Starts to fray. We will speak to the governments key Economic Advisor at 8 30 gmt. We are less than 30 minutes away from the start of european cash trading. Futures are up and running. It is likely we will see a positive start, but we are looking at the fair value calculations a little later on. Lets take that and put it into context. Gmm, as ever, good context. The consumerof staple stocks doing well, chi as market up by 1. 56 overnight. London had a good day friday. We see the brexit story there, but nevertheless, it was interesting to see how the pound traded through. The s p, surging on the back of that jobs data. Keep an eye on the aussi dollar story. That is fascinating as we watch economic developments down under, and whether we will get a rate hike or not. Check out this data on gold. I put this up your because of what is happening with bitcoin. Lets look at what is happening across the gmm. Here we go. Gold, up by. 1 . The cftc data shows a huge pickup in shorts on gold. I put that sidebyside with what is happening with bitcoin. Crude, not a lot doing there, but we will continue to keep an eye on what is happening with crude throughout this week. A lot of centralbank meetings coming up this weekend they are likely a big factor in terms of what is happening in all these asset classes. Lets catch up with what you need to know with the bloomberg first word update with juliette saly. [no audio] guy ok, we apologize for that small mechanical outage there, but lets carry on. Bitcoin hit wall street with a bang, just hours after the cboe exchange,tures on the it climbed more than 25 , triggering two Circuit Breakers along the way. At the same time, the stock above dipped. Heading 16,000 as the cryptocurrency gains more credibility. Will be growing pains continue . Ed robinson joins us now. What did we learn last night as the future started trading, about what is going on here . That demand continues to so ar. It is not ebbing at all. As you pointed out, guy, where are the shorts . Guy we were excited that the grownups, the financial executives, would come in. At least not in the first flush of this thing, but i think you will see miners come in and put on short positions. You know, time will tell, of course in the next 48 hours how this will shake out, but the frost is overwhelming. Guy how many people actually as you said, we have not seen the miners come in yet. Is the initial indication a useful indication . Ed initially, it is hard to draw any conclusion from what we see now. It is too soon and the only theme coming out is there is as much euphoria about the contract as last week. Guy is that just marketing, or useful or is there a Business Case for being first here . Ed i dont know if there is a market share issue, but there is a great Public Relations issue. You have planted the flag. The contracts are running there, but in the long run, i dont think it will matter. Guy so, the next evolution of this is what . As we increasingly legitimize this as a product, at least in some peoples eyes, how does the evolution work . Ed the etf story, that is what the market will anticipate. Thats the next chapter. But how do Asset ManagementCompanies Get comfortable with all the money laundering, all the illicit stuff . They are being used for a lot of illicit commerce on the dark web. So, how does the fidelity and the vanguards of the world that comfortable with that . Guy i dont know. In every other asset class volatility is getting crushed. In this asset class, it is not. From a trading point of view, that is advantageous, but from an Asset Managers point of view, you cannot handle those price swings and generate a decent risk model around that. Ed no, i dont know how you would do that. This is an example of as pure an instrument of speculation as we have ever seen. There are so few fundamentals to grasp onto, to inform how you will form an investment thesis around this. It is purely speculative. Guy how do you expect it has developed . Do we now say, we will get more futures in place, we look at more contracts up and running . Given the halflife of this story seems to get shorter and shorter, what can we expect this week . What can we look forward to . Becomeshink, as it clear the contracts are working, people will start shorting this, and what will that mean in terms of the price action . Ed i think the big question is, can the infrastructure handle it . You saw they had to throw Circuit Breakers over the last 12 hours as this thing came on. The quality and exchanges have had trouble keeping up with demand and there has been a lot outages over the last week or so. Can the infrastructure actually keep up with the soaring demand here . And then we have to look at the cybersecurity question. If there is a major hack of a wallet or exchange, all of a sudden security of the infrastructure becomes a big question mark for investors. That has got to be a factor as well. Guy ed robinson, joining us. Lets go to singapore now and figure out what mark cudmores take on this sis. On whatve us a sense the initial start of futures trading means. We did not see people shorting the product, which i thought was interesting. Mark it is important to remember that these futures contracts are cast settled. You dont actually get a bitcoin when you body future. That is interesting because if you have the futures contact for oil, you get delivered a barrel of oil, but it is harder to deliver a bitcoin than a band of oil, which shows have ridiculous the underlying concept is. We had this massive dislocation in the market. Again, because the exchanges of bitcoin are quite expensive and quite inefficient. So, we are seeing the futures market quite separate from where it was, trading on a lot of exchanges. I think there is an important time to reflect with the launch of futures. This is a massive bubble. Arguably, nearly a ponzi scheme. I think it is a very dangerous market to be involved in. I do think prices will continue to rise in the shortterm. D robinson said, it is one of the most speculative areas we have seen. People of speculating, gambling and betting. Because of that, people want to buy in. All i hear on the streets with friends is, i dont have any yet, i want to buy some. They will continue to buy to hold until it collapses. The futures market will eventually add liquidity, but because it is cash settled futures and not bitcoin settled futures, it is not a great instrument. Which is why i think the large financial veterans who are suspicious of this will not try shorting it through the futures market because that is dangerous. You cannot drive the underlying price by selling the futures. You will be stepping in front of the steamroller. Guy how does the downside manifest itself . Because coming into this, there was the expectation that futures would allow this to take place. But you are telling me that is now an incredibly dangerous thing to do. Mark i think it is absolutely dangerous. Look, the bitcoin bubble will not stop until basically we get more marginal sellers and buyers. That might sound marginally trite, but it is very important because people are buying bitcoin to hold, not to trade. There is a little element of trading, but the underlying asset is bitcoin and people are buying bitcoins to hold. Is to buy bitcoin and hold, but reverse. So, that means we have to wait until everyone is a believer in this, has invested all of their savings. Its going to be terrible. I am actually scared of the consequences of this. There will be lots of people that are decimated. Some people will make a lot of money. It is a transfer of wealth. Basically, it will only fall you hear all those people asking about bitcoin once they have put all of their savings into it. Guy on that note, we talked about this a few weeks ago and i was wondering if there would be a portfolio affect. This is going down and i have to sell something else. Your argument at that point was, this is not held by mainly Financial Investors, as a result of which that is not going to happen. But we are saying it will manifest itself, whether it is in Consumer Spending or elsewhere. Mark i think they will be real Economic Impact. It will have to it will depend on when it crashes. I am someone that still thinks the public can inflate much further before the pain comes. I think what we need to do is analyze who is holding at that stage. We might get to a stage where Financial Investors have piled in. And that is where the losses are and the retail momandpops have sold out of their holdings. I would be happy if that was the case. I am worried that wont be the case. We will have to see who is holding it down the line. At the moment, it is mostly held by some large whales. Of course, they have incentive to keep on helping out. They dont want to become a sellout too quickly and scare people away. They seem to coordinate and they might start hedging some stuff in the future, but overall, they will control it to allow more futures in. Retail community, the impact will be real and economic, as opposed to the financial. If its in the financial world, it will have a portfolio effect. They arement, i think a smaller part of this. Guy clearing up a few critical issues, mark cudmore. I think the survey is still. Unning on whis the ceo of Cboe Global Markets is going to be joining us for his first interview of the day. Thats happening at 4 30 p. M. U. K. Time. Coming up, trumps tax speech. The president will make Closing Arguments on the proposed republican overhaul this week. How close are Senate Negotiators to finding an agreement . That is the conversation we are having next. This is bloomberg. Guy 46 minutes past the hour. We are awaiting the start of trading. Donald trump will deliver a Closing Argument for the proposed republican tax overhaul wednesday. That is according to a person familiar with the matter. The house and senate will negotiate in their versions of the bill, which they passed in their respective chambers. The goal is to have the legislation on the president s desk by the end of the year. Geoffrey yuon set is , Kathleen Hunter is also on set with us. The wednesday speech, how much will get done by then . Kathleen the Senate Passed their tax bill a week ago. The house and senate have been working together to negotiate the differences. Once they reach an agreement, that agreement has to be agreed on by both chambers. The question is, will they have it in hand when the president speaks. Closingcases, the argument would make the most sense. It is unclear if that will be the case. Just getting up and making an argument for a theoretical tax bill. We might not know the details at that point. Guy the sticky points are becoming clearer now and one of those appears to be the high tax stake there is a lovely piece on the bloomberg talking about the fact that wall street is getting behind this as an issue because it will end up affecting new york, new jersey, etc. Chances how does that get done . How do they fix that issue . Kathleen there is so much momentum behind this tax bill right now that some of these details there is a difference between how they would theoretically work it out and how they would actually work it out, given they are under this insane time pressure to get something done this week or next week. Guy basically, they are just sacrificing the detail. Were accusedocrats of doing something similar when they passed obamacare. That was a similar situation when they came up to a christmasy deadline and had a vote at 6 00 in the morning of christmasy to pass it through the senate. It wasnt the final vote. They had to go back and reconcile. You know, it is a similar type of situation when they were backed up against the christmas deadline. Theres truth to that. There is the emphasis politically on republicans getting something done because they have created a high expectation. That working out things like the state and local sales tax reduction, which is a huge deal for republicans, in states like new york and new jersey and these are more moderate republicans where if they do not get this, the state and local s ales tax deduction, that could come back to bite them in the midterm elections, which are around the corner. It is important, but it could get lost in trying to get something done before the end of the year. Geoffrey i think compared to the beginning of the quarter, they are doing something that has not been done in a few decades, i think momentum is with them. Its been priced in. They are looking ahead, reinvesting in u. S. Equities. Guy is equities the way to play it . Geoffrey i think it is. How do you play the bond market . Focusing on the debt side . Guy i can just bring this up. Its amazing how the pricing change has happened over the last few days. Wass 100go there basis points between where the market was and where the fed was in 2019. Is that a tax story, a data story . Geoffrey it is a combination of everything. Fridays payrolls are not exactly convincing in full speed ahead for a rate hike, but maybe there will be this hope in the market. Tment on propel invese the corporate side, but it is a wait and see story. Stay safe on the equity side. Guy that is the investment advice. Kate, you talked about the fact that the details are yet to get done. Praising this becomes an important aspect of all of this. How much volatility can i expect around this . Further down the road, how many changes will there becauseb, presumably, they will have an Economic Impact . How easy or difficult is this . Kathleen one thing that is instructive, or maybe demonstrative of what we will see in the coming months, after the senate rushed through their proposal 10 days ago or so, they had to go back and fix some things in it. There were unintended consequences because things got changed around at the last minute that they really did even the folks writin the billg did not understand what was i in it, and they had to go back before the negotiations in the house and senate. That shows the complexity of rewriting tax policy. It is not unfathomable where Congress Passes a piece of legislation, the president signs it into law, and then we realized the unintended consequences. And then they have to go back and fix aspects of it. Does the fe itgnore this for now . Geoffrey the fed will hold the line because when it comes to Central Banks, treading on fiscal and Clinical Affairs becomes dangerous. Guy someone has to do that. And that will impact growth. They can say, we have looked at the data. And unless we get a gdp lift, the on the markets best case assumption. The missing piece in the payroll data friday, there was no wage growth. Geoffrey the argument, if you believe in the latter curve or not, it generates wealth over the mediumi in the longer term. On this matter, on wages, the fed is going to be reactive rather than proactive. Guy we have got a rate meeting this week. Edsing into 2018, the f Event Horizon seems to get shorter and shorter. Its getting very reactive. This idea the policy works with a lag, how does this fit into the environment . Geoffrey that is where expectations management comes in. It does not matter how you think about forward guidance, there needs to be some fed conditioning in terms of expectations. Going back to your point about wage growth, how that has been disappointing, the fed is talking about a phillips clouds now, rather than a phillips curve. Reactivet pays to be and wait for the underlying momentum to come through. Guy thank you. Covering our political story, which will be interesting this week on both sides of the atlantic. Yu will stick around. Lets talk about the Economic Data and what is happening with the stock market data. Five minutes to go until the start of european trading. Yyou better be watching for bae systems, getting good news on Aircraft Sales and to qatar. The eurofighter, what you are looking at there, its being sold to qatar. Qatar is continuing to make its point internationally as we see the Saudi Led Coalition working against it. That fits into this. Keep an eye on bayer out of germany. The monsanto story will come back and be a factor this week. We are expecting regulatory push back. We will figure out how regulators will be positioned on this one. They are trying to change their calculation on the possibility of this happening and if it does happen, what kind of exposements will be made . At the moment i have a fair value calculation on the bloomberg which points to a positive start in europe, up about. 3 . It looks like we will see a positive start in europe. A very solid day on friday as well. Four minutes to go until the market open. This i bloombergs. Guy welcome. We are a minute to go to cash trading in europe. It is start with the story that is dominating. Bitcoin. Let us take a look at where it is trading. It has driven the price of bitcoin higher. Cboe. Remember, this contract does not settle in bitcoin but in cash. In many ways, this cements these two in an important way. Looking at futures. Systems. Ok at bau london does not look like it is going to open significantly out of the range. Keep an eye on the pound. There is a Cabinet Meeting later this morning. And the market open looks like it will open 2 or 3 higher. Here we go. European cash trading this monday morning. Let us look at the details of the story. Here we go. As expected, a little bit of an upside. Not much. We are clearing the 74 level. 74. 08. Systems. Ye on bae up 0. 2 of 1 . An interesting to see how that story traits. That is the market. 0. 3 . Up by let us look at the sectors. In aggregate come up by 0. 3 . Financials. Look at the financial sector. We are going to be talking about taxes and the regulatory clarity provided on friday. Energy looks like it is softening up. Materials are a factor this morning as well in the mix. Tradingee iron ore overnight in asia. Materials trading to the upside. Industrials look reasonably well bid but energy is softening up. Not much price action in the crude overnight. Looks like energy will be softening up, particularly in the london trade though it does happen though it does affect what is happening in the ibex as well. Let us look at these markets. 74. 19 for the ftse. The cac is trading up by 0. 2 . We will have to wait for the dax claritysmi to get some otherwise, the markets are looking reasonably well bid. Let us take a look at the picture in terms of the individual names we are watching out for. Loreal well bid this morning. Where are we seeing weakness . There is not a lot of volatility in the cac this morning. Stocks not showing a lot of volatility in terms of the setup. We will see if we can change that. Let us move on. Bitcoin is definitely a factor this morning. Futures contract has just hit shot has just hit chicago. Triggering Circuit Breakers early on. The question is are there signs of this asset starting to mature or are we seeing the futures inflating the bubble. We talked about cryptocurrency last night and in he said it was hard to see anything but a bubble. A bubble,ubble to be people in it would have to be convinced that it was not one otherwise it would not continue. The worry is that these things do not deflate in a nice way. It might go up 24. Dna if it walks like a bubble, it is probably a bubble. Danny adding clarity to the situation as ever. Is still with us on set. Interesting point earlier on. If bitcoin issues do not settle theyre going to settle in cash. How do you borrow a bitcoin that is how shorts were. Number one, how many clients ask me about it more and more. If a client asks me about it at it is often their first question. Guy what can i take away from this anecdotal evidence . , now,ey a quarter ago people are thinking it could be a bit dangerous. It shows you that we are talking about this before the European Markets open to show that it is becoming mainstream. Guy how do you make this work . And the details are important. The other thing that we talked about was the portfolio affect and whether or not because, at some point, heaven knows when, it will go south. And when it goes south, what will the affect be . This inere to see another aspect, you would expect margin calls and the normal mechanics of the process to kick in. Ask for how many banks additional margin on a trading basis . This is something that was perceived as low market volatility and a safe haven. This is something that you already know. We have not seen bitcoin options yet. How do you incorporate Something Like that . Point, unless these conceptual issues are resolved, you cannot talk about it having a portfolio effect. Guy back to the conversation you have with clients. Most high and individuals are looking for low volatility. Say this do you is something separate . We put it in a separate bucket and we dont think about it in the normal way that you manage money. Geoffrey to be honest, guy ffrey on the other hand it is innovative, blocking. I think that is where we prefer to steer the conversation in terms of tech of the future. Incorporating that into a Strategic Asset allocation no, thank you. Guy another aspect of this is that the miners used to be up in the nordics. Increasingly, they are out of china. Is there a concern around the geographical elements that could go with this . It was seen as being nonstate based and therefore did not have the incumbencys that come with monetary policies did not thatwith incumbencies come with monetary policies. It goes back to the power element. In china, there were specific areas where there was state subsidies to cheap energy. Zed cheapsubsidi energy. What if you go to jurisdictions where energy is rate . Is free . We talk about state actors. In what was supposed to be a unit of exchange totally removed. You start valuing bitcoins in dollars, youre defeating the purpose. Defining something as a state benchmark when it wants to be away from the state. That is where we need some reconciliation. Geoffrey yu, the head up the u. K. Investment office for ubs. He will stick around and the ceo of cboe, Edward Tilley will join us at 4 30 p. M. U. K. Time. How does it go and where does he see it going . U. K. S David Davis says he is confident that a trade agreement. An be reached with the eu will that start to unravel . There is a big Cabinet Meeting later this morning. We will talk about that next. This is bloomberg. 12 minutes into the equity market session. Let us look at some of the market some of the stocks on the move. Steinhoff. Definitely on the move. Up about 18 this morning. The company has said it is in talks with the bank. The standstill accord would until 2018. Ock sale the market seems to me liking what it is hearing. And you can see the kind of volatility that we have seen with this stock. It has crashed lower. Move in no way compensates for that. You can see the fiveday story which is now moving to the outside but a small move on the fiveday chart. 18 . It is that tiny little dot you can see on the righthand side of your screen. It gives you the sense of the dramatic drop we have seen around all of this. Let us show you what is going on in the wider screen. Steinhoff does feature but we are also seeing some movement systems. E ba that is on the back of the decision by qatar. Steinhoff is the leading story. If i were to pull anything out of the board this morning it would be hsbc. The expectation that u. S. Banks will be doing reasonably well. As a result of the regulatory story Going Forward under jay powell, and the attack story Going Forward under the republican party. Looks like hsbc could be a significant beneficiary of that. A quick look at the downside. Staying in the u. K. , chances of britain leaving the European Union without a deal has dropped dramatically. That is according to david davis. His confidence in the agreement that it can be secured within a year. Includes an that agreement with the block. Already testing the fragile truce. Still with us is geoffrey yu. You would think the u. K. Would that negotiations are tougher than anticipated. It sounds awfully like cherry picking which is what the eu has said will not happen. It does seem a little on the front foot. Geoffrey the public view versus what is happening behind the scenes. We have to keep that in mind. The last five days of negotiations have been slightly more dramatic than what we have bargained for. Heading forward, there has been talk about canada, plus, plus or however many pluses you want. One thing that needs to be isted out from the u. K. Side the unified front coming from the cabinet. Guy there is a Cabinet Meeting later this morning. Do you expect a unified front . Geoffrey i dont want to speak too much. Scenes, i think there will be domestic considerations to sort through. What happens after that, the willtic fallout they worry about that scenario. Guy is there heartbreak . Eu nowhing out of the off the table . Geoffrey we should take the brexit secretarys word for it. That nothing is off the table. Net net, it shows that progress can be made. Judging by the performance of caseing, that is our base that there will be an agreement. Ceo, do iam a company not trigger . Overall it depends on what you are exposed to. If youre like time if youre otherwise, if you are anticipating the worst case scenario, perhaps there can be some hold off from that. But it depends on the company. Guy the pound picks up a little. You can see there is an expectation that the pound will rise throughout most of next year. You can see that quite dramatically, especially in the fourth quarter. The only comparison to that would be that the consumer will have a slightly easier time next year. As a result of the inflation. How does that affect Monetary PolicyGoing Forward . A lot of the numbers that i am seeing and we are going to talk to the British Chamber of commerce later on we have to bear in mind that the deal is in the boes best case. Geoffrey the bank of england does not factor in guy marks language has changed in that direction. Carneys mark language has changed in that direction. Geoffrey the question is and what i fear is that you saw the Unemployment Rate collapse. No inflation. And the savings rate was not going up. Into a period of uncertainty in the next 18 months, even if labor markets tighten, does that translate into inflation . I think that is a risk when you look at our wages, and the labor market versus the wage models. Guy is there a rate rise next year . Are looking at 1. 1 growth. Slightly higher than target inflation. Especially if sterling stays around these levels. The risk is still to the upside and that is where the shorts could be slightly surprised at well as well. Guy geoffrey yu will stay with us and we will bring you an exclusive interview with mark carney, that will happen tomorrow at 10 30 a. M. U. K. Time. If you are a bloomberg customer, you can watch the show by using your tv function. You can always get a livestream of geoffrey yu talking. You can get all of the Economic Data in the bios down the lefthand side. Next, we will continue our coverage of the European Market open. Generally positive. Some interesting stock stories out there, steinhoff is certainly one of them. More to come. This is bloomberg. We are 23 minutes into the equity market session. Let us talk about which equities are going to deliver and have delivered this year and where you should look in 2018. I think this is instructive as to what is going on right now. On the right hand side of this green, you have your today performances. I want to highlight one particular market. That is the ftse 100. If you are a euro investor, you one made. 53 of a percent the ftse 100. If you are a domestic investor, you have made 0. 42. You can see some of these numbers. Is the highlights massive underperformance we have seen out of the london market. Geoffrey yu, head of the u. K. Investment office for the ubs Wealth Management is still with us. Is that still going to be a story . On arey to follow previous conversation, if the upside,sterling is the that is going to drive underperformance, especially relative to other currencies. I think 2016 to our clients was quite instructive. This year has been somewhat of a reversal. Guy . What is your advice if i am a euro investor, i have only made 5 in the s p. What is the hedging strategy going into next year . It depends on the individual preferences of the client. Most clients now have an international perspective. , in terms ofnts how they are specifically positioned in terms of currencies, if you have a loan in sterling or dollars, you may want to be positioned for that and reduce your exposure to currency in that way. Most clients are comfortable in being on the hedge right now. You aboutt to ask this story, particularly local bonds. Let us talk about the rating agencies last week. Their view is they will see more upgrades in the em by a predict by a considerable margin. Do you want to be considerably more cautious next year . There is a caution, especially in the longer duration once. Em is extremely sensitive to fed rate rises. If real rates go up in the u. S. , it will reverse the inflation story and there is a risk there as well. It is a globally synchronized story and em will be part of that. After an initial injection of volatility, it may actually get back to the em and stay diversified. Guy geoffrey yu is going to join us on radio. We are not done with them yet. He will join us at the top of the hour. Anna and myself. At thegoing to look numbers from the British Chambers of commerce, up next. This is bloomberg. Guy 30 minutes into the trading day. The headlines. Bitcoin futures start with a bang. Itsing as much as 25 on cboe debut. The Cabinet Meeting. Will things start to fray . We are going to speak to the governments chief Economic Advisor, from turkey. Good morning. You are watching Bloomberg Markets and this is the european open. Let us take a look at what is happening in terms of the sector story breakdown. What is interesting this is a breakdown of the stoxx 600. Is barely doing anything. Up by 0. 1 . We are seeing some significant outperformance. Hsbc is responsible for a significant part of that. Banks are leading the charge. Up right 0. 5 . And then we get into more of a defensive mix with personal households. Chemicals are trading a little higher as well. An interesting mix at the top. A little bit of alpha and beta in the mix. On the bottom of the mix, you have travel and leisure and utilities. A bit of an eclectic mix. Can reallyre you take much of a sense of direction from what the second or story is delivering for us this morning. Let us get some perspective. Bitcoin has landed on wall street with a bang just hours after its debut. The contracts climbed more than 25 and triggered two trading holds. Dealers said initial trading exceeded expectations. The exchange said all of its systems were normal. We, ed tilly of cboe, ed tilly will join us at 4 30 p. M. U. K. Time. The french president says president trumps declaration that jerusalem is the capital israel was dangerous to peace. Protests continue. The u. S. Ambassador to the u. N. Says it is up to israel and the palestinians to decide the status of jerusalem. Besident trump is said to planning the Closing Arguments of the republican tax cut in a speech on wednesday. He will speak in washington as house and senate teams try to iron out differences in the two plants. Yesterday, the president tweeted edging closer and closer on the tax cut bill. Up better than expected. House and Senate Working hard. The uks brexit secretary wants a trade deal with the European Union that up better than expec. House and Senate Working hard. Includes the best part of the blocks agreements , and south canada korea along with financial services. Cameavid davis comments while theresa may was preparing or the Cabinet Meeting to hammer out the details of the deal. We start with the best of japan, canada, and south korea. New zealand has declared a new central bank governor. He will begin on march 27 replacing grant spencer. Governor atously a the fed. Kuwaits oil minister says they may end their production curb before 2019 if the market rebalances. And russia is keen to end the capping deal as soon as possible. The cartel and its partners a great last month to curb production until the end of next year. Global news 24 hours a day powered by our 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy the u. K. Of economy will weaken after brexit according to the British Chambers of commerce. Driven by a slightly weaker contribution from the net trade. Peaking at 3 . Joining us now is at a marshall, the director general of the bcc. Expecting the british economy not to have a great 18 months up to three years. When you build a model around the u. K. Economy, how much do you plugin . Only so manyre assumptions you can make. We assume inflation will remain relatively elevated. That puts cost pressures on a lot of the u. K. Businesses that we represent. It is one of their principal concerns. We dont think interestrate will rise again until later in 2019. These are the sorts of assumptions that we can make based on the data we can see. But there is uncertainty around the Brexit Process which does weigh heavily on pit on business sentiment. Guy let us talk about the brexit story. Your members are presumably happy about what has happened in the last few days. Does it remove some of the uncertainty around the future . Adam were a lot of chamber businesses, it was an important milestone. Many of them are subjected to relentless noise around brexit. That there is some point of agreement between the two sides will be good for animal spirits in the short run. We go now into the hard part. The business top priority is getting the transition deal inked as soon as possible. That is not just for the big corporate. But also for the smaller in mediumsized firms that need a clear view of trading conditions in europe. Guy now that the cliff scenario is fading adam there is a view among businesses that the possibility of a cliff edge is less likely. Nothingnesses know that is a great until everything is a great. This is a process that will have that will have many twists and turns ahead. Guy what does this mean for Contingency Planning . An 18 month supply chain story, what do you do at this point . Adam a lot of businesses will start to bank on the transition period. I have visibility beyond 2019 and i can take my Business Vision based on that. We know of companies are scenario planning for a lot of different final outcomes as well. Some already feel that they have to push the button on those plans. Sectors who are holding fire. It is a story, sector by sector. It is not something you can summarize quickly in a sand bucket. Guy i will keep trying to get you to do so. Let us talk about canada plus plus plus. What do you think that means . Adam that the u. K. Government is seeking a landing zone. Somewhere between the Canadian Free trade deal and norway. Some of this language that we hear to describe it, like canada plus plus plus is their effort to define that. Businesses get turned off by this kind of language because that is an institutional framework. They want to know about the basics. They want to know who the regulator is. Who can they hire . Well my goods be stopped at customs . They want answers to practical questions. They need to start talking, not in terms of frameworks, but how to answer the practical questions. We have a relatively small government compared to what we have had historically. A counterparty could change things in a meaningful way. Jeremy corbyn party. Conversation do you have about that anecdotally . Businesses are always wary of a change in government. It means they have to change and adjust their way of doing business. Businesses agree with some of the things they hear coming from the labour and adjust their way of doing business. Party with the emphasis on skills. Populationthe and fixing the uks creaking infrastructure. There is real concern about proposals around nationalization, heavy regulation of sectors that have had a much more balanced approach until now. And of course about massive tax rises both on individuals and corporations. Those are things that cause businesses some disquiet. , in terms ofrtant the balance of the conversation and how it goes, what is the biggest risk for them . Alwaysusinesses are contending with a number of risks. Domestic political risk. Is a clear and present danger for many firms. Even within their own sectors, and global risks. Uncertainty is the name of the game in business. Ito not try to over regulate but there are real concerns out there about potential instability of the u. K. Political environment at a crucial time for business decisionmaking. Guy great to see you this morning. Adam marshall, the director general of the British Chambers of commerce. The economy, expanding by double digits. 11. 1 in the Third Quarter. We will speak to the governments chief Economic Advisor. Are those numbers sustainable . This conversation is next. This is bloomberg. 43 minutes into the session. Hsbc was already trading strongly this morning. Based on expectations of what is happening stateside. Now, hsbc is saying the third prosecution agreement with the department of justice in the u. S. Has now expired. Pleased has said it is that the doj has recognized progress. The deferred prosecution agreement as a result of which it has now expired. You can see the stock is trading up. This morning. It is the big factor and it is a heavyweight stock. It is why the bank sector is the best performing sector in europe on the stoxx 600 this morning. The turkish to adp expanded by the most gdp expanded by the most. Look at your screen on the bloomberg. You can see the numbers. They are really quite incredible. The gdp number has come through at 11. 1 . The prior number was a 5. 1 . The survey was a. 5 . Relative to where we were previously come at this number looks absolutely sensational. Meanwhile, Turkey Central Bank has reiterated its pledge to keep Monetary Policy tight until things come into focus. There is a Rate Decision on thursday. Our Hatice Karahan next guest now from istanbul. Atice karahan good morning, thank you for joining us this morning. How sustainable are these numbers . 11. 1 is i watering. How sustainable is that number . Ms. Karahan good morning. We have the top performance around the world. The year,st half of we recorded 5. 4 of growth. Further acceleration, we reached over 7 for the first three quarters of the year. These gdp figures show that the can withstandy any shock. We look at the dynamics of the after growth, we see the thirdquarter growth comes primarily from domestic demand and is supported by external demand. The good news is that investments are coming back as well. Investments supported the gdp growth in this period by 35 points which is a great amount after such a big shock in 2016. This shows that the turkish proved itself after a shock and it shows that it is resilient to domestic and international shock. In the second case, turkey in the Global Financial crisis. What we see in this third fromer we have support verio sectors, a number of sectors, broad support which is also good news. For sustainability, the confidence in improvement is a great issue and with the acceleration of investment this quarter, we see that confidence is coming back which would also support the growth in the following quarters of the following year. And the fact that exports contributed to growth as well by about 35 point this period showing Global Demand guy we have a Central Bank Meeting later this week. The market is expecting a significant rate rise. Is now150 basis points priced in. Are you comfortable with that number to go that high . Is the president comfortable what that number going that high . Ms. Karahan it would be unhealthy for me to comment on that in my position. Is the Turkish Central Bank trying to do is review the target level of the inflation and it requires determination. The central bank is underlining its Firm Determination to use all of its tools to bring inflation down to the desired level. Neither people nor the politicians like the inflation rate right now. There are several factors. One of the factors is the Foreign Exchange rate which comes through. Watches theral bank demands the demand side as well. In the Third Quarter of the year, the long growth was quite high and towards the end of the year, we see that the long growth has normalized so there is overheating. What the central bank should do is watch the dynamics in terms of demand and cost and reduce the pressures on inflation. Here in turkey in when thereflation is a deterioration it in dangerous the price expectation and that is why the Central Banks stance is really important. Does not sound like what we have had from the president. He does not believe in the traditional, orthodox measure of the relationship between Interest Rates and inflation. In fact, he said quite the opposite. That turkey should cut Interest Rates to deal with the inflation problem that it now has. If that is the case, why doesnt turkey simply cut Interest Rates . Because the central bank decides on the Monetary Policy and Interest Rates. If you look at the performance for the central bank, we see a tightening in the amount of four hundred basis points. It shows there is an independence of the central bank in turkey. Is concerned about investors. They complain about high Interest Rates in turkey. As a politician, a leader that supports growth in the country, he and most politicians want reduced inflation rates. Inflationis an problem. The president does not like the problem either. We should focus on the independence of the central bank and its main goal is to provide and maintain price volatility in turkey. Guy what youre saying is that the central bank could should keep hiking Interest Rates until inflation is under control. Ms. Karahan the central bank should watch the developments as i said, there are many factors behind it. Is a problem in turkey and it should be solved in a structural way. There is the Foreign Exchange rate problem also. And there is volatility. A fluctuation. That is why the fluctuation should keep an i on that is well. And there is a demand side issue. In the last quarter of the year and in the coming quarters in the next year, i think there will be a reduced pressure on the demand side and that is why the central bank should find the right policy for the Interest Rate in the equation. To where weback started which was the sustainability of growth and what is going to sustain growth in turkey. Do you anticipate that we are going to see another round of governmentsponsored stimulus into the economy . Guarantees, etc. What relationship do you see between government policy and Economic Performance . The lira is a factor in all of this. What are your expectations of government policy . 2016 was a harsh year for turkey after many shocks, domestic and terrorist. This year, we really needed that stimulus by the government for to refloat. It worked. It helped. The funds which were backed by the government. It helped a lot in terms of finance and to recover the confidence in the economy. Certainly has a positive contribution to the Growth Numbers that we talk about today. , i think atbility this point, yes, thanks to the fiscal discipline we maintained forthe year, we used that growth. Right now, the economy stands up and keeps working and that is why i dont think we will maintain the fiscal discipline next year as well. It was needed for 2017 but right now, the economy is back on its the and that is why i think confidence is back and the sustainability of the economic by thewill come improvement in the confidence and the investments as well. The main point is that the government policy, the fiscal policy especially, will not be in the coming period because it does not seem that it is needed after this point. But the other fund will roll over because it has been pay. That is the only thing we care from the government right now. It is important. Keeping the fiscal discipline has been import and in terms of the inflation as well. Fiscal and monetary policies should go handinhand. Guy given the political instability that turkey has experienced in the last couple years, how does that come into the years, how does that ce into the thinking . You talk about the fiscal policy not required anymore but from a Society Point of view, is there a need to make sure the economy does not have anyfiscal and mons should go handinhand. Guy shocks because recently . Itical recently . Ms. Karahan i can hardly hear you. In terms of growth that we need, the main factor is to reduce unemployment as well. We have an Unemployment Rate around 10 and we have a big dynamic population which is a fundamental problem for many emerging economies. That is the main reason behind high growth rates. Backgroundok at the of the Unemployment Rate, it is not that we are not producing jobs. On the contrary, on an annual basis, we produce over one million jobs. But still, the labor force is dynamic and it is growing more than the employment numbers and that is why it is hard to reduce the Unemployment Rate. That is one of the basic reasons. You so much for your time. From you for joining us istanbul. It is a bloomberg surveillance that is up next. Francine lacqua is in paris. This is bloomberg. Francine bitcoins big test. The25 rise triggers circuit breaker. Taking a hike. Markets gear up for Rate Decisions, with the u. S. Expected to proliferate, we look ahead to a crucial week. And mays fragile truce as her deal faces scrutiny in brussels today as her cabinet meets. But are the eu and downing street on the same page . Good