaving his job and was committed to the role. The u. S. Has won south koreas agreement to amend their deal with the u. S. Has blamed for increasing the trade deficit. They plan to start the process from an minutes after the second round of talks concluded in washington. Although no announcement was made regarding how the pact might be amended, Robert Lighthizer said he will work to resolve outstanding issues. The saudi king is beginning an historic first visit to russia via monica. He is seeking an understanding with Vladimir Putin. He visits moscow ahead of planned talks with donald trump early next year. It underscores the shift in Strategic Direction by saudi arabia as russias influence expands following putins military intervention in syria. The bank of englands head of supervision said a transition deal must be reached by the end of the year. The ceo of the credential Regulation Authority said that although theresa may has pledged to secure a transition brought laughter brexit, the e. U. s position is not yet clear. Key toeement is providing assurance to Financial Firms as they prepare for life after the u. K. s withdrawal from the European Union. Powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. Guy. Guy thanks. The pound is falling. The cable rate has gone through 132. You are seeing a bit of a move in the gilt market this morning. To be betters seem bid. Talking of which, catalonias president has kept the rest of spain guessing on if and when he will declare independence in a televised statement. Foreiterated an offer talks. The uncertainty has led s p to say that this could hurt the Credit Rating of spains most prosperous region. ,oining us now, Federico Santi an analyst at eurasia group. What didnt he say last night federico he did not mention whether or not he was going to issue a declaration of independence in the coming days. That is why a lot of people were looking for some indication of whether and when the declaration might be forthcoming. What i think the catalan leadership is doing is time to buy some time. I think on the one hand, they considered the referendum to be binding, so they had to act upon what they consider to be a strong mandate for the session. On the other hand, i think they are being cautious about taking that step, which would be a you a unilateral the electorate a unilateral decoration of independence. It is hard to see a way out of the current standoff in the short to medium term. Public opinion is more polarized than ever in catalonia and spain to both sides are very entrenched. I think there is very little room for any kind of negotiation at this point, so things can only get worse from here. Guy do we need a mediator . Federico i think the mediator would be welcome. I think the two sides are on just two different levels. The catalans are asking what they are asking for a legal referendum, a legal path for independence, which is a political nonstarter in madrid. Even less now than a few weeks ago. Guy do you think catalan business has underestimated how far and fast this one would go . All kinds ofncing reports of banks getting nervous, moving their headquarters. Companies doing similar things. Do you think the business immunity has been caught out about how fast this has happened . Federico this has been an issue for many years, right . On the one hand, you could say that the signs were there that this would lead to a major intentions. Most people in spain expected things to get this far, friendly. Guy what happens . We come through into monday morning. If a mediator does not come forward and allow the kind of process to start which would happen,nversation to what are the options that the catalans face . What does he face in terms of his options that he will have to deal with on monday morning . Federico i think the chances of some kind of negotiation being tabled between now and next week a very low, so now, they are careful and wary of alienating the Public Opinion that is sympathetic to independence. I think the catalan leadership is still concerned on a personal level of potential legal repercussions of such a declaration from the courts. And also, i think, on a more fundamental level, they are aware that it is not really a practical proposition on their part. There are lots of difficulties, technical difficulties that have to be dealt with. Federico having said that however, they are under a lot of pressure to do something and to act on what they consider to be a political mandate for recession. Guy what would be a mistake for madrid . Federico a repetition of what we saw on sunday. We may be heading towards something on those lines. If they wish independence or something to that effect next week, than the Central Government will be under a lot of pressure to respond, right . And to respond in kind. A big mistake would be to overreact as it did over the weekend. It is really a recipe for more clashes and arrests. Guy further polarizing the situation. What would be a policy mistake for the e. U. . Federico it is in a bind. On the one hand, they cannot acknowledge the result of this referendum which was illegal, unconstitutional, so it has no legal standing. On the other hand, they dont want to be seen as condoning what was really an Unacceptable Police violence on sunday. To e. U. Has no legal ways intervene in the situation in spain. This is an internal spanish matter. The best they can do is put to take an rajoy softer over sure of the crisis, but nothing more than that at this point. Guy do you think it changes madrids ability to be in the e. U. . A much higher profile role within the kind of machinery of brussels . Has this created a little bit of a gap between brussels and madrid . You have a reasonably unstable government in madrid that is taking some pretty big moves and putting riot police on to the ground in a way that is its price to the rest of the is a surprise to the rest of the e. U. Is it changing trajectory in terms of the relationship . Federico i am not sure. In a way, the situation makes a spain something of a liability for the rest of the e. U. , right . Of theeeds the support e. U. And other big Member States more than ever. He is more indebted to them from a political standpoint than before. Guy i wonder whether that will go his way. Do i read into other parts of europe as well . Is this idiosyncratic . If i am a u. S. Investor, joy think of spain as a spain problem, an e. U. Problem . Tonight replicated else can i replicate it elsewhere . Federico yes, we have not seen this reflected much on the exchange rate, for example. I think things and spain would have to get a lot worse. We are going to see a much bigger impact on the Economic Outlook for this to have significant spillover on super bowl economies. There is still some way to go. It helps that the backdrop is much more positive than it was a few months ago. This would have been a different story in 2012. Guy thank you very much indeed. Federico santi. We will bring you an exclusive interview with francine at 9 00 a. M. On surveillance. Also on Bloomberg Radio. Up next, a look at the movers in todays trading. The spanish market is coming back a little bit. We are seeing some pressure on the british pound rippling back into the ftse 100. Plenty to talk about. That conversation, next. As is bloomberg. Guy welcome back. Plenty of things going on we need to focus on right now. The cable rate british pound broadly under pressure right now. We are watching the carefully. Let us talk about what we got coming up later on. The European CentralBank Conference will be opened at 11 15 u. K. Time by the executive member. We will get the account today from the last ecb meeting. An address at 6 30 p. M. U. K. Time tonight. The bank of russia chairman is going to be speaking in sochi. It will be interesting. I think we are getting russian inflation data coming through as well which is probably now at u. K. Levels. She has done an amazing job of getting the inflation rate down into the low single digits. It does pose the question of whether she can stabilize it. That is the cable rate. Whether i wonder whether the market collectively picked up the telegraph and took a look at this story about theresa mays leadership going forward. Hes to be under pressure this morning. 31. 93. Surveillance is up next. This is bloomberg. Catalan credit warning as s p puts the region on negative watch. Comments abouts puerto ricos debt could simply be wiped out spooks wall street and the future of the fed. Jerome powell gains favor as trumps pick for fed chair. Good morning, everyone. This is bloomberg surveillance. We certainly