How far will this scandal take us . Turbulence and the discount carrier space. We are less than a half hour away from the start of european trading. No sense of direction. The agent session did not give us much. It didnt take us forward. The treasuries were closed yesterday in the United States. Aat we are starting with, is blank piece of paper when it comes to the markets, and a directional story we will talk about. It is going to be interesting to see how we work through the day. Wasstory out of asia interesting in a few ways. The biggest story to me, the big political story coming up is what happens in china this morning. Austria, interesting. The town out of this is that the dollar is weaker. First word bloomberg update. Banks, guy. Catalonia faces a day of reckoning. Barcelonas mayor has said the results of the referendum cannot serve as a basis for secession. Read more companies are leading the region. Three more companies are leaving the region. The u. S. Has blamed turkey for instigating the latest crisis between the two countries, and set a resolution will depend on how quickly officials and explain why to turkish employees at an american outpost were detained this year. The white house and state department stayed silent. The u. S. Ambassador to turkey issued a statement on youtube. The mcs top issuing nonimmigrant visas in turkey. The embassy stopped issuing nonimmigrant visas in turkey. Theresa may has one phrase from strategycs on the exit after she outline contingency plans for leaving the eu without a deal, asking businesses to prepare for the worst. May said the ball is in the eu court. That has been refuted by the european commission. Saudi arabias Energy Commissioner said there will be the deepest cuts in history to andduce global balance the market. They will cut by hundred 60,000 barrels per day. Barrels per day. In northern californias iconic wine region map a in the sonoma, wildfires have killed 10 people well more than one of 20,000 have been evacuated. Through,s are moving threatening the livelihoods of tens of thousands of people. Sold 31 . 1 billion last year. 31. 1 billion last year. Global news powered by 2700 journalists and analysts in more than 120 countries. Guy investors seem to be turning against the bank. Lets get it take from mark cudmore. Mark there are fundamental negatives about the dollar. The downturn might continue for a couple of years. The recent dynamic is we have had strong data from the u. S. It was disrupted or distorted by hurricanes. It is a volatile number. Unemployment rate is the lowest for years. Ine growth is the highest years. All of these are broad picture improvement. Sign that clear inflation is picking up, growth is strong, and we did break the downtrend. Crazy that they have pulled back from the high of a couple of months. Lets talk about catalonia and the risks today. A lot is being made of this declaration. I want to come at this from a different angle. The longterm spain story been damaged . Talkingory on bloomberg about maybe the catalans are oy tog back at raj undermine his government. Is there another story and what will happen today . Mark it is very marginal and hard to price in. The world has woken up to the fact that there is a spain stability problem that is longrunning. It is unlikely to go away. The catalans have become more entrenched in their views. They want their independence. They are not going to let this slide without major concessions. What does concessions me to the economy or catalonian integration into spain we still dont know yet. It is unlikely the story is going to die. It is one you have to watch. It is a marginal negative for European Assets and the euro. Theresa may seems to have backing for a note deal no deal. This puts the pressure back on brussels. How do i trade the pound in this environment . Is it still about the bank of england or do i need to refocus on brexit politics . Mark the politics are going to be in focus. Theresa may seems to have come through. Every time she survives, it makes her stronger. She is resilient. She wont tumble at the first sign of pressure. There is extreme negativity on the pound due to domestic politics. The longterm picture for the pound remains negative and bearish. Theresa may is going to survive the conservative party the esco, survived the weekend when all the press is against her, and she is getting her critics last week backing her plan. That is it did for the u. K. And helps the negotiation. Approve therginally uks negotiations. Guy the chinese currency gets higher, and stayed there overnight. Is the market overplaying its hand in the running to the political events of the next few weeks . Mark i dont think so. Highyield and is one of the lowest volatilities in the world. It is backed by super high growth. The overall you one story is very good. Uannt ya ll you story is very good. People are starting to realize the yuan is a good trade. The chinese story remains exceptionally good. People can worry about a slowdown, but it is over 6 growth. It are managing their economy very well. It is the worlds secondbiggest economy, and the world is not properly exposed to that story. Over the next few years, the world needs to be more exposed to the chinese. Guy thank you. Mark cudmore joining us on bloomberg. You anwe will bring. Nterview bank loses key investors. Why . We will discuss that next. This is bloomberg. Guy time for a Bloomberg Business flash. Desley Deutsche Banks Ceo John Cryan is losing support of some investors seven months into his turnaround plan. Three of the banks tend largest holders say they want to see a turnaround in the next few quarters, particularly in the trading business, to continue to back cryan. If he should not be able to deliver by the Shareholder Meeting in may, another candidate may be the best option to deliver him. The Hedge Fund Firm cofounded by alan howard is planning to start to more funds, according to people with knowledge of the matter. The money manager has been profiting from higher and more volatile Interest Rate expectations. Soon onect to start rising volatility. Lvmh thirdquarter Sales Beat Estimates, as they got a boost as line. Tar rihann that is your Bloomberg Business flash. Bank john cryan seems to be losing investors. Largest the tend stakeholders say they want to see a turnaround in the next few orders, particularly in the trading business. Eyk henning joins us now. Cant turn things around, how many stakeholders will take action . A couple of quarters is not much time to turn around the ship. Analysts do not think three quarters is going to show great numbers. The Fourth Quarter that just started does not look well either. It is going to be tough to turn around. Investors dont want to buy on promises. They want to see john cryan deliver. Three of 10 top shareholders putting pressure on john cryan to improve results. It is a big number. Why will be a gbm be an important moment . Investors at the Shareholder Meeting have to approve of the actions of management. While this is a symbolic vote, the high disapproval rate does not look well. It fell flat on its face. , andrew janes ago received 60 approval rate. He and his crew were let go shortly after. It was always a showdown for shareholders to vote in favor or against the management. A chairman cannot avoid these facts. Guy thank you. Eyk henning joining us on that story. This chart shows one of the great ways of managing performance. Recovery id of expect that the Management Team would have hoped to achieve. Lets talk about what is happening with kobe. This is a story that could have legs. We need to talk about it over a large. Oftime a large period time. The admission raises fresh concerns about the integrity of japans manufacturers, toyota, subaru. Lets talk about this a little more. Provide us with some of the details what has been falsified. Iswhat has been falsified they sent papers along with the products they send the companies to say, you ordered this aluminum, this copper, and it will meet this measurement and type you wanted. Now they are saying they september,t between 2016 and august, 2017. What that means is cars, airplanes, you have to have a certain type of aluminum when you are building and operating these machines. If they are falsifying it, these that range from toyota and honda, and companies that make airplanes and rocket ships will have to go back and look at what was use, when it was used, and whether they can operate these machines. This story does have legs, and we will have to see. Analysts are looking at it closely. One thing we will watch out for as it expands, and as we look at the 200 companies affected, is whether or not recalls are going to have to be sent out. If there are wider recalls, this could have a reparation over the reverberation over the industry. Your sense is this is something that will impact the story globally. That is exactly it. The analysts are saying, look at who they are supplying two. Kobes steel and aluminum products were affected by this falsification. I have a report of reporters reaching out to toyota, honda, mitsubishi, and you see on boeing they produced jets. This is not a japan only thing. We are in a world of a Global Supply chain. Everyone will be affected. Watchmpanies will have to and see which steel, which of aluminum is affected, which copper is affected, and which companies are affected. This will turn into, as the days go by, a more international story. Boeing was affected, but you heavy withitsubishi regional jets, and companies own those jets. These are all companies that have to watch this closely. Guy thank you. If you zoom in here, what you the customers, mitsubishi, general motors, nissan, the list goes on and on. These are Companies Using products that kobe is producing. This is bloomberg. The open is seven minutes away. Guy five minutes until the market opens. There is a whole bunch of bank step you want to look at their in the u. K. Lvmh. Look at look out as well for the announcement that could come out later on regarding job losses. This relates to sales issues typhoon, which is the jet used by the royal air force. It could be a thousand jobs on the line. Systems. Ye on bae thats next. This is bloomberg. Guy minutes until cash equity opens in europe. Lets look at what the fair value is telling us this morning. At the moment, no clear sense of direction. Yesterday, the treasury market was closed. Asia didnt deliver much in the directional story, as the result of which as a result of which, Tuesday Morning just starting like monday morning. Europe will set the agenda, but it may take a couple of hours before we get into that. For news to come out of catalonia later on. We will see what that is and how that will ripple back into maybe spanish politics in the grid and the stability of the rajoy administration. Butnymex down by a little, not much. Keep an eye on the euro this morning, that could be another fact or to think about. The market is opening up, keep an eye on lvmh, another stock to watch. To give you an idea of what is going on at the moment, we anticipate not a great deal of mark movement. Ftse 100 flip flirting around the 75 level. Yet, ibex aopen little softer. It gets into gear. You will probably see the other markets down. 3 . Not significantly outside of what Everything Else is doing. What is happening with the gilts open, here is manus cranny. Had the industrial numbers and manufacturing numbers from france, both showing a little fissures, contraction of 3. 1 on industrial manufacturing. What constitutes a crisis . It rajoy taking control of the catalonia government . We are going to run the euro dollar volatility. One week euro dollar volatility is less than the year to date average. You are seeing the volatility of 8. 25. You are still not seeing any emergence of radical volatility in the currency or bond market. Equity markets are a little bit more irked. You have seen every major catalonia company bar one exit to the mainland of spain. That is what you call a consequence of what might happen with succession. Where does the money go . If you take your money out of spain, where do you want to put it . Do you want to put it into portugal . That has seen some compression. He saw the s p move on portugal up from jump status. You going do you go into the rest of peripherals. Or do you buy italy and by france . Those would be your two trades. Portugal could be an optionality for you, but the liquidity in the portuguese market is perhaps less effective than the rest of the market. , what is your model happens with the gilt market if the bank of england go ahead and raise rates in november. Peter chat well, you would need to pricing policy mistakes, policy error. We dont really know where the ball is for wargaming in brexit. Is it theresa may pandering to the brexiteer or more game theory, you need a real crisis to move the agenda along . s baseline is that a rate hike in november would constitute a policy error, which would be unwind into 2018. 37elds are down, they are 1. At the moment. I am going to radio, join us there if you are in the car. Move, ks on the aviation out of france, the raw fail fighter jet, the falcon series of private jet. Withare having problems the new five x, which is having an engine issue. That is knocking the stock this morning, down by 5. 43 percent. Just eat a little softer, lets turn to the upside. Mentioned lvmh has posted decent numbers, but market likes what it hears. The stock is trading up by 2. 3 percent. Fragrance, flavors, smells, up by 3. 15 this morning. Is up by 1. 8 . Royal bank of scotland, up as well. There are a few notes floating around about the u. K. Banking sector. Some negative but it seems the upside is prevailing this morning. But stern our attention to spain. Reckoning with catalonia. Is togional president address lawmakers in a move that risks a backlash from madrid. The threat of economic meltdown and democratic isolation cannot be ignored. We are joined from barcelona with the latest. Maria, lay out the scenarios we need to price in today. Huge expectation in catalonia, there will be an address to parliament at 6 00 p. M. What will he say . We think the referendum was valid and we will act on it, but clearing this unilateral republic would be more of a symbolic move. We know the more moderate side of the together for yes platform purdue prefers this option because it removes the word unilateral and the 48 hour deadline. There is also the option of going ahead as he promised and declaring this republic that would be enacted within 48 hours. This would bring major backlash from madrid. Guy lets say they go down the independence route. Talk to me about the madrid reaction, how quickly article enacted. Be maria rajoy has asked to appear before parliament in madrid, this would be a response to what we get today. The governor has been clear that if we see a document today with the word unilateral declaration or anything that looks like it, we are going to have to trigger article 155. That would dismiss him from office, which expands the autonomy region. The government could also say we are going to put in place a government for x amount of months. We could call a snap election and we could reshuffle key elements of Catalonian Society like the police. Much a question as to how they want to enact this article. How could they go about it . Luckily enough for them, they have a majority in the senate. Senate who votes, so with a majority you can know it is all clear for the pp to enact article 155. Guy final quick question. How stable is rajoys government . There seems to be a question over the socialists, who backed rajiooy may decide to take a different tack. It is a minority government. Do we need to Start Talking about early elections in madrid, as well . Maria that is a story we broke a minority government. For a long time, the markets operate on an idea that rajoy has a coalition. Rajoy is a weak minority government. Buying thisre not option, they dont want to be involved in this and a lot has to do with the king. Remember he said this is not about rajoy or whether you like it is aboutr not, maintaining the unity of the country. This option hasnt played out and we know the socialist party doesnt want to play ball right now. Guy thank you, we will look forward to that statement later. Joining us is the cio at wells fargo Asset Management. Sideu stand on the other of the atlantic and watch what catalonia, does it start to change the thinking regarding europe . I dont think it does. This reminds me of the Scottish Independence vote and we had a similar situation in the states in terms of a state like texas, there has always been talk of cessation secession. I tend to think these things blow over, so i would be cautious right now, but i think it will work itself out. Guy do you think we are done with europe trade right now . Are u. S. K you investors were remain positive on europe. Gdp has been at the two area. I remain constructive on europe. All of the markets including u. S. And europe have had a tremendous run. If you made your return target for the year, i think it makes sense. Guy lets talk about some of the return markets. I can look at the returns of some of these european benchmarks in dollars. Made 23 on the cap, on the dax, 26 . In italy, you made 30 . That is dollar trade. When you talk about how your hedging story is working, how much is what is happening with the greenback . Been the greenback has weak, and that helps multinationals in terms of translation. My view would be you take some of the high beta stocks off the table. What is amazing to me the correlations among all the markets of the world. You think about the alibabas, the . 10, obviously they had great runs, if you are happy and you made 30 , you probably think of scaling it back. Guy interesting you bring that up because that is a thing a number of investors have talked to me about. One of the attractions of europe is it doesnt have these kinds iftech stocks in them and you break down the returns, even the emerging markets, certainly the United States and you back out the tech stocks, looks like a different picture. Europe doesnt have that tech stock picture. Is europe, in some ways in my equity portfolio, somewhat of an uncorrelated asset . Is more diversified. You look at emergingmarket equities, 25 of emergingmarket equities are Technology Stocks and they have had a great run, similar to the u. S. Think europe is more diversified and that in a lot of ways is a good thing. You can argue euro has less downside than the other markets. Guy is there still a political discount applied . Kirk no question. You are is worry about brexit you always worry about brexit, you worry about catalonia. The Political Uncertainty element is higher in europe and some other markets and that is something you Pay Attention to. Guy despite what is happening politically in the states, has it narrowed because of the political turmoil stateside . Traditionally if you look back over the last 10 years, the political discount has existed. There is a lot of political in the states, is there a parallel . Aboutyou always worry geopolitical events. I think europe doesnt have the worries you look at korea, you look at the middle east, those are serious geopolitical risks. Europe seems to be stabilizing. Think about a year ago, we were talking about the break of europe. Europe, we were worried about european banks. A lot has come back and that cap goes to the Central Banks which really stepped up. Guy he is going to stay with us. Up later today, you bf ceo ubs ceo Sergio Menotti is here. The u. K. Prime minister outlines her plan for a no deal if negotiations recommence has negotiations recommence. This is bloomberg. Guy 15 make with minutes into the session, lets talk about what we are seeing. No clear sense of direction. Below the surface, things are happening. Auto parts under pressure, personal household and goods on the pick up this morning. Rising quite nicely. That is why that sector is outperforming in europe. The action appears to be below the surface at an index level. Rotation about sector and what is happening. Theresa may has won support from breads of hardliners after outlining her contingency plan for leaving the eu without a deal. Minister said to lawmakers the pressure was on the eu to ensure progress was made in these talks. A statement in which the commission in brussels quickly denied. They feel like they have the within hand. Another round of brexit negotiations began on monday. Still with us, kirk hartman. Back to europe, what is the perception of what is happening in the u. K. Right now within the states . Is concern. K there brexit is probably going to be more difficult than people expect. I worry about the bill that britain is going to have to bear in terms of getting out and i dont think negotiations are going to be as smooth as everyone thinks. The perspective from states is a bit of caution. The pound has always taken. He brunt of this there is an expectation banks might raise rates, would that be a mistake . Kirk i dont know if it would be a policy mistake, but you have to worry about the markets. A weaker pound is good for exports so ironically, the british economy has benefited from stronger europe exports because of the weaker pound. If you raise rates, you could argue you have a stronger currency. ,uy this is a very strong poll but i keep asking everyone who comes over and look at what is going on from the states. Is there a view in the states still that begs it doesnt happen . Ago, thaty six months was pretty pervasive. Does that still exist . Do the people you talk to thing brexit is going to happen or not . Talk to heare i says it has to happen. There is a hope in the states it will not happen. Hopethat is just based on and rationality and whatever people want to put into the mix, but they are saying six months ago, it would be irrational for the u. K. To do this. You look at the politics and what is going on, perfectly rational decision in many peoples minds. But Fund Managers in the states kept telling me this would never happen. Is that changing . Kirk our view is it is more of a middle ground. I think the train has left the station. I think the thought is trading agreements, things like passporting for all the countries will be negotiated and at the end of the day, it will probably be more of a middle path. You could argue in terms of politics and the pressure on theresa may, you could argue that is happening. Guy how many conversations you talk to involve mifid 2 . Lots when it comes to breaking down research costs. Asset managers like us will have to bear cost. Tax. K at it in terms of a it will be more expensive for us because we will have to pay more hard dollars for research than we would in the past. Guy is that going to change the way you behave . Kirk i dont think it is going to change the way we behave, it changes the economics. You could argue it would be more expensive for customers, but i think firms like ourselves will pay the cost out of pocket. I dont think at the end of the day it is going to help or impact the consumer too much. I think it is going to be more a tax on Asset Management firms. Guy is there a annoyance in the states about this . My view was there was a lot of lobbying going on on capitol hill to go around it, particularly with the rules as they existed United States. Kirk we always worry, there is a big concern in the United States about soft dollar and research costs. The concern is if it is a contagion that spreads to the states, because it is difficult in many cases to breakout research cost. Fixed incomes, which i think mifid 2 will be more impactful, on the equity side it is more difficult. The key to equity is the price and the volume. Even though a trade may seem more expensive, it may be in shareholders interest to take a better price even though you could argue the price of the trade might be a little different. Guy thank you very much, kirk hartman, wells fargo Asset Management global cio still with us. Up next, we look at traders in todays trading. Including pets at home, sold ordinary shares in the country. That is next. This is bloomberg. 23 minutes into the equity market session in europe. Not a great sense of direction at a headline level. Lets find out what is happening around the world with a business flash. Steel has kobe unleashed an industrial scandal after saying it falsified data in the strength of Copper Products using aircraft, cars and even a rocket. Companies including toyota and subaru said they had used products from kobe steel. Deutsche bankss Ceo John Cryan is losing the support of some investors seven months since his turnaround plan. , stakeholders said they want to see a turnaround to clear the trading business to continue to back the ceo. They said should he not deliver by the meeting in may, an external candidate may be the best option to replace them. A spokesman for Deutsche Bank rate declined to comment. Asset management, cofunded by alan howard is planning to start two more funds. The Money Managers funds designed to profit from higher more volatile rate expectations. They say the second plans to start tune soon. To comment. Declined rb mhs thirdquarter Sales Beat Estimates as the Worlds Largest luxury goods maker got a boost from rihannas line. Sales rose on an organic basis. With the median estimate analysts surveyed. That is your Bloomberg Business flash. Guy thank you. Market has been open 24 minutes. A lot of movers to focus on. Here is nejra cehic. Nejra sizable moves if we look at the midcap space, dominoes februarye most since 2016. Up 10 at the moment. In a tradings update, dominoes saying it sees its fullyear pretax profit at least in line with views. End ofo be at the lower its range. Dominoes gaining on that. 3. 4 , the most since july on the announcement of a new ceo. Jonathan lewis will take over ective december 1 four december 1. The biggest drop since february, after kkr sold 1600 ordinary shares, raising 119 million pounds. Guy thank you, your midcap moves. Thats talked about how things are shaping up and down this morning. Lets talk about what is going on. As you can see, it is a story that came out of asia. It is into europe. Maybe we need wall street to get back into gear, remember the treasury market was closed for columbus day. But not a lot happening. There are stock movers out there. You are seeing lvmh on the move , i think is any us is on the downside. Level, not much happening. Lets talk about politics. Up next, 12 days to go. Japans general election. We will bring you an interview with the partys leader to see where she see things going from here. A little take on what is happening over at the boj and whether she is fully supportive of them. That is next. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Regions catalonias president to address barcelona. Will he declare independence . Scandal spreads to toyota, mitsubishi, subaru are among the companies investigating safety. How far will the scandal go . Turbulence in the discount carrier space. What does air asias ceo make of solvency . Ryanairs cancellation crisis. Morning, you are watching bloomberg markets, the european open. I am guy johnson in london. 12 days to go until japans general election. A smallnzo abe with coalition. With voters undecided, gains by the native party of hope could prove key. Isabel reynolds sat down with the partys leader in tokyo. I do not disagree that the basis of japans security is the alliance with the u. S. Having served as defense minister in an abe administration, i have no the prime with minister in terms of diplomacy and national security. I am not yet sure whether the Trump Administration is stable. There are extremely dynamic personnel changes in the white house post. Want to look carefully to see what kind of administration this will be. The u. S. Erned about and china. For example, Climate Change has advanced considerably and i hear there will be talks between the two on north korea. There is a Positive Side to this but it is unclear what our countrys position will be in this case. Isabel on bank of japan policy, we have Monetary Policy monetary easing, has a gone too far . Should it be the president who decides when to have exit . The easing of fiscal pass packages have brought only a marginal improvement in the japanese economy and the results arent commiserated the efforts we made. While i think rapid policy changes are not desirable since that could destabilize the market, we should think carefully about the exit strategy. Abenomics is not sufficient. The economy, standing on our own feet is a healthier way rather than relying on extraordinary policies and fiscal packages. Isabel a poll released today show support your for your party has gone down. Why do you think that is . One factor is that the splintering of the Democratic Party has given voters my choice. Until now, there was no significant alternative to the abe administration. The partys victory shows that the nation wants change. The tokyo governor at this point in time speaking to bloombergs isabel reynolds. Plenty of coverage on that upcoming election. Daybreak asia will be live from tokyo for the 20th of october. Key newsmakers to deal with the fallout from that story. Lets turn to another country where relations with the u. S. Are under scrutiny. The u. S. Has blamed turkey for the crisis between the two countries. The lira tumbled yesterday. A resolution will depend on how officials explain two turkish officials were detained this year. That outpost being in istanbul. Lets get the latest from Benjamin Harvey, joining us from there. Any signs of deescalation . Benjamin not yet. Last night, the u. S. Ambassador to turkey published a written statement and a Youtube Video addressing turks, explaining the justification for this decision, saying it wasnt one the u. S. Laying down, and the conditions for resending it, which is that turkey guarantee the security of u. S. Diplomatic personnel and not arrest them. Hand, president erdogan in his remarks to the press said these arrests were standardt of a judicial process, which implied there is no easy political solution here. Guy it is interesting there hasnt been much contagion throughout the markets, and the turkish markets have recovered a little bit. How far are investors prepared to rice this in at this point . Think the bounceback today does suggest that investors expect this to eventually be resolved. Part of that is based on the assumption that u. S. Relationships are too important for turkey to sacrifice, that eventually they will give in make amends try to in this relationship. That said, it could take some time to read in 2015, when turkey had a diplomatic break with russia, it took eight months before those sides started talking about a solution. Relations are still not back to where they are and longerterm, the question is whether developments like this means turkish assets require a more permanent discount or premium due to political risk. Guy benjamin, great coverage. Thank you, Benjamin Harvey bringing us up to speed on the spat between the United States and turkey. Lets stay with the United States. The global cio at wells fargo Asset Management is still with us. To an extent, and trouble at home for the Trump Administration, trying to get policy enacted on capitol hill has turned out to be harder than anticipated. We have seen that with health care, now we are trying to figure out how far we should price and the ability the of tax cuts. Prettyhe markets are accurate, there will be tax reform and tax cuts. My view it is going to be more muted than the administration would like. In other words, i think there is going to be a middle ground. There will probably be some tax cuts, but they will not be as large as folks would hope. Guy so is the market overpricing it, then . Skewed what iter is anticipating. I think we had got it about right. I think there will be tax cuts, it there will be more debt. There is bipartisan consensus for repatriation of money abroad. Thing that is important to remember, there is tremendous pressure on the Republican Party in the states to get things done. Guy midterms are coming. Do i invest around this theme or is it already done . Come, i. E. , ifo we get repatriation, dwight by the flying stocks because they have big lumps of money sitting around the world. What is the tradeoff the back of this . Kirk in my mind, the trade is more in the debt market than the equity market. I think Interest Rates will go up. The fed has said they will stop the quantitative easing. I think the deficit will go up by virtue of the tax cuts, so there will be more pressure on the treasury market. I think the equity market will continue to do well because of stimulus, and i dont see that changing a whole lot. Guy how far do the yields go . Do we get up towards 3 . That has been the expectation for some time. We thought it might happen, turns out it didnt. We have drifted sideways and low twos ever since. Is there impetus to get see it to get yield significantly higher . Much. Three is too i think 2. 50 is a reasonable target but next year, 10 year treasuries probably go up to 3 . I think the entire curve is going to move up, if you talk about a couple of fed tightenings, the short and will move up, as well. Guy i am watching a cheap dollar, and equity market going up some of financial conditions in the United States are incredibly loose. Kirk i think the worry is the dollar and as we talked about earlier, the u. S. Economy has benefited tremendously from weaker dollar. If Interest Rates are moving up, you would expect the dollar would be stronger, which would hurt the multinationals. Kirk hardman, rajoy wells fargo Asset Management global cio. In a few minutes time, 20 minutes time, it will be myself and anna edwards on that program talking to kirk later on. Looking ahead, we bring you an interview with the chicago fed president , charles evidence charles evans. U. K. Time. Up next, Tony Fernandes joins us. We will be talking about the state of the industry in europe and in asia. That conversation next. This is bloomberg. 8 40 two in london, three 40 2 a. M. In new york. Lets get a first word news update. Faces a day of reckoning as the parliament considers a declaration of independence from spain. The mayor has said the results of the referendum cannot serve as a basis for secession. Three more companies are leaving the region. All shifting their legal headquarters to madrid. A firmer code Pharmaceutical Company is the only benchmark left. The u. S. Blames turkey for instigating the crisis between the two countries. A resolution would depend on how two turkish employees at an american outpost were detained this year. The state department stayed silent, a video statement was released on youtube. The embassy stopped issuing visas in turkey and prompted a response from turkish authorities. In northern californias napa,owing regions of wildfires have killed at least 10 people while more than 20,000 have been evacuated from the area. The blazes are sweeping through one of the most scenic treasured destinations, threatening the livelihoods of tens of thousands. Californias Wine Industry drew 23. 6 million tourists and sold aliens of dollars in the u. S. Last year. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Guy . Guy thank you. A year for airlines. Berlin, eric how you filing for insolvency. Than 20,000 services have been scrapped, causing public anger. What does this say about the state of the industry, what does it say about the lowcost model . Tony fernandes, the ca ceo of airasia, is going to give us perspective. You run a local carrier, you do it out of europe, do you think Michael Oleary has reached the limits of what a lowcost carrier can do . Not really for me to talk about ryanair, but i do believe in that model. We have used it quite aggressively. Lowest cost. There is a balance between being nice to customers and being prepared for expansion. Your staff,ice to as well. Dear reach a limit where turnaround times and cramming down on everything reaches their limits . Tony we have 22,000 staff, i started with 200 staff. We have no unions, we do 25 minute turns, i think there is a balance. You have to be efficient, but we are all regulated by the regulators. It can work. Sometimes, this isnt the First Airline that had it. You losing a lot of pilots sometimes. Sometimes you grow to quickly and get caught. These spiral into bigger problems. Of theere is a lot made Pilot Shortage around the world and the guys upstairs, the aviation team, we talked about their sense is there isnt. Do you struggle with gaining pilots . Tony at the moment, no, but pilots are costing more than they did a few years ago. There is always a catchup in terms of captains dont come off of supermarket shelves, but pilot numbers are ok. In asia, aviation has grown and hence, they have been soaking up a lot of pilots. Guy what is going on with china . You bring it up, what are your plans there . This is a massive moment . Tony obviously, china has been a huge market for us, we have 21 destinations. It has been very successful. We are now looking at starting a domestic carrier there, which would be the first in the world. It is progressing, i dont want to say too much live on bloomberg. Guy is it trickier than expected . Tony no more than japan, which we are about to open soon. Lets talk about india. Regulations have eased up a little bit, yet i am not seeing you and i have talked about india over the years. Are you a little cautious in india . Tony over the years we have been talking, we got two very Strong Airlines in malaysia and thailand, i said we were going to take the long view of this. Both are becoming profitable and the be public in nottoodistant future, indonesia first and philippines. India, we have taken our time. Aircraft, the4 key is to get to 20 aircraft and we comply fly international. It will be one of the jewels in our crown. Guy but it is slower. Tony we wanted to see what the Regulatory Environment was and that has cleared up. Asian bunch ofg countries with india, japan will start in the next few weeks and god willing, we will have something in china. Guy you have to get 20 aircraft before you can start flying international. Tony it used to be five years, they have eased that rule. We believe in the next eight months, we should be able to get to 20 aircraft. Having said that, because of this, we are making money in domestic now. We thought we could never make your back isn against the wall, darwinism, you become smarter. Guy what kind of fix have you made . Tony we got our costs down lower, we looked at routes that no one else was. We started in hubs that no one else was looking at and it worked out nicely. We were being killed in domestic and now it is making as much money as international. That is a good sign. Guy the aircraft you are ordering and the kinds of products you are going to need to make this work, there is a little surprise and this was a theme at the air shows a little while ago, that you were ordering smaller aircraft and some had anticipated. There was an expectation that you would go for some slightly bigger aircraft, you went with narrow body. Tony we are always narrow body, what we have done airbus was a great product, and in 2019, we will be getting that. That gives us an extra 50 seats. We stillthink think we can do 25 minute turns. Operator, wea 737 went to airbus with 180, this we will extra 608 get to 40. 240. Guy what about airasia x . , the we bought the 330 neo first test flight is in the next take ourand we should first delivery sometime in 2018. Guy the leasing business . Tony it is moving, should be nottoodistant future. Guy so we can expect news in the nottoodistant future . Tony i think so. We have to make sure airasia doesnt change its cost drop. We had quite a few offers, good to see what is best for the longterm. Guy there has been circulation the chinese arent as interested some buyers arent as interested as they first were . In fact yesterday, we got another buyer. We have to close the shop now and are closing the two or three buyers we have now. Been on thes have longterm at how much stake we keep and how much management we have and these are all new things that kept dropping out. We are almost there. Guy timeline . Tony id rather not say otherwise i will get in trouble. Guy this year . Tony that is feasible. When you look at how far you have come and how far this business can progress, where are we . Tony ryan air is about 40 odd years down the road, we are 16 years. We are in a much bigger playground than ryanair. A couple of exciting things are happening. One is the potential for airasia becoming one airline, such as ryanair, through a Group Holding company and owning 800 of the companys israel. Panies is real. There are some really cool things with data and technology, we are investing heavily in it. While amazon is buying planes, we have got planes. It is fantastic, we can do a lot of things in terms of ecommerce , sin tech and commerce business. I think the income pie will grow. We have a profitable passenger isvice service, which looking very good and doing joint ventures along the way and monetizing those joint ventures such as our eight academy. Academy. I always try to tell people dont put analyze us in the airline company. Bloomberg will always call us an airline. Guy you have planes, which is an interesting start. Michael brought in all of these kinds of people, the fast moving consumer goods side of things. Tony people have forgotten that airlines have very rich data, and that is now playing out in a very exciting way. Of how youms position your growth Going Forward as a result of that, the focus is on moving people from a to b, and you talked to kenny jacobs at ryanair and he says, we are still an airline. Tony never changes. If you think about walmart, think about people being drawn into their shop to buy products and then their product category kept growing and growing. Are moving customers from a to b, but we can do lots of things with those customers and i think data and wifi and Artificial Intelligence have all in able to us now to start monetizing those passengers. What in asia compared are the margins like in an airline and in that kind of business . Tony almost triple. Our airline makes about at a net level, 14 , 15 , somewhere around there. Levels,liatory income we are looking at 50 margins. Make good money from your passengers, but then you can really drive income hard and i am excited about the use of data. Where i think about is the company in 10 years time . Expansion,about the the perimeter in which you are operating is significantly larger. If you can consolidate it, if you can bring it in house and make everything work, how big can this company get . From twohave gone planes to 200 planes in 16 years. We are only just starting on this journey in india and china, 3 billion. We are targeting about 500 aircraft. We talked about alibaba, the evaluations that are applied to Tech Companies are massive. You have a captive audience that you are moving from a to b and you want to use technology as a result and that is your consumer poll. Pull. How do i value you Going Forward . Tony this is probably starting today at bloomberg in terms of what i have said. I looked up uber and alibaba and they are always trying to partner with us. We probably have better data and i have 35 million names, for instance. How do you value us . That is something for us to start showing the market that they shouldnt just value us as an airline and the upside, we will transform from an airline to a tech company. That is my vision over the next 10 years, but still a Profitable Airline business. Amazon is going back into brick and mortar. We are in the bricks and mortar bit, now we are going to the digital part. Asia has 3 billion people. About talked to tim clark technology, his eyes light up. Tony, thanks for spending time with us. Ony fernandes, ceo of airasia up next, surveillance. Francine and tom keene will be joining you shortly. Getting in the car, dab Digital Radio another option for listening to bloomberg. Anna edwards and i will be taking you through the next hour. At this point in time, we are waiting for some steer for these european markets. Have great interviews coming up. Charles evans will join us tomorrow at 1 30 p. M. London time. Looking forward to that conversation. This is bloomberg. Francine the regions president has due to address lawmakers in brussels today. Will he declare independence . Japans industrial scandal, nissan and toyota. How far will the scandal go . The ceo of Deutsche Bank said to be losing support out of investors just seven months into the latest plan. Good morning, everyone. This is bloomberg surveillance. We have a pretty packed show for you. We will have currency checks. Also