Google and apple outperforming, while netflix and others have lag behind. A chief economics advisor is still with us. Martin, how much are these going to help power the s p 500 to another record . Martin i assume the Semi Conductor market has done better, and 5g, where rollout is important, and the trade negotiations are going to be a key issue, because the growth deceleration we have seen this year is tied significantly to trade friction. If we see a lifting of the trade friction, investment will return quite rapidly, and that will be very, very good news or the technology companies. Manus as far as the earnings season, i had a guest earlier. Earnings, a the slight touch of hunger, is going to hit the market . Do you think we are already priced in with an earnings dip going in . Ontin yes, the surprise is the upside rather than the downside. Trade slow four months. We have seen investment slow for nine months. We now have the labor market deceleration, and this is a key reason why we are getting monetary and fiscal easing. Is key for q4 for markets actually Political Action, so we potentially are going to get a brexit. We have the opec meeting december 6. All of these issues are deal, deal, deal, so the issue is to put in stabilizers, and we will get further monetary fiscal easing to support that effort. So, therefore, we are in potentially a stable phase, and we will have to see how all of that pans out, whether a deal happens, or whether we get some economic stability. Nejra all right, we will pick up on that. Martin is staying with us for the hour. We bring you another earnings interview. Philips, the dutch maker of goods also confirmed the guidance it gave when it talked about profit earlier this month. Frans. Us is the ceo, thank you for your time. You have confirmed that guidance for october 10, talking about toecting adjusted ebitda improve about 10 or 20 basis points, and with the headwinds and the performance trajectory of the businesses you are addressing, can you tell us a little more about that . What are you doing in terms of action to fix the shortfall . Sure, lets position the business. We consider the Third Quarter to be mixed results, because we had this fantastic 6 Revenue Growth across all businesses and all geographies, so clearly, the innovations have tractions across the world. Customers want to deal with us. Diagnosis and treatment and personal health, and we had issues in our connected care business, where, among others, the headwinds of trade tariffs , in a mix thatty was a little less rich. I think it is important to realize that these tariffs are not easy to mitigate. You have to go deep into your supply chain to find out exactly which components, which materials are subjected to the tariffs between the u. S. And china. In our business, it has taken more time to fully get to the bottom of it and to instigate these corrective actions, so it has set us back a bit in the quarter, but we remain confident in the coming quarters, we can resume our upward pass, as we have been doing for the past three years, with a very significant improvement. S, good morning to you. Our top story is that phase one is nearly done. You have guided us down 10, 20 basis points oven in dutch oven increase. Youe one is done, have guided us down 10, 20 basis points with the increase. If phase one is done, what about the margin . Not know exactly what is in phase one. It could be very good news, or it may not affect a portion that is hitting us. That the net impact of duties this year after the mitigation we just talked about euro, to some 70 million what we pay to the u. S. And china in both directions. If the goods and materials that are a part of the phase one deal are the stuff that we use, than that is great news. That means that those duties will come down. It could equally be that it is more agricultural focused, and therefore, it will not benefit us, so i am as anxious as anybody to understand this deal, and we hope very much it is going to be good news. In the meantime, we have no other choice but to continue to take corrective measures. And that brings me back to my first question, frans. I understand it is challenging to get visibility, but with the steps you are taking to mitigate the impacts that we have talked about so far, what steps are you taking . we are focused on selling the products that have the best margins. We are taking the corrective actions with the supply chain so we can avoid the duties. We were, of course, already working on it, and we expect to see further evidence of that. We are also focused on cost management. Altogether, i am confident that the suite of measures we have in the pipeline will be sufficient to improve margins again in the fourth quarter. And then, to resume a good path for next year. Many there are so toficult known, unknowns deal with. China, the data, a huge headline. You still have double digit growth at the end of the second quarter, and that was taken quite well by the market. With the chinese, how does that pan out for your business . Give us some insight on how that is going on on the chinese side. Frans we are repositioning to be a different kind of technology company, and across the world, we see aging populations that require more health care services. People struggle with lifestyle decisions, such as diabetes and cancer and party vascular disease, and capacity in china to deal with that population, the health issues, is just not sufficient, so we have seen a strong expansion of the health care segment, and philips is one in china. We have a very good brand reputation, and we have been growing doubledigit for years now. Frankly speaking, i do not immediately see and Economic Growth difference between, lets say, a six percent or 7 in china makes any difference. We are onnfident that the right path in china. We have got our minimally invasive operating room approved by china, the chinese we are actually expecting good traction from that category, as well. Nejra frans, we have talked about the possibility for a rebound in the business if phase one of the deal between the u. S. And china goes through. A it gets worse, frans, twopronged question. How protective will consumers be in terms of price increases, and how protected will return to shareholders be if the trade war gets worse and further impacts your business . Scenario whereby the trade wars go the wrong direction i think may also happen. We also need to worry about what happens between europe and the United States in that context. End, trade wars almost always end up being paid for by consumers, and that is unfortunate. I do not think there are any winners in a trade war. We try very hard to avoid the impact of duties, into shifting manufacturing location or changing the components of our products. All of that takes time. We tried to avoid that. Our customers and hospitals are affected by price increases, but, of course, if this continues, then there may not be any other way than to pass it on. You say, lets see with the unpackaging of phase one really means for the bottom line for you. There are other phases to go from with trade. Thanks for your time this morning. We wish you well. Lets get your first word news with Annabelle Droulers. Annabelle thanks, manus. Abandoning a key profitability target. Return on tangible equity of more than 11 in 2020. Results missed expectations. And lenders flagging significant restructuring charges as it contends with a worsening global outlook. The eu is proposing a brexit extension until january 31, according to draft documents seen by bloomberg. It will be discussed today. Under the proposal, the u. K. Would be able to leave earlier. This coming as Prime Minister Boris Johnson was set to lose his bid for a general election on december 12. Hdadiic state leader albag saidad, as President Trump they carried out a raid in syria. He detonated an explosive device. His New York Times reports successors were killed in an airstrike the following day. Toefighters are working contain a blaze in california. The fire has forced the evacuation of nearly 200,000 people. They have declared a state of emergency. Meanwhile, pg e is restoring power to millions after the states largest ever deliberate blackout. Evere states largest elaborate blackout. , limits ofe purchases to just 200 a month. It is much lower than the previous limit. Is victory in argentina considered a victory for the south american nation. 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. This is bloomberg. Nejra . Nejra Annabelle Droulers in sydney, thank you. Lets stay with that story with the sweeping of the argentine election on sunday. He replaced the promarket incumbent. Thatomfort, martin, investors can take is that the margin of loss was not as bad as expected, with the position of the government and how they end up working together. You recently put out a note saying to buy brazil. Would you be tempted to step into argentina, given that the results were not as bad as some investors see it . Artan potentially. Martin potentially. Argentina has been diverting its economic performance, very, very poor. It is the reason why we have had this political change, and the imf gave a bailout to argentina of 58 billion last year. The central bank have been very active over the weekend, putting up controls, and they had no choice, because the Foreign Exchanges crashed. So the new government is going to meet today. Policy depend on their going forward, but brazil, like government is new going to be a far left government. And then we have got brazil in moreiddle, which is a market oriented profile, so it is the region, and argentina is currently diverging. It has a chance to reconverge. Going back to fernandez, that is probably not would we are going to see. We will watch it very carefully. The bonds are trading around . 40. Their currency is extremely low. We are not going to be buying local currency. Some things are potentially on the agenda depending on what the new government do. Martin, a very broad question. We have part of the economy team, Global Insight in lebanon, and tomorrow, it could be brazil or argentina. But how are you assessing social instability . Is it a market risk that we are fundamentally underpricing . A network of where the risks lie, is there any kind of hedge trade that i should be looking at in terms of 20 weeks of unrest in hong kong . Lets have a look at the map. So how do you hedge this . Martin unfortunately, you do not hedge it. You have to wait and see if opportunities to invest occur, and the whole key issue here is that we have a political instability phase, and some political leaders are gaining traction, and this is just a generic shift we are seeing across america, across europe, across latin america, across asia, so political leaders have to step up to the plate here, and Political Action has to be seen. What the elections are demanding. If we have action from political leaders, markets are going to support those moves that they are positive. Martin is staying with us as a guest host. And coming up, a first rate cut almost a given, and everyone is wondering. We will discuss, after the break. And tune into bloomberg on your radio in the london area. This is bloomberg. This is bloomberg am this isi bloomberg daybreak. Manus President Trump and the impeachment process. House needs to follow their rules and do what their rules require. Lawr rules are, in essence, as it says here is how you conduct an impeachment inquiry, and what that requires is a public vote. For crying out loud, youre asking people to come and say, here is what happened, but you are not willing to stand up and say i am for impeachment. Well, than that on its face tells you there is a lot of politics being played here. Manus we asked if he thought they were hanging it out to dry, and he said no. We asked about global markets, and he said they are awash with crude thanks to, you guessed it, u. S. Output. Are awash, and the United States happen to be the ones who developed the technology, put the technology in place, and we are reaping the benefits. The world is reaping the benefits of this. Cheap energy is a good thing for the world. Secretary rick perry joining me yesterday. Martin is with us. Just on the oil markets, lets deal with that. We have phase one and phase three on the deal, pretty good news today, but the overarching theme is that opec is probably going to have to do more. That seems to be the consensus. Do you concur with that . Martin yes. I think they actually will. The cuts will remain in place until march, so the december meeting is most likely going to extend those cuts for six or nine months. Is simplyl oil story supply and demand. The supply in the middle east, but we have american supply now, a net energy exporter. They have almost doubled the amount of supply in america over the last three years, and they are now the largest globally, but demand has seen a setback. Theof excess demand over next decade is going to come from china and india. Really, the demand side of the equation will depend on global Economic Growth and getting some of these resources sorted out. Seen asartin, it is impacting quarterly earnings, so exxon, chevron, bp, others, a 42 plunge in thirdquarter earnings when they post results this week, and the executives are going to have explaining to do. What do you say . Martin just on quarterly earnings, that is a shortterm issue. The key is their level of investment, and it is a multiyear investment, so when we have trouble in oil, those ceos make investment, and that is going to be something that is going to impact a one or twoyear timeframe. If we getssue is stability here, and that stability is actually very, very good news for the central banks, because oil is one of the major inputs and the inflation profile. Martin malone staying with us. And the Third Straight Interest Rate cut, the end of the easing, and for more, we are joined by our bloomberg reporter. Reporter good morning. Is this a third time charm before jay powell . Taking out insurance, unemployment low, and Consumer Spending holding up, will this be the final Insurance Premium payment . Economists surveyed by bloomberg think so. Basis point a 25 cut, virtually priced in, and the fed, as you see here, has never withheld easing. Market pricing an actual change in benchmark rates over the years. Now, fridays job numbers, as well, may take on more significance. Is for the u. S. Adding 90,000 jobs, but there are some much more bullish, 23,000. The question for the labor market is whether or not it is running out of steam, and whether this will be enough to sway the fed to sit out the rest of the year. Manus . Manus great center. Lets bring it back to martin. It willin, do you think be plausibility rhetoric for us . They could try to emphasize it, but that would be a mistake. Showed, we know the economy has slowed, but the question is job growth. It was 2. 5 to 3 million per year, and we are now at 1. 5 million, and that is a 40 deceleration in job growth, and that is why i say the fed would make a mistake in pushing this on their policy mechanisms. Mistake atll makes a the press conference on wednesday, or if the fed were to put language like pause, i doubt that, but if it does, we would , and john to friday williams will also have inflation. And we have deceleration in jobs. They should continue with rate cuts. Nejra Martin Malone, great to have you with us on the show today, and coming up, hsbc with thirdquarter profit that missed estimates. We will bring you an interview with ewenthe stevenson. And if you have to step away from the tv, tune in on your mobile device and the london area on the radio also. This is bloomberg. The game doesnt end after that insane buzzer beater. Because with Nba League Pass on xfinity you can watch the out of market games you want all season long. And with the allnew xfinity sports zone, you get everything nba all in one place even notifications about your favorite teams. Watch the dropped dimes, monster blocks, and showstopping dunks. Plus get instant access to your teams with the power of your voice. Thats simple, easy, awesome. Say Nba League Pass into your voice remote to check out a free preview. Dont miss out. Nejra good morning. Ic. M nejra ceh cranny. Am manus these are your top stories. Hsbc shares dropping, missing targets, and flagging significant restructuring charges. This is impacting the banking business, particularly here in europe. Breaking the impasse, impasse, aking the proposed january 31 extension. Back in london, Boris Johnson steps up pressure for an early election. We are live in westminster and brussels. And phase one almost done. Asian stocks rise, and china says there is a preliminary trade deal with the u. S. That is basically completed. They say trade tariffs will knock off profits in 2019 at one company. Manus welcome to nejra welcome to daybreak europe. Ceo, ewen steve nson, and what we want to look at when the market opens, a bit of a mixed picture, u. S. Equities heading towards a record on a friday, the s p 500 holding above 3000. Europe, a little bit of weakness coming through on the ftse futures, but not a lot of direction is what we are getting after a mixed session in asia. We do get some incremental trade, the markets digesting that, but earnings will be very much in focus. Manus . Manus absolutely. And phase one of the trade deal, whatever that might be, and we just do not know what is in phase one. It could be all agriculture. And treasuries, seeing the yields pick up. Is, how highion could yields go on a phase one trade deal . A trillion dollar deficit, so the question is, are they finally going to overwhelm the treasury market . What is the top end of the to percent . T we have got gdp this week and the fed this week, and as Martin Malone just said, any indication of pause would be a policy mistake. Pips. Nds down by 14 and this is carried through phase one of a trade deal. How does it play out . Sophie kamaruddin. It is a big week for asia, earnings in the region, the boj on tap, and a lot of the fed, as you noted, still a lowball volatility session, some markets, india, and earnings climbed as much as 1. 2 , helped along by names like geely on their results, and hsbc under pressure, falling as much as 3 , dropping its profitability target, and we are seeing a backup in yields to a optimism over trade. That is pushing chinas 10 year yield up the most since april. And this could strengthen taste for chinese bonds. And across the curve, a government quota that they will cut rates on thursday, and on japan, this chart indicating looking at a golden cross formation. Little changed, but we did see that it could be flirting with a moving cross formation, the first time in three years, but this is pushing the benchmark. 14to technical right there. Some Companies Reporting from japan this week. Earnings may push the topix over the line, and the japanese industrial robot maker cutting its fullyear forecast, as orders continue to slide to the trade war impact, but the company has extended a buyback program. Nejra . Nejra sophie kamaruddin, thank you. A meeting this morning, likely byagree to delay brexit january 31 with an option to leave earlier. Mpsr in westminster, vote, but with labour against it, they are likely to fall short of the majority needed. At westminster, our bloomberg anchor anna edwards is joining us, and, maria, lets start with you. Great to have you both on the show. We saw earlier that france has agreed to a threemonth brexit extension, so does it look like we will get the threemonth extension . The french, if agreed to it, then it would be very likely we could get that threemonth extension to the end of january 2020, and that is exactly what the u. K. Had asked for. Now, this is a significant change in the tone, a big change in the french position, which up until now had argued there is no point in granting an extension, because time would not fix the issues around brexit, and they say the time pressure was needed s to focus, but they say it is time for time sake not good enough, so this is a big departure to the tone we got until now from the french government, and having said that, this is still a proposal. In aboutset to meet two hours in brussels. If they do agree on the plan, we would expect eu leaders to sign off, which should become effective tomorrow. Manus maria, thank you. Lets get to anna. You are standing outside westminster. If there is an extension until january 31, what does that due to the election coming to pass in the u. K. . Johnsonght, so boris today is going to ask mps to vote for an election on december 12, and previously, we heard many mps saying that they need to take no deal off of the table with an extension from the eu and to see how long the extension is and the details of that, and then, we can back a general election, but that is not the official position for the front bench of the labour party. What it might do is that mps more labor labour who think they feel secure enough that there will not be a no deal in the interim, feel secure enough in that to vote for a general election. It might move the numbers at the get thisut to agreement on a general election, he is not going to be able to do that without the front bench of , as protesters get into full voice. We heard more over the weekend about what taking no deal off the table means for Jeremy Corbyn and about getting an extension until the 31st of january, and over the weekend, they were talking about Boris Johnson telling parliament that he does not want no deal, he will not do no deal, and it just does not seem all that likely that he wants to do that. Manus there you go. Lets give voice to the people behind you, anna. And edwards at westminster, and maria in brussels. Lets get to our guest host. Standard, if boris gets an election date on the slate, and he gets a brexit deal agreed in parliament, it would almost, some could say, affect the election. Do you think you could get a sizable majority . Is that what you would bank on if he goes to the country with a deal behind him . I do not think we would be banking on anything, manus. Ahead, but hows that would break out in terms of an election is anybodys guess at this stage. Certainly, the numbers would suggest at this point that he would get a majority, but i ofnk given the predilection the opposition among the democrats, the snp, what would happen with some of the smaller parties, i think it would be a really, really unpredictable election in the u. K. , so i do not think we would be banking on anything, but, certainly, he would be going into that in a position of strength relative to where he was weeks ago. What about all of the lingering uncertainty . Are generally positioned for a more favorable outcome, so over the last weeks, that has been a reasonable experience. That has generally been pretty favorable. Our strategy is that perhaps there is more of a longterm quality type of approach, and they have been narrowing their underweight to the u. K. , as well, so i think generally speaking, acrosstheboard, they are in position for a more favorable outcome with brexit. Case is a if the base more favorable outcome for brexit, do you think the runup in sterling, if we go into an election, as you are saying, baby i am misreading this, and you say it can change very, very quickly, does that if we go to an election, what about what we have seen in sterling over the past weeks . Well, i think there will be a general sense of uncertainty if we go into an election, and outcome,ave a positive with the majority, a functioning government again, able to make progress on policy across the board, and the domestic policy, and that is a change of where we have been over the last two or three years. There is a downside risk, and i think investors will be looking at this, about what would be happening. If we do that for the government, for the coalition with labour to form a government if things do not work out, i think that is an outcome which investors will be extremely cautious about, so i think there will ba welcome for there ifl be a welcoming, and people were expecting theresa may to win a bunch of seats, and then the day before the election, and in the end, she was only able to get a majority, so i think we have to be a little bit cautious, but i think overall, we will probably welcome the opportunity for the deadlock. You say investors are positioning for a more favorable outcome with brexit. Give us an idea of what that looks like. There have been stocks that have been incredibly undervalued, and on an index level, the sectors, what does it look like . Ben it is a more complex story than just looking at it domestically. Nejra exactly. Ben a number of sectors have been different performers, with brexit, and they have been under significant structural pressure, partly because of brexit, and partly because the investment environment has been dreadful. Not doing badly because of brexit but because of pressure. Certainly, there has been a risk premium for u. K. Domestic stocks. Some of them have come out. I think there are some that are happy over the medium term which do have significant domestic exposure and which would benefit from a different economic environment. Then, those would be the things we would be happy 21. Some of the positions have been taken we would be happy to own. Some of those positions we have taken. I think it is getting that now. I think we can find we can generally prosper from the environment which we would see in the u. K. With a better outcome for brexit, and those of the things we would be happy about. Nejra ben is staying with us. Lets go to the bloomberg first word news with Annabelle Droulers. Hi, annabelle. Annabelle currency controls after an opposition candidate, fernandez, won the election in argentina. Just 200urchases to a month, much lower than the previous 2000. His victorys signals a return to a policy for the south american nation, and he will take over from the incumbent, macri. Baghdadi is dead. The terrorist leader detonated an explosives vest after running into a deadend tunnel. The New York Times reported that his likely successor was killed in an airstrike later in the day. And firefighters are working to contain blazes across california. There was the evacuation of nearly 200,000 people. Governor gavin newsom has declared a state of emergency. Meanwhile, pg e is restoring power to the nearly 3 Million People with the largestever deliberate blackout in the state. 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. This is bloomberg. Manus . Manus annabelle, thank you very much. Annabelle droulers in sydney. Boom looks set to continue according to Energy Secretary rick perry. He told me why shale production will continue to drive his hopes. s energy it is allowing the world to have access to lng, in particular, that they never had before. The message that i hear, leaving politics aside, i am just saying here is the message i hear if i am a european, if i am someone in the emirates, is that there is an individual, there is a group of individuals that are basically saying we are not going to allow you access to a fuel that can free you potentially from other sources of gas that may have some strings attached. We are going to make your energy more expensive. I am not sure that is a really good message to try to be running in a political process where people are supposed to like what you are saying. Manus in terms of the structure of the market in the u. S. , we have had this major independence flourishing all the way across the shale business. You think consolidation is the next thing to block some of the blockages you are talking about in terms of scale . Secretary perry listen. The market always addresses supply and demand, so there are going to be some manus do you think consolidation is part of that . Secretary perry it has been a part of that always. Consolidation always happens. People say, oh, my god, i can make all of this money and do all of these things, and then they get in, and it is maybe it is not as good as i thought. Tweet,we had a trump with what opec was doing, and he would go a year later, going to opec again do you think pushing uphill, because it is just so much american crude hitting the market . Secretary perry i do not have a problem with that. World hasis the changed. It has actually been turned on its head over the course of the last five or six years. 15 years ago, they told us we had found all of the oil and gas in the world. Manus yes. Secretary perry and now, we are awash, and the United States is the ones who developed the technology and put the technology in place, and we are reaping the benefits. The world is reaping the benefits. Cheap energy is a good thing for the world. Running the right balance for those who produce it, so they can make a go of it, and keeping it at prices that the consumer enjoys. Manus if i look at the construct of opec, it is not what it was in the 1970s. This equity general says he has extended a formal invitation to the u. S. At any level, can you envision at any level, the u. S. Participating or cojoining with opec at any level . Secretary perry not really. I do not think that is part of the future. That was rick perry, manus that was rick perry, the u. S. Energy secretary, joining me. Coming up on the show, hsbcs ewen stevenson. We have the numbers from hsbc. This is bloomberg. 38 minutes away from the start of european trading. I am manus cranny. I am in london. Hsbc reported profits that missed expectations and abandoned a key target, with significant charges. Earlier, we spoke to ewen stev enson. Ewen everything you would expect to be impacted was impacted, tourism and the like. So far, we have seen very, very modest deposit outflows and some inflows, so overall, deposits were flat. The lending rate was up. On the credit side, we have taken some additional revisions. The power of the credit portfolio that we are focused on is the Small Business and, but overall, we are pretty pleased so far with what we have seen, but, obviously, the more this goes on, the more it will impact our business. Tohor i want to come back the costcutting, ewen, which would be impacted if the protests in hong kong go on for longer. It would be another headwind. When do you think the drop Reduction Program will be over . Ewen look. I think any reduction will very much flow from the restructuring that we do. What wehope in terms of are settling today in relation more, that would typically take a couple of years to restructure. Accelerate getting to those plans, and then we will talk to our people internally before we talk externally. Looking at the various divisions within the bank, where is the greatest and most rapid impact for the bottom line . I mean, you talk about 30 of the bank is capital generating 1 . Banks capital generating 1 . If you look across the u. S. , you see a few things. About 85 of the capital is invested in Global Banking and markets and commercial banking. Lossmaking retail business, both in france and the u. S. , so it is a pretty broad review that we are doing, so i would not single out any particular area as something that is going to move quicker than others. Nejra that was hsbcs ewen stevenson, speaking with us earlier, and ben is still with us. What is the approach you are taking as we get these numbers coming through . Is generally neutral to underweight positioning, depending on strategy, with the european portfolios, but we have typically been looking at the banks, which have something going for them other than just being a play on rates, so things like credit and exposure to asset management, and then eastern europe, some of the financial and Wealth Management type dynamics that might be there, those kind of banks that can still do quite well even in an advisement where it is not auspicious for that. We do not necessarily see a major change in terms of the outlook, and then tons of banks have been distressed, which we have pursued or make sense for the mediumterm. Manus what about Louis Vuitton . Something activity, in the luxury sector . What do you make of it . It is a pretty big scoop. Ben they have been an acquisitive company over the years. Aroundas a discussion m a that was very much you can only really do that in the luxury space at the top of the cycle, because people will not sell at the bottom. You need to be able to get to a point where both buyer and seller are happy with the price. That tends to happen when prices are at a higher end, and that is maybe what we are seeing here. I think in the context, this is relatively modest. People are talking about a 14 billion price tag for tiffany. It is going to use up some, but not all of their Balance Sheet capacity. It adds to an area where they are probably relatively underweight in terms of u. S. Exposure and the hard luxury space read from a strategic perspective, it is feeling luxury space. Rd from a strategic perspective, it is feeling capacity. Tous we will hand it over anna and match. This is bloomberg. Anna and matt. This is bloomberg. Good morning, welcome to bloomberg markets, the european open. Im anna edwards, live from london, live from westminster this morning, alongside matt miller in berlin. U. S. And european stocks futures search for directions. 10 year treasury yields hit five week highs as the cash trade is less than 30 minutes away. Anna managing expectations. Hsbc drops a key target for returns after profits misses estimates. The ceo tells bloomberg it is a difficult environment. The markets continue to be choppy, which is impacting wholesale banking business, particularly here in europe. Lucky . Hird time Boris Johnson tries for another vote on a general election. Meanwhile, the eu considers a threemonth brexit delay. And lv mh puts a ring on it. The luxury ring maker is set to bid for tiffany. And matt, good morning. Matt it is an m a monday. Over 30 counted billion of deals in total this morning. Lets take a look at 10 year treasury yields. It is up to 1. 18 , a fiveweek high. It looks like investors are willing to let go of the perceived safety of u. S. Tenyear debt. That is a good sign for stocks, however we do see a mixed picture when we look at the futures trade. Go ahead and pull up the dax, cac, and ftse futures. For most of the morning, we have seen a dax futures higher and ftse futures lower. Big size, but a divergence in direction. You do see u. S. Futures up across the board. We saw some decent gains earlier, about 0. 2 gains when you look at dow jones futures, still up that high. Nasdaq up almost 0. 25 . We do see what looks like a risk on day when you look at the asian trade, especially china yesterday, and when you look at the u. S. Trade in terms of futures today. We could see this u. S. China trade news affecting at least some markets, equity indexes, around the world. Look at the other risk indicators here, if you pull up the gmm. You will see what is going on in terms of the severity of moves across the space. I see, for example, equity indexes, South African equities are big gainers this morning with russia. If you look at commodities, we have a big gainer. Sovereign bonds, the china 10year pushing the yield higher. Get into these markets a little bit with mark cudmore, our managing editor who joins us from singapore. The Asian Session and the u. S. Futures picture look more positive. That interesting to see the china is that china is saying phase i has been completed around the trade deal. It is now rally onwards and upwards. What are your thoughts on trades this morning . Mark you know me well. That is exactly what i am going to say. Or maybe not. There is a slightly positive tone this morning. It is quietly positive. There is no enthusiasm, but there is slight positivity across the board. Given these strong gains on wall street, it is a bit subdued. They are waiting for more direction. There is some cynicism from some of my colleagues on the idea that we have made partial progress on just phase one of potentially a multiple part trade deal, and we have no idea when that will be signed, nevermind getting a big rand accord that will a big grand accord that will solve the problems. Yes, it is great the u. S. And china have a truce and a seem to be working together. That implies no escalation. That is definitely good news. That will provide a boost to help equities. But are we any closer to getting the tariffs removed . It does not look like it. Matt what are you seeing in terms of investors Risk Appetite as we get close to alltime highs here . We do expect phase one of a trade deal. We are also getting earnings that are, in some cases, showing the slowdown and showing the consumer losing its grip. Mark earnings have been a mixed picture. We have had over 40 of s p 500 companies report. Three of the five biggest will report in the next three days. Overall, earnings have come down, but they have beaten very low estimates. There is a usual trick of slashing estimates so it is easy to beat. I think in terms of Risk Appetite, it is impressive we got the s p back at record highs. I have been saying the stock market would peek out in september, october. There are only three days left in october, and here we are at record highs. I have been looking at myself and essentially all the inputs i have expected several months ago have played out exactly as expected in terms of the trade war, the collapse in trade data and earnings. I thought this would lead to s p coming down in either september or october, yet snp has been resilient s p has been resilient. There is either something i am missing or we have a massive Risk Appetite. Investors want to park cash in yields until the bell rings and it all comes falling down, like a game of musical chairs. I would suggest that Risk Appetite is strong overall. Anna let me ask you the markets live question of the day, which i know you have been throwing around. How should investors adapt if china grows less than 6 . It is a question that can go into the mediumterm. To what extent have investors adapted to the idea that china cannot keep growing at rates above 6 for very long probably . What kind of thoughts do you have this morning on this . Mark i think the way you phrased it is quite important. The general sentiment is this will inevitably be the case it can grow at that level. Everyone knows that behindthescenes. I think the shock of seeing that 5 handle will be a surprise for the markets. It will be seen as a shortterm negative because once they go to 5. 9 , it is in everyones minds that there is no solid line again until we get to 4. 9 . Then we might see the growth come down quite a bit. Overall, we have a larger nominal base. Ger we are seeing tremendous growth in china, and the real impact of this lower headline number is as dramatic as the shortterm impact will be. Matt mark cudmore, bloombergs mliv managing editor out of singapore. You can join the debate on todays question of the day which is, how should investors adapt if china grows less than 6 . Reach out to us, reach out to him mark and the mliv team. Lets get the bloomberg first word news. For that, we go to leighann gerrans. Start with thes latest brexit news. The eu is proposing a brexit extension until january 31. That is according to draft documents seen by bloomberg. That will be discussed today. Under the proposal, the u. K. Would be able to leave earlier if both sides ratify the divorce deal in time. This comes as Boris Johnson is set to make his bid for the general election on december 12. Argentina is tightening currency controls. That is after opposition candidate Alberto Fernando won the president ial elections. They will be limited to purchases of 200 a month, much lower than the previous limit of 10,000. He will take over from the incumbent on december 10. Islamic state leader abdu bakr albagdhadi is dead. President donald trump says special forces carried out a raid in syria. He detonated the leader the isis leader detonated an explosive device. It was suggested he would be killed in an airstrike the following day. The textays parts of for a preliminary deal are completed. This follows consensus over areas including agricultural standards. President donald trump and president xi jinping aim to sign the agreement in chile next month. Firefighters are working to contain blazes across northern california. The fires have forced evacuation of nearly 200,000 people. Governor gavin newsom has declared a state of emergency. Pg e are restoring power to nearly 3 Million People after the states largest ever deliberate blackout. 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. This is bloomberg. Anna, matt . Anna thank you very much. Leighann gerrans there with your first word news. Breaking lines on brexit. We understand from a french official that france is to agree to a january 31 brexit extension. We have been widely suggesting this morning this was likely, but it does seem that we have had a fairly significant shift in the position of france coming into line with others. Emmanuel macron and Boris Johnson spoke on sunday afternoon, yesterday afternoon, according to this french official. Does that really change the voting . Will Boris Johnson be able to get the two thirds of in p of mps he needs . It is unlikely, but we will say. Has never cant restructuring charges. We will talk about that next. Bloomberg radio is live on your mobile device or dab Digital Radio in the london area. This is bloomberg. Previously got it to around 700 million to produce a 2020ar run rate saving for. I dont think those numbers have changed. To that, we do expect incremental restructuring on top of that, which would result in some additional severance cost going into 2020. Hsbc. That was the cfo of speaking to blumberg about the severance costs coming up later this year. That as they dropped a key target for returns after profit missed estimates. Turning us from hong kong is stephen engle, who has been listening in on the analyst calls. Hsbc shares down in hong kong. It looks like they will open down here as well. Which part of the results are investors most disappointed with . Stephen take your pick because they missed the estimates for profitability across the board. They have removed the target for profitability on return on tangible equity. He isard from the cfo, now speaking on the Conference Call that started about 12 minutes ago. One of the key concerns that analyst had was the drag that hong kong the analysts had was the drag that hong kong would cause. Pointing out the results out of asia remain robust, despite the challenges in hong kong. Also, we heard earlier on the call from the interim ceo, saying hsbc is committed to supporting hong kong and the u. K. Through the current period of uncertainty. He is referring to the brexit challenge we were just talking about. There is this profitability issue that they will need to address, as well as restructuring that is perhaps coming down the pike. They havent addressed it yet, but potential job cut. Anna good morning to you. When you find yourself in a difficult environment, and for most banks it is about how difficult it is to operate with low or negative Interest Rates, you turn to selfhelp measures. What are we hearing about the costcutting and job cut projects at hsbc . Stephen Bloomberg Intelligence is weighing in on the results, as well as what they are hearing on the Conference Call. The fact that they are avoiding talking about job cuts says they need to do more find surgical procedures. Some of the comments that are interesting from the interim ceo, the continental European Business is not performing well. He goes on to say it will not perform unless we take decisive action. I guess over the next however long they will be speaking on the Conference Call, they will be pushed for details on what they are restructuring, what kinds of restructuring measures they are going to take on right now. Basically, noel quinn has said they need to symbol if i the bank. Noel quinn has said they need to simplify the bank. Anna thanks very much for joining us. Lvmh is offering to buy tiffany. Sources say the approach was made earlier this month. That would expand the luxury groups access to u. S. Shoppers. Joining us, a Senior Analyst at Bloomberg Intelligence. What is it exactly about tiffany that would add to the already vast staple . Certain in ther u. S. , and also when we think about how they are doing in terms of the lower entry luxury price points. Gifting diamond selections would really add to what lvmh already has. Size of theify the jewelry segment. How likely is this deal to go through, or is lvmh going to have to come back with a sweetened offer . Deborah we did some digging, and if we look at lvmhs acquisition in 2011, it was 23 times. This looks to be 14 times. It is a bigger brand, more mature. Certainly, they have the capacity on Balance Sheet, Free Cash Flow annually, even after the recent april deal in hotels. We just talked about hsbc and the damage that is being done to that particular bank, or its commitment to the hong kong area, in amongst all the tension and the violence on the streets, the protest activity. This is something that has hit the luxury sector as well. How much has lvmh been hit by this . How much has the sector as a whole been hit . Some parts seem to be resilient. Deborah absolutely. The thing we have argued, and i think it continues to come forward, the companies that have the biggest footprint across china and the rest of asia outside hong kong are absolutely able to absorb the movement of china, and that the 50 of luxury goods purchases from asia are in mainland china. When we look at tiffanys compared to lvmh, it is much lower. Pushit is trying to do is for more sources in china, work with more ecommerce in china. Tiffany could help lvmh in that area. Matt thank you. Deborah aitken talking about this possible deal combining Louis Vuitton and tiffany. We will take a look at the stocks to watch this morning, including Spanish Banks. Keep an eye on those exposed to argentina, after the president ial election results. This is bloomberg. Six minutes until the start of the european trading day, the first of the week. Welcome back to the European Market open. Lets get a heads up on the stocks we are watching. Annmarie hordern is looking at phillips. Dani burger is focused on Spanish Banks exposed to argentina and the political risk. Annemarie, we just talked about tiffanys. What do we expect from lvmh at the open . Annmarie they are expected to rise at the open. I am also looking at phillips. That is expected to rise as well. They confirmed their guidance. What is important about phillips is earlier they had a profit warning. That is confirmation of guidance that will give stoxx a bit of a pop at the open. Anna annemarie looking at that deal. Jp bernard, you are looking at hsbc. What is the story . Jp not looking pretty. There earnings the earnings missed analyst estimates. Credit losses have jumped. Expect a significant charge for restructuring, but we dont not know the details we do not know the details yet. Anna lets get to dani burger on the spanish banking sector. We see the results of the argentinian election. How will that play out . With focus onk argentina will be in focus. Alberto fernandez popped the pro market candidate, and that is likely to make markets move down. It is down two thirds of its locally listed unit. They own 43 . They are likely to see a messier earnings as they report later this week, given the hyperinflation in argentina. Matt thank you very much for that. Annmarie, thanks for joining us. You can get all the stories by on thefirst terminal. Coming up, it is the market open. We have futures mixed. U. S. Futures are higher. It could be a risk on session. This is bloomberg. En a minutes ago before the start of the cash equity trading. Market the european lets get to annemarie with the market set up. Annmarie we have central banks, earnings and a lot of data coming out and Political Uncertainty around the world. In asia, the markets are relatively calm. We are also seeing s p 500 futures higher. This after the s p 500 friday trading in at record high. Therele bit of a pop could be as we learn is france agrees to the january 31 extension and bitcoin on an absolute tear. China especially looking at events with blockchain technology. Futures a bit of a mixed event this morning. Just 8 00 in the city of london. U. K. Get to your market ftse opened up relatively flat but in the green. The Foreign Exchange market we could note trading around 110. 89 110. 89. Huge movesseeing any in either direction, a huge week for the market. Pmi, and a slew of earnings here in europe
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