Of yields, and the question for the market is this. Is the fed a shoe in in terms of the rate cut that we expect . By the way, does anyone care about a 1 trillion deficit in the u. S. . Yousef the winds of change are upon us. That is what the folks at Morgan Stanley say, their chief equity strategist put out the notes. The returns from u. S. Growth were surpassed by their expectations. Lets get to some of the other market action, and a bit of a rep from hong kong with sophie kamaruddin. Sophie asian stocks are extending, but we are seeing volatility with tracking lower. Bojhead of the fed and the meetings later this week. Results. D see solid check out hsbc, the stock falling in the afternoon section. The stock edged higher in the morning session. I just want to highlight the continued selloff in chinese bonds as well. The 10 year yield dumping the most in the six months, with momentum. Oficymakers are wary aggressive stimulus. Worsening chinese Economic Data could strengthen the bull case for bonds. The economy slows on the mainland. Abandoning those return on equity targets with hsbc, lets get you uptodate with the first word headlines. Annabelle droulers. Annabelle thanks, manus. Beaten hisnandez has opponent to take the presidency in argentina. Investors will be watching his first steps after an election that came in the backdrop of an economic and currency crisis. Rebuff to seen as a austerity and signals a return to power for antileague politics that favors owners over business workers over business owners. Isis leader is dead. He becomes the highest ranking terrorist leader killed or captured since Osama Bin Laden was killed in 2011 during the obama administration. Trump said the u. S. Is targeting his likely successors. Demand, and now he is gone. Baghdadi was a vicious and violent, and he died in a vicious and violent way, as a coward, running and crying. Annabelle the brexit talks continue after the Main Opposition Labour Party made clear it will not back the bid for an early election. Their refusal to support the motion means johnson is almost certain to fall short of a majority in the house of commons vote on monday. Meanwhile, the eu is proposing to extend the deadline for brexit by three months to january 31. That is according to a draft declaration. Firefighters are working to contain blazes across california. Homes and at least one winery have burned to the ground, driven by a wind storm packing 90 mileperhour wind gusts. The governor has declared a state of emergency with nearly 3 Million People without power on sunday. Hong kongs prodemocracy activists clashed with police again on sunday, in of the 21st straight weekend of unrest. Gas as they tear blocked roads and disrupted traffic. Some protesters through petrol bombs at a police station. There were separate clhes in the New Territories after a peaceful rally that had drawn thousands of protesters. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im annabelle droulers. This is bloomberg. Manus thank you very much. Missed expectations, abandoned a key target for returns, and flagged significant restructuring charges as it contends with a worsening global market. Stephen engle is tracking the numbers. It is down nearly 3 at this juncture. What do you think the markets most contentious issue is . Thehen they missed across board on all the different numbers. Also pretext profits already missing expectations. It was worse than that. A number of different headlines are coming across. You mentioned that the profitability goal of them saying they are going to drop this target return on tangible equity over 11 in 2020. It no longer expects to reach that target. There is also a statement saying the bank plans to simplify operations to rebalance capital away from lower returns. It is warning of significant charges after acrosstheboard misses on profitability. It is also saying they will announce new financial targets at or before the full year results. These latest sets of results are coming for the third quarter. Also, the hong kong outlook, the economic outlook. We got another blog post from the financial secretary, saying we could be in negative territory for gdp for the full year. Quite a dire situation, given the protests that are ongoing with no end in sight, as well as the lingering trade war. They are going to take a 90 million charge due to that lower outlook for hong kong. 30 of revenue thereabouts for this bank comes from the hong kong market. Yousef two that we are missing so far in this Earnings Statement is any indication of potential job cuts and the appointment of a permanent ceo. Inside engle with the line on the hsbc earnings. Lets get more context with ali malik, the bank of Singapore Investment manager, on the wider earnings story. Hsbc is an important part to the bigger picture, but how does that fit in with what you have been seeing already, especially in the u. S. . Guest generally, the banking andors have been doing well the u. S. Counterparts have been outperforming for a long time. Europe, one did rebound nicely a month and a half ago, and has done really well in recovery. The earnings that have come out from the u. S. , we have seen very robust earnings coming out from financials. It is a twopronged approach to that. The market was underwhelmed with the rate cut environment, so they were not expecting such good results. Secondly, i think the reports and returns have been generally impressive. Manus how about forwardlooking in terms of earnings . 40 of the s p 500 have reported. We are looking at a drop in earnings going into the Fourth Quarter. Is that in the price at over 3000 on the s p 500 . Into thee rewind third quarter, some were saying the thirdquarter earnings were going to be soft, that we have with otherr earnings earnings coming in really good. The Fourth Quarter earnings are not going to be as mellow as you might suggest. Yousef where does that leave the fed . It is fed week, and the markets are pricing in additional accommodation. The critical part of this is what is going to happen after that . And is the market going to be right or caught on the wrong foot again . Ali we are calling for a 25 basis cut on wednesday. We think they will cut rates by 25 basis points. In the next 12 months, we think there will be another cut or so. While unemployment is low and inflation is subdued, the Business Sentiment has been tanking a little bit and the economy is feeling the brunt of the previous tariffs. They might want to cal, things dow they might want to calm things down. Playing it by european exposure, from neutral to overweight. Europe through why is the core play in that shift. We have been sitting on the fence for a little while, but this renewed optimism that a new deal brexit, the risk is almost negligible now. We have been modifying the european equities space for some time, but now we feel that the valuations are more compelling in the u. S. And asian counterparts. U. S. Ands for the asian equities are trading at higher than one standard deviation of their longterm pe. We see some value in europe, especially in the health care and energy sector. Yousef that may be the case that you are seeing more opportunity now at better valuations than europe, but in terms of the sector breakdown, where are you recommending clients get exposure . They have been underloved for a very long time. The sectors that we are focusing on our energy and health care, with one of the favorite names being towetal. Manus when you look at the language being used in terms of balance, the energy iustry is not talkinabout recession. Have a look at this. This is the g10. The expectations for rate cuts coming through. Rate easing in the g10 has followed tos has fallen to 17 basis points. We are running out of the golden charm for markets, which is rate cuts for central banks. An easy streetng coming into 2020 . Ali we are still thinking we might see some support, but it might not be as explicit. Forasis points we think wednesday, then another 25 basis going into next year. We see there might be a halt because the inflation is picking up. Because the inflation is undershooting, the fed is ok with playing catch up with inflation if it goes higher. I agree that it may not be as pronounced or as good as it has been so far. Yousef to what extent are you factoring in u. S. Political risk . The domestic impeachment attempts of the u. S. President. There is very much on the goal. Is that is something investors might be underpricing, especially going into the end of a u. S. President ial term . Ali i think that has the potential to pull the rug out of the investors feet, because that is something the market is not pricing in. It is picking up steam. But a lot of people on the street are still calling for president trumps reelection. There is debate about the candidates, none of the clear leaders are emerging just yet. Risk, but i dont think the market is pricing it in yet. Yousef hold that thought. That is ali malik. Lets give a preview of what is coming up. We are talking about iraq bank. Peter england will join to discuss the latest third quarters earning. Manus next, beijing says parts of the first phase of a trade deal for the u. S. Are basically completed. Is it enough to stem a slowdown . This is bloomberg. Yousef lets check in on how middle east markets fared. Guest good morning. We were really focused on earnings yesterday, and we likely will be again today, but that is why we did not see huge moves in any of these major indices in the gulf. Dubai shares a little bit higher. Abu dhabi down 0. 3 percent. Here, we saw the main index decline for the sixth of seven sessions. Lets talk about some of the big earners. We were watching a company itsrting that it had smallest quarterly profit in over a decade. 47 , industry cuts are at decline in profits. Responding to the positive earnings news, traders digesting what could be positive moves higher after that Company Reported its first profit in four quarters. Finally, i am paying attention to saudi cement companies. These are some of the bestperforming companies here today. I want you to take a look at how well they have done against the saudi tadawul. They Beat Estimates yesterday, so we will see if that has an impact on share price today. Manus thank you for the roundups. And they say that parts of the text for the first phase of a trade deal with the are basically completed. T follows a call on china a call on friday. By chinasned biggest industrial firms are falling as the economy slows, and factory inflation deepens. The National Bureau of statistics showed profits dropping 5. 3 in september, faster than a month before. Some indicators flashing red. Ali malik is from the bank of Singapore Investment advisors. The theater of a deal seems to be coming together, the choreography. You are skeptical on the ability withina to buy the fed, 50 billion of agriculture. Why are you putting markers on that deal . Bought 247, they billion worth of agricultural goods. They were also in a hurry to close the deal. Their gdp numbers came down 6 . We have seen slow growth in a lot of sectors of their economy. I think they might have overcommitted in terms of their agricultural purchases from the u. S. Having said that, i think the underlying intent is to get it resolved. Yousef that sounds relatively bullish on some kind of breakthrough. Where does that leave chinese stocks . Gtv for our clients, because it is trending in a narrow range. We are talking about the narrowest range in about two years. That is going to break out to the upside if it were up to you . Ali it just so happens that we are underweight on asian and japan equities. You are spot on with some of the names. They are compelling at these levels. We feel they are very expensive still. They are trading at more than one standard deviation than where they used to be. There is as much certainty as we would like before we put a strong position on asia. Manus one of the things you do like in china is real estate. You played that relative to the rest of the market. Why are you so convinced on that . Is that on stimulus, a reach on stimulus . What is the thinking . Ali there are three main things. National bureau of statistics came out with data that showed the transaction volume and the number of residential units sold increased. The investment in real estate increased. Lastly, they also pointed out they have seen growth in more purchases. On the policy front, they have andened mortgage rules, that has come in very handy. Monitor ores that we are under our observations, that has grown about 30 for those chinese names. We are ok with the sector on a credit and equities front, but very select names we monitor, one being k wg properties. Yousef some say investors should switch to chinese cement sectors. That has been benefiting as bond proxies. We also have this Leadership Meeting in china that is very much at the front and center of our clients around the world one of the most read stories. Are you looking for anything specific that could move off the back of that . Rlierto manus ea point, it will be up to the government whether there is more cuts or stimulus, or how they plan to ensure the gdp sits around the 6 level they are aiming at. Manus we have written a piece this morning. They will be pushing politics rather than growth. Yousef that is a key point, isnt it . Manus in terms of the kind of stimulus you have seen, are they doing the right kind of levers . Are they pulling the right kind of levers . Ali if they are still growing at 6 , i would give it to them. The bloggerss what are chatting about today. Seen it comeboth down slowly. I would not be surprised if china followed suit. We have been talking about this hard lending for about a decade, and they have not heartlande hard lended yet. Yousef how does this story contend with other asian plays . Growth is slowing down. There may be positive signals on the trade front, but how does that compare to the wider recommendations you are making . Ali in general, we have been bullish on the emerging markets, high yield debt. We feel there is more value than their european or u. S. Peers. Investors really are seeking deals they are not getting elsewhere, so they are returning to emerging markets. In the region, we have seen issues. We saw Robbie Dobbie we saw abu dhabi. We saw demand for this yield. Thee they are slowing, benefit is in a benign interestrate environment. Manus the phrase that is being used is phase one of this agreement, basically stable against the basket of currencies. How does that translate for you on the yuan . Ali in terms of the you want, i yuan, in terms of the most of the plays that will be done in china are dollar nominated bonds. It is hard currency, not local currency. Manus allie malik, bank of singapore. We looked at is on mtv gtv. Although securities are there. Going the conversation, send us an instant message. That is for bloomberg subscribers only. Check it out on tv. Yousef it is 9 25 in the morning in dubai. We are 30 minutes away from the market open. A live shot of the Financial Center area. Clear skies. Oil a little under pressure, brent down by 0. 25 . It was initially stable after the trade spat. We are down from an april peak. Lines coming through on iran. The price for oil is soaring as sanctions begin to bite, according to the imf. You can see full coverage of the middle east outlook reports on live go on the terminal. Lets check in on the business flash headlines with annabelle droulers. Ob mh is offering nearly 15 billion in what could be the biggest purchase ever by the french owner of louis vuitton. Is at almostbid 120 per share. The u. S. Jeweler is evaluating the deal and there is no guarantee a deal will be reached. China is allowing onshore investors to buy shares traded in hong kong for the first time. The revised rules go into effect for monday, giving investors stock connect the program between hong kong, shenzhen, and shanghai. It is the latest move to find ways to keep the countrys Tech Companies at home. Hong kongs ipo market is making a comeback. Five months of protest that have hurt the citys economy, and hong kong has led the world in ipos since the start of september. The total value of first timeshare sales in hong kong has been almost 8 billion, overshadowing 7 billion on the nasdaq, and 3 billion on the u. S. Stock exchange. That is your Bloomberg Business flash. Manus annabelle, thank you very much. Up next, dubais biggest bank reports a 63 rise in a ninemonth profit. They also named Patrick Sullivan the new ceo. A quick snapshot of the markets. Asian market volatility is much of the lowest level since may. About a quarter of 1 . No big moves in the dollar. We will talk about markets right here on bloomberg. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone [ camera clicking ] wifi up there . Ahhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your xfinity store today. Atsef we are looking yields, pretty much unchanged. But there are some key issuances. Meantime, equity futures signaling that they were built on where we left off, and record levels that we saw. About 1 10 of 1 higher. Morgan stanley making the point that the u. S. Gold stock a story is likely to continue in terms of the lagging returns compared to their value, earnings coming out over the next few days. And it is fed we, as well. Lets check in on the first word annabelle dth roulers. Annabelle announcing that di was killed, the first large when killed since Osama Bin Laden during the obama administration, and they are now targeting likely successors. Man,dent trump a depraved and now, he is gone. Ghdadi was vicious and violent and died in a vicious and violent way as a coward, running and crying. Oppositionthe main labour party made it clear will not back Boris Johnsons bid for an earlier election, meaning johnson is almost certain to fall short of the two thirds majority in the house of commons vote late monday. Meanwhile, the eu is proposing until december 31. Chile, the country has seen its worst civil unrest decades, with thousands protesting and at least 18 killed. Wanting economic and political change. Acting amidt is public tension. China says the trade deal with the u. S. , talks are basically completed, following a meeting with the u. S. Trade negotiator and Steven Mnuchin and. The Chinese Ministry of commerce said they have agreed to properly resolve their concerns. Partye Chinese Communist committee is expected to meet monday for the First Time Since february of last year. That is the longest stretch in the decade since china started economic reform. President xi is expected to pick off where he left off, solidifying his rule over the party. Global news, 24 hours a day, on air and tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. Im annabelle droulers. This is bloomberg. Gainingasian stocks amid volatility, tracking lower, s p futures with record highs amid trade optimism, which has pushed the south korean won lower, and we are seeing an extended selloff in chinese bonds, the 10 year yield jumping by the most since april, and we are seeing this along the gtv curve, adding basis points ahead of the meeting later this week. And stocks are being led this morning with a company that could test 27,000, with names like geely jumping on solid results, and with me let kong, now in hong and with investors now in hong kong. Manus . Terms of hsbc,in when we look at the quarterly numbers, they disappointed, but, you know, in terms of the detail on job cuts, we had the detail last week, but what is the Market Reaction . What about the return on equity . Sophie so with the number is not looking that solid, you have the stock falling as much as 3 in the afternoon session here in hong kong, which has wiped out about half of the intraday gain. That was not much of a surprise. The deterioration in the first half was worse than expected, likely driving this downturn. Plus, we had the pull back on profitability targets, and that does not bode well for the interim ceo, with cuts in under forming underperforming items. Jumping to the terminal, just to show you where these are positioned when it comes to these stocks, they are the most bearish on hsbc since the Global Financial crisis, yousef, with only one in five with a buy call. Yousef thank you, sophie. Lender with profit after it sold its stake on a credit card processing unit, and to discuss it further is a Portfolio Manager at an asset manager management company. Welcome back to the show. We also have a new person getting ready to take over control. The bar is extremely high. It is. Stillhey have to do, we like them as a stock. Nbd. But you still have the major msci, andissues, the you have a ftse inclusion, as well, so i would expect people to hang onto that. Manus when you strip out the exceptionals and the impact, it is up by 3 strip out the exceptionals, and the impact, it is up by 3 . You say it is about a consolidated story. Exactly. Basically, consolidation. Of the networkle international. 3 up, and what is important is , which is sortk of the goodwill, and the capitalization levels. The capitalization has fallen, but with them coming into the picture, that will again go up by about 15 . Those of the numbers that the investors will be keeping watch on. Yousef we also had earnings from a middle east listed company that disappointed investor expectations, and the saudi market has already been under pressure. You point to valuation. , have the chart gtv i mean, what are you telling clients . The emerging market, if you look at the economic growth, both of them, you know that e. M. Growth is up, and the saudis, just flat, negative growth, so hindsight, expensive. We had the week earnings trajectory going forward, but we do like the likes of the healthcare stories and others. Manus lets pivot to lebanon. On debtguest restructuring. You say it is going to get worse before it gets better. What is worse in your view . We will have a look at the bonds , 2021, and we have got both of those in the gtv, so how bad does he get in the first instance . They havee scenario, external financing but enough of 39 billion, even with the dollar liquidity. In 2019. Things due the finding is mainly with the lebanese banks and the central bank of lebanon, so they have their own skin in the game, right, but what is definitely challenging is how they come out of this situation. It is very challenging for the government to come out of the comprehensive plan, and at the same time do something for the economy. They need to come out with a winwin situation for the people as well as for the economy, and that is going to be a bit challenging, given what is happening at the moment. It will be very interesting to see how they are going to restore the confidence in the financial system. Yousef lets stick with fixed income, because we have the fed decision later in the week, and you look at some of the interbank rates, and the gtv for some of our clients, and emirates, where is the opportunity . This has gone further than people thought it would. Fixed income performance, i do not think they are going to see something in the near term, but volatility is going to stay. There are so many moving points at the moment. You have oil, the dollar, trade tension, global demand, geopolitical risk adding into it, so i think there will be a lot of opportunities. You have to be a very active asset manager to get that. , a portfolioest manager. Up next, we will stick with the banks. Peter england joins us. This is bloomberg. Yousef rakbank Beat Estimates. For more, lets bring in peter england. Peter, what drove results, in particular . Any new trends that emerged . Peter no, i think it is just a continuation of what we have been doing over the past years. We have grown quite significantly. Gains, but thex trend is the same had we have change the composition of the balance sheet. We see our provisions coming off, and it is just things gradually moving through. Manus how are you seeing those revisions and those revision numbers, given that the information we have about the economy in the region . Peter i think if you look at rakbank, we went through the crisis, and we are the largest smallbusiness bank in the country, and at the time, we change the mix of the balance sheet. It is just a gradual flow through of those, more than anything else. Yousef in the past, you have always said you were a little bit shielded from the impact of lower Interest Rates, but as we go into a fed decision later in the week, it is important to bring that up again. Perhaps, we have reached a level where it will start being felt . Peter no, i do not think so. About 65 of our book is fixed in nature, so we generally would have the opportunity for our funding costs to drop a little bit faster. And, therefore, we should see neutral to slightly positive, so as long as rates stay above zero or that territory, i think we are in good shape. Manus what can you tell us for next year . Peter i think we will see some of the trends, not just for rakbank, but in the industry, about 3 or 4 loan growth looks right. When you look at this, shrinking, so overall, i think 3 or 4 is going to be tops for next year. Yousef when it comes to mergers and acquisitions, it has been a big theme. Bloomberg intelligence has done some fabulous work and looking at the potential between, say, rakbank and first abu dhabi bank, and you have got scale. It is clear it would be a netnet win in a scenario like that. Are you talking to anybody, including first abu dhabi bank, to capitalize on that . K, our positionan is we are still the largest Small Business bank, and being the national bank, there is no sort of logical merger for us at this point in time, so there is certainly no discussions going on. You defendd remaining completely independent if it was put in front of you . Would you make that case . Yearou, at the end of last , for example, with that, it is around 27 , so there is a justifiable case about putting something together. It would help the costs. It would help the diversification. How strongly would you argue for independence . Peter at the end of the day, it may be relatively high by uae standards. Frank, i thinky we are too small to really worry about. I think we are making a good 16. Rn on equity at 15. 5 , 0 , so, no, i do not think it makes any sense for a merger. Yousef one person was making it clear that dubai has to stop building. It is oversupplied. It will start affecting the banking sector, this disparity. What are you seeing and property and in retail, as well . Clearly, pain is being felt. Peter clearly, prices are coming off. The central bank introduced some very restricted things in terms of loan valuation, and i think that is variable in terms of protecting consumers and the banking sector, so i have no real concerns about the Residential Mortgage piece. I think commercial property is more of a challenge. We certainly are seeing rents falling and prices falling. Again, in the case of rakbank, our loantovalue ratios on those properties are relatively low, so i am not globally concerned about it, but at the same time, prices probably will continue to fall a little bit more before we get to where demand reaches another level. Manus are you taking up any of the lending standards that you put in front of lee tail retail . You are expecting more of a dip. Up in any wayning with these processes . Peter we changed a lot of the way we lend five years ago, and change, and look at if there are some sectors under stress, we may make changes, but nothing dramatic on the property fun, as i said, the loan ratio is low, and we focus on cash flow lending rather than asset lending, and just the asset securities, so no real changes in the last time. Yousef going forward, a rebound in oil prices, reduce geopolitical tensions, is there anything in particular that you think, hey, that could work out for us . Peter it is just gradual, continual change, as we have in the past. I think the one thing that would certainly help that with us being the biggest Small Business bank is if we got more demand in one sector. One of our challenges is we are finding loan demand declines, people not borrowing money necessarily as they used to, so if there is more Economic Activity that drove that demand, then that would be very beneficial for rakbank. Yousef you have that kind of the community. Peter, thank you. Peter england of rakbank. Next, awhat is billionaire and his plans for a Pharma Business. This is bloomberg. Abu dhabibased ty talkedre br shet about an ipo, selling shares in spokerm, nmc, and he exclusively to bloomberg here in dubai. Do all of these things not just for the sake of money. It is for improving the business, and also to have more and more People Participation and i feel he should not be to make money. Manus it is part of the agenda. Could you say that the Pharma Business may be the next business to go for ipo . Br it is true. Companies, the good ours is one of the best in the world. In 2020 . U want to ipo would that be part of the thinking . Br yes. Ok, 20 20, i will hold you for that. And then if i can bring it back to you. Br shettyething that has built up. It is not just him. They are very involved and very committed to the business, and we always look at what is the future going to look like, and the future still looks very good for nmc, so he continues to manage that as a joint executive chairman. Both have so you built the business from the ground up. We have confirmed sources telling us that some are talking to you about taking estate. Fund in abun wealth dhabi. Are they talking to you about taking a stay . Br unless it is done, i cannot say. Yes, they will take it. Many people. Manus will this be the kind of institution that you would like to be involved with . Y anyone has access to be able to buy a stake in our company, and it has to go through the regulatory approvals, as well. Manus are they talking to you . Binay personally, i am not involved in any of those discussions, so i do not know if they are or are not, but over the past couple of years, there have been discussions, right in the reach of the investor community, talking to the company, and so, they could potentially be one of those companies, and i would not be able to confirm anything. Yousef caught up with someone talking about oversupply in the property market. Is there an oversupply in the Health Care Market . Do we need a moment of pause in health care the region . Br no, you still need more and more, but it should be high quality, affordable. Get insurance that is global supply. Manus do we need a similar committee to the Property Committee that has been set up in dubai . Do we need a similar kind of governance across health care . Br they already have, and the new facilities. Binay, can i ask you, in terms of the future for you, where is the most important . You named the pillars. Weay with the ventures, looked at the uae and the businesses that we set up, and if they become large enough, they can then look at other countries to expand from, so we probably would not do a primary investment in a geography other than here, but we would look at expanding our businesses in other countries, so india and also we have another entity that we are scaling up our Health Care Practice in india, and we will continue to invest in education in the uae, so across the areas, we continue investing. Manus in terms of the business that you perhaps want to consider stepping back a little bit, are you still fully engaged . Is the rumor of my demise much overdone . Br totally. Totally. Manus no indication you might resign at all . Br no. In the meantime, i am taking good initiatives just to tell you, salt and pepper for the interview. I have got backward integration. Country, there was a b problem, and i am going for technology. There was a kidney problem, and i am going for technology. Kidney and also heart. Yousef lets get back to the earnings from hsbc, because you had a pretax profit that dropped about 12 , which is more than analysts had anticipated, the proffered dilly the profitability goal scrapped. Hsbc, the share price could be in limbo until we get confirmation. New targets and the profitability target. We will catch up with the cfo very shortly. Us just after 6 00 a. M. , so i just wonder, where are they going to make the additional cuts a guess joins us just after 6 00 a. M. A guest joins us. Yousef simplifying the businesses, they say they are looking at all opportunity for that. Manus so the question is when will they get back to a return on equity . We discuss with the cfo, shortly. Manus good morning from by from dubai. This is bloomberg daybreak europe. Nejra these are todays top stories. Hsbc shares drop in hong kong as europes slender misses on profit, abandons a key target, and flag significant restructuring charges. Ewen stevenson joins us. Do not miss it. The European Union proposes a brexit extension ahead of key talks today. Boris johnson steps up the pressure for an early election. We are live in westminster and brussels. Phase one almost done. Chinastocks rise after says talks on the per luminary trade deal with the u. S. Are basically completed preliminary trade deal with the u. S. Are basically completed. Manus reshaping Continental Europe and the United States of america. Abandon your profitability targets, your return on equity. Those are the messages from hsbc. The man who is temporarily at is ewen, but the cfo stevenson, a stalwart of reinventing a bank coming from the rbs background. Profitability drops. Revenue slips. No longer expecting to reach a in 2020. Equity of 11 challenging. S more growth is softer. Prepare for a rocky ride. They will sustain the dividend. What is lacking is a lack of numbers in terms of where are we going to execute this plan next quarter and beyond . Is a significant charge . 10,000 job cuts announced. Where will those come from . Philips giving us their guidance. Nejra lots of questions for the hsbc cfo. S confirming its guidance given october 10. Basically, it will missed profit supplyamid cost and Chain Disruption from trade tariffs. We did see shares fall on that when they gave that guidance. The margin of improvement will be a maximum of 20 basis points, snapping three straight years of 100 basis point improvement. That was the statement we got october 10. The update now is confirming that 2019, 2020 guidance. Third quarter comparable sales up 6. 3 , but we will again have lots of questions in terms of when we speak to the ceo later in the show as well. Do not miss that interview. Story, euk to our top diplomats meeting this morning likely to agree to delay brexit the january 31. With an option for the eu to leave if both sides ratify the divorce deal in time. In westminster, mps vote on Boris Johnsons bid for an early general election in december. With labor against it, the pm is likely to fall short of the majority he needs. Lets get the latest with maria tadeo out of westminster, anna edwards. Maria, lets start with you. What will this mean for the Brexit Process . Good morning. European and investors are going to meet to figure out what they do next. The new proposal will be the eu threeitain agreeing to a month extension. They will also say, you get an option to leave early if you get this deal through the u. K. Parliament. It is interesting that this contains a set of decisions which will see the eu asked the u. K. To not open up the agreement, not open up the brexit deal, and also say it needs to act in good faith for as long as it remains a member state of the eu. Just to make it very clear, it does not mean the eu 27 will agree. We could be in a situation similar to the one where we ended up friday in which the french government is taking a very hard line. They are not able to agree to a three month extension. They want to keep the pressure with a much shorter deadline. That is what Emmanuel Macron is pushing for. He believes time is not going to fix this issue. Realnts to see justification. What is the u. K. Planning on doing with extra time . Manus lets get to an outside westminster. Anna outside westminster. Being held hostage by one of the oldest parliaments in the world. That is how Boris Johnson sees it. What can we expect today . Boris johnson saying parliament is holding the country hostage because parliament refuses to back Boris Johnsons for asked for a general election. We have Boris Johnson pushing for an early election and parliament refusing to give that. Boris johnson not have a majority, so he needs two thirds of mps to agree to push for that early election. That adds up to 434 mps. We will see about later. It not seem likely Boris Johnson is going to get the numbers. We do not know what he would do if he does not get this pushed through. Other than comments he would include the rest of parliament is not serious about getting brexit done. There has been focus on the domestic agenda. Assuming that is possible right now. We have a little more after the weekend about what Jeremy Corbyn needs to back an early election, a call for a general election. The bar does seem to be getting higher. Its not just that he wants the eu to extend until january 31. Thats not enough in terms of taking no deal off the table. Of his top teams suggesting Boris Johnson might have to come to the house of commons and say, look, i dont want to do no deal. That does not seem to fit with the governments strategy. It does not seem likely. Onseem to be where we were friday. Boris johnson pushing for an early election and the rest of the house refusing to give it. We will see what happens later. Thank you both for joining us. Joining us now for the hour is the chief Economic Advisor of great to have you with us. We are still in a little but of a bind in terms of will be an election or not . Still waiting for an update from the eu. Are we going to get that early election . I guess we will. The question is how we do it technically. The issue is Parliament Never thought this would give a position for the opposition to force comments into a logjam. The surprises what we should expect. Side with the Prime Minister. He only has a few days left as a speaker. Is what we could expect. If the vote fails today, Boris Johnson has a couple days to get on. If the election is fixed, he takes the pause button off the Withdrawal Agreement bill and we have a couple weeks to get that past as well. The best scenario for boris is to get data for an election, get the bill passed, then try to fight for a majority on december 12. Manus when he goes to the country with the deal, it could push those pull rates higher. Poll rates higher. To hsbc. It is a miss on the third quarter. Pretax profit, suggested pretax profit fell 12 . It also dropped its profitability goal and has warned of strict of significant restructuring charges. Onl me more detail significant restructuring charges. What squealer we what scale are we looking at . Ewen good morning. When you look at what we have announced today, you can see a mix of the good and the less good. Within the good, we have done a resilient performance in asia with profits up. Behind that, you see significant for example,dbi, in the u. K. And continued underperformance in the u. S. The restructuring we are looking at is very much focused on those two businesses together with quite a complex Group Structure and group cost structure we have built up over the years. Im not going to speculate on what that means. We intend to come back in february. We will have more details then. Speak to you. O in terms of guidance you might be able to give, can you give us guidance on how much you expect the Central Project overcharge would be for the full year . Previously guided that around 650 to 700 million to produce a similar run rate saving for 2020. I do not think those numbers have changed. In addition to that, what we are signaling to that as we do expect restructuring on top of that. In someuld result additional severance costs going into 2020. You no longer expect 11 return on equity for 2020. Are you still going to stick with that 11 target . When is it reasonable to expect we might get there . Collects what has changed over the course of the year is a fundamentally different position on a few things. The Interest Rate outlook has changed a lot. Previously, our expectations were particularly for the dollar bloc, which the Interest Rates rising. We expect them to fall quite materially. Continue the markets to be choppy, which is impacting wholesale banking business in europe. Thirdly, issues like brexit and some of the issues around hong kong like trade tensions and the current protests we had not anticipated at this point. We do think we have parts of the portfolio, particularly in the u. K. , with the central bank and in asia that are capable of producing very good returns. I am not going to speculate on what our new return target will be, but we will be back to the market in february to update you. Nejra this morning, knoll quinn was saying you are accelerating plans to remodel the underperforming business and move capital into higher growth and return opportunities. Plans,s of accelerating could you give us an update on your progress selling the French Retail Bank . How much buyer interest have you attracted . Ewen so far all we have confirmed is the fact we are doing a Strategic Review of our french Retail Business. There is no update. Manus 4 of your Global Workforce are based in the middle east. We had a story we can expect cuts. How much of the job cuts are going to be focused in this region . You have announced 10,000 jobs to go. Give us an indication geographically. Is that europe . The french bank . What about the middle east . Ewen i think the bulk of what we are looking at is really centered on three areas. U. K. And Continental Europe, u. S. Franchise, and some of our Group Central cost. The middle east is going well for us. How much marble you have to target in terms of asset sales beyond the French Retail Bank . It is difficult to say. Some of it may involve just running down the asset pools we have, not renewing some lending relationship we have where the returns are not producing acceptable returns. I would be surprised if that involved significant asset sales. Manus lets dig a little bit deeper. Week 20 of protests at the heart of your business. Is there any flow of capital from hong kong . Has there been any dislocation from the institution . What can you give us in terms of insight in the financial underbelly of what is happening on 20 weeks of protest the echo protest . Impact of trade dispute, too. Everything you would expect to be impacted has been impacted. Trade numbers are down. Tourism is down. Seenr, our business has very modest deposit outflow and some inflows, overall deposits in the quarter were flat, lending growth was up. Provisions, the credit portfolio we are particularly focused on at the moment is the Small Business and. We are pretty pleased so far with what we have seen. The longer this goes on, the more it will impact our business. I want to go back to the costcutting, which might also be impacted if the protests in hong kong go on longer. It will be another headwind. Where do you think the job Reduction Program will be over . Ewen any reduction in headcount will flow from the restructuring we do. I would hope in terms of what we are signaling today in relation to the u. S. Group central costs, that would typically take a couple of years to restructure. We will accelerate getting to those plans and we will talk to people internally before we talk externally. When we look at the various divisions within the bank, where is the most rapid impact for the bottom line . 30 of the banks capital is generating returns less than 1 . Where is the top objective to restructure in terms of his division . Business division . Ewen you see a few things. 85 of the capital is invested in Global Banking and markets and commercial banking. A lossmaking Retail Business in france in the u. S. U. S. The i would not single out any particular area as something that is going to move quicker than others. Nejra can you single out any particular areas that might benefit from more investment . The areas you see higher growth and return opportunity . You can see in todays results investment spend this year is over 10 . All parts of our business are going through rampant digital transformation. Are happy. We have a lot of investment spending going to asia, a lot of investment going into our trade platform, mobile platform globally for retail banking. Todayf what we are doing is to enable us to protect sharing good growth, good returns. You said it is a multitude of issues, but one of them was obviously on dollar rate. It is fed week. What is your base case . Is it one more cut . What are you modeling . Could you see rates go to zero . Consensus does not see rates going to zero, but it does seem more than one rate cut from here into 2020. We base our forecasts on what we see consensus modeling. If the restructuring we have talked about does not bring the fruit you are expecting, could the dividend be at risk . We are intending to sustain the dividend. That is an important feature of our equity story. No change in the signaling around that today. Thank you very much. I think we have covered just about everything. Come back, give us the numbers. We will talk to you, i hope, at year end. Ewen stevenson reassuring the markets on the dividend, the reasons behind the abandoning of the 11 return on equity. We have a heckuva week in terms of the earnings. Oil and a whole host to drill into. Nejra with thirdquarter earnings in full swing, we have an interview here for you on bloomberg following the controversy over the treatment of star trader we will speak to the Credit Suisse ceo on wednesday. Manus the same day we have interviews with the Deutsche Bank cfo and the cfo of standard chartered. Dont miss those exclusive interviews. Thursday it is bnp paribass ceo. Bank. Cfo of ing hopefully i got that name right. Lets move it along. Lets talk about other issues. Brexit tops the agenda. We had a breaking line come through suggesting france has agreed to a three month extension. There have been discussions that in might fight back against that. Lets get back to martin malone. When we look at the brexit story, if boris goes to the country and gets an election, is there a demographic that that is a risk as he goes to the election . A lot of people saying the students are not going to be there, and that they are the linchpin in changing the vote at this next election if it comes through. How do you look at that . Risk. Is potentially a the issue about boris is he won the 20 leadership election in leadershipthe tory election. A lot of people did not expect them to get a deal. He did get a deal. We see the relationship with the irish leader and the french that boris has significantly improved those relationships. Most people could see that. Its going to be detrimental to boris that he cannot get the deal done on thursday. Has promised october 31. Depending on the date for the election, they are going to fight very aggressively. The key issue, the surprise a couple months ago, where Scott Morrison became the Prime Minister of australia, but the entire team that won that election has moved to london, now working for boris on the election. Nejra before when we have talked, you have said go max long at the pound, max long u. K. Assets. Do you still hold that position and have more conviction in it now . Yes, we have changed aggressively with the meeting with boris and leo. You can see all the opposition that was against boris has flipped on his side. People can see that change. Is an has said boris leader with a strategic vision. This is a key issue. Here will be more surprises we have to expect surprises. The Downside Risk in sterling is relatively low. The worlds investors are shortly u. K. , short sterling, whether that is direct investors from the corporate sector or portfolio investors. Not concerned about the Downside Risk. The speed of the upside risk is going to depend on events and we are going to have to wait and see. Manus the theater of offense will play out. You have written a couple pieces on brexit. The structure of decline in u. K. Growth, not a shocker. You talk about the need for tripling the deficit. Through what you are thinking is needed if boris returns to power and has the mandate. The key issue here for a structural trade on the u. K. Or u. K. ,e would say is by but we are not there yet. We are the start of that. The postbrexit economic agenda is the key issue for the worlds investors. Significantke Political Leadership to achieve. We have to get away from a fiscal policy in this country. We have 1 deficit. That is not good enough. We need a nominal gdp targeting policy. That means 3 for the next decade. We also need to get the growth rate higher. The 1 growth rate has triple to 3 . That can only happen with investment. Investment boom is the only way to get productivity increase. What im talking about is an economic agenda. We dont know what that agenda is from the new government after december, but that is likely to extentshape to a certain of what we would be looking for after december. Nejra do you think investment will come in a meaningful way if boris gets his deal . There are still negotiations on the trading relationship with the eu and that is going to take a significant amount of time as well. Correct, but the Political Leadership is key to reducing uncertainty. Investment in this country last year was minus two. This Year Investment is minus three. Investment should be minimally 3 . The gap in two years is 10 , over in gdp terms. The pentup demand for investment is huge. It gets turned on with a significant majority by the tory party on december 12 in that election. Get that election through the beginning of december, we are going to see what he might return with based on the assumption of the vote. Nejra had a conversation. John said the bank of england will be cutting rates even with a transition. Even with that deal agreed. Cable . A cap is that i cap to sterlingeuro . I dont think so. Basically what we need to see with a new government in a new central bank because mark carney is going to step aside from next february is almost an alignment of policy. It is what trump complains about and. The fed this is the key issue about nominal gdp targeting. You need all parts of the government aligned. On growthpendent objectives if we still have a stagnatory in the u. K. , the bank of england has met the stakes in hiking Interest Rates. The rate cut environment and the interestrate environment has to be very proactive in supporting the economic agenda the u. K. Goes forward. Manus thank you very much stay with us. Coming up, i spoke with rick perry about the surge in u. S. Shale access. We will bring you the latest on his comments. The world is awash with oil. The analysis next. 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