This is coming back from decent economic data. A ton of data cap today, but what was noticeable is the manufacturing and services, which added fuel to the idea the fed may go ahead and raise rates come december. Joe those numbers are what people Pay Attention to, the isn number setting the tone for the day. Matt and fuel really helped today. Oil stocks were among the biggest gainers. If you look at the imap, you can see financials were the real winner. Wells fargo was one of the biggest point additions to the s p. You see energy ranks below it, the losers really, the safety stock. Telecom, we have been seeing the last few days every trading day this week, the defensive stocks have been big losers. Look at the percentage gainers, energy names like chesapeake and transocean, two of the biggest percentage gainers on the s p 500. Thethen health solutions, biggest gain since september 23, where i went up 15 . This is a chemicals maker people are paying close attention to. Joe lets look at the Government Bond market. We are seeing the return of higher rates above 1. 7, twoyear 8. 4. Data Strong Manufacturing pushing these higher. There is a combination of expectations and better cyclical banksnd less central pushing the yield higher. Same story in europe today. Lets get a run down of germany, spain, and italy. Higher rates across the board. German 10 years yield close to even. Remember september it went positive and the negative. It is higher now. There were concern about the ecb tapering its qe program, but that really was the story of the day, higher yields across developed markets. Stay with that theme on u. S. Data because it has lifted the dollar. It is now up for a seventh straight day against the yen, the strongest since march. Has been stronger in nine of the last 10 days. Dollaryen went to one oc 103. 67. The odds for november rate increase have gone up, now 34 . The britishion of pound rebounding from a 30 year low, not by a lot. It tumbled, as you know after the Prime Minister set of march deadline for critic for triggering article 50. Aree hard brexit concerns still there. Divergent fortunes for major commodities. Oil had a strong day, up 2 , tighter Inventory Data that matt just talked about, helping pretty significantly. You can see earlier in the morning, shooting higher. Gold continues to get clobbered. It has had a rough week. Yesterday it got smashed. By the end, it ended down, roughly flat. Try to make a comeback after yesterdays decline greater than 3 , one of its worst of the last several years, but still nothing doing. At 10 00 a. M. , they lost a lot of steam with the isn manufacturing. Number, gold did not like that. Scarlet and gold is overvalued . Joe by 20 . A deep dives take into the bloomberg. You can find he starts using the function at the bottom of the screen. Charts usingnd the the function of the bottom of the screen. The top panel here is account work. Lets stick with that. The white line here is italian bond yield, the blue line is spanish. Both of them are rising, but italian even more. The Prime Minister matteo renzi announced a referendum on december 4 than they did he stays just determine whether he stays in power or not. Lets just add in 2014. You can see it goes back to december of 2014. The imf today offering the outlook at 3. 1 and downgrading italy and france. I was surprised to learn in the past month italy, greece and portugal are the only bond markets to move money. Like thelways seems worst sovereign risk, whereas spain does not have a government and they feel better. Matt it does have obviously a government structure. It does not have a ruling party. Things continue to function in a is in power or even if no one is in power. Scarlet why do investors like to lump these two together . Joe they are both on the roof periphery, i like have france and germany get lumped together as court. Just kind of how france and germany get lumped together as core. Scarlet but one is much higher than the other. Matt i have a chart Hillary Clark moved in from overseas. We miss her, but she is taking a look at the u. K. Trading balance with the eu. You can see a 10 year chart but as ween negative as long can look back. Each of these white columns. Epresent a deficit in the most recent year, deficits of about 8 billion pounds a month. So if there is a hard brexit, it will be painful, obviously to both sides, but this is the amount of money, 8 billion a month. It will spread out. Joe maybe this is one reason why the u. K. Has leverage. Scarlet just posturing in the lead up to the negotiation. Matt if it were the other way around, you would not have had the brexit vote turnout the way it did. Joe we were talking about the isn nonmanufacturing number, this is what drove the day. And is what i am looking at bloomberg. Not the headline number but a change from the previous month, surging relative to last month. The highest onemonth change on record. Matt it goes back to 1986. There is a 20 year term. On but it is a highest record. That is how much of a surprise it was coming in sort of week, people did not have great expectations, but this is absolutely out of the park. There is all this talk we will have slowdowns leading up to the election and nervousness and skittishness, but the data does nothing to show it. The magnitude of this surprises what smashed rates. Scarlet the highest estimate of economists resurvey was 55. The reported number was 57. 1. It was off the chart. Rogerdavid was talking to and said he does not think the market is priced in the possibility of a trump victory. You can read this as the real economy [speaking simultaneously] maybe they dont think it would be a bad thing. Joe i does not do a problem right now. Scarlet a quick pop quiz, is does of bank insolvent . Deutsche bank insolvent . If you are worried, stay tuned. We will explain why there is nothing to worry about. Mark lets get to first word news. The paris climate agreement will take effect november 4. The accord is a capstone to present obamas campaign to reduce carbon emissions. He spoke about in the rose garden. President obama if we follow through on the commitment to this agreement embodies, history may well judge it as a turning point for the planet. Mark the president said while there is much to be done, the agreement will help delay or avoid the worst consequences of climate change. Hurricane matthew has caused the postponement of the president ial election in haiti. The new date will be given in a few days. The storm slammed into haiti ,ith 145 mileperhour winds killing two people. One person is reported missing. Hillary clinton has a 10 point lead in a new national poll. In thes him 50 to 40 Dickinson University survey. In a fourway matchup, it is 45 to 36 . Gary johnson gets 11 , jill johnson jill stein 3 . Vladimir putin and frexit erdogan recep discussed ways to deescalate the violence in syria. It expressed interest in restoring economic ties. Relations had cooled after turkey shut down a russian warplanes. E. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Back to you. Joe could Deutsche Banks systemic concerns promote provoke Systemic Risk . There were fears that the mounting legal bills will force the chief executive officer to tap investors for fresh rescue. Davie, Senior Research advisor at frontline. You are on the phone with us last week when Deutsche Bank shares were melting down and it reached a fever pitch. Since then, we have not had Real Development of capital raise, settlement with the u. S. Over the legal issues, but the market has quieted down a little bit. What is your read . Since last week, what has happened is people have realized it is very difficult to get a self for filling prophecy. Prophecy. Lfilling we were discussing Deutsche Banks deep liquidity and centralbank lines. There is going to be a self fulfilling spiral, it means pushing Deutsche Bank into resolution situations. If you have realized that is not going to happen, and you short the stock, you will lose, and you have got profits to take. It is a Straight Line all year. Everyone has got profits to take. Not everyone managed to get to the bottom tick friday morning. Of people getting out Deutsche Bank shorts somewhere around 11 euros, probably still actually a good amount of money after the trade. Scarlet it does seem like this was a crisis of our own making, everyone spoofed by the precedent spooked by the precedent. If Deutsche Bank can come down to the third of this, what concerns might dispose, a big multimillion dollar fine . Dan he not pose liquidity concerns. They have literally hundreds of assets on the Balance Sheet it can pledge. It looks like liquidity is staying. It raises capital concerns, which are relevant for some of their capital securities, that bonds. The way to think about amount of fund in Deutsche Bank is to divide them in your head by 450 or 500 for a round number. If you do that, your converting dollar amount to euro. Fine in the first of 1. 5 pitroughly to the capital ratio. The capital ratio on the measure for regulators stood at 12. 2 at the half year and wont change much in the third quarter. So you could knock it down from of 10. 5 . Ay a kind nothing happens at that kind of level. Then were to get a very bad trading outcome, and you were then to get another 10 billion of bad news coming in, then you can stop looking at Deutsche Bank capital ratio down to somewhere around 9. 1. For deutschesting bank, because as you see on the chart, it is a gray areas. We know the minimum for deutsche 9 , because that is the absolute minimum. A global is important buffer. We know the ecbs most recent Capital Requirement for it was 10. 75 . Somewhere in that region between 10. 75 , there and is a level where the ecb says, you need to file emerging toital fund, and you need stop all dividends and payments on the common stock and on 81 security. So interesting things can happen if you get a really bad income for Deutsche Bank. It does not impair liquidity of the bank. He comes nowhere near him peering impairing senior credit, but it would have bad implications because it is the first time a bank of this size missed a coupon on financial security. Scarlet let me jump in for a moment, because we have breaking news. Yum reporting in earnings. 109 for adjusted, analysts are looking for 110. The big news is in comparable sales in china for the third quarter. Im expecting a drop of 1. 5 . Analysts were looking for a gain of 1. 4 . The stock is down 4. 5 right now. It is probably the china, sales that stand out as weak. 25 we has gained almost year to date. These neighbors came out, and numbers came out, it is below 25 . The company is doing better outside of china. Kfc was 4 . 6 in the u. S. Taco bell was 5 in the u. S. , and they make up point in their press release they are on track to finalize the separation with yum expecting to trade on november 1. Just to take a look at the trading price, this is what it was throughout the day. That is the move south in yum shares right now. It had quite again in the lead up. Withwe are on the phone dan davies about Deutsche Bank. You asked what advice you would give to john cryan, and you said raise the money now, dont wait. Build up more capital. Is that still a smart move . Dan i think is the necessary move. They are not in freefall anymore , but there is still franchise damage likely going on. There is a lot of uncertainty surrounding the company, talking to people around the markets and reading further research. Everyone has got scenarios for what Deutsche Bank is going to do. All of them involve selling off Major Business assets. Joe this morning Dominic Sarah from algebra said they should get tojoe court rather than see with them for anything. Do you agree . Dan no, but it is a credible threat to be making. The reason they dont want to take it to court is the reason no other bank wants to go to court, which is firstly, anything can happen in a u. S. Court room. So if they take it to court, they stretch of the uncertainty two or three years, forcing a billion dollar figure out on the market for however long it takes. The reason that banks have been settling these cases is they are also engaged in substantial , andts of civil litigation the last thing you want to do if you are involved in the litigation is to allow for huge fornts of discovery everyone who is suing you by bringing the entire case to the doj. Joe you want to keep that behind closed doors, and not in a u. S. Court. Thank you for updating your time and patience through the yum brands breaking news. Investors turning sour on the philippines as the president antagonizes the u. S. And European Union. Joe e. M. Bonds way outperforming u. S. Data. I looked at the bloomberg market index and put the hs screen together. If you buy u. S. Dollar theminated em debt and sell baseline u. S. Index, you can see on the bottom panel the spread of year to date you would have made. Scarlet not bad. Rush into is a huge aem debt this year, and that will return. Im looking at shares from phillip morris. This is one of the altra save dividends, consumer staples, i dont know if cigarettes are a staple. Scarlet they are in some places. Line . U see that green i will make this a 200 day moving average. It is falling below the 200 day moving average. I dont know the significance is, but the green line touches some other parts of the line. Matt it is a trend line. Joe the stock is doing poorly, and fits in with the broader story of selloff and low volatility. Defensive. Phillip morris is a classic companies that checks all the boxes. It is not doing well now. Will show you another emerging market one. This is her investors are losing confidence in the philippines. The blue line is the dollar versus the peso. Knowing down. T is white line is the philippine credit default. To pay how much it cost for insurance against philippine default. So sentiment is souring because when the president was elected, and there you can see he was sworn in around june 2016, it had gone down. He continues to antagonize the United States and European Union. Recently he told the president , you can go to hell. Matt but he put the European Union in purgatory. Is that as bad odor joe people are not as sound of him. The pesos. Go to mark let us get to first word news. A contractor for the National Security agency arrested on charges of removing illegally classified information and storing the material in his house and car. The Justice Department announced a complaint against martin of glen bernie, maryland. 2013 contractor edwards noted Edward Snowden leaked classified nsa documents to journalist. President obama met officials at fema headquarters where he briefed on hurricane matthew. Forecasters say that he was east coast is vulnerable. The president had this message up for residents of florida and the carolinas. Pres. Obama this is a serious storm. It has already hit haiti. It is in the process of moving the bahamas. I want to make sure that everyone is paying attention to your local officials. If there is an Evacuation Order in your community, you needed to take it seriously. Mark because of the storm, officials in haiti say they are indefinitely postponing the first round of voting in this weekends president ial election. 2 officers have been stabbed in brussels, in the incident could be to related. The suspect was shot in the leg by other officers. The incident could be terror related. The wounds are not lifethreatening. Belgium has been on high alert sends 32 people were killed in suicide bombing attacks on the Brussels Airport and subway back in march. The Syrian Government says it will reduce the number of airstrikes and artillery shelling inside aleppo. That is according to a state run publication which says the move is to provide a window for civilians to escape to save her sounds. U. N. Releasedthe images that they say show an awful lot of new damage, presumably by airstrikes. Global news 24 hours a day powered by more than 26 hundred journalists and analysts in over 120 countries. Im mark crumpton. This is bloomberg. Scarlet u. S. Stocks rising with the s p 500 gaining for the first time in three days. The catalyst was really the nonmanufacturing services index. That rose much more than expected, 57. 1 , when analysts were expecting something far more subdued. As a result, people are thinking maybe the fed will go ahead and raise rates come december. Joe a classic risk on session. Oil up, gold down. Matt we close out the barrel and 4974 on oil. 49. 74 on oil. Joe colombia, argentina, mexico, and the philippines all have a peso, separate obviously, and have had their fair share of troubles lately. Joining us now to take a deeper this trend is the global thanksmarket strategy for coming in. Scarlet recently showed a joint of the filipino pace over says the dollar. Filipino peso over the dollar. Presidency, won his the currency strengthened over a couple months, then he started saying a lot of things to offend an insult major governments like the u. S. You can see his currency has weakened considerably, the blue line, and the default risk, the white line, has lowered as well. What is the outlook . This is the most disappointing of the law. The philippines has grown 67 , no inflation. Duterte inherited a great story. But he has done a lot to mess it up. I dont think cursing leaders of the free world will have that consequent is this is a challenging time for emerging markets. You dont want to give investors not a time to invest in your country. Matt why is this such a challenging time . Win commodities are through the roof because of growth in china. Budget surpluses, current account surpluses there is really a virtuous cycle. A lot of people overstated the role of structural change. It is really a cyclical bull in the market. Market. Al boom in the we are seeing a bounce in oil, which i think is good. Emerging markets are in a new normal. Effort to beke an a good story for investors. Scarlet it feels like emerging markets are held hostage to the macro story when will the fed raise Interest Rates . By how much . Matt does donald trump get elected . Scarlet yes, that is a big one. How do you go to the fundamentals where some say that the filipino peso does not provide value . The lets wait and see the yellow light is blinking. We know he has messed up or liquid. You know hes going to increase the budget deficit and spending plans. That has made people unnerved. But the philippines was not such a strong story, he might have a bit of wiggle room. It is challenging. Not a great story. I want to segue to the mexican peso. Its clear on a daytoday basis, the process of a trumpet presidency the prospect of a Trump Presidency is moving around. Lets say trump wins. Is this a risk off for the peso, are traders divorcing it from the fundamentals . Win i think you hit the nail on the head. They are not so concerned with the daytoday fluctuations, more like the speculative market. There are a lot of negative things about mexico. If you are looking for fundamental reasons, there are there. Trump is noise around the real statement. Record low capillary, Domestic Violence there is enough stuff there. Because the peso is liquid and tradable, it is often used as a proxy for emerging markets. Was when wepound last spoke. It was used as a proxy for emerging markets is a correlation. What about the situation in argentina . Is it a political problem there as well . Trump orfected as by duterte. Win this goes back to the political arena, but one generation before. Electednd cursor on premises of freeing up the exchange rates, press controls. And so he has delivered. Anytime emerging markets have emerging devaluation, youre going to have bad stuff. High unemployment. Effects ofng the reversing these bad policies. But argentina has the potential to get out of this in a good manner. Scarlet i have to ask you about the colombian peso. After that surprising referendum, people are doubting the governments ability to get anything done, including tax reform. Win they hope to pass that in octobernovember, and that has been pushed out. Both sides have made the right noise. They want to keep the Peace Process . My read is that it was rejected because have thought it was too you know what, were going to make this worse for you. I think the rebels want this, but it will be very hard to do. The good news, oil is rebounding. The fundamental story is not bad. Just a reminder when china was going 1012 , you can overlook these problems. In the last three years, the tide goes out, certainly we have problems in turkey and south africa, the philippines, etc. You can write down a list. I have been telling clients to differentiate. There are good and that stories. There are plenty of both. Markets, of emerging thanks so much. Scarlet oil flirting with a 30 a barrel after a reported drop. We hear from Goldman Sachs next. This is bloomberg. Scarlet it is time for the Bloomberg Business flash, a look at some of the biggest stories right now. D missed analyst estimates after its chinese operations were hammered by local competition and antiwestern protests. A deal slated to close this month should help yum give more attention to its u. S. Businesses. Shares went down in afterhours trading by 2 . Credits weeks will pay 90 million penalty to settle claims that the bank misrepresented how much money it attracted to it private banks. So hes inflated new client assets from the Fourth Quarter of 20112012 to meet sales targets. Hmm, sounds familiar. That painted a rosier picture for investors. Posco has to pay eight point 75 million too 5 tiffanys after it was found that it would infringe on the jewelers trademark. The court ruled in september 2015. Cosco refers to several of its rings as tiffany rings. The judge rejected that the term had become generic. Joe u. S. Crude stockpiles dropped for a fifth week, sending oil to about 50 a barrel at the end of trading. The changing nature of oil supply and demand is something Goldman Sachss jeff curry is tracking. Earlier on bloomberg surveillance the head of Commodities Research describes the business of Oil Producers with prices in the trading range. If you start to see a stronger dollar, that will put downward pressure on the cost structure and put downward pressure on only from a macro perspective. On a micro perspective you have a lot of supply in the market. The three big places we see, one is a detente in places like nigeria in libya. The probability of them adding supply is higher. We have a wall of supply. Projects they invested in 510 years ago. The sweet spot coming online next year. The third is lowcost players like russia at post soviet highs. We are seeing a lot of oil out of this market. And what about the managers . Growing, slower than our western countries. But what does it look like for china . Jeff looking at demand growth since 2010, it has been dancing in the 1. 31. 6 million barrel per day flat line. That is the case across commodities. Yes, we have seen a slowdown in china. It was not growing at the same rate as 2010. Putting it all together, there is not a story. Thats the broader issue facing the broader economy. Domestic demand is relatively stable. What we have is an investment problem. Risk of, what is the these Companies Cutting back to much on investment . We dont consolidate, so in 10 years from now we see oil to back up at 100150 . Jeff thats the core thesis when you think further out. Once you get to that state you are talking about, its probably 20192020. Overall supplies from the lowcost greenfield projects, the sweet spot is 1718. They start to taper off in 2019. The other source of supply is shale. The marginal barrel, and that is what response when you get to the 5050 five dollars barrel range. We are years off from that stage you are talking about. Inhow many producers are shale . Do you have a better grasp than we do last year and what they are endgame is . Jeff what we do know is that you can separate them into three buckets. The lowcost, holiday highquality assets. There is a higher cost, lower quality assets in the bucket. But the permian guys are becoming competitive even against the lowcost players. That is where we have seen response and drilling activity. What is slowing declines in production in the u. S. In the ones that opec cut are likely to see in market share into 2017. Within this range, wind you know which way it will break . Do you just have to wait to see price . Or theres some come the other indicator that will tell you below the moving average of 43 . Have seen is when prices get into that 5055 range producers sell that market. Which tells you there economics are in that range. The highquality permian guys are below 50. They have drawn a line in the stand. You get to that 5050 five dollar range. Is hard for that it this market to go about 55. Was head of Commodity Research at Goldman Sachs. Scarlet we will recap the winners, the losers, and the two candidates battling out for the white house. This is bloomberg. Att whatd you miss . Contentious about president ial debate that likely didnt change anyones minds. Mike pence and tim kaine disagreed about virtually everything, but mostly whether a Trump Presidency or Clinton Presidency would better stage the u. S. On the world stage. Alice joins us from washington. The first thing i have to ask you, when we say whatd you miss . Its a lot of fun and about the show usually, but this is something that most people did miss, right . [laughter] everybody watched the first debate. Almost everyone i have asked anecdotally has not seen more than 1020 minutes of this one. Yeah, i would be surprised if people needed to the end. Which is too bad for tim kaine because i think his best moments came at the end of the debate. Half ofcame in at best the first debate between clinton and trump. Thats still about 40 Million People. But as is adjusted they tuned out after a while likely. Snap consensus among the abundance is that mike pence won. Tim kaine was kind of yappy and interrupted a lot, did not lend his points. That said, a lot of the stories im reading is that mike pence failed to defend donald trump. Hillary clinton put out a great video showing the times mike pence contradicted trump. If nobody watched the debate, and the second a story is that pence cannot defend his boss, is that a pence win . Alex i have to give another reporter credit. He said on twitter that watching mike pence, you can almost see how the Republican Party will put trump behind him as he loses. They will act like he never happened. Describing jim came as describing tim kaine as yappy was accurate. He seemed a little too eager take it in his canned pooints. Scarlet not only that, but he wanted some real answers too. He was getting stonewalled. Looking past donald trump potentially losing, doesnt look like mike pence was setting himself up for 2020 . Alex thats a great question. I would not be surprised if you do not throw his hat in the ring. Im not sure how much of a base hes got. Hes not a governor of a very large state. Largesnt have a very national profile, even as Donald Trumps running mate. Being his running mate is kind of like being a minor live jupiter. A minor moon of jupiter. [laughter] i dont think anyone really knows who he is still. Joe lets listen when senator kaine emphasized Hillary Clintons leadership qualities. we do trust her with the most important thing in our life. We have a son deployed in the marine corps. We trust her as commanderinchief. The thought of donald trump as commanderinchief scares us to death. Joe how well was this point made . This seemed like it was been a be the entire purpose of the argument, cap donald trump is too erratic. Tweeting at 3 00 a. M. , you cant trust him with nuclear bombs. Is an argument working for the Clinton Campaign . Alex ive long thought Clinton Campaign and democrats have been getting dangerously hyperbolic that donald trump is the apocalypse type stuff. Death feels like at best an exaggeration. I doubt he is scared to death. Lets listen to what mike pence had to say about National Security. This is what he says about why the world is less safe. Pence after traveling millions of miles and being the architect of the Foreign Policy of is in ministration, america is less safe today than it was the day that barack obama became president. That is absolutely inarguable. We have weakened americas place in the world. Scarlet there were times where mike pence dr. Differed from donald trump, especially on russia. On National Security and the economy, he is in line. Does this move the needle in terms of the undecided voter . Point point mike pence seemed to depart wildly saying that the u. S. Should attack bashar alassads regime in syria. Thats nothing that either candidate has proposed on the trail. National security is a winning argument here. The middle east is a mess. Thats not really arguable. There have been terrorist attacks in the u. S. Nothing on the scale of 9 11 of course. Americans are more afraid of terrorists these days than they ought to be. This rhetoric probably feeds into those fears. Joe alex, thanks for breaking down last nights debate for those that did not watch it. Scarlet or did not watch the whole thing. Coming up next, what you need to know to gear up for tomorrows trading day. This is bloomberg. Matt markets up across the board. Major gains in all the equity indexes driven by a betterthanexpected ism number and higher oil. German factory orders coming up tomorrow at 2 00 a. M. Et, so we could see the same effect there. Scarlet greeces Unemployment Rate stands over 23 . We will see if it holds. Joe tomorrow the initial weekly jobless claims have been incredibly low. Well see if that john im john heilemann. Mark and im mark halperin. With all due respect to mike pence last night, you seem to for have gotten the main thing, to keep the main thing the main thing. This is the iran thing. This is the personal thing again . Youwithout that mexican whipped out that mexican thing again. Mark if its not one thing, its another. Mike pence feeling pretty good today. Pence had a debate last night, good reviews from all corners. 36 Million People watched