Today. Down 15 . Accounting errors being investigated by the fcc and ftc and the doj. A deal has striker down 4 . It is buying a medical device manufacturer based in amsterdam, wright medical. It is selling down a little bit off of that. Guy here in europe, the stock 600 through the 400 line. That is a big deal. It is being driven by the dax today, german autos getting in on the deal. We are waiting for Christine Lagarde to speak, the first time shes going to do so as president of the ecb. Dare i mention it . The rand up by 2 . This to do with the fact that south africa did not get downgraded on friday. Negative from moodys but it did not get downgraded. Peter, lets start with equities. Absolutely going from strength to strength. What message do you take away from that . Is clearly athere loss of liquidity. The fed is injecting cash. The 60 billion per month in tbills they will buy per month on Central Bank Balance sheets. The ecb is back on expansion. Over the many years we have been running these qe programs, they have had more impact gradually over time. First they had an impact on the riskfree rate. They have had more impact on the riskier assets. Guy absolutely. It seems like the cyclicals are catching a bid. We will not get too much into the stock market story. That stock about the rates market. What is the relationship st ocks going higher, yields moving higher as well. How sustainable is this move as you look into yearend and 2020 . Peter typically that kind of move where Earnings Growth is pretty weak, and i dont agree with the type of Earnings Growth forecast that is being peddled at macrohen i look data, all i can see is a significant decline in earnings next year. I have difficulty being able to agree with current equity market valuations unless they also coincide with much lower bond yields. I dont see them as sustainable. What i dont see a sustainable is higher stock markets and higher bond yields. I dont see that. You have got to discount these future earnings with higher risky rates. Vonnie peter, how difficult is it to trade the european sovereign bond market these days . It feels like there have been changes over time, but these days we are trading in a range for most countries. What do we do to differentiate . Iser what it comes down to having a look at other Asset Classes and relative valuations of the european bond market versus them, broadening your horizons, taking into account where Corporate Bonds are trading, where em is trading, and thinking very clearly about how all of these markets are becoming more correlated. Investors are focusing on more of these markets together. Think about how investors have been forced out of Government Bond markets into credit and then into em. They are trading with a greater degree of correlation. It becomes easier and more significant to think about the allocations between these Asset Classes. Even looking at european rates, there is still a lot to be done. The volatility has not been killed out. There is a lot of interesting trades and event risks to be structuring around. Vonnie one of those brexit obviously. I am curious what the correlation is between gilt and european bonds in general. Peter in terms of the correlation between european bonds and gilt, it is still significant when you have a big move in either one of those. It will coincide with another one. There has been a significant decoupling. Gilts trade more like treasuries rather than bunds. I think we are going to see more in the way of divergence. A generale have election on the table, the typical place for this is for the u. K. Rates markets to price in more uncertainty. Rather than thinking about tail risk, they add to they need to add more premium into the risk curve. When it comes to thinking about implications of brexit, that is the main sticking point. Does this conservative government that looks like it might get the majority, with this conservative government make a shift towards an even harder brexit just to get the brexit party on board . Guy gilt yields have backed up quite a bit of the last few weeks. If you were to see another hung parliament, how much of that were to come out . Peter i look at it in two ways. This would mean the bank of england forecasts would need to be revised down again on the growth side. They would need to be thinking more about further tail risks. They would need to be thinking about a longer period of uncertainty, which would be investment, basically cut rates. There are Stephen Ayers on the guilt curve, which is not currently steepeners on the gilt curve, which is not currently the case. Guy Christine Lagarde is going to speak tonight. Peter i love that line on the f word. Guy how many times is she going to talk about the f word . Is she going to deliver . Peter much lower than anybody helps. Physical can only be delivered when the Political Capital is in place. A little capital is only in place when a recession has been realized. Proactive fiscal policy for now, unless there is a coordinated effort, is something of a pipe dream. Meaning the ecb is making good signals, but they are going to have to go in first with more monetary easing before fiscal policy is delivered. Vonnie right now the ecb can lecture. It can beg. It can cajole. It can warn. With itsot have to do mandate anything to do with what any government does fiscally. All it can do is carry on with what it can do. What does this mean for governments . But essentially they will decide what to do based on their own economies. Peter indeed. It becomes a question of when ployment rates begin to rise materially. That is when the political pressure to deliver on fiscal support, and that is when there is Political Capital in play. I think that unfortunately the labor markets are a relatively slow indicator to be looking at, but that would mean we can have further slowdown, more deterioration of the real economy before policymakers in the governments have an whichive or any capital to use to unleash fiscal policy. I say unleash in a rather ironic fashion. Vonnie i was speaking with Niels Ferguson recently. He still thinks that the euro area will unravel, that there will be a peeling off of certain countries, italy not far down the road. Ultimately the euro area will not exist as we know it. What is your view . Peter i am sympathetic to those views. I take them into account in great detail whenever i am thinking about what could happen if there were to be fiscal policy coming from the Northern European countries. That would push bund yields up. My concern would be that they would be the Northern European countries they get the benefits of that fiscal easing. Southern European Countries that need low interest rates, they would no longer have the benefit of low bond market yields, and we could be back in a sustainability crisis. I think it is nice to talk about the need for fiscal policy, but it is not to be delivered in a way which benefits all of the european area given the current structure. Without those, even those fiscal policies are not going to be the eventual solution to this problem. It could lead to more fragmentation. Guy there was an interesting piece this morning in the ft this morning talking about a similar story. Just a bit of breaking news. I am seeing a drop in Anglo American stock price on the back of news that de beers, which is a unit of anglo, is going to be cutting diamond prices by around 5 . There is an industrywide pricing crisis at the moment. Prices have an coming down sharply. The industry is struggling to figure out how to respond to this. Is goinglike debeers to be lowering prices by 5 . I think this is one of the 10 sales that it holds annually in botswana where buyers come in and pick up the stones they are looking for. It looks like those prices are going to be coming down. Lets take a look at what the wider market story looks like right now. Abigail it is a little bit about risk on day given fridays gains for stocks. We have the s p 500, record gains and record highs. The s p 500 has been putting in a series of alltime highs. The dow is now joining the s p 500. The stock 600 in europe above a key level of 400. Real growth in the auto sector, outperforming by 2. 9 , driven in part by strong growth from ferrari. As for some of the big movers in the u. S. , lets take a look at those. Techer is buying the med company for equity value of 4 billion, 31 per share. Some are highlighting the possibility of antitrust concerns. Not so much for under armour. Shares are plunging as the accounting probe that has been going on for about two years, these shares down more than 60 into today since the 2015 hi. Another leg lower for under armour. The two movers within the energy gains, forind those the last two days, energy up more than 4 , the best day since january of this year. 5. 7 . Look at oil, up the highest level in six weeks. Investors stoked around the possibility of a trade deal and the aramco ipo helping out oil and the energy sector. Vonnie thank you for that. That is abigail doolittle. Remember the function ketv go on save yourerg lets you favorites for future reference. This is bloomberg. Vonnie live from new york, i am vonnie quinn. Guy from london, i am guy johnson. This is the european close on bloomberg markets. Lets check those markets now. Here is courtney donahoe. Courtney President Trump suffered in other step back in his efforts to guard his financial information. If federal Appeals Court refused to block a subpoena for his tax records. The ruling moves the trunk tax case one step closer to a showdown in the supreme court. The u. S. And china are signaling there is more progress towards an interim trade deal. That could lead to a meeting between President Trump and president xi shipping. Xi jinping. Wilbur ross said the u. S. Was very far along with these one of a trade agreement. Saudi arabia is offering a number of sentiments to make of aramco is a success. It will reward investors for holding onto shares for longer. Shares will be listed on the riyadh exchange. Fallingf mcdonalds are today. Itsfast food chain fired ceo for having a consensual relationship with an employee. The relationship violated the burger chains policy. He will be replaced by the company had of u. S. Operations. 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. I am courtney donahoe. This is bloomberg. Vonnie thank you. We are back with peter chatwell. Of mentioned that in spite how rigid it seems the rates market is, there are plenty of trades and ways to structure traits that could eke out a few basis points. Is there any way you could give us an idea of what kinds of trades you are doing now . Peter we have been talking about the general election in the u. K. , but what about spain on sunday . The spanish curve, it seems to us, has been very flat relative to other european rate markets. Are a curve steep and there hason significant performance if the market does get concerned about protracted Political Uncertainty in spain. There is the risk that an undesirable government were to be elected. These are the sorts of things that tend not to be attractive to raise investors. We are looking at a relatively safe income generation. The prospect of an undesirable government being elected needs to be priced into the curve with that curve going steeper. Thatis a clear opportunity will be relevant this week. Vonnie do you see stress anywhere in the market . If there were to be a big move in u. S. Rates, would you be concerned that would impact european rates . Peter the big move that could take place is in either direction. Lets focus on what the markets are doing at the moment with rates going higher in the long term. With this curve steep bank, if we extrapolate that trend, we have got to think about discounting equity valuations with higher discount rates. That is going to bring equity valuations down. It would be very difficult for any relatively tight credit spread to be sustained if we had a steeper curve. Many investors look at the curve steepening as a sign of strength. I am somewhat pessimistic i thinking the real economy by thinking the real economy globally does not have the riskier to withstand Asset Classes. I think flat yield curves are necessary in order to prevent risky Asset Classes from selling off materially. Guy everybody is getting very excited about what has happened in credit this year. There has been Strong Performance in that segment of the market. Everybody is very concerned about what happens when this market cracks. At the moment it does not crack. Peter it does not crack. There is more liquidity coming in. I would expect the higher beta sectors, you say bbb, i think they will still be benefiting from the liquidity coming into the market. Where i would be concerned is stress,s of funding which is unlikely when liquidity is coming in, so more realistically, any expectations that rates are going material higher will have adverse reaction on the transmission of Monetary Policy through the real economy. Guy there is no obvious catalyst right now for that happening . When that happens it could be substantial, and people could take significant losses on these portfolios. It is pretty understandable as to why. When it does end, how difficult is it going to be . Peter this could easily be q1. Guy that soon . Peter absolutely. If we are going to continue to make progress towards fiscal policy, if that is a likely outcome and yields go higher, that would be the point when we see that the risky Asset Classes crack. They cannot withstand it. It would be similar to the reaction there was in the u. S. Market late last year. Rates were going higher. The credit complex cracked. The equity complex cracked. Rates went a lot lower in reaction. Vonnie what is your riskiest call right now . What is the one that makes you a little worried . Peter of all of the calls, i guess the one that is going to be perceived as being risky is the one that goes against these things i have been talking about. Curves are steepening. I dont think that will be sustained. I think the blue and yields will end the year will lower. I think they have the possibility to end only down at the 70 level. Markets have to be forwardlooking and be prepared for some potential disappointment in fiscal policy. Whichgh in some tariffs, i think we will see as we get closer to the u. K. General election, and that cocktail can be in place for the riskfree assets to move lower in yield and more negative. Guy thank you. Joining us here in london. This is bloomberg. Erg. Vonnie we are just off our eyes for the session for u. S. Indices. This is despite weak economic data, factory data. Taken acks have downturn in the session. Outperforming in europe. It is the trade narrative driving european markets into the close. We are off of our highs. The dax trading up 177 points today. Daimler, and volkswagen trading higher today. That is helping out. The gaming stocks, there may be some negative news coming out of the u. K. For Online Gaming companies. They are taking that reasonably hard. Cac is up by 1. 2 . The european close is almost upon us. A day driven to the upside but driven by that trade narrative. The close is next. This is bloomberg. S bloomberg. Guy 30 seconds until the end of regular training this monday afternoon in europe. , a lotn stocks bid today of bright green on the screen. The French Market doing well, the German Market doing well, the italian market doing very well. All of these stories being driven by trade. There are other factors in the mix as well. We have also cleared key levels, which is worth focusing on. The stoxx 600, the benchmark index in europe, eucalyptus the s p, trading north of 400. That is a big line in the sand. We are up over last five years. There is the 400 mark. Beginning in 2018, that is last time we were there. You have to go back to 2015 for the last time cleared the 400 mark on the stoxx 600. A big move today, a big technical move, can it be sustained . The ftse 100 is up. 8 . The dax is up 1. 20 . The cac 40 fitting a little bit, up just 1 . Basic resources, that is the mining sector, that is helping london auto parts. That is the car sector, that is helping germany out. Banks also catching a bid, that is the high beta trade. Europe doing a bit better. Europe in aggregate is the high beta trade on the trade narrative. Byhave seen germany hit hard what has happened between china and the united states. Other markets like sweden also having an effect. If the banks are going to be bouncing back, that is a signal people are more positive on europe. We are rotating out of the bond proxies. The yields are climbing. Food and beverage down. 3 . Travel and leisure is weaker. Yet a lot of emanate in the european markets. You also have ryanair out with numbers. Utilities down a little bit as well. Signal . Ow you single stops. It is worth let show you single stops. Single stocks. Olearyup, michael coming out with a decent set of numbers at ryanair. The little cautious on the guidance. The critical thing is what is happening surrounding the max. They are Huge Customer of the 737 max and they guidance relates to this. Cautious of when he thinks he will get the aircraft back in rotation, and he is pointing the finger at the european equivalent of the faa. For ari coming out for ari coming out with a ferarri coming out with a cracking set of numbers. I mentioned some of the digital damon stocks. Many listed in the Digital Gaming stocks. It looks like the u. K. Government will take a much harder stance when it comes to Online Gambling and that is being priced into the stocks. Down 11 . Vonnie holding onto most of our gains here in the united states. We will see what happens in the afternoon. The s p settled above the 3000 mark, heading toward 3100. The 10 year yield is the beneficiary. Some of those sales and treasuries, up to 1. 79 . Deeper at almost 20 basis points