A look at where european equities are trading right now here on this monday session. You know the function, global macro movements, calling for a first weekly its increase in five weeks against the dollar with these other rates rising. Amidst all of this talk of allowing inflation to overshoot credit default swaps and commodities, what a day we are having on this first new trading day of the week. The first new day without talking about Deutsche Bank. They are exploring tricking the u. S. Operations with mounting Legal Expenses threatening to eat into its capital with two people familiar with how such an option could be familiar with its broader strategy review. Including businesses in the context of regulatory capital requirements. The peoples shares are unchanged, according to the bank that has seen its shares absolutely hammered in 2015, losing almost half of its value. Lets get to more banks. Big italian lenders, bank a popular,re banco clearing the way to form a third to becomender stronger and shore up finances. Look at these lenders since their peak in 2007, before the height of the financial crisis. This puts everything in perspective. Shares have fallen by 97 . Popolare di milano down by 7 . Highestn rising to its in two years. That shows you where we are as we approach the ecb meeting on thursday. At the same time, Mario Draghis has hitd inflation rate its highest level since june 23 ,fter falling to the blue line the lowest on record. Still a far cry from his want to to up to roughly 2 . 92 minutes into the trading day in the United States, lets get over to the market desk with abigail doolittle. Abigail not a lot of volatility. Dow, s p 500, nasdaq, all trading down, fluctuating between small gains and losses with its decline for major averages. Several weeks at the end of august, for the nasdaq since exit, and dust brexit, industrials are jittery in the big weeks for this heart of earnings season with investors, until we know a little bit more out what it will look like for u. S. Companies. About what it will look like for u. S. Companies. Oil and gas, getting lacks. Basically saying that they are unlikely to cooperate with the potential opec supply cut. Gas is down. Some traders are talking about the unusually warm weather in october. Plus, last week we talked about a rate count that was pretty strong. Taking a look at the last three months, you can see gains for all of the areas of energy. Last week it surged by 12 . The biggest recovery since 1993 area 1993. Vonnie big moves, abigail. Thank you. Lets check in on first word news. Courtney has more. Retake therying to stateajor islamic stronghold, the u. S. Coalition is helping the iraqis with airstrikes, intelligence, and advisers. Is joining the u. K. Considering new economic sanctions in the city of aleppo. Targeting syrian and russian governments. John kerry and his british counterpart has all have all but ruled out a military response. One person was killed in germany and explosion at a facility belonging to a chemical company. Another six people are missing. The river harbor is used to unload Flammable Liquids and liquefied gas. North carolina, police are investigating the firebombing of a local republican party. Flammable liquid was thrown through the Office Window overnight on saturday. Spraypainted a slogan referring to not see republicans on the nearby wall. Republicans on the nearby wall. Thew study comes from Wharton School of business and the university of pennsylvania, trump toss alma mater. The study predict that the clinton tax plan would cost jobs in the short run before growing the economy over 10 years. Day,l news, 24 hours per powered by journalists, analysts, in 120 countries. Im courtney donohoe. Mark the fed and the boe suggesting that they will tolerate higher inflation in the , the biggest decline are amongst major currencies. Joining us now, simon smith. The tolerance for faster inflation tos are economic growth. Discuss. Simon it depends on if you can deliver it. Last month the bank of japan said that they were committed to hitting above targets for the inflation goal that they failed to reach in the last several years. It depends on whether you can achieve your target. A 10 second 100 meters never going to happen. It . The achieve japan, no. U. K. . Probably, but not because they are doing anything in particular to achieve it. The u. S. Sort of sits in the middle ground, i think, looking at how they could possibly accommodate inflation. Thats where i think it comes in. Mark on the comments from carney, letting the cpi overshoot, moving towards. 9 , the strongest in two years. How far above 2 can it overshoot before central bankers become uncomfortable with it . In general you see an imperative below target inflation. Fromu take the eurozone being just below 2 to being discouraged from the 2008 since then, youre on year. When will it squeak in terms of nothingnflation but do about it . In some sense its a Bigger Picture. You can see the rationale. That is difficult. Once inflation gets to where you see it on your chart, removing all signs of the fiveyear, that gives the longerterm expectation and is incredibly low. Sense, mario draghi has a tolerance. Does he have the means to achieve in europe and japan . In a real sense, thats a killer. To a fair degree of dumping to have the means to achieve that. Vonnie thats big advice, after janet yellen spoke. Is it achievable here . How long will it take before we see in ration really take off . In the u. S. I would say more so. Again, however you want to measure it, you can say policy in the old days. Events, but from that perspective you can see accommodate a policy from that perspective. In the u. S. It is a headline inflation rate their. Probably just around the fiveyear average. Theres a tolerance to see that go higher. When you see it coming through in energy prices, that is when you start to squeeze consumers because of the goods you cant substitute elsewhere. Thats where things could start to get uncomfortable. Already coming against the background of modest growth. Getting the price of what are essential limits squeezing consumers and creating problems for central bankers. Vonnie can the u. S. Dig the rest of the world out of its demand . We are seeing a stronger dollar, but really if you take a wegterm view of the dollar, are really in a range over the last couple of years. What would we need to see for the u. S. To be able to help out italy . I think that this is a difficult mandate to pull off at this point in time. The u. S. Canat prop up a Global Economy is getting undermined. Generally growing faster than the u. S. In emerging markets, output ish a shared essential in the last 20 years. Especially depending on how you measure it. You cant allow the u. S. Same as in europe we tend to think that we can save our problems, but its not the case. For the u. S. It will be hard when you have a readily mature cycle. Comparing the cycle to the u. S. Recovery, compared to the to use a 100d, meter analogy, having it liquidate the cycle i think is not quite what we can expect to see. Mark quick question. Overlooking my right shoulder is pound dollar going to 1980. On the flash crash day a few fridays ago, what next . How low . Simon things never move in a straight line, but im sure its more true than the sterling dollar and the markets being incredibly short. Obviously from that point you think 120. I can see it having shorts in recovery potential with a Bigger Picture into yearround warnings. Mark thank you for joining us. Pro of research, simon smith. Funny . Vonnie and coming a vonnie . Up, hsbcnd coming where they are forecasting a u. S. Rate hike. Find out next. This is bloomberg. Live from london, im mark barton, counting down to the european close. Vonnie im vonnie quinn, in new york. In less than half an hour we will find out Stanley Fischer shares the same stance as janet yellen. Earlier he said he expected things to pick up in the second half of the year. Growth setting the stage for Interest Rate increases. Hsbc head of, global fx research, david loom, weighed in on when a rate hike will happen. Enter ine in and an iteration for the dollar. Emerging markets come off, all prices go down, they back off and then everything returns. Is thing about a fed meeting that a move by the fed doesnt tell you about the next one. Interest rate rises in the signal, thats the big bull market in 2014. Going back, we thought rates should be 2. 5 in december and they are not going to be. So, maybe december, maybe, but then another year . Are you really worried about that . No, im not. Sorry. Year. By the end of next 10 year bond yields cable . Or cable . From here . David 135, its quite close. When you take a look at inflation expectations, it seems to be different from the past. Taking a look at the terminal, 30, tenure, fiveyear, at a fivemonth high. Do you see is just not sustainable and rolling over . Thats six months of history or more. This is five months. If you go back five years, we will see the point is and i think what you are trying to say is that four out of five of us spot inflation measures close to the 2 number. If you look at the forwards, where the market is expecting it to go, its close to 2 . On the basis that it matters, the fed should be tightening. Forwardeople that guidance was suspended in 2014. This idea of inflation and unemployment triggering a rate hike, if they manage it this month or next, they will be on scale of delivering one per year. As david said, its going to take a decade to get to a meaningful level. There wont be a decade. Itll be a few years before the next downturn. People were saying for hikes per year. Ur hikes per year. Vonnie a reminder, we will hear from stanley eschers eking at york atomic club of new 12 15 eastern. Five 15gh team london time. You can watch using the live go function. Mark still ahead, its been green lit. Shareholders backing up Banco Popolare di milano. Is there more m a on the way . Thats the question. This is bloomberg. Live from london and new york, im vonnie quinn. Mark and im mark barton. Nine minutes left in the monday trading session. Looking at the approval for the biggest merger in a decade, its the first step of an arduous journey, holding to politics, standards, Banco Popolare di executive will receive the country in its thirdbiggest bank, saying that restructuring will be crucial. Of the most important things right now is the situation and the sort of solution that has been found for loans. But they still need a capital increase. Of course, we need investors to believe in this plan. It will be the potential turnaround of the sentiment for the banking system. Mark simple question, michael, will this lead to more mma among he italian banks . Michael there are a number of issues within italy and raleigh in europe, where everyone agrees that the should be banking consolidation. Seeing shareholders get behind the deal will certainly help to relieve some of the reticence. Mark lets start with that and go to ramsey and his future. Where are we in the i4s there are ahael number of issues on the to do list. Throwing down loans, they need a political plan in place. They recently put a new ceo in place. They have to have a little bit of time for him to get going. Thats true. His own future, he has encouraged banks and finances to push through these restrictions. These measures to abolish restrictions on ownership and voting rights. Of a referendum and the theory is that if he loses that, aese might unravel . Michael big part of the story is the political one. If you have a total change in leadership, that could set back the whole issue several months. A big hurdle for the banking sector, but to this point we have seen in this case a domestic deal. The real question is, down the line will we get some order deals . Crossborder deals . Mark foreigners have spurned the bank, havent they . Because of the limits of their ability to force change, pushed through the change. They are looking cheap, arent they . Michael the question is, can you see one deal like this one winding up successful . Mark we do talk about roger bank. It wouldnt be monday without it Deutsche Bank. It wouldnt be monday without it. Theoring options because of impending Legal Expenses . Be a capital would move. They would have to find a way for them to shrink the capital that they need in the u. S. New rules require them to capitalize the units, boosting the capital needed in that area. If they can find a way to reduce that figure without reducing their presence for clients in the u. S. Mark in a weaker position, its one of the more profitable markets. Michael it was certainly threading a needle. You cant generate the revenue needed to make it a profitable business otherwise. Just before we came on one hour ago, germany would welcome Deutsche Bank as a way to lower lender requirements according to three lender officials. Is germany getting involved . Michael it certainly it makes sense why they would want a less systemic Deutsche Bank. The question is, how do you shrink without losing revenue and profit . Looking at whats happening to stocks seconds away, they are now in the closing index. Mark why from london and new york, you are watching the close on bloomberg television. Every Industry Group on the stoxx 600 is down today. Retail, oil, gas, media. This is after the first weekly increase in three investors pondering the idea of inflation overshooting in the u. S. Economy. Running hot is a theme by janet yellen. Decline europe, 8. 5 lower. It is the worlds biggest education company. 7 drop in a comparative sales. The key u. S. Markets for textbooks, this is the company that gets almost all its profit from education, it is facing sluggish demand for textbooks, dwindling college enrollment. Data outot some more of the u. K. London property is dropping in the price growth rankings. It has a risk of becoming uks the u. Ksorming worstperforming of the nine areas it tracks. That is interesting. Only the northeast has fared worse, down 1. 2 . For the last month, london didnt do so badly. On the month asking prices for the nation, the whole of 5. 9 . This is a chart going back to 2010. , all 16 of them since the referendum on the 23rd of june, 2016, they add up the reale up by 7 . Of ben the Bank Broadbent saying sterling has will help the economy overcome shock from the referendum. Inflation will probably rise somewhat in the next few years but didnt indicate any concern. Tomorrow, we get cpi data out of the u. K. We will learn about that in just a few seconds. Vonnie as we talk about guilt yields, we are looking at the dollar index. It is slightly lower today, just below 98 which is the highest we have been seeing over the last couple of years. There,h, counting us crude oil is down 1. 4 today. The 10 year yield at 1. 77 . 95 basis points, you can totally tell that the yield curve is steepening with 95 basis points. The is not huge but in context of the world we are living in now, it is much wider than it has been. Lets get a look at the Dow Jones Industrial average, down 2 10 of 1 . The s p as well, just three points. The nasdaq down 1 10 of 1 . The National Report is not having too much of an impact on the major averages. Lets check in on first word news. Ash. S. Secretary of defense carter calls it a decisive moment in the fight against islamic state. Iraqi soldiers have launched an offensive to recapture the city of mosul. They are being backed by the usled coalition. Mozilla is the secondlargest city in iraq and they have held it for two years. Invalidating the results of the brexit referendum. A lawsuit calls for Prime Minister theresa may to hold a vote before the uks exit. Government lawyers say it interferes with democracy. Even close allies of france say president are questioning why the president would agree to the publication of a tell all book. He has a number of french politicians. The book was released just weeks before he must decide whether to run for another term. Polls show he is far behind. China has sent two astronauts into space. More than al spend month in space, most of it aboard and ordering laboratory. Version of the space station they hope to launch by 2022. Philippines president once talked tough about china and now he is leaving a trade delegation there. They began a 14th visit to beijing tomorrow. Invitedpino leader was by the taiwanese president. Relations have been strained by territorial disputes in the south china sea. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am courtney donohoe. This is bloomberg. Vonnie the vix has spiked a little bit but overall, it remains quite low. With the shock of the brexit vote, issues from brexit to the u. S. Election to concerns over longterm viability of Central Banks remains. Joins to discuss. Is a complacent market in the sense that the apparent stability we see globally, i think is very fragile. It is being supported by negative rates, national quantitative easing, diminishing returns policy. What is the next step if the current metrics dont work . Does janet yellen want to overshooting inflation . With fun yields so low there is not enough cushion in market. New fast they do appear to the place. Look at the clinton from spread. Andbottom panel is vix volatility when it comes to fx. As the white line rises, clinton is gaining in the polls and you see it leveling out, going nowhere fast. This is the vix going nowhere fast. Treasuryknow where volatility is but you can assume it is going nowhere fast. Does this pickup or is this our life . It will take up. As long as i dont have to tell you when. Oftentimes, when you talk about quantitative easing, there is another element of negative rates intended to suppress volatility in markets. When you take your kid into the pool and you give him a beach ball and he says nothing is happening underwater. Then it pops up. We have had volatility suppression for six years but the tensions in the Global Economy have not gone away. Question i would ask. Usually, yields fall. Why is it any different next time around . Treasury yields spike, everyone else falls out of bed. It depends on the shock. Downturn, bonds tend to do well. But if the proximate cause of the selloff is concerns about higher inflation, we know that the stocks go down and bonds go down. We have been so used to having inflation that you do get an upside surprise in inflation. There ofd Clarida Bloomberg daybreak america. Lets take a deeper look at the global selloff today. The ecb decision looms on thursday. Joining us now is christina of bloomberg news. Inflation. It is a hot topic today. Yellen, comments the boe. Ey, and from yet he donated earlier on bbc radio. You cant get away from charts like the u. K. Break even with has been on an upward stretch since the referendum. As you can see, on the chart today, we are still trading here at the highest levels in more than two years. That is the highest since 2014. How much theow pound has declined since the brexit referendum has impacted. Ark tomorrow is a biggie it is going to show the consumer prices, but not get close to 2 . The projections are, how soon are we going to breach 2 . What is the impact going to be . It stems from the commentary we have seen from mark carney today,ek and earlier they are preparing themselves for a shoot in inflation. It is a matter of time before we get that filter through the gilt market. It is only a matter of time until we actually see it in inflation measures. It seems like they are expecting it. They are seeing it on the horizon. 19 basis points now as the yield on the twoyear. You get 19 basis points for it. Marketh is the domestically for this and how much is it looking at it outwardly towards the fed or anywhere else. It is probably a good split between domestic and global factors. We also have the fed factored in. We have janet yellen commentating over the weekend and that is a global move, not just in the u. K. It shows how interrelated the bond markets are. There is also a domestic story in the u. K. And that is something investors are paying attention to. Process forongoing brexit and what that is going to look like. There is very much speculation. We havent gotten a lot of concrete procedures for that. Into investorsng as well. Druggy forr dragi. It is ticking off from the record lows we saw a few months ago. It is still far shy of just below 2 . Headline inflation we discovered today, yes it is picking up but it is well below those lofty 2 highs. Absolutely. Increasea consistent in these measures but at the same time, you still remain very stubbornly below that target under 2 . It goes to show how much work they have to do. Mark what is the work they have to do when it comes to tapering . Bloomberg has gone up there and served the economy. What is next . What are they going to do . Before the ecb is expected to taper, it is expected to extend, according to a survey of economists earlier today and the expectation is the most likely decision would be the december meeting by the ecb. That is because that is when we are going to get more forecasts coming in and more hard data on the economy. It makes a better decision on that front. By december, the expectation is skewed towards extending. Mark you extend before you taper. You taper back half of toys 17. You wait to taper until it sees the whites of the eyes of inflation. Three consecutive months at 1. 5 . With the economists themselves, they dont think theyre going to hit those. It is a disparity. Absolutely. There is a difference between expectation for inflation, as we can see in the inflation case, it justyear fiveyear remains stubbornly loathsome low still. Get the expectations higher in order for that to filter through. Mark the big question is, will bygi get inflation back up october 2019. Today, Christine Pitino of bloomberg news. In a little more than 30 minutes, the secretary will talk about the u. S. Economy and the rate hike. We will have complete coverage. Do not miss it. Vonnie coming up, netflix. Will the streaming giant pushed in some new countries or go slow for more established markets . We will hear from analysts next. This is bloomberg. Mark live from london and new york, i am mark barton with vonnie quinn. This is bloomberg markets. Time for the Bloomberg Business flash. A look at some of the biggest stories in the news. Right now, Deutsche Bank considering whether to Legal Expenses, including a penalty in the u. S. Deutsche bank has discussed proposed cutbacks with u. S. Officials. Banks in north america cut their share of British Commercial Property Lending by half. A survey finds that u. S. And canadian banks reduced their share by 14 and 7 in the First Six Months of the year. Demand for commercial properties in the u. K. Felt two by almost half. Too by almost half. Asking prices in london have risen by 2. 5 over the last year. The second weekend out of the nine areas, still, the average price in london is 780,000. Twice the national average. That is the latest on Bloomberg Business flash. Netflix is out with its thirdquarter earnings after the close. Olsonr, americas michael and senior Equity Analyst by bloomberg, gave his take on what to expect. We think it is going to be an ok but not great quarter. Expectations are low. It has been an average of negative commentary from the media and analyst as well gesting that domestic because of the continuing on grandfather ring of the price increase as well as challenges for the international. Expectations are arguably quite low. They actually miss the numbers for domestic, which is 300,000. As long as international is ok, the stock should be just fine. It is not a quarter on quarter comparison for netflix. You are looking at a longerterm growth trend. That is different from the stocks. I think this is one where you have to say, quarter numbers are important with every company but this is a longterm rising tide in an industry where they have a leadership position, they have gotten the content that they need in various markets and really, the margins are low right now because they are investing. They are putting resources into international. They are making changes in the business with price changes. It creates volatility but you have to look at the longterm trend which is generally up and to the right. This may be one of them. I think expectations are low enough that that is ok. David the numbers we looked at were net numbers. Are we sure how many people are leaving and coming back and what money they are putting into the market to keep that number up . Well, they dont disclose anymore. They used to. But our expectation is that after turn having slight spiked, we will see it start to fall. We did have this ung randfathering of the price increase that will impact q4 slightly. Chern isonally, going to remain relatively high because we have so many new subscribers joining. We do expect it elevated internationally for the next several quarters if not the next couple of years. Domestic churn should be down. Analyst atel olson, piper jaffray. Dilemma for the peoples bank in china. It has hit a top spot with how it is trading. I will put that up. Immigration is impacting u. K. Labor markets. This is bloomberg. It is time now for our battle of the charts. We look at some of the most compelling charts of the day and what they mean for investors. We can access them all on the bloomberg. Michaelthings off is mckee. I think it is your first time. It has been a while since i have done this but i put one together for mark barton. I dont normally do it. What we are showing here, this 4436 for the number of people coming into the United States united kingdom. 2011,e a lot of people in the rate goes up and more people are coming in. Most from the eu. The number from the middle east is very small. You could plug in any country and it is not very many people. Most people moving in from other countries. These are people who dont have jobs but are looking for jobs but look what happens into the unemployment rate. Net in migration, though it increased significantly over the last five years, it is not having an effect on the number of jobs available. The jobs are being filled. It is not a concern for the u. K. Onnie i wonder about wages our wages rising . Wages have been rising. I could have put the line in for the u. K. Claimants. The number of people getting unemployment assistance goes down. While there are some people who dont get jobs, it is not very many. Vonnie mark, what have you got . Mark this is a chart showing chinas current by letup. The purple line is one dollar. It shows a declining trend. Today, lowest levels are the white line showing chinas exchange rate. Has trade weighted basket been strengthening the bottom righthand corner. Basket. Us the this poses a dilemma for the policymakers because they are trying to shore up this for the economy at the same time. You allow a quick depreciation versus the dollar without sparking the side of capital outflows size of capital outflows. Another question is, will the basket we can in a strong u. S. Dollar . You are much easier early and near early in the year. That allows the yuan to rise against the dollar without causing an alarm. The policy quandary of chinese policymakers. 4335. Vonnie it changes every time the dollar gets a little stronger. Mark, i think that maybe one of your best charts yet. I love it. You can send something coming. The ground is going to michael mckee, but only because i happen to think this chart is amazing and mark has also said he is all right with the winners. Mark i vote for michael. You are both very gracious. Vonnie coming up, the Federal Reserve vice chair sally fisher speaking at the Economic Club of new york. Vonnie it is noon in new york. 5 00 p. M. In london and midnight in hong kong. Welcome to bloomberg markets. David from bloomberg World Headquarters in new york, we are on this hour. We are watching bank of america reports Third Quarter warnings over 7 on bond trading and cost cuts. U. S. Factory production rises for a third time in four months. The industry is recovering from past weaknesses. Vice chairerve Stanley Fisher will address the Economic Club of new york. First, capping the trading day, abigail joins us. It has been the same all day and we have had the u. S. Averages, the dow, s p 500, and nasdaq, little changed from fridays close. We have had a little fluctuation from green and red. It appears
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