Transcripts For BLOOMBERG Bloomberg Markets European Open 20171018

Assurances it will not suggest to firms breaking out research costs. This is a mifid story. We will talk to mark cudmore about the story shortly. The Bridgewater Associates founder discloses a 300 million bet against the oil and gas. Iant we will speak to them tonight. Ofio is down on a bunch companies. We will figure out that story. Than half hourss away from the start of cash trading. Take a look at equity index futures. You will see not a lot of movement that positive on the ftse and the pound goes down, negative on the euro stocks eurostoxx 50 index. Take a look at bunds. 36 handle on bund yields. Looking at a 36 handle. If i click here on the onemonth you can see that we were much higher over the past month, hovering around 45, 46 the entire time and we have seen bunds. Eal movement in bimd yields have come down as investors that for safety. You take a look at the Fund Managers survey and the indication there is must Fund Managers believe the yields will climb, not fall despite what just we have shown us, the reality of what is happening in the markets. Result tradings after yesterday, resilient currencies trading stronger. The yen is interesting coming out of that survey, a strong positioning story on what is happening in chinese equities. There are two markets there, ofs pull this up, up by. 3 4 . Not a lot to write home about. Theyre very cautious response to the start of the 19th congress. Up, confidenceg is rolling off at. 3 of 4 . Down atdy Index Trading 1 10 of 1 . Lets get a bloomberg first word news update. Heres juliette saly. Donald trump has claimed his tax reform should be worth for thousand dollars year to the average household. Thehe claims he could give public the best Christmas Gift of all. Our tax rate is 60 higher than our average economic competitor. This is a giant self inflation selfinflicted economic want. Wound. Juliette u. S. President has said he plans to choose among five finalists to be the next fed chair and will make his decision soon. Will be unveiled before he leaves for an 11 day trip to asia and away on november 3. The latest nafta talks have wandered up with canada and mexico rejecting what they see as hardline u. S. Proposals. Discussions will run through the end of march next year abandoning a december target. Negotiators exchanged their strongest part public barbs yet as speculation grows that the Trump Administration will walk away from the deal. In both Political Parties say they have reached agreement on fixes to stabilize beforere two weeks americans start signing up for 2018 coverage. The twoyear deal would allow crucial subsidies to allow insurance to start flowing again. Potentially lowering premiums. The Trump Administration said it was cutting off payments and on tuesday the president called the agreement a shortterm solution. Eu countries are seeking to complete their preparatory work on a future relationship with the u. K. The council of the year which represents Member States will work with the European Commission s s this month on the key points. The move would keep hope alive for theresa mays government even as brexit negotiations remain stalled. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Thanks very much for that. Theident xi has open communist partys twice a Decade Congress warning of severe challenges faced by china. In a speech that ran for more than three hours he laid out a roadmap to turn the country into a leading global power. The main takeaways for investors from this speech . Maoist speech and there was a lot that was covered but i will zero in on those highlights for investors. There was a few points that were articulated, he said he wanted to see greater coordination between the monetary and fiscal arms of the government. He wants to see reform of the renminbi and Interest Rates regime as well. He wanted to see a lowering of trade barriers for foreign investment. He wanted to see stronger state companies. A number of different issues around the economy that he touched on. He also said there were issues around imbalances in the economy, a lack of productivity and we have seen these real estate curves in place, housing should be for living in, not speculation. Curvess to suggest the curbs will not eat removed soon. He did this in a framework of china that was moving toward a new socialism with new chinese characteristics, and rejuvenated nation that would be a leading global power by 2050. Guy what can we expect over the next few days . We will hear from the delegates, the state owned enterprise buses and some of the executives but the focus shifts to tuesday when the Party Congress reps up and wednesday is when they will unveil the elite group of seven, seven men who effectively lead china. Will standpremier his position. There are members who point to whether or not the president has managed to align his allies in that top and elite group of chinese leaders. Whether we will see hints of the successor because there is speculation as to whether andident xi will step down five years time or whether they in some other role. This is the president who is more powerful than president s we have seen in china for generations and so that is key. What happens with president xi and his allies on wednesday. We will get more clear guidance on that. Guy interesting the speculation is floating around in advance of that announcement. Very much. Journey us from beijing. You can review all the events of the day and the commentary surrounding xis speech, three hours plus, this is more of a market event. You can run through the blog as we have been tracking through that event. Mliv, bringing an mark cudmore from singapore. Muted market response, should we be surprised . I am surprised. By tomorrow we will have parsed the statements further and there might be some subtle nuances that are interpreted to this. Where waiting to see what the situation is with leadership. If there is no major reaction then if this does not provide a major catalyst it is a positive overall. The chinese economy is growing strongly so as long as this does overall, thist, should be a positive for chinese equities. It may take to the end of next week until we get into that framework. Matt lets take a look at u. S. Markets. Your piece focused on them and what could bring them down. They continue to rise, that should not surprise you because there were grey swan scenarios that would end this rally. Why with all the confusion around President Trump, all the concern around the fed, the uncertainty at least there as far as who will headed next, we continue with all the record highs every day . Mark the most important thing for equities as we have good mobile growth, strong earnings and abundant liquidity. Excess liquidity still. When she get beyond that you are talking about sector debates and specific companies but the framework for equities is exceptionally positive. I think this bull market should continue into yearend as we discussed. We did get one of these risk events that flares up. The base case should be a bullish one. Guy i am looking at my wei screen and the fair value calculations on the dow and the s p. Positive but only just. Very similar story in europe, the ftse has pulled up but not by much. Other markets flatlining. Should we expect fireworks in the banks . On this sec story . This sec story is quite big, they have offered a reprieve to Financial Firms that were trying to comply to method mifid regulations. Maybe that would be, cause them to have problems in the u. S. The fact that the sec is offering some sort of reprieve is like a positive for Financial Firms. Some people are saying it is not that big news because investors were hoping for a fudge but i talked to a lot of investors and theyre hoping for a fudge and this reprieve it was exciting as one of the risks going into 2018. The fact that it looks like the risk will be removed will be a positive for Financial Firms and that is positive for stocks overall but there is not much reaction. Sorry to get in your ear, i was worried you would leave without talking about it going. Bitcoins movements have a lot to do with the chinese regulations that had them but you point out there could be some u. S. Regulations that hit bitcoin. I do not mean to tell anybody how incredible this rise has been so far. That suddenly it is saying initial coin offerings might come under cftc regulations. This is big news but shortterm, it will not change the overall story for cryptocurrencies. We could see a pullback as this news spreads the market area data has not been there out there yet. I think it will become a bigger story in the next 48 hours. The market, the cryptocurrency market has been careful to avoid sec regulation and they have mightoked that the cftc step in. This is a blow to the 10 year cryptocurrencies that are started and it does not directly impact bitcoin. It might hit it shortterm sentiment wise. I give could be painful. That does not mean it would one he way higher in a months time. It is a good blog today. Go on follow it. We will talk about what is happening with the reentry story around mifid 2. And offering u. S. Banks a key reprieve. We will get the wider impact on what this means. Mark cudmore thinks the banks should be rallying around this. This is bloomberg. Guy 7 46 a. M. In london. Two 40 6 p. M. In hong kong. Here is juliette saly. Arabias oildi minister says they are ready to ipo. Lete the they declined to answer questions and whether chinese investors are interesting and buying stakes in the state owned oil giant. Bridgewater associates is adding to its short against the italian economy. The Worlds Largest hedge fund disclosed a bit. More thanad wagered 1. 1 billion against shares with six Italian Financial institutions and to other companies. We will be speaking with the ceo at 7 00 p. M. U. K. Time. 7 billion coal deal in mozambique keeps coming back to have them and they are drop grappling with another african misadventure. U. S. Authorities filed fraud charges against the company, the ceo and x cfo by elliott claiming they inflated the value of coal assets acquired in 2011. Would vigorously defend themselves. Marc faber has left the boards of three companies after making racist comments in his monthly newsletter. He wrote that the u. S. Would look like simple of way had been settled by let people and not white or code he is note for bearish and what for their noted stand what he calls contrary and views. Guy wall street may not have to overhaul operations [inaudible] assuring u. S. Banks that will not be punished for violating certain regulations within mifid 2, the requirements to charge separately for research. Goldman sachs announced he would charge 30,000 of kitchen staff to access basic research. Of staff to access basic research. Y is this important because this has been one of the big clouds hanging over the u. S. Banking industry as they look for visibility, why does this matter so much . Benjamin if the sec was not appear to do this then a lot of these brokers in the u. S. May be in a bit of a bind when they are , cellle to split out research to the european clients about the risk of reaching u. S. Rules. That is because they argued that they want to sell their research, they need to be licensed as an Investment Advisor and not as a broker. With the sec is suggesting is it will not release breaches of the rule, it will issue an action letter. That will provide some reassurance to u. S. Brokerages. Presumably, there is going to be some investor advocates that are disappointed i this. It seems to in some ways allow people to share shirk their fiscal duties. What are you expecting to hear . Benjamin there have been investor advocates who argued this is an opportunity for the sec to bring clarity and to follow the european rules in creating a structure where brokers should split out the costs of research and transactions. Asestors in the u. S. Could they will be having in europe decide where to buy their research from and where they want to trade. Matt thanks very much, Benjamin Robertson in hong kong talking to us about these mifid 2 rules, it sounds like a dry regulatory stories but they also go to the most read stories on the bloomberg terminal so clients really care about what is going rules andifid regulations. We will take out look at the movers and possible movers in todays equity trade including reckitt. And we will give you details. The open is eight minutes away. This is bloomberg. Matt lets get your stocks to watch right now starting with the lando. Down more than. 6 on trade gain versus the closing on the earnings disappointment. The company is saying it is happy between its balance with its balance between sales and product growth. The ceo saying it will be profitable for the full year. Although a real disappointment this morning, the Online Fashion retailer warning it may have had a loss in the Third Quarter as it invested to gain more market share against amazon. We want to point out akzonobel missing estimates for its Third Quarter as well. Akzonobel thirdquarter profit down 13 . Also saying that it is no longer going to have a better fullyear than last year, it is expecting this year to be in line with the previous years results although new ceo saying he is confident they will meet their 2020 goals. Reckitt benckiser is a stock we want to be watching, cutting its Sales Forecast after the cyber attack. The company saying this is persisting to the fourth quarter. The stock cool down around 2 . Keep an eye on rio on the fraud charges related to the disastrous coal investment. Miners could be affected by the china story. The other thing to watch his European Tech stocks, that could be a read across from the ibm story in the states last night because that could ripple into the european space. Keep an eye on the banks. Up next, the market open four minutes away. We will see a flat story in europe. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Guy what are we expecting here in europe . Cash is about to open. We are expecting mildly positive starts. China could be a factor. Bhp on the iron are stored. The ftse 100 was called higher this morning. Basically, it will take out a few gains. Watch the full story out of the ibm numbers. Matt. Matt the tech sector has not really had much of an impact on in u. S. B we have seen stocks. I have a great chart here, 3615. Dtv 36 15 on the bloomberg. It shows you the biggest contributors to the dow in its move from 22 to 23,000 here in orange purity see goldman, sachs co. In yellow, home depot. And bank of america. None of the tech company showing up. Guy let us see how we were going to the trade. The 100 trading higher. 75 25 is where we are this morning. This is the castrate purity ibex getting this is the cash trade. The ibex is up by. 2 . The cac opening up around a bunch of individual stocks to focus on today like akzonobel. We will come back to those names in just a moment. In the meantime, more details with nejra cehic. Nejra thanks so much. I answered in with the gilt market open right now. We saw the tenure gilt yield 1. 27ed six basis points to percent and it looks like we are unchanged because the tenure stay,ield at 1. 27 , so following our we are seeing in the treasury markets and the market ast as bund well. A muted open. We are up just about on the stoxx 600 to digging into the industry groups, a little bit of a mixed bag. Market as well. It is the lack of pullback. This chart, g btv 2851 a 5 drawdown. That is the chart to take a look at. Above 70, it suggests something might be overbought. That could be a signal. That is where we are with the stoxx 600 right now. Guy metal salt talk about some of the individual names. Gas higher again this morning. A number of other stocks i want to focus in on. The market seems to like those. It is rising nicely this morning on the back of that. On the downside. Akzo softer. Downgrading the sales line, trading down as well, down 1. 7 1 . You are seeing some of the weakness we anticipated. Other than that, we will get some more trends. I will come back and look at the sectors a little bit later on, but the bank is in focus, definitely. Goldman sachs said to ask 30,000, the number one most read story on the bloomberg in the past eight hours. Let us talk about that. Wall street set to win a reprieve. The sec is preparing to provide notal assurances it will object if brokerages break at the cost of research for u. S. Clients rather than bundling it with other Services According to people familiar with the matter. According to the mliv blog, this could set Global Equities to soa r, although we have not seen that here. Bank of America Merrill lynch had a survey that suggests investors are switching out of bonds and into banking stocks. With us now is the cio and founder of latitude investment management. Freddie, what do you think about this story . I think it is good news for the banks. We have been invested for a year or two now. Not on this thesis particularly, but can yo generally that it will drive it in the future. True, it reduces the. Uture burden that is only a good thing for the future. Guy speaking of bank of america, the survey shows investors are beginning to switch out of fixed income and they are looking may be to chase the banks more aggressively. That came out in the later survey which has just been released. How crowded do you think the bank prostrate is right now . Freddie i dont know. At stocks are trading alltime highs, so other people have got the memo now. I believe they are trading incredibly cheaply. The latter of these two points is most relevant because the banks are better than they were in history. Better capitalized, more liquidity, higherquality assets, and more improving regulatory environment. At 1. 3. Trading there is a great upside in the u. S. Banks. Guy is this a problem . Freddie to a degree. Trading is on the way out. It was all about a rate play. It is right. Bank of america publishing their perspective, a 100 basis point rise. To replace your deposits and at some point, you had to give back that spread. Guy quite a bit delay. The bank freddie is still high despite falling have despite having fallen. This would have been a shortterm boon for the stocks and a nice cash injection on earnings. In the long, Interest Rates levels do not particularly matter. Do you think about the rise in stocks that we are seeing in the u. S. . I am showing some of the contributors to the gain in the dow. The s p has not had a big down day for so long, and it does not seem like at least youre not getting from the government or the fed any impetus for this gain in stocks. Where is it coming from . Freddie i would argue that it is becoming more broadbased. For the last year or two, we have been depending on the tech stocks and these high hope, highgrowth stocks. As you showed from your chart, matt, the top five contributors, two of them were banks. I forget the others. They are more old economy and adth to thisbre market. We are drifting up towards alltime highs. The market and the world is very cautious on market investing. I still see equities as an attractive asset class for the longterm investor. Matt i do have bank of america on this chart in white. Goldman sachs is in pink. They are in jupiters as well. This chart, which is one that long itowed, how has been since we have seen a big pullback. We talk about on wall street the pause that refreshes. We have not gotten that in 247 trading days matching the longest ever streak. Do you expect a correction coming soon . Freddie i dont think this necessarily implies a correction. You had five more years of a raging bull market. I dont think this should be used for market timing, but it gives you indication of consumer sentiment, investor sentiment, to a degree. This is the last phase of a rally, pretty aggressive, generally. Where is the height beat of positioning if we were to get that. Of that has been let up by certain stocks, Consumer Staples. And what people are paying a huge premium for has been certainty. You will be paying a fortune for Consumer Staples or the high good businesses. What i believe people should be is whether there is less certainty or more of a turnaround situation, etc. , etc. That is where i think people should be focusing. Banks are one example of that in the last 18 months. Guy what is an uncorrelated asset right now . Freddie a very good question. Very little is uncorrelated. Caches but a much the only one you have got. Everything has a much better be to equities. To buy the most esoteric assets you can come up businesses you believe him up he affected by the general level of economic output and the general level of markets. Matt what about a safe haven trade . Are these as a thing cheaper . Do you hold a certain amount of gold . Notgrey swans out there platforms, because we can see the possibility of a war with korea, the possibility of a Government Shutdown in the u. S. Are pretty serious. Freddie i agree. There is a lot of worries. For the last five years, we have had lots of things to worry about, lots of these grey swans on the horizon. Play a goodgold part in hedging a portfolio. That is good at reducing the risk in one portfolio given the doctor. Given the dollar. It would work with more political uncertainty. The man that, save havens are difficult to find. It is very low yields. Inflationary bonds, they are very expensive and promising in negative real yield. Other than that, it is difficult to find havens for your money, so you should be investing in stocks to the risk level you are comfortable with trying to reach or more return at the moment. Stick around. Plenty more to come from you. Stay with us. Ill the spanish story never far from our minds right now. Remember the deadline is tomorrow morning. Spains parliament in focus right now. This is a weekly address. Elivered by the Prime Minister given what is happening in the political turbulence in spain, a firm focus on what is happening here. He does this every week. Today maybe a little bit more interesting. Are we going to take is he going to take us any further forward . I doubt it. He is probably waiting for news tomorrow. To get those two whatemen in the shot, and he is thinking could be an interesting part in all of the spirit we will talk about the bank of england. Will the boe risk a rate rise . We will look at the jobs data and the u. K. Economy. That is next. This man in focus, mark carney. This is bloomberg. , moreare bigger movers interesting stocks stories, a lot under the hood. Let us get to nejra cehic with your midcap stories for us. Nejra thanks. We have got moves in the big caps face. Interesting nonetheless. A lot of moves on the rating. Makeirector will no doubt fun of my spanish pronunciation. This is largely through selfservice franchises, up 1. 9 percent right now. Basically upgraded to equal weight from underweight at morgan stanley. And then on the downside, right now, although i have to say merlin earlier was gaining by as much as 1. 2 , just switched to unchanged. We saw the stock jump as much as 20 audit outlook for its ebit data. And outperform from neutral at credit suisse. Higher, butd move investors are perhaps losing their enthusiasm because it is now flat after it did gain the most in two weeks. Really on the downside, down in and dropping the most six months. The Telecom Space reporting data for the Third Quarter. It is one of the worst performance on the stoxx 600. Indeed. Nk you very much in less than 90 minutes, the latest labor market data from the united kingdom. Bloomberg intelligence economics will probably hold the key to a bank of england move on rates at its next meeting. The bank has kind of promised it is going to raise rates, and the market kind of has priced that in. Carney did not walk us back from that yesterday. The labor market data comes out at 9 30. Us today, cpi of 3 . Today, on major screen. I can tell you we are looking for a number that is somewhere around 2 . Quite a big spread. Pretty late. The cio is still with us. The question is a straightforward one. As the bank of england boxed itself into a corner . If it does not raise rates, how big of a hit will sterling take . Freddie it wants to raise rates keep up with the americans and try to show we have a Strong Enough economy to take it. Jobss you have a shocking summer, the 3 inflation number should be sufficient to see them try and raise rates by 25 basis points. It is totally priced in. Down half abably be to see they will try an indictment. I think it is difficult to know what that even means. Guy i agree. It is the talk of the last few weeks. We have gone from kind of getting a deal and a transition period to we now need to start preparing for a cliff edge. That seems to be a shift in the political tone. Whether that reflects any kind of reality, that certainly is the shift. Freddie far and away, the most pragmatic way is to expect the is somehrough scenario sort of brexit where we want to trade with the european block and still have reasonable trade access and the builds are not to huge. Too the extremes are unlikely and dangerous, obviously. Matt you have an interesting take on the uncertainty, freddie, in that you want to buy stocks where there is a lot of uncertainty because there is such good value there. What are some of those that you like, and what are some of those stocks you think are too expensive because it is a certainty . Uncertainty . Freddie the u. S. Banking sector has done phenomenally well and is now part of the survey being bought a view because people are unsure about the future in the credit cycle it may be enduring. This includes tescos, which is going to transformation phase and attacked by a in a hypothetical offense. It has 35 of our market in the u. K. It cut back its international expansion. I believe it will be doing a tall percent yield in 1. 5 years time. The stock can do fantastically well in the future. Should they limit sterling exposure due to this uncertainty . I think sterling is a very difficult currency to hold. Guy do you run your screen over what is happening . What is going on . Freddie my characterization is one where the economics of solid around the world. We have already priced that into the market. Overpricednk we have it in. Markets are a little bit expensive in some areas and cheaper in others. There is a lot of variation beneath the surface, which is why we are looking at the value stocks at the moment, which will do two things, especially if you can buy a tesco. It should not suffer a rotation or derating. It should participate through its own selfhelp story in the leg of the equity market. Guy thank you very much indeed, freddie lait. Up next, as president xi what it means for investors in the worlds secondlargest economy. That is next. This is bloomberg. Guy let me take you back to spain. We have got the spanish Prime Minister making his weekly address right now. What he has been saying over the spainew minutes is that is acting with moderation on catalonia and he is basically calling on him to consider the interest of all catalans. Remember that 10 00 a. M. Tomorrow, spanish time, is the deadline for him to say yes or no. We have had ambiguity out of the leadership. It will be interesting to see if we get some sort of clarity coming through. Spain will apply if the catalan do not comply. The threat exists right now. Let us shift away from what is happening in spain. Talk about what is happening in china. Has set out speech of the agenda for the next five years and this will say that she is holding the line on ambitious growth targets and maintaining a conservative stands on the role of the state sector. Freddie lait with us. You do not invest directly into the emerging markets. A lot of people do. Why dont you . And what advantage do you feel any disadvantage as a result of it . See shorttermn rallies. Stocks are exposed to the emerging market. Unilever is a good example. It would be the cowards way, but nevertheless, it works. We find stocks us it were Corporate Governance is better and we have more access to understanding more disclosure, far easier in the long term. Less volatile regulation, etc. , etc. It is a very specialist skill set we do not have, so that is why we do not do it. Do you look at Exchange Traded funds . Freddie we buy single stocks only. If youre going to do that kind of research, bottoms up research, then that makes the most sense. How long do you think this emerging markets rally can go on helping to boost stocks Like Unilever . Caroline i can talk about the markets in general freddie i can talk about the markets in general. They had been trading cheaply. I am quite bullish on the emerging markets as a whole. I think they are much less indebted and reliant on the bt as well. Al de most of them have managed to balance the economy. I am seeing president xi just talk. It is much more balanced and now. Matt freddie, we will come back with more. This is bloomberg. Markets. Ed investors trade cautiously as xi onping focuses on reform chinas 19th Party Congress. A wall street wintry the ftc appearing to a wall street win. Boost banking stocks . Down on italy. The Bridgewater Associates founder discloses a three and a billiondollar bet against oil and gas giants. Bloomberg speaks to the ceo at 7 00 p. M. U. K. Time. That is an interview you dont want to mr. Good morning. Welcome to Bloomberg Markets european open. I am matt miller in berlin alongside guy johnson in london. Guy 30 minutes into the trading day, let us talk about what is moving or not. A ftse is trading higher this morning. The basic resources sector doing reasonably well. Europe is notvel, exactly known for its technology, but technology is outperforming. Parts are doing reasonably well. That is where the money is going this morning. From . Is money coming it is interesting. The Banking Sector is down by. 2 . Ist is where the money rotating out of this morning. Financial Services Also part of that mix as well. Bloomberg first word news update. Here is sebastian salek. Trump has donald claimed his tax reforms will be worth 400,000 a year to the average american household. In gettingr help legislation passed so he could give the country the best Christmas Present of all. The business rate was in the fire line. Pres. Trump our business tax rate is 60 higher than our average economic competitor. This is the giant selfinflicted economic wound. Sebastian meanwhile, President Trump said he plans to choose from among five finalists to be the next Federal Reserve chair and will make his decision soon. Or enjoy person familiar, his selection will be unveiled before he leaves for asia and hawaii on november the third. Latest nafta, the talks have wound up with canada and mexico rejecting hardline u. S. Proposals. Discussions will run through the end of march next year, abandoning a december target. Negotiators exchanged their strongest yet. U. S. Senators and both Political Parties say they reached agreement to stabilize obamacare just two weeks before american signup for 2018 coverage. The twoyear deal would allow crucial subsidies to lower Insurance Programs during the Trump Administration said last week it was cutting off the payment and on tuesday, the president called the agreement a shortterm solution. European Union Countries are seeking to have a future relationship with the u. K. This year. Officials, they will start working with the European Commission a. This would keep hope alive for theresa mays government. Global news, 24 hours a day, powered by more than 2700 journalists and analysts said more than 120 countries. This is bloomberg. Guy, matt. Matt quick headlines that we are getting from the german top the ecbs qe. G this has come up a few times. The news would be if the court had not rejected it and it had butn up against the qe, just giving you that news as we get into this german political story. Party leaders are meeting for the First Time Since last months federal election. The chancellor, angela merkel, is stealing herself for lengthy negotiations as she works to form a new government. For more, todd richards, joins us tony joins us on the set in berlin. What are we looking for out of todays meetings . This really is the preliminary start of an theseatory phase, so things have their rhythm. What i think they will be doing , alistening to each other get to know you event, although obviously, these Party Leaders, including marc, all know each other very well. But you know, you will not be know, ther, you immediate agreement today. It is about setting a schedule, getting an idea of where we want to progress. Maybe some policy priorities for discussion. Matt will the ftp and the greens be feeling more confident in negotiating with merkel after the cdus defeat in the elections last week . Tony certainly. That certainly has been the tone. They are sort of taking up this narrative that merkel is weakened. She won with a huge majority four years ago. This time, she is kind of she has kind of been cut down to size. A lot of this has to do with alternative for journey. For germany. There is a sense that merkel will somehow need to be more willing to compromise. How that actually plays out in the talks is a completely different question, of course. Is it one of these situations where it is not done until it is done . We have to wait until right at the end of this process before we get an understanding of who is going to be the finance minister in these big positions we are looking for, or is it going to be one of the things that slowly comes out of the process as they get closer to some sort of formal deal . Whatie what the tony the cdu, the Biggest Party by leave the to do, is cabinet post until the end, and that is there clear objective. That is merkels objective. That includes who replaces cooperman of the replaces Wolfgang Schaeuble at the finance ministry. They do have a lot to discuss on policy questions. For example, immigration also. Energy. You would imagine that they would hunker down and camp down thosep down some of things before they talk about who is leading the policy and the ministries. Be a longs going to negotiation. Probably, i dont think we are expecting it to be finished until christmas or even january february. Tony the notional deadline is always christmas. In this case, some of the Party Leaders have said we may go into next year. There is definitely weeks and weeks of talks if this is true. Matt tony, thank you so much for joining us. Us, freddie lait, cio and founder of latitude investment management. Freddie, i wonder what your reaction as an investor has been to these last two german elections and to the Coalition Talks . Does it change at all for you the picture of germany and its role in europe . It does not. E, to me, it is a continuation of a theme we have been seeing the past two years across europe. More political division. More, a greater rise of extremist politics on the right and left around the world, really. But throughout europe as well. It sets up a new stage for a different sort of society in europe over the next half a generation or generation. I do not see a huge risk from an investment perspective and i do not see it diminishing germanys role in europe because it is not specifically a german problem. A lot of it has been placed at Angela Merkels door. It is something that happens across the country and the block. I do not see it as weakening their position. I do not see it weakening at that price allocations other than maybe boones in the future bunds in the future . Matt what is the risk . The s p and the dow seem to gain the headlines, but we had been on quite a run in europe as well. What are the risks do you think to the bull market in european stocks . Freddie the key risk is term,ly, shorter political, the ecb. Asset prices, equities included around the world, have been driven by ultralow Interest Rates and excess money supply. Same thing will hit them, which is likely to hit the s p and the dow. They will likely roll over a little bit as rate expectations move higher and bond yields move higher, so in the short term, risk around catalonia will drive shortterm sentiment. Europe has certainly caught up with america. The beginning of this year, it was trading on a cheap valuation discount. It has caught up to that level of full valuation america has for the risks which are higher than we were talking about six months ago. This is short of italys banks. We have problems surrounding some of the spanish banks. There are issues surrounding the credibility of them. There are issues surrounding what is happening in cs right now. We have activist investors taking a look there. Can i think about european banks with trade which trade on a book value discount to their u. S. Peers as an attractive option . Freddie that discount is a justified discount for the lack of quality in this Business Models. If you compare precrisis to post prices, they genuinely postcrisis, they genuinely computed. They are dimensioning in terms of their scale. They had up been able to invest rusesinesses because their was so leaky in the crisis. They have Quality Capital and ended up dominating the market. To me, it is talk and cheese on alk and cheesechla on the outside of the market. Guy will that change . The economic in data, if it improves, just from the sort of basics of the banking business, lending to companies, providing credit, getting those Companies Going again, you would have thought that there is some upside here. Freddie to a degree, they get a lifeline from a Stronger Economic backdrop. Automatic. The Balance Sheet is a key issue mentioned. The second one is the Business Model. Have they invested in technology to the degree they need to . People work in technology, 50 in goldmanications sachs in technology. This is where the revolution is happening within the banking system. I know for a fact that the American Trading systems and risk systems are so much further ahead of the europeans that i do not think they are going to be able to compete with a Business Model that is far more superior. Guy thank you for spending so much time on Bloomberg Television and earlier on bloomberg radio. Freddie lait, founder of latitude investment management. Up next, as president xi lays what it means for the markets. Guy 3 44 in the afternoon in hong kong. Let us stay with the china theme. President xi jinping severe challenges faced by the nation. The country will continue opening its doors to foreign businesses and he pledged deeper reform of staterun enterprises. He also talked a great deal about corruption. In fact, that was one of the highlights of the speech. Simon is an emerging markets strategist and is with us on set this morning. There was no breaking news that came out of this. This was continuity, a continuation of what he has delivered thus far, a cementing of his position. I fully agree with you. The good thing here is that we have stability. The most Important Message that could give is a sense of stability in china, although corporate debt is very high and they had to with these issues. That is the most important thing given we have such a geopolitical mess everywhere else in the world. Sort of a political event first and foremost, about leadership and on the kind of bits that go around that, and economic stuff is kind of criminology, trying to read be between the lines as to what is happening here. As we digest, is that were the focus is going to be, reading between those lines . How much harder is it to read the economic stuff . Trying people have been to read between the economic lines for the last five to 10 years. Essentially as data becomes more available, it was low. All these types of things. More needetting a bit a bit more needed gritty into the details. But who is exposed . If you include the private and 200 60 . Ctors, it is the highest in emerging markets and on par with the united states. Economics is very important here, especially given the ebt exposure. Matt talked to Christopher Lee global. He is concerned about the corporate debt situation. The household that situation, he likened to a rhino that has slowed down but its still aggressive. I am looking at the household that situation in the debt situation. We have gotten deeper data. In the yellow, shortterm household loans. In blue, medium and longterm household loans. It looks to maybe have peaked here and maybe rolling over. The situation is Getting Better and do you think president xi is on it . Think theefinitely situation is Getting Better. We are admittedly coming from a very high level. If you look at the data, which is probably the best data out there, it shows you the credit gap, credit divided by gdp compared to its longterm trend, the gap has fallen from 28 at the beginning of 2016 to 22 now. There has been a move there. It has to be gradual. You cannot have a treatment in china. It will not only affect china, but the whole of the rest of the world. I think that is why what is happening today and in the congress is so important given we have seen the likes of the strongly in the last few years, increasingly realizing the fact that china is the second largest economy in this world out of the u. S. After the u. S. Matt do you have to be invested in china in some way, and if your answer is yes, then how . Simon it really depends on what your mandate is. Wethe moment, we are more are less exposed in asia, given the spreads that are so tight, especially in the chinese corporate space. Countriesreasons like in Eastern Europe and subsaharan african countries. It depends on your mandate, but at the end of the day, we must remember that most of the debt in china is local debt, so the external debt to gdp ratio is the lowest in emerging markets out there. Guy just a derivative question. One of the things xi did say this morning is housing is not for speculation and it has been one of those big areas we have been focusing on in chinese housing data. Todayan i take away from about chinas demand for Raw Materials Going Forward . A lot of people are invested in the big mining stocks and around those big mining stocks. Is there anything i can derive from the message that xi delivered . Simon i think you can derive from his message, and you have seen this with other leaders in the party, that china needs to continue growing. We have been moving in the space for 6 to 7 gdp growth rate in the last few years. This year is probably going to be higher than most of us would have expected. You look at this moving down to 6. 1 definitely. Absolutely. Way, it is, in a better to have a planned economy. At least, there is some sort of a plan over the next five to 10 years which begs a lot of questions in other countries like europe or northern america. We need to see a plan, and that is why and mentioned that at the beginning of this discussion, the stability that xi is presenting it takes into account the whole housing and real estate business we need to see stability from the major powers and coming up in the united states. We are not seeing that at the moment. The message coming outside. That is the most important part. Guy he talks about foreigners gaining access and increasingly opening up the chinese economy to the world. Aswill be seeing the msci china becomes more and more part of the benchmarks we all rely on so much. The china export stability as it becomes more and more exposed to the rest of the World Economy . Simon that is the biggest china for china geopolitically. If you read through his comments, he did mention that military powers that i think we need to take at face value. As we have seen with the whole situation in north korea, and obviously south china sea, we need to see this message become a bit clearer or more pacifying, if you like. The u. S. Foreignpolicy, in this point of view, is challenging china to become more pacifist in that direction. Matt exactly what i wanted to ask you about, simon. How does global wall street view the north koreau. S. Situation, and especially chinas role in that . Sayingso many people china could put a stop to this easily, but i am not sure that is the case. Simon you have been reaching all the stories about how north korea does manage to export it does manage to bring capital into the country. Bloomberg has written a number of stories in the last couple of weeks. It is to a to completely isolate the country as we have seen in the past. China does have a major role to play here. The message coming from china is the most important. Again, we dont have one single clear policy message on north korea from the united states. Think china has the biggest role to play here and we as investors are looking to china to see what the next move is on this. Right, some inclusion on os and simon quijanoevans. If youre lucky enough to be in london and have access to london dab digital radio, you can tune in in 10 minutes time. We will bring you the stocks on the move, including reckitt blaming lackluster demand for footcare products. Not the only thing they make. This is bloomberg. Guy good morning. Welcome back. You are watching the open. Let us talk about some of the stocks on the move. Nejra cehic. 1. 2a akzonobel down percent, abandoning a target for Profit Growth this year after thirdquarter earnings missed estimates. Earnings now in line with 2016 levels. The separation of the Chemicals Business kicking off in the coming weeks. Zalando, europes biggest on may becomer, unprofitable, spending more to keep up with amazon. Reckitt benckiser cutting its Sales Forecast after revenue missed estimates. Matt. Matt thanks very much. Of next surveillance up next, surveillance on Bloomberg Television. Francine china right thing. The communist party begins. Wall street catches a break. Constrains. Odge morning, everyone. This is bloomberg surveillance and im Francine Lacqua in london. We are live in beijing to bring up the latest from the Party Congress. We bring in theat