Anna good morning everybody. This is Bloomberg Markets european open. Are not going very far or fast on asian equities or the pound but we are on the eight Australian Dollar. A big week for attacks on the United States and that is infiltrated in an attitude toward stocks globally. We saw Global Equity markets touching new alltime heinz. We do seem to be getting more policy in the u. S. Features. We have seen equities moving up little bit. Tech stocks are very much do sure over in the United States. On the pound, we are little to weaker. Down almost. 1 . Given the challenges that ,heresa may faced yesterday its perhaps quite impressive, the pound pretty much holding. They are still confident some sort of result can be reached in times for that had to state meeting. The brazilian the Australian Dollar up by. 60 . It led the investment kick unity to suspect higher interesting suspect higher Interest Rates. Manus the markets are hopeful. Therisk reversals there, possibility for a deal is still there. Ive been banging on about this. This is your chart. Btv 79. The distance between financials and tact is the widest in 17 years but will that gap begin to close . The scale is beginning to close. The bank index is the highest since 2007. Its been running higher on deregulation and Federal Reserve interest hikes. Joining that chorus, you have vanguard saying, global volatility may hurt equity but they still have u. S. Equities rising by 3. 5 . Jpmorgan saying there is further upside in the equity markets. Im not telling you its 1999 or 2000. Im just saying the mind the gap. We will discuss this little later on. Lets get your first word news with juliette saly. The Supreme Court has allowed Donald Trumps travel ban to take full effect while challenges go forward. It hands him a major victory and suggests the court will ultimately uphold the restriction. The president will be able to ofrow or restrict entry people from six muslim countries even if they have a relationship with a citizen. The Australian Dollar has climbed to a three year high. Expectsral Bank Inflation to quicken. Countriess, up to 11 could be rubberstamped to be included in a registry of tax havens. This includes south korea last north korea and macau and marshall islands. This includes macau and the marshall islands. The u. S. Tax overhaul also be discussed. Its also important that it will be a on theneral discussion impact it might have in the World Economy. Bitcoin could be one of the greatest shorting many. Unities ever says bitcoin has been on a wild ride in recent days, currently trading at over 11,000 after plunging 20 at one point last week. Find more stories on the bloomberg at top. Been yet another volatile session here in asia. In and out ofbeen positive and negative territory 11 times. Australia close lower. Seng beingng hang weighed down by tech players. The csi 300 up by half of 1 . Lets have a look at some of the a globalcks, including company in taiwan up by almost 6 . This is an export company in hong kong rising unexpected u. S. Tax cuts. Tucson bobcat is south korean construction. It has had an upgrade from korean investments. A little bit further for that stock to run. Anna thank you very much. Briggs ignored brexit negotiations have had another stumbling block. Manus the meeting with the european president to connect took an embarrassing turn. Lets get more from nejra cehic. What went wrong . It really seems that it all went wrong with this phone with the deities arlene foster. They went into lunch around 1 30 p. M. There was hope that a deal would be made. There was talk that michelle he expected aid break throughout the lunch. It even made the pound rise. There was a series of twists and turns there in the afternoon. The lunch took about three and a half hours. At one point, theresa may put it cause hasuse pause. She stepped out to make the phone call. They did not specify what had gone wrong but we understand that there was an agreement in place on the irish border ahead of the lunch that unraveled during that meeting. Understand that it was the irish border that was the big Sticking Point. It was a really embarrassing turn of affairs for both theresa may and Jeanclaude Juncker. Anna fascinating to see the commentary about what can be achieved by the middle of december. There was a big debate as to whether yesterday was any kind of firm deadline. The u. K. Was downplaying it. Now we have even Jeanclaude Juncker talking optimistically about what can be achieved by the 14th. Commentsen we got this , and the pound was rising, there was all this hope. Were pushing back on the optimism and being a bit more cautious on the outcome of the meeting. When uecker and may spoke spoke theyr and may were optimistic. They say there could be a breakthrough before the meeting on the 14th. It could be difficult on irelands perspective. Its may look like dublin is making concessions. That may be a Sticking Point and make it difficult to move talks forward. Anna, manus. Manus thank you very much. In viraj patel from ing. I picked up on a food analogy about big macs and filet of fish. They be tempted with more cash . The eu bans are hard brexit looms . What do you expect . Would there be a great capitulation by all . We are moving in the right direction and thats reflected in the price. The soundtracks for november was you have to have faith. The only ways up. But its contingent on the transition deal. If we can get a transition over the line and take off some of uncertainty, we could see the pound trading at 140 against the dollar. What is trashy about the u. K. Currency right now . On thists trading unique uncertainty that we have never seen currency straight under. We are trying to make a future guests about what brexit is by not knowing the facts. For us, we focus on the near term. We see a lot of Political Uncertainty priced in. Theets underestimating cyclical benefits of what a transition deal could bring in. The pound should rally. You talk about that transition deal being underestimated. You also talk about, it could unleash a new wave. I think you are being overly optimistic. Im going to challenge you slightly. Overoptimistic on the backdrop of an aggressive carney. Everything has come to a standstill. I think Everyone Needs a little bit of clarity. Are we going to get a deal or not. Its transition enough . What we really need is the knowledge of the trading deal. Think for two years it would be enough just to unlock. Theres too much pessimism. The u. K. Toling for rebound back to 2 growth. Just a little bit would be to a steeper curve and a stronger pound. In the First Quarter of , if we learn the future trade relationship viraj viraj its optimistic anointing beyond that but First Quarter seems to be this idea that a lot of businesses are saying that they will make worstcase contingency plans by one year out from brexit. If that doesnt happen, thats the make or break moment for pound. A dayt think therell be when we wake up and the pound is trading at 20 lower but we have the worst case for sterling at 120 against the dollar. In the way that our enthusiasm, the market had read priced the ability of the bank of england to do another rate hike. Perhaps the market has misunderstood the raising of the rate and the propensity to raise more. Thisave we misinterpreted carney push . I think the reaction that the bank of england was putting a floor under the pound, thats a bit of a stretch. When it comes to the pound, we need internal and external balances. Too often economists focus on external balances. The pound has an internal dynamic to play. The bank of england is adding to inflation pressures. We just dont know. Brexit holds the key. Hey need to do something just a gentle tightening to keep the curve steep. Manus thanks ray much anna thanks ray much. Can find a Bloomberg Radio for more. Manus coming up, could thanuries be more exciting bitcoin next year . We will break down the call. Soon the euro group will have a new president. We speak to the portuguese finance members minister. This is bloomberg. Manus its 6 18 here in london. Its 2 18 in the afternoon in singapore. Beensci in asia has really volatile. Its gone between gain and loss 18 times. Union finance ministers are meeting in brussels to determine which countries to add to a tax a blacklist and how to tax companies. Foreign ministers including Rex Tillerson also engage in brussels. Anna the catalan Election Campaign starts officially ahead of the december 21 vote. One of the last minute late night changes the Senate Republicans made to their plans may mean higher taxes for technology firms. The Senate Tax Bill would maintain the 20 tax but under the senate plan, it could prevent Plan Companies from making use of planned tax rates property and new equipment for development. The largest shareholder in Deutsche Bank is being probed for whether or not it accurately reported its holdings. H in the takeover of europebased gate group. A spokeswoman declined to comment. Starbucks sees china surpassing the u. S. As its largest market. Ramping up its focus on china, starbucks will be opening its biggest cafe in the world in shanghai tomorrow. Its about the size of a football pitch. That is your Bloomberg Business flash. Anna thank you very much. Next year, could treasuries be more exciting than the coin . Perhaps they could be. The conviction seems to be that u. S. And german tenyears will rise. It may finally break above its threeyear range. The Bloomberg Survey started yesterday and will stay open until the end of next week. , lets askj patel him. Have you join then . Does the dollar rise on packs . Does it rise on yield differential . I hope it rises more than 2. 4 because you need something more than that to get the dollar up. Our highspeed is in line with that. Thats our house view is in line with that. The dollar doesnt need to rally. Idiosyncratic shock of the dollar may come through tax cuts but we dont see that happening. Potentially you could get the dollar rallying. The key is to reinflate productivity and were not seeing that in these tax cuts or reforms or whatever you want to call them. Dont see the dollar rising even if treasury yields to rise. The estimate at the start of this year was 2. 75. We are not quite there yet. Market makes a forecast of how high the tin you year can get as it disappoints. Thats where the dollar takes its cue from. Becauseing through eurozone yields are picking up, but yields are picking up. Thats not a dollar positive story on its own. Currencies across the world need relative to virgins. When not going to get that in a synchronized global economy. Us, the dollar continues it cyclical decline as the rest of the world catches up to a later u. S. Work u. S. Economic cycle. Theres a clear relationship fear. Thats the story for 2018. That furthertake forward, you have had a look at Global Policy uncertainty. Global policy uncertainty has been falling. Thatf the consequences of for Global Central Bank policy . Sit, Global Policy uncertainty drops, you go into the beginnings of a huge heightening cycle. A new cycle has been given birth to her. Viraj policy hit off alltime high in 2013. Weve seen it synchronized across major economies. Thats because politics has taken a backseat. Limelight is on global animal spirits. Global confidence, global investment. That equals a good investment environment into 2018. 2018 outlook is happy hour. We have this happy hour window where these conditions will continue but by definition, it has a high time limit on it. Maybe six to nine months. A be the back end 2018 we get a turn in the cycle. Like every good operator happy hour, it should be time that did. Does the global happy hour finally boost inflation . Central credibility, how do we view the appointment to the fed board of governors and the battle to get inflation to pick up off the ground in the u. S. . Credibility, blow to present is not a credible environment for the credit fed to be hiking. If you look at historical chart, we have not averaged at 2 since the crisis. Talking about price level tightening. We saw hints of that. That goes to show where the inflation concerns lie. They are on the dollar side. For us, the happy hour continues. If happy hour ends at one bar, you just hop over the next. The global synchronization story keeps going doesnt it . Coming up next, chinas slowdown. We will discuss with that means for the chinese economy. This is bloomberg. Anna this is bloomberg daybreak europe. 54 is where we trade. Lets talk about whats happening in europe and brussels. Wasportuguese minister decided to head the european group. His job is to narrow the economic wrap across the union. We have a Strong Economy with all Member States of the 1. 5zone are growing above for the first time in many years. We have a balanced budget overall with a positive outlook. Theave the ability to make area grow even faster and for a longer. Of time if we implement the reforms needed. We have a long debate ahead of us but its important to note the time window that we have following the electoral cycle that several countries have , its a political cycle that is just beginning. We need to take it vantage of that. Ambitious reforms. Which do you prioritize . I understand you want to get consent first. What the you prioritize . A common budget . Expanding the european stability mechanism to become more like an imf . Being the chair of the euro group, i have to be a generator of consensus. My opinion is important but i am more of a listener now. But what is your opinion . I think i cant translate what has been going on in the euro group in the last several months. And the issueson in the financial sector, the risk reduction, risksharing management in the area. The issue has been raised on the stability mechanism to strengthen it. To allow it to respond to other different needs. These are the main priorities. Then we have a discussion on the budget. We have a discussion on other issues. The eurozone is the largest Single Market in the world and make it a much more Strong Economy and future. Manus that was nejra cehic talking with mary assenting out. Antino. Mario s chinese infrastructure is set for a major slowdown. Economists see growth easing. Joining us now is frederic neumann. We thought we would put this together for you in the form of a bar chart. What we are possibly going to see. Deleveraging, overcapacity. The frenzy of construction may abate. What does that do to the china story . Frederic this is Peak Construction in many ways. We have 15 years of massive construction. We see the beginning of that construction boom fading. This is the first parting shot. It continue to slow because of financial concerns, environmental concerns. China will need to find another growth driver and thats probably industrial policy. Robotics and semiconductors. Interestingly, the new Growth Strategy should benefit advanced markets more than emerging markets. Emerging markets export raw materials. Here we see now china demanding more in the way of factory robotics from japan and korea. Economists said they saw a 12 increase year on year. Was theot less than it 20 we saw in the nine or 10 months of 2017. How much gets made up for . Is not infrastructure. Its not subway stations and roads. Its private businesses. Frederic private businesses and some state enterprises as well. The big household names are going to invest more into internet backbone and so forth parted so forth. Its going to shift from steel and iron and coal to technology. Its going to be a slow down. They are not going to make it up in other areas so there may be a slight slowdown. But its good in the mediumterm. It could benefit the World Economy much more. Germany, korea, and japan will export more machinery to china. Manus china is inflating the world. China is deflating the world. About the asian inflation story and you have some concerns over that. We have indonesia, china, along with india. In china a few wobbles but to talk about the traditional inflation is. Story . Part of a global why the ecb and america cant fix 2 . Frederic it is. China, despite the economy growing 6. 5 , no Consumer Price inflation. That is reflecting some of the Global Trends in the west. The amazon effect. Amazon holds down price. In china, the ecommerce boom is well ahead of many western countries. Chinese shop more online than the average european does. That is holding back Consumer Prices. Thats why we see when the authorities react to reducing leverage, do they need to do it in very targeted ways . They need to the level the parts of the economy that are overheated while seeing that there arent the same inflation rushers. Frederic thats the difficulty. You have to deleverage the heavy industry sector of the economy but you also have to make Funds Available to the hightech actor which needs more investment. Where does that leave leave rrr . Frederic there may be a need for more look at the and the financial. There is some assumption they will go for a cut. Frederic it may come as early as january. Partly because of financial reform, banks are lending more and shadow entities are lending less. Banks have liquidity. Need to reinject liquidity and the banks to allow them to continue to lead. Over time its likely that it will cost the rrr. Spoke to anna the spoke to one manager who was more excited about india. I read an article about india stream of cutting freight times down from working days to 14 hours. Does the amount of infrastructures and change the case . Its not as if we are going to get a big new breakthrough on the infrastructure side. Drive lacking in india is investors, not the public investors. Indiarge conglomerates in are many overleveraged and have borrowed too much. Its that part that is holding back economic growth, not so much infrastructure. Manus back to china. One of the other debate is where the equity markets goes is anybodys guess china but the bond market has had its worst year since 2013. What to get your take. This is one of the worst selloffs in or years. Im a bit assessed over inflation. This is a warning well about that . About that . Ell aboutut warning bell debt . The chinese are rolling out a regulatory storm. They are reducing leverage among banks, nonbank financial institutions. A lot of these institutions have borrowed money short and bought bonds. Availableoney is less , they are selling these bonds. Its not an inflection of reflection of inflation concerns but a reflection of the regulatory crackdown. This may have further to run but it doesnt necessarily signal concerns of over inflation or a wave of defaults in china. 1. 82 trillion yuan year. Nded this bloomberg a subscriber you know what you can do. The charts and the video is all the side. Tv. Anna 20th century fox of prefer to sell some assets to disney because its a better strategic fit and presents few regulatory hurdles. Thats according to people familiar. The Murdoch Family is holding talks with disney and comcast. For more lets bring in dave mccune. Dave, good to have you on the program. Rupert murdochs much better known as a buyer than a seller. What is prompting him to consider paring down his empire . He built that empire as a visionary of media so he is looking down the road. It could be some years before this develops but hes looking at the rise of the googles in the amazons and apple has competitive threats. Tech giants are moving into the entertainments actor and companies are regrouping like that. Disney is in a strong position within that. They can leverage intellectual property with their theme parks that drives people to their movies and movies drive people to their theme parks. Its a unique asset that disney has the makes them a strong competitor in a Media Business that has all kinds of newcomers. Its reconfiguring at breakneck speed. Has a trackch record of looking ahead the next few quarters and the next two years. Manus in terms of strategic fit, how does this look . You hinted about it there. Why would disney needed deal like this . Is it a good fit . Dealsen some of these done in bygone eras and they dont fit. Thats why these talks have been going on and why they have been on again off again. They are trying to make the pieces of the puzzle fit together correctly. Disney is not big in the Television Distribution and. Thats are they could benefit from some of the fox accept. Fox assets. Its difficult to see. Theres also the question of hulu. Disney would gain control of hulu through acquiring the fox assets. Thats a project that has gone well so far. Now that disney has withdrawn from netflix, they need revenues like that if they are in full control of that that would benefit them as a company. There are a lot of options in pieces and how it goes together will depend on the negotiations now. Interesting to see how that will come out. Anna or whether there will be replicate regulate to reissues. Thank you so much dave. Losses oil is holy holding losses. We are live from dubai. Manus later, the 11th hour upset after there was no breakthrough on brexit talks yesterday. We will discuss the u. K. And the eus next moves. This is bloomberg. Anna this is bloomberg. In new york, it is 1 48 in the morning. Futures could be higher in the start of trading their. We are flat on the msci. Bloomberg is this flash. Heres juliette. Juliette one the lastminute latenight changes Senate Republicans made to the tax overhaul plan may mean higher taxes for corporations including technology firms. As amended, the senate tax you would preserve the exist in 20 alternative minimum tax but on the senate plan, it could prevent companies from making tax breaks relating to intellectual property and equipment. Chinese hna, the conglomerate, is being probed to see if they have misreported there information. A spokeswoman declined to comment. Starbucks sees china surpassing the u. S. As it largest market as it counts on the countrys affluence vendors to offset the rest of the world. Starbucks will open their biggest cafe in shanghai tomorrow. It is about half the size of a ball pitch. That is your Bloomberg Business flash. Manus thank you. Is below 58 a barrel. U. S. Crude is averaging about the war dollars a barrel in this allies as opec and its agreed to extend its outfit curve. Curb. People are debating whether this a vindication of opec. Global demand is help them as well. Definitelye benefited from the Global Demand picture. The prices sliding now. Its down almost. 2 . Thats off the back of yesterday slide. It was 2 down yesterday. That move has to be viewed yesterday. Know thoseoth expectations and positioning were very lofty. We talked about the possibility of disappointment going into that meeting. Speculative contracts are close to an alltime record. This could be viewed as a relatively good result for opec. We are not getting a huge rally but we are not getting a massive slide either. We have some of the opec naysayers eating their proverbial hats. Goldman sachs called the opec meeting wrong, but its now out with a note raising its forecast. Thank you. We have had the opec extension. What is the mood like in the middle east . To say it was pretty good up until yesterday afternoon. We had most of the main in this these in the green. The cats are benchmark is up one point or percent yesterday. It was the out performer in the that shecause we know can house on the is due to go to kuwait for a big council summit. The first meeting between saudi at its allies june. We thought maybe we would see some progress on the blockade issue. Out ofn we had this news yemen that the former president had been killed by his former allies. It will have to wait and see with this is for saudi arabia and the overall geopolitical environment here and for policy. Manus ramifications all the way around. Rate update. Is with us. Mann goldman is saying 2018 rent, they are changing. This is about the demand side. Oil demand a rise by 1. 221. 3 Million Barrels per year over the next five years. To what extent does asia way into this Global Oil Demand . Frederic on the demand side it is all about asia. The demand coming through from china for example. India is now a big player as well. On the demand side, its all about asia but that makes it important as china slows the construction sector. We are going to see less of a demand growth coming through. Eventually that will be reflected in oil and commodity rises. Anna we are seeing cooling in china around deleveraging affairs are to the economy. Is there anywhere in your world that you see picking up the slack china. Frederic india is always being heralded as the one that except where china left off but is still too small in overall can option to make up for a start slowdown in china. Inia is where china was 2000. Its about 17 years behind. To only not quite there make up the slack. One of the debates of 2018 will be about the velocity of Central Banks. These are the size of the balance sheets. Doesnt think theres a big distortion of the bond market in japan. How do you read this . Frederic these are the dirtiest markets and sucking up all the existing bonds. That has led to some speculation that they are close to a next next year. Over the past week we saw speculation that by next summer the boj may throw in the towel but that seems mature. Kuroda will likely stay. He is about one thing and that is bringing nation back no matter what. That distortion will probably stay for a while. Anna thanks so much. Rederic neumann from hsbc manus we see a little bit of a turn in the pound. Well talk much more about the pound of the irish border. Manus good morning from bloombergs new European Headquarters in the city of london. Anna this is bloomberg daybreak europe and these are the top stories. Manus the lastminute upset over the average border leaves britains struggling to forge a Brexit Agreement by next weeks eu summit. Anna the u. S. Supreme court lets the president s travel ban take place. Portuguese finance minister is elected to lead the currency bloc through ambitious reforms. We have the ability to make faster and forw a longer time if we implement the reforms needed. Manus this is daybreak europe, welcome to the show. It has gone 7 a. M. In london, 8 00 a. M. In central europe. Here is how the equity markets are opening. The European Markets are a little bit stronger. The dax up by 16. 5 ticks and asia catches the sniffle. Well the great rotation from tech into finance come through in this market . Global equities vanguard warning more volatility to come in 2018. They see gains in the u. S. But if the alpha comes out of the in nonu. S. Rcent markets. The paris market is flat. At have the pmi coming in 51. 6, better than the previous month. The risk is that there is some kind of contraction. Keep an eye on volatility in the markets. The vix, there is an a la fin trade in the vix. We will talk about that with our next guest area guest. Anna something that is not getting our attention to much is the asian activity. Not getting a boost from any renewed optimism around taxes and not selling off with that in mind. A leg up at the start of the european trading day. Lets look at what is moving and that is the currency market, particularly parked pound and the Australian Dollar. Down by. 3 of 1 . It went up yesterday on optimism around some kind of deal with the eu, enough progress to move on trade by the middle of this month. It unwound, some of that optimism because of the failure to do a deal in brussels. Junker still optimism, made. Rogress can be the pound under renewed pressure. Gus trillion dollar up. Octoberretail sales in and comments from the rba. They said they see inflation quickening which even though they make no change to their Interest Rates, how many months do you think . 15 straight months with no change in the Interest Rate at the rba. Other Central Banks have gone longer. Are in a bit of a run of low mortgage rates. The Central Banks managing to buy more i response. What does that mean for policy . Get on to the wish function and you can tell us what you think the bond yields are going to be nds, on treasuries. 2. 75 by the end of next year, it says. Treasuries could be more exciting than bitcoin. You see a slight drop. A slight rise in terms of yields. This is where the big momentum comes, bunds are on borrowed all saying europes safest securities are not overvalued. Year of duration grapple and soon. 3 is holding but it is a four. 85 by september of next year could be seen in terms of the momentum in these markets in the bund in terms of field. If the accommodation is reduced normalization could said in an socgen says you could get ready for an overwrite. Those are your markets and bond stories. Lets get to juliette saly. The divided u. S. Supreme court has allowed Donald Trumps travel ban to take full effect while legal challenges go forward. Victoryiven him a major suggesting the court will uphold the restrictions. The president will be able to entryl or restrict from people from six mostly muslim countries even if they have a relationship with a u. S. Based person or institution. It marks the first time the Supreme Court has let the restrictions take full effect. Dastardly and dollar his climb to a threeweek high even after the reserve bank of a straw you kept its benchmark Interest Rate at a record low. The Central Bank Says it expects inflation to quicken. At the same time retail sales beat forecasts. And brussels up to 11 countries could be rubberstamped for inclusion on a blacklist of tech havens when finance ministers today. According to the latest draft of proposals obtained by us, list include south korea, panama panama and barbados, macau, the marshall islands, and saint st. Lucia. Portuguese finance minister said the u. S. Tax overhaul will be [inaudible] it is important the [indiscernible] it will be a very general discussion on the impact it might have in the World Economy. Juliette global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. A very uneven session in asia. And out of positive, negative territory 11 times, the nikkei is down and tech players being sold off from the likes of sony and tencent weighing on the hang seng off by. 51 . There was a pick up in the big cap players and defense layers in china and the cost me ko spi looking good. Still upside for the Semi Conductor industry and south korea. Down byned tencent almost another 2 falling for a fifth session, it has raised 55 billion in market cap in a week that a lot of analysts saying this is still a buying. A buy. It did have a broker upgrade and we are hearing there are tax rebates. Theing the marshall up most in two years. One of the best performers in the region. Seeing thell not same tune to Harvey Norman but i do know it. Brexit negotiations hit another stumbling block. Talks unraveled following an 11th hour intervention by northern irelands leader. Anna theresa may came closer to a deal. Negotiations took an embarrassing turn after a phone call. Talk us through what went wrong, she stepped out of the room or made a phone call to the dup and there was no deal. Good morning. It seems that it all did go wrong with that phone call. They were High Expectations ahead of the lunch between theresa may and junker. Expectations of some sort of breakthrough particularly after the eu chief negotiator spoke to them and he had talked about a breakthrough at the lunch. The pound even rose on that in anticipation and that was high. To lunch. Nt she actually missed the scheduled meeting with donald tusk at 4 00 p. M. She stepped out of the room at one point and put the lunch on the dupmake up call to leader Eileen Foster who is propping up theresa mays government in london. Things moved quickly. Shortly after they made a brief statement taking apart questions from the press. They said they had not been able to reach a complete agreement on everything. They did not specify the reasons for the breakdown in talks. The irish Prime Minister said dublin and the u. K. Had come to some agreement on the irish border and it unraveled during the lunch. It seems it was this phone call that did it. Ulster has a great saying and it is one word, no. In may is getting a lesson finding what it is to find arrangements. It looked as if there was Good Intention on the podium to keep at it. And quite optimistic from the european side doors that me trying to see the upside in this . Youre right. There was an optimistic tone struck by theresa may and john juncker. Jeanclaude was hopeful that a breakthrough could be made by the december 14 eu leaders summit. The u. K. Wants the talks to move from divorce through to trade. The irish Prime Minister said even if we have a breakdown in december perhaps we could have another summit in january. The problem is there is an issue here according to a person familiar that ireland came to some agreement. If the talks to move on it will look as if to what has made some concessions to the u. K. And also to the dup and that is a problem. We have talked about the irish border. There is a Sticking Point through the talk. It is hopeful and they were hopeful talks could move on in december. It is not sure and they were so many expectations ahead of yesterday and look what happened. Anna thank you very much. Now, good morning. , and you canhart pull this chart up and use it. Underlining the volatility weve seen in the pound. We have been laid up the slope of expectations and dropped down the cliff once again and taking another leg down on the pound. As we come into european trading hours. What are your expectations and how it trades . Patrick we are short sterling. We will see a lot of false da wns. She has so many competing forces within her party, within the country and the Weak Coalition she has right now, it is difficult to get everyone onside and on the same sheet. It will be from with difficulties and difficult to see how she gets unity in the single voice she needs to be constructive in this discussion. Manus that is a bearish take, probably a pragmatic take. Do you then increase the probability of a hard brexit . I am extrapolating forward. Recession in the u. K. , none of these things anybody wants but if that is your thinking, how are you position for it apart from being short sterling, where is the downside in that trade . Patrick if you get a great deal, with the transition and hope for a soft brexit, sterling is going to move up from here. Not sharply. It is not going to be a great win, it will mean that we have another 36 months of what we are going through now about moving toward seeing some. Ins and starts. Uncertainty kills an economy. Forecast at 1. 5 . It is not tremendous growth. Manus that is different from what we have from our last guest. He talked about the value of the transition resetting not necessarily igniting but he did release some of that frustration. Why do you disagree . Patrick it has got fire it value but it does not get rid of this subtle, slow headwind. If you are a ceo when you are investing millions of sterlings you want to know the rules. It is a clearer picture if you are investing in frankfurt or paris or dublin or the u. S. It is very difficult to cross that bar when you have that uncertainty. It is going to be not falling off the cliff, not a disaster, but it is going to be the subtle headwind the rest of the world does not have. Anna are you positive on u. K. Global stocks . Patrick the position in the u. K. , we own some hsbc and shell. They are listed in the u. K. We are sure the ftse 250 which is more domestically and cyclically oriented. That is how we are playing equities. Anotheread base that to currency it might not be any better than any other bank in the world. Fuse you have flipped the of the downside. I will take your view and take it forward. If it is a tortured time for the another for another 36 months, i have currency risk and bank of england risk. Patrick i would want to be compensated to take the risks. That is for ten years. Buy gilts right now. I do not see the case. In the weak environment of the u. K. , that is the environment where else rally. With risk aversion and we can economy you have stagflation impacts. If you get a weak economy get a weak sterling and import inflation. Gilts are not necessarily the safe haven or in a poor brexit negotiation you may have the stagflation forces that are bad for equities and gilts at the same time. Think than the bank of england cannot hike any further into that. Why do we see expectations set by the bank of england that there would be future hikes to come . Patrick the bank of england was wrong to hike when they did. It is a very weeks time to be hiking. You have inflation but Everything Else is not there to be hiking. The u. S. Is hiking for the right reasons, a different picture. It is hiking into weakness and uncertainty. I do not think that is the Central Bank Policy you want right now. Anna thank you, Patrick Armstrong staying with us here on daybreak europe. We are going to continue our conversation with patrick and talk about what is going on in the u. S. And look at updates on eurozone investments. Plenty of german politics and a new euro head. We can get an update on all that next. Anna it is 7 19 a. M. In london, 8 19 a. M. If you are in berlin. This is the picture for the euro against the dollar. Manus lets give you a quick flash on the markets. This is a flash update. Cable is the key mover for markets this morning. Dollar sterling up and momentum is building on the downside. Havedespite this, it you the risk reversals are the most bullish in two months. Yields ernment bond 10year Government Bond yields higher. That is the debate in the market. Anna euro area finance ministers are charging the portuguese finance minister to lead. We spoke to him in brussels. We have the ability to make the euro area grow and for a weger period of time if intimate the reforms needed. You wanted to start on the bonds theme. Manus we talked about bunds and o. A. T. s. This is the death of low yields. Do you agree with that, are we in a swansong of low yields in europe . Patrick we are short funds and gilts and 10 year treasuries. We have seen treasuries move toward 3 next year, maybe beyond and that will push bunds up toward 1 . 3 us what takes you up to on the treasury market . Patrick inflation is not dead and inflation will start coming into the system next year. There is a lot of things that are arid early indicators of inflation. If you look at business surveys, 35 of businesses responded, the Biggest Issue for them right now is not about seals outlook, it is about they cannot hire labor. It is difficult to attract labor. That is the precursor to wage growth and that leads to inflation. News,have some breaking the proposed purchase of real entertainment this week. They are saying that the Purchase Price is 23 u. S. Dollars. They are going to [inaudible] talking about the annualized pretax combination benefits of 100 million. The deal and the right issue. Much m a to think about this morning. In terms of global markets, stock markets, where do you see room to get excited next year . Yields are negative, there are short u. S. Equities and long european equities. You want to be in the cyclical plays. Much more yield sensitive and banks,l plays, industrials is where our positioning is. They are trading at reasonable multiples. Not compelling but reasonable that and there is enough growth where they will grow into multiples. Manus we started the show, we will use a chart here about the s p financials. Do you think that that gap continues to close, is there a great rotation in your view and are you treating it, are you tech, or the quid pro quo in europe versus financials . Is that trade on this chart, is that gap going to close over the next 12 months . Patrick we expect they will but we put that trade on in march. 25 up, we thought we made a great profit on these tech companies. They are getting up to market multiples. That is when we saw the [inaudible] value versus 1. 5 times book value. Cyclicallightly better outlook. Vanguard has been saying that they see volatility. Is at recordence lows, a trend. That is according to vanguard. Do you see that . Where does it come from . Patrick he pushes up asset price and suppresses volatility. How much it helps the economy is still debatable but quantitative fight tightening will have the opposite effect. The fences they want it to be as interesting as watching paint dry. Will they allow volatility . Patrick i do not agree it will shoot up higher. It will be the opposite of for we so with qe, on and on qt be a headwind. Investors have had a great bond time. When bonds and equities are rallying it turns into a difficult seven years were your are getting very little appreciation on equities and capital losses. Manus the other story we have talkingering, we were about the explosion and bond markets in china. Ings is the aarat paper in china, the spread blowing out. How much china do you want to take on in terms of bonds . Terms ofhe blow out in yield. This is the china versus the u. S. Compatriots. What does it say in terms of risk, do you want bond risk on your books in china . Patrick i am not i do not have expertise. Do you have a big macro view on china . Are you expressing that in your portfolio . Patrick we have inflation linked bonds across the board. We are getting a real yield above inflation and 3. 5 for the bonds area that is attracting us. China, there are some risks there. Not enough that we are short it risks if the Property Market rolls over. That could be a big issue. Anna thank you for seeing us in our new building. Manus keep an eye if the Property Market rolls over. That could be a big issue. On sterling. It is Building Momentum on the downside. Down. 3 of 1 . Futures are set on the equity side for slightly higher opening. London is up. 5 of 1 . The European Market open is next. Guy welcome to Bloomberg Markets. This is the european open at our new European Headquarters. We have cash trading in less than 30 minutes time. Derailed i the dup. Theresa may begins another brexit salvage effort after a lastminute upset over the irish border. Where does the pound go next . It is beginning to sell off again. The chips are down. The senates