Provided to qatar during the financial crisis. Heineken margins will grow less than its target as the secondlargest brewer integrates its brazilian business. We speak with the cfo during this program. Matt we are less than a halfhour away from the european open. Take a look at where futures are trading. We were up across the board on friday and u. S. Trading up across the board. In asia, well, not across the board, i should say that. You dont see any trading in japan, but we do see european futures carrying on that global trend of a rebound in this case, futures. We are indicated to open up in the european cash trade stocks, as well. Take a look at bunds. The treasurys trade is on hold for japanese trading. We are indicated to see again in treasury yields. Here you see a threeday chart of bunds and the yields have spiked up. We are looking at 78 basis points right now, a gain of four basis points for german bunds. Expect to see treasury yields move up, as well. What does that mean for stocks . And what does that mean for other Asset Classes . We see correlation start to get higher and higher. Guy just keep an eye on it. There are a couple of ways to read it. Exit markets are well bid. I will broaden this out. Closed, so from saudi arabia to turkey to india, we are seeing markets rising. The dollar is trading lower this morning. 1. 82. Ro is up trading at we will give you a heads up of whats going on around the world. At the moment, copper is big this morning. You have the oil trade to watch out for. Pay attention to this column here. Yields are rising around the world. What is that telling us about Investor Sentiment this afternoon . Stocks are well bid. That could be a friday story. What is the monday morning story . We will talk about that in just a moment. Lets get the bloomberg first word news update with juliette saly. Juliette the u. S. Says its ready to engage in Nuclear Talks with north korea. Vice president mike pence dubbed the strategy maximum pressure and engagement at the same time. The comments signal a shift in american policy and it came after mike pence and moon jaein agreed to a dialogue during a conversation in pyongyang. Mick mulvaney has warned the u. S. Will pose a bigger budget deficit this year and could see a spike in Interest Rates. But cutting the spending shortfall is possible based on sustained Economic Growth from president trumps tax cuts. The white house is expected to release its spending proposals today, which will include a plan to cut deficits like 3 trillion over 10 years. But it didnt say how those cuts would be made. The israeli fighter plane that crashed on saturday was likely hit by a syrian antiaircraft missile according to an israeli army spokesperson. The f16 was hit after it struck an iranian control base. Its the first time israel has lost a combat plane to enemy fire since the 1992 lebanon war. Right elio has hundred pulled his short bids against u. S. Companies. Showed bridgewater capital has 13 billion in shorts. The biggest bears position of more than 1 billion is against total. Angela merkel says she is determined to serve another term as a german pencil or chancellor rebuffing critics. She urged spd members to back the Coalition Deal and next months vote, which will allow her to form a government after the deadlock. South africans rolling African National congress meets later today to transfer the power to jacob zuma. The party must result its problems, including accusations of corruption against zuma. They proposed to replace the president in december and expected to succeed him in the presidency, as well. London city airport is closed after a world war ii bomb was discovered in the river tames. Putpolice and royal navy blank around the device. City jets has canceled flights. They advised all passengers not to go to the airport and instead, contact their airline for further information. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy, matt. Matt thanks very much. Asian equities kicked off trading on the positive side. Stocks rallied, tracking a reversal in the u. S. Session friday afternoon. European futures are pulling higher. Treasury yields are on the rise. Early cash trading after close in japanese trading. Joining us from singapores mark cudmore. See treasury yields a again, does that mean equities are going to turn around and died later in the session . Dive later in the session . Mark i do think it will keep u. S. Equities under pressure. Until was a justification for higher yields, clearly higher inflation, that i think higher yields will keep equities under pressure. Thats why we have all eyes on this Inflation Report out of the u. S. The core inflation number, 1. 7 in still below target and it seems surprising. We will see equities under pressure until we see yields come lower. Its the same theme as last week. Guy why did the market get bored late friday . Mark i think was closing positions. A lot of people short of the market at panic levels, like they were saying its taking again. We are going through the trap door and its going to close. Was it started balancing, there is a lot of pressure for shorts to close for the weekend. The market shifted rep rapidly. However, there are still longs from the retail sector. Thats what i said there is more selling to be done. It makes sense to have a rally in the close on friday. Matt currencies seem to be on the sideline last week and we havent paid much attention to the euro level because its not back at that 124 high. 138 now,see cable at not up in the one 40s. Does it pick up this week . Mark we are starting to get pickup in volatility. We are seeing implied volatilitys rise. The fx market will not have a stability it had toward last year. Yes it has been lagging. But that might be about to change. Likee dollar, it seems its struggling to get any kind of bid. You would think last week would be a perfect environment for it to rally. But nothing seemed to help the dollar that much. It rose very marginally and that affects the market that wants to sell out the dollar again when it gets a chance. Maybe that will happen later today when we get more details on trumps budget and people say this administration is abandoning pretense of a balanced budget. That means a wider fiscal deficit. And essentially the dollar is eroding its own place in the dominant reserve currency, which means the needs to be more structural flows to sell the dollar. But thats a long string longterm story. Guy s oil the same story . Is oil a different story . Reacted to the recounts friday. Clearly there is a speculative position to think about. We have seen which seem related, but not completely related to the equity story. Mark not sure im the best person to ask. I got oil wrong. I didnt expect it to go quite so far and less so long. I thought it would run out of steam earlier, that it did push a long way. I think overall, there is a sign of clear picture picking up and when that starts trending, it trends for a while. You can expect to see reduction pickup in the u. S. And that will put prices under pressure. There is a position to come out of the market. What we saw last week is that refiners or smart money in the market were selling down futures, which was indicating that prices were coming under pressure. I do think oil prices will come lower from here, but i remind the fact that i didnt think they would go so high in the first place. Matt thanks so much for joining us. Mark cudmore is an mliv strategist in singapore. You can follow his insights at mliv , a great way to get prepared for the trading day on the bloomberg. Coming up, setting on misery. Not everyone lost out. We will focus in on the surprise winners. That conversation next. This is bloomberg. Guy welcome back. Youre watching bloomberg. 16 minutes to go until the cash equity it open and europe. In the meantime, lets get a Bloomberg Business flash. Heres juliette saly. Comcast is considering making another bid for much of 21st century fox two months after fox agreed to a deal with disney. Comcast has offered six he billion dollars for the assets, which include the movie and tv production, a 39 stake in sky, and paytv channels. Thats a higher bid than disneys 52 billion offer. Emirates signed a contract for 23 new planes with an option for 16 more. After airbus admitted it might have to terminate the project unless new orders came along. The clinic is most important aircraft is still suffering troubles. Airbus has suspended some deliveries of the neodue to fresh issues with engine supply. The planes biggest customer, indigo, reported three and fight shutdowns and three more takeoffs were abandoned on the ground. Harvey weinstein is being sued by new york state for creating a hostile Work Environment at his company. The lawsuit may complicate weinsteins attempt to sell his studio and a 500 million deal. They say while his behavior was without not not without fault, its not illegal. Ticketing to reduce crowding at peak times. A oneday ticket has increased by 11 to 135, while a similar ticket at Walt Disney World now costs 129, five dollars more than before. It follows the record year of attendance at u. S. Disney parks, crowding and longer waits. Thats your Bloomberg Business flash. The unwinding of the short vix trade is one of the biggest test of these of last weeks stock correction. Now the blowup in volatility has sparked a shift in the futures market. This spiked to a record net long last week, not surprising although it could bum you out. Lets bring in dani burger for more. This reminds me of the old days on the new york start Stock Exchange when you can make money by following the huge crowd thats shifted from one side of the floor to the other. But does it tell you anything about longerterm positioning . Dani what a 21st century version of that. Moneyssentially minted over the past few years because we didnt have volatility, it was so low. At the end of the day, we have been saying this for a long time, volatility is and he reverting. Me reverting. This chart is merkel. This has to do with people taking shortcuts. This is both of those calculated together. Long bets were put back on. Before this, that had been cheap to do. It has been relatively cheap to take on a hedge. People hadnt been doing that because you would still have lost money. Volatility would stay subtenant, very low. So now this veneer of calm has been cracked and people are realizing maybe volatility is that backed. Maybe its time to put on long. Guy two quick questions. Its further out. What does that tell us about whats going on now . In these people are nervous right now. People are these nervous right now. It comes from going from one contract to the next. Thats ruined when you have back rotation. We look at the vix curve to get a sense of how the market feels, not just the vix. You have to look at the elevated levels, but also the backwardation curve that goes into the nerves. Matt lets talk about the winners. There are some great stories. Tell us some of the stories. Dani i have to admit, this is one of my favorite ones. They are called Ibex Investors in denver. The reason this is such a joy to report is because we have been talking to so many investors who are so burned i this ball up in the vix etps. And these investors took the opposite bet. If you look at the research out there, some of the amazing reporting by my colleagues, we have said that these can blowup. When there is so much money in these funds there needs to be a lot of assets the strange feed Loop Feedback loop can happen. They put 200,000 down on essentially a put on one of these short volatility etfs. They put it on the week before and then come the fifth when these things blowup, that turns into a 17. 5 million profit for them. Really remarkable and it shows that in this whole environment of shorting volatility, if you were willing to take a contrarian that, contrarian that, not only did they get laughed at, they made a pretty profit. Only put were the the position on a week before . Dani this is something they continued to do. Executives wouldnt comment on the specifics, but they have been detailed in another analyst report, so thats how we know some of the numbers. They would have lost money on this trade prior to this monday, but out of the money options, they were so cheap. They literally got laughed at going to the exchange to get these listed and they said listen, we dont know how to price these. We dont know what price tags to put on this. Exactly. Nothinglost money, but compared to the 70. 5 million they got in the end. 17. 5 million in the end. Matt and they celebrated in colorado here in the alps. Dani, thank you so much. We are minutes away from the open. Take a look at your stocks to watch, including airbus, which has been forced to suspend some deliveries of its a320 neojets. Engine problems . This is bloomberg. The open is just nine minutes away. We are six minutes away from the start of european trading this morning. It looks like equities will be following a percent on from the move we saw in the s p on friday stateside area we are stateside. We are going to be focus on barclays relating to the capital raising. We will also be watching whats happening with airbus this morning. They have had an ongoing problem with a version of its 320 neo, the one that has the pratt. That continues indigo and India Airlines with its continuing problems. Lets get details. I think its a negative story and this is a hugely important plane for airbus, so this plane really puts airbus on the map alongside boeing. It allows them to create this duopoly within global playmaking. They turn out about 50 of these planes a month. Thats a huge moneymaker for them. Its more ecoefficient than their previous planes. Boeing has been forced to improve their own planes. Its a hugely important point in the market. The story is going to be negatives in stocks. Guy we should point out there are two engine options. Matt . Matt i want to ask about asko. One of the chemical units are in play. Whats that story . Joe the ftp reporting apollo coming into this unit is valued at 10 billion euros. Thats a huge unit. You will remember last year that akzo, who owns a wellknown brand, they fought off an attempt from the bg to take ppg to take over some of their assets, so this talk from a bit of apollo for the chemicals unit is obviously going to be a positive for the stock today. Guy thank you very much indeed. We are going to talk to the heineken cfo or a shortly. This is bloomberg. We use our phones and computers the same way these days. So why do we pay to have a phone connected when were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. Guy minutes ago until the start of cash trading. What you need to know . The euro dollar is edging off after pushing higher earlier on, the dollar generally on the back foot. Tokyo happening is asia, closed and we have a big outage with the Chinese Markets as we get to Lunar New Year later this year. That was interesting. Lets check you whats happening in terms of the fair values here this morning. We are looking at a positive start. They are all called higher. The s p and dow are called higher, as well. Itll be interesting to see if this lasts throughout the day. We will see if things push higher in yields and bond markets this morning. A little bit about the stocks we are going to be watching. Take a firm high on airbus. Heineken, we will talk to the cfo shortly. Lets show you whats happening with these markets. Lets give you a heads up on what you need to know. The ftse 100, 7092 to close. Where every going to be opening up this morning . Hopefully with a number. Thats some cause for concern. Im going to show you whats going on in terms of the story relating to the sectors. As we begin to open up, energy looks like its a little off. I will wait for that to open up. Materials looking strong. Financials looking reasonably strong, as well, as that wheel goes green. There is a few areas not looking so good, but they are beginning to fade out a little bit. Matt that is pretty amazing. Look, on friday, on the stoxx 600, we had only 100 stocks up for every 500 that were down or 100 for 500. Today its almost reverse and that we have 456 gainers, only 17 losers right now. So its a reversed completely. Take a look at the gainers here. Thats the percentage change. These are the ones getting the most. I will switch it to index points so you can see, novo nordisk is pulling up the most, but wrote a child and bp are weighted, as well. They go santander is one of those that rate elio has been big in shorting. We also see rate elio has been big rate dalia ray dalio has been big in shorting. Inneken is the biggest drag terms of points on the stoxx 600. Right now down almost 3 at the open. You can see heineken and Heineken Holding both down there. We also have air france down right now considering the airline issues we have in this market. We have sky falling, paddy power, falling. Very few losers, they are not off by much. Heineken is down almost 3 . Guy . Guy i want to come back and take a quick look at the monitors. We are reasonably positive, up by around 1 in terms of the numbers we are seeing in europe. I still dont have a dax open, both will get to that in a minute. Generally, most markets are reasonably well bid across europe as we see the Market Pricing in that move that we saw on friday. That late rally we saw in the s p. Asian stocks are quite strongly bid, as well, recovering from their worst weekly route and 2011. Tokyo is closed. We had a positive start in europe. Are we done yet . The cio is going to answer that question for us. Guest what we are seeing here is runofthemill correction. We see these all the time. In the nineyear bull market weve had guy we havent had one of these in a long time. Guest thats probably why it feels so exceptional. But if you look at the bond market in 2009, it feels like a bear market. But we are seeing a correction of 10 . Even in the bull market of the 1990s, which was the strongest in the u. S. , we saw a five or six of these. So its pretty normal. Matt what about the volatility that we have here . It seems like we are back to p, 1 day, 1 or more u or more down. Can you make more money in a market like this . Weve seenvolatility in the last couple years have been quite low and exceptional in some way. The volatility has been running on the vix, close to 11 or 12 . The average is 60 . Now we are close to the 30 mark, it feels pretty scary. Timell continue for some because once volatility rises, it tends to cluster and stay in this zone of uncertainty for some time. Opportunities will arise. We will see better valuations emerge in some companies and some sectors and there are opportunities to be taken. Guy but you started off saying its too early to tell whether we are done yet. Do i average in at this point . Do i go back in . Do i sit on the sidelines . What is the strategy . Guest the strategy is to stay, because clearly this has spooked everybody out. The number spooked everybody out. Its too early to say that this is the beginning of a bear market. Withear markets begin correction, but not all corrections are a bear market so its too early to tell at this stage. His unusual to see a bear market in a term of expansion. Matt the concern is that inflation is kicking up and the fed is going to really start hiking rates. Although three rate hikes were priced in before this correction. So i wonder what you expect in terms of cpi. We are going to get data on wednesday. Just in general, inflation starting to pick up globally. Guest thats the big number on valentines day. We look at the cpi. Expectations are around the 2 mark. If its higher, it will feel the argument that the fed is behind the curve and any to be more aggressive with the tightening. This is what the Federal Reserve and Global Economy have been waiting for, not just inflation, that wage inflation. Erhaps its a surprise but its long overdue. The economy is on the mend. The pricing on the fed, two or three rate hikes, is i going to be a game changer . Its unlikely to be so. Guy the question everybody is asking is, because we have seen Central Banks pumping so much liquidity into the market, are we mispriced on a lot of Asset Classes . I have had a lot of people telling me the price of everything is wrong. You can look at any as a class and say its had an effect. We start to see these kinds of incidents happening more and more frequently . Is volatility on to remain higher on average now . And can we expect markets to become more tricky to navigate . Period of easy money over . Guest what youve got here is Central Banks that has a loose Monetary Policy that has been signaling for the exits for some time. A lot of people have an bearish on Interest Rates, inflation rates are going to come. There is no surprise in that. There is a tugofwar. On the one hand, you have higher earnings, robust growth. On the other hand, you have higher yields that may make bonds more attractive than equities. But there is still no yields by historical standards. Would you still be a buyer of bonds when they are at a decade low . Guy what is the line for that . Guest 3 is the number everybody is talking about. It could be 3. 5 . The 20 year average in terms of valuation differentials. So 3 is the magic big number, 3. 5 is more realistic in terms of reading that valuation differential. Matt still, they percent is still 1 and change of more than the s p 500 dividend yield, right . So are investors making that choice just to take the coupon . Guest in the u. S. , the dividend yield is misleading in some ways. Has been historically a low dividend paying and markets and the total return has been much more accurate way to look at it in terms of returns for u. S. Investors. As you rightly point out, it has foot the other way. Its not the first time thats happened. We have seen Interest Rates higher than dividend yields. I dont think it will be the main reason people buy bonds and sell equities. Guy would you up your allocation to diversification trades at this point . And what are they . Guest diversification is at the heart of a good investment strategy. In the last two years, it has been difficult to do. You typically diversify with corporate bonds, but you are diversifying with an extensive asset class. If you wanted to diversify from risk assets, you have to go into things like cash. Even gold hasnt done anything. Guy absolutely. Guest so in essence, its holding an asset thats not going to make you money, you keep value if you are the worrying about losing value. Guy you look at cash as being diverse . Guest without a doubt. It has a role to play in the short term. Matt i always ask people where you go to hide, and we havent seen that much. Obviously, we havent seen fa cup in treasuries. Havent seen it in yen or gold. Where is it . Is it cash . Its clearly not bitcoin. Guest its definitely not bitcoin. Certainly not in cash. In the long run, cash is not a good asset class to hold if you want to preserve purchasing power. However, initial runs or even in the media and term, mediumterm, if you are concerned about financial has a roleen cash to play. Notwithstanding that, there is a value in equities at this judge and. Ot of people are saying this injunction. Economicstrong backdrop and those tend to prevail against this backdrop against exide he and fear. Guy stick around. More to come with mohammed. Hes going to stay with us. The markets this morning our bid. We are seeing a Strong Performance out of the swiss market. It is trading up nicely. We take a look more probably around europe. We are up by around 1 . The sox being hit, i want to give you a sense of whats going on. Airbus is under pressure. The big stock im going to focus on his heineken. Heineken is down by 2. 25 this morning, something of a headache. A hangover coming out of the brazilian market. They said probability will be below its target. As it integrates brazilian business. Shares get hit. We talked to the cfo next. This is bloomberg. Matt welcome back to the european open. We are 14 minutes into the trading day right now. Stocks are up across the board with the exception of one big loser in the market. Heineken is the worlds secondlargest brewer and has reported a profit that beat analyst estimates. So the numbers it put out were better than what they expected, but the forecast profitability in this year will be below its mediumterm target as it integrates a brazilian business it bought from japanese rival. Joining us is the heinekens cfo. Thank you for joining us. Let me first ask you about this battle in brazil that seems to be mounting here. Is this a case to where you are going to invest a lot and try to expand the business . Take market share away from the number one contender in brazil . Guest good morning. Brazil isition in really putting our strategy into action. Of leading, winning in the premium segment, which we have been doing in brazil with the heineken run. Playhen, if we want to with the football for you, having a number one or strong number two position in the market. The acquisition come which was the same size in terms of volume , as our operation, has a much more broadbased Production Capacity with 15 breweries, is really something 12 breweries, sorry together, now we are really on the road to and we are ready to employ the strategy. If there is a battle, its a battle to make sure the brazilian markets continues to grow in premiums and get back to growth in mainstream and value. Thats what we are seeing right now. I would say rather good news coming from brazil. Guy rather good news. The market seems to be taking it that way. Let me dig into the weeds a little bit. How specifically are you going to push profitability in brazil . Had you make that happen . How do you make that happen . Guest there is quite a lot of synergy now. Thats about the flight change definitely. Razil is a large country you need to be based in the place you want to sell your beer and thats what we will be able to do. Now its complete and we are touching all the segments of the portfolio of products. If you look at the time it takes to integrate and acquisition, a company that big, we did buy it at the end of the first half, and we did say that it would have diluted fx in the second half and some residual diluted fx in 2018. The residual diluted fx is going to stay the way pretty nicely and what i have seen in the performance at the end of 2017 makes us quite optimistic about this integration and about the share we are taking in that market. We are very transparent. There is some residual diluted impact in 2018. We are on track. The acquisition will turn into capital in five years and we are absolutely on track to do that. I would say this is a normal track of such a large acquisition in such a large and complex country. Matt what do you think about m a beyond the brazil story . Especially considering the market slump, we have seen rises fall 10 . If they fall further, do you have enough dry powder to take action if you see asset value cheaply . Valued guest we end the ratio with slightly below 2. 5 percent, which is a low ambition. We have quite a conservative financial policy, so i would say yes we have room to maneuver and yes we have interest cost financial cost which are under control thanks to these reasonable level of debt. When we look at acquisitions, its for its own merit. Share prices being low, i would look at the longterm benefit of having this company into our portfolio and what can we do better than the previous owner was doing . So brazil is a significant one. We have had almost two dozen hubs in the u. K. We believe in the popculture in the u. K. We also bought part of lebanese tests. S. Lagunita to greenfield like last year and we are going to do it next year. Guy many of the executives that we talked to from electric companies to Brewing Companies to Tobacco Companies are examining the issue of whether or not they should be investing into the marijuana business. His heineken thinking about investing in the marijuana business . Guest im going to be clear, no. Its a situation we are looking at and we have had a number of questions with marijuana becoming legalized in a number of states in the u. S. I would say its too early. We dont see any impact right now. We are aware of the discussions that are taking place. But definitely not. Matt you smile though a little bit as much everybody does when you mention wed. Weed. I dont know if thats about how you feel about the subject, but definitely the Recreational Use of marijuana in the u. S. Is taking the steam out of the craft beer craze. Is that spreading to europe or do you still see europeans drinking ipas says the cap quite yet legally i a joint buy a joint . Guest if you look at the craft beer evolution, it has been slowing down in the last two years, which is when phyllis and to might friends and partners in craft. There is a lot of craft breweries opening. You have seen an enormous amount, more than one a day. Then a little bit of a calming down to a more reasonable space. In that context, looking at the itas, wence of laguna feel we use of the right criteria to fully acquire a Craft Brewery that is about Building Brand and building a tried and having repeat consumers and this is what lagunitas is doing. Is abouth of lagunitas growing the craft space and thats as essential as an ipo of reference outside of the United States. Not a craft phenomenon has taken proportion in the u. S. Different than in other countries because of the distribution system. It is still growing. Consumers want to drink a repertoire. They won beer that is close to the community that they understand, that have a history, that have quality guy for the euro. Guest indeed. The footprint is helping. Part of it is further devaluation and emerging markets and part of it is the euro potentially tightening. What we say that we expect the headwind of currency is going to be in the same ballpark as last year. Two years in a row, the headwind in translating the results of our International Operations was about one billion euros. A little more the year before. We are not expecting to operate in a more favorable environment. Any guidance we are giving his including that it that. The progression is including mitigating the impact of this conflation hold and also transaction hold. Guy i think we seem to have lost laurence there. Us on the cfo joining numbers this morning. Down, oneis trading of the worst performers on the stoxx 600. What else are we watching around the european markets . Lets find out. First, we are looking at airbus. That 60 billion contract they signed with emirates isnt helping the stocks this morning where they had to halt the delivery with neojet to indigo. Thats indias biggest carrier. Airbus is dealing with a series of flaws in the next generation. Stocks down 1 this morning. Pgm, as from apollo and dutch possession firm, they are looking at the bid to access chemical units. They contribute 34 of their revenue. Thats also up in morning. Matt i think we need to get some fun issues sorted out. Lets take a look at my world map and we will go back to anne murray throughout the program to follow up with whats going on in individual stocks. I have the whole world. We have a gain in the u. S. Market if i zoom in here on whats going on in the continental, were looking at gains of 1 or more across the space. The United Kingdom up more than 1 . The peninsula up 1. 4 . 1. 25 in france, 1. 6 in germany. Big gains on the dax. So, big gains across the continent as far as stocks are concerned. The worlds Biggest Hedge Fund has quadrupled its short bets against european companies. These gains notwithstanding. Has takens bridgwater out shorts against europes biggest names. The largest is a more than 1 billion wager against French Oil Giant total. The hedge fund is also bearish , santans on bnp paribas nder, which we talked about earlier or it earlier. Im sure you heard this story or read to the story. What do you think about this bet . Why is he so bearish . Guest that continues to be an issue for the european economy. Broadly speaking, there are two ways to think about markets. Fundamentals and technicals. On the fundamentals aside, you can spend a lot of time arguing white europe is weak on a weaklly you have fundamentally. Some of the key relation of debt they have had to the financial crisis. Those are some of the ch allenges. Unemployment has dropped. Pmis are at multiyear highs. Inflation is starting to emerge in europe. Its still on life support by the Central Banks, there is an improving picture. On the technical side, this is where you look at momentum in trends and momentums have been trending the last couple years. Notwithstanding the recent think we have seen globally. Its still a good place to invest. Hes going to stick around. Juergen forces well bid this morning. These are the numbers. This is bloomberg. Matt we are 30 minutes into the trading day. Lets figure top headlines. Stocks down, asian equities climb, while european stocks have dipped strongly. Keep an eye on treasury yields as they push ever higher. Barclays says the u. K. s Serious Fraud office is to charge it over a 3 billion fundraising during the financial crisis. And heineken forecasted margins will grow by less than targeted as the worlds secondlargest brewer integrates its brazilian business. Good morning, welcome to bloomberg markets. Im matt miller in berlin alongside guy johnson in london. Guy . Guy matt, markets open in 30 minutes. We are seeing a bid in the market that feeds through from what we saw, both in asia and the backend of the session in the United States friday. Most sectors are trading in positive territory. Basic resources are leaving higher, insurance, health care, autoparts, construction. A reasonably eclectic mix. Indicated,ave already keep an eye on the bond market. That will be a useful clue as to the way the rest of the week will be trading. We are seeing yields pushing higher. Lets get the first word news update with sebastian salek. Sebastian the u. S. Is ready to engage in Nuclear Talks with north korea. The comments signal a shift in american policy after pence and the south korean president agreed to a talk during conversations at the Winter Olympics in pyeongchang. Haswhile, Mick Mulvaney warned the u. S. Will post a bigger budget deficit this year and could see slight increase in Interest Rates. A shortfall is possible based on sustained Economic Growth. The white house is expecting 2019 spending proposals today to cut the deficit by 3 trillion over 10 years. A preview of the documents didnt say how the cuts would be made. Plane hit by a syrian antiaircraft missile. The f16 was head after israel struck an ring in control base near palmyra. Week, grew drupal short bets. Bridgewater capital has at least 13 billion in short. The hedge funds biggest bearish position is against an oil giant, with further bets against bnp paribas and santander. Angela merkel says she is determined to serve another term as prime minister, rebuffing Party Critics. Merkel urged spd members to back a coalition next month, which would allow her to form a government after four months of deadlock. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy thank you. Barclays has said the Serious Fraud office has brought charges against its Barclays Bank operating in a case linked to a 12,008 fundraising a 2008 fundraising. They intend to defend themselves against charges. The londonbased lender said in a statement on monday. We are joined now for more on the story. We thought that barclays had already faced charges on this. Explain the second leg to what we are seeing here. In june last year, the Serious Fraud office in the u. K. Charged the Holding Company and four of its former executives, including the former ceo. So what has come up now is that the operating company here is being charged as well. Were not quite sure how that will affect barclays, because it depends very much on how the alles, but Barclays Banks receive their operating licenses based on the operating units, so that is why people really care about whats happening to the operating company. Guy investors dont seem overly concerned. The only reason i say that is because the stock is trading higher. They may be completely uncorrelated. We dont know. It does look like the market is up, over 1. 5 from what we last saw. Itdid kind of expect that would dent the stock if it were to happen but it hasnt happened so far. Guy the market is generally rising. Yeah. T could be ait, matt what happens next . What are you expecting in terms of the investigation Going Forward and the banks business, etc. . Well, the bank itself has been very clear and said we dont expect this to effect this in any way whatsoever. We were waiting for the case, basically. We are not quite sure whether this case will be joined to the existing case. Its to be expected. The case starts in early 2019. Well have to see how that plays out. We are not sure about is how the banks will plead. Whats important to note is that the operating company and the Holding Company will be defending the charges, which suggests they wont plead guilty, but we will have to see. Guy thanks very much. Of get back to the cio in some ways, if you believe in europe, you want to belong european banks. But there are a bunch of factors that stand out, that are idiosyncratic in many ways. Deutsche bank is having problems, both in terms of trading performance and in terms of shareholder base. Some of the italian banks are under pressure as well with nonperforming loans. There are plenty of banks around europe that are not related to these issues, but how do i get a position in europe that reflects if i believe europe is on the front foot and selects the correct banks . It is going to be a really important trait to outperform the market. The reason you would buy the banks in europe is because it is the cheapest sector in the Global Equity market and the developed world. The reason it is cheap is because of these challenges that you really point out. The banks in europe have been slow to restructure their businesses. If you think about what happened in the u. S. On the back of the financial crisis, they were quick to write off loans, to essentially reconfigure their setups. In europe, they have been much slower. They have been taking some proactive action, but it is far from over. If you want to play the european story and european recovery, you go for cyclicals. You go for some of the manufacturers, materials companies. They have their own sets of challenges, but less than the restructuring of the banking system. Betting against the bnp part of our, banko santander. Do you think they have good reason for shorting those banks . Yeah. I think he has very specific risks he is trying to isolate, clearly for bridgewater. It is about the portfolio. If you have to look at long on the other, at least what he is trying to do in terms of portfolio strategy. Picking out the shorts and isolation misses the bigger picture. Clearly he is concerned about the structure of the bank and european recovery. He is clearly betting that the European Central bank will fail to recharge the european economy. Matt mohammed, thanks very much. Membersat klein warned kleinwort nambros. Lets get back to berlin. A guest to talk about the mostly bad news for airbus this morning. The playmaker has signed for an additional 2008380 aircrafts. The bad story is overwhelming. Its most important aircraft still suffering troubles. Airbus has suspended some deliveries due to fresh issues with the engines, as well as the fact that they have upped shorts against it. We are joined by benedikt kammel thin to discuss this. Lets talk about the engine issue. This is in the only manufacturer for this plane, right . What is the problem . Thats right. Airbus has two engine options on the plane. One is a joint venture between ge and saffron. The probably are hearing about now appears to be from the former. We dont know what the issue is. It could be that it has created a cascading effect, so they are working through that. Slightly disconcerting what we have been hearing about inflight shutdowns of the engines, which is not what you want. Indigo, which is one of the biggest customers, they buy a lot of these planes, they had to take some of them off and replace them and go back to older engines. The question is who is on the hook for this . We will hear a little bit more on thursday. It has been a rough month for all equity, but airbus is down 5 in february. Up toio and bridgewater their shorts against it. What do they see . There are a lot of things not working in their favor. The 8380 has some breathing space with the emirates, but still, it is not a plane that is selling. Is eight to 20 the a220 doing ok but not selling at the rate they would like to. There is new management coming into the company, and that will take a while. There are still a lot of other people at the company. There any capacity on the cfn side to up production and deal with the issue . Well, they obviously see that opening, but they are pretty much sold out at this point. At the start of last year, a lot of them flew the factory because people were upgrading to those engines. Any air for customers to switch, and usually when you commit to one engine, you try to stick. It deals with commonality of your fleet, you dont want different engineers. Ideally, they would like to get this fixed. How big an issue it is, we dont know. The previous glitches we have seen on the engine have normally been able to get over them fairly quickly. This might just be another quick ledge. Cfn might push quite forcefully. Guy who else is flying the pratt option . There are a number of customers who fly them. I need to double check. Hong kong has been, ana, go airlines. It is a mix of established airlines like indigo this is an airline that is rapidly expanding, really needs these planes. They can sit on the sideline to wait until it is resolved. It is a real issue for companies that ordered hundreds of these aircrafts. Matt lets talk about the positive news. They are getting orders but are they getting enough . They have issues with the bigger planes. Thats right. This is why this is so important. The a320 is the one that brings in the bacon, it really brings home the money. Theyre selling hundreds of those every year. The big claims, that is where the competition is. Boeing in the bragging rights, but those claims have been selling less well over the last couple years. People are buying more smaller planes, moving toward pointtopoint travel rather than hub models. Are the, a380, those ones that arent selling that well. Its not really would like it to be. The biggest variant has not been selling very well. That is something management will have to address. Aey have a new sales head, new guy from rollsroyce. Hell take a hard look at, ok, one of the planes we have, what is selling, what is it, how much marketing are we putting into these programs . Guy benedict, thank you. The airbus story. We will be talking to the company on thursday when it has its press conference. Looking forward to that. Lets stay in germany. Merkel wants to serve another term as chancellor despite critics in her party. This is bloomberg. Matt welcome back to the european open. Im matt miller in berlin, alongside guy johnson in london. We are 47 minutes into the trading day. Lets focus in on whats going on a german politics. Angela merkel has said she is determined to serve another fullterm, rebuffing Party Critics who say she sold out to the social democrats. Speaking in a Primetime Television interview, she urged the std to back the coalition in a vote next month, the final hurdle, ending the Longest Party deadlock since world war ii. Z, letg us for more, yen me first ask about this deal with the spd. Obviously we are not sure how the party base is going to vote on this, but doesnt it look like merkel basically sold the government out in order to secure her position as chancellor for four more years . From many members of the christian democratic union, which she leads, they have that impressive and. They are up in arms. I find it quite interesting that chancellor merkel has to go out and rally for public support among the spd rankandfile to prove this coalition agreement. That tells you about how much dissent is within all the parties that participate in this grand coalition, which by the way, is getting smaller and smaller. Matt the leadership is kind of an turmoil, right . Schulz was the new guy less than a year ago, all of a sudden we have a new one up for leadership, and schulz goes out to pasture. Whats the story with the spd . Serious, were so would say we were at a political carnival in berlin, particularly in selfdestruction mode. Is this party fit for government . Many voters, many members ask that. Want toe doubts if they be governed in the next four years by this kind of a party, which is in turmoil. Matt guy . Guy good morning from london. Where does it leave the cfu . Theres a lot of political space on the right in germany right now, which is not occupied. And im just wondering what happens there. Much of this political space is indeed up for grabs, and that means also, how do you define the agenda issues that try to appeal to voters, who in the past have voted for the social democrats or the christian democrats or csu and have no wandered off further to the right . Linehere is also a red that is dangerous to cross, because you are in many ways pointing to an agenda that the alternative for germany is trying to popularize in the country, and hence you should be careful how far you are going to go down that hole in terms of the agenda. Matt we are looking at obviously a rough month for equities so far in february, but we are looking at a dax that has been weakened. We will get gdp figures out that have possibly slowed down. Is it time for investors to start worrying about germany domestically, about the german economy, as the government seems to even if it is formed just be spending money to buy votes . The Interesting Development is that so far we have not had anys bill over into the economy. Any spillover into the economy. Numbers we are receiving in terms of growth outlook, in terms of lending and bank performance, suggest that the spillover is negative. Nevertheless, i would say that many people in the corporate world and germany are looking at a certain sense of apprehension. How long is this going to drag out . Political uncertainty is the last thing a stability orientated country and economy needs. Out and i broaden it talk about what is going on around europe . The market seems remarkably calm about what is happening in italy. Do you think the markets are mispricing the risk that surround the election coming up . Im afraid you are absolutely right, guy. I think that the fourth of march is going to be a very important day in europe, not only because of the elections in italy, but also on the same day having the results from the rankandfile membership vote of the social democrats in germany. Here,k pricing in risk you have to anticipate an enormous amount of uncertainty regarding the government in rome , and even if you have a slight majority in favor of a grand coalition in germany, one still doesnt know, Campus Coalition hold for four years . I have my doubts. Are here in berlin to give a speech about chinas emerging footprint in southern europe, very experienced in greece. Do you see as they come back to the markets, an opportunity in greece . There are definitely opportunities, and this was exemplified last week by the return to markets with a rather successful placement of the sevenyear bond. Because he mentioned china, this emerging footprint is most visible in greece. The manner in which china establishes an anchor investment, which it then seeks to broaden in neighboring countries, and therefore sends signals we are in play in europe, we are seriously longterm investors in various countries and markets of the european continent. Guy where do you think all of this leavesmr. Macrons plan . New europeanthe model he is proposing, set forward in terms of integration . Will that happen . I think we have to be cautious and jump in not too quickly with conclusions about president macron. He has started delivering on certain areas domestically in france, but he needs partners, not only in germany, but those who will deliver on a wider european agenda. The outcome of the election and italy will be critical, in order to broaden an agenda so that it is not purely defined and identified with president macron. He needs partners. They have to be found in berlin, in rome, and in other countries. You can only do that with a group of countries in the european union. Matt thanks for your time, appreciate you stopping by. Lets get your midcap movers. Almost an hour into the trading session, we bring in amory. Im watching brazilian, a Real Estate Investment trusts, down 1. 12 , now down a bit more than 9 . This company is dealing with some short claims this morning. They say they are preparing a document to refute these claims and are engaging with major shareholders this morning, but a large Asset Management company with a very big short position came out with a report. Ses, one of the biggest losers on the stoxx 600 this morning, down more than 6 . The company has new bosses in who, a new ceo and cfo, were taking effect immediately. Doesnt look at the market is enthused. And saga, a u. K. Company that Services Life after 50, they had news out about a new 80 quota for motor policies. It looks like the market likes their news. Matt thank you. Lets have a quick look at heineken. We spoke to the cfo earlier on to get her take on what is happening with the business. Outlook,bly positive she seems to be demonstrating on brazilian integration, which seems to be acting as a drag right now. Up on bigis trading volumes and Trading Software this morning. One ise things to note, that heineken is down by 3. 34 and the rest of the market is up. You need to amplify that loss, given what we are seeing in the broader market. Two, there are an awful lot of by ratings on the stock. What do you think . Matt very interesting interview we had with the cfo. Interesting to me that they want to be clear about the fact that they are not considering going into the marijuana business. It is key because you see a weakening of the craft beer industry. Not heineken specifically, a weakening of the craft beer market in the u. S. As more consumers in colorado and california go for weed instead. Stay with bloomberg television. Surveillance is up next. Francine stocks bounce, oil rebounds, and u. S. Equities point higher. Policy shifts. The Trump Administration says it is willing to engage in Nuclear Talks with kim jongun. And, the anc prepares to finalize the transition of power away from the south african president. Could this be a turning point for the country . Francine