Rollout of disney next week as well. Gap is down 7. 5 after the announcement that the ceo will step down. Change of any business might take longer. Guy here in europe, bit like the United States, moving lower on this trump headlines, and then bounced back up again. We are still negative on the day. The euro down as well. The dollar has been catching a bid today. What has been interesting is the bigger reaction in the bond market. Earlier today, italy was down for five basis points. Down by one basis point sorry, up by one basis point. We have probably seen a bigger reaction in bond markets then in equity markets, which is interesting. Its been a big week. Theres been a big selloff this week for btps. They are up by 21, 22 basis points this week. Lets talk about these markets, try to figure out where we are as we wrap things up. Erik nielsen, Unicredit Group chief economist, joins us out of berlin. How critical is it to the markets, to this trade deal, that we see a rollback of tariffs . It is important. It is obviously the thing that everybody in the market talks about. Personally, im a little bit tired of this tweet policy we have with donald trump. The key story for me is that equities have become expensive, and somewhat seems to hinge on that one little issue, whether we get a deal or not at this stage. This is the fundamental direction of trade between america and china, not a positive one. Am very reluctant to think that trump is about to reverse his position fundamentally. Guy so you dont think theres going to be deescalation here . Erik no, i think theres always a possibility during the next year as we come towards the u. S. Election, but at the same time, i am more in the other camp, thing that the u. S. Economy slows, which is our forecast during 2020, and trump is going to pump up this xena phobic xenophc again this obic rhetoric again. Stocks have come up and down a little today and yesterday, but fundamentally we are at very rich levels indeed. Vonnie characterize the bond market move this week, both in europe and the United States. Were they related . Erik yeah, i think it is. It is always difficult to sit back and then be clever after whats clever afterwards and say this is what happened, but it has been a risk on story because of trump and the trade story. We had the selloff in the bond markets. I think that is sort of a specific story. Then you have the specific italy and greece story on the european spreads, which are probably more national issues, particularly for italy. Vonnie the move to 1. 95 , will we see it again soon . Is it a reflation trade . Erik no, im not so sure, but there is if you take the greece story, it traded inside italy, which is phenomenal to think about, but it is a very liquid market. Italy probably got hurt on the issues between the two coalition partners. Growth dataeak also. Growth data also. I think it is more of a specific story on this issue. Guy what has surprised me, and they hear what youre saying about italy and greece, is that the market has been reasonably therly, both in terms of going market and the credit market. Do you see any signs that that could break up a little bit . That we could see more idiosyncratic risk rather than this mass move of yields generally higher, both in btps,ies, bunds, wherever you look . Erik i think that is exactly the right way of thinking about it. For me, the equity market has become a bit rich now. Theres a lot of risk on, and i am not an easy buyer of the trump story of a trade truce that lasts very long. I think we are heading into an area where people see this quite rich pricing of the equity market and other markets, and geopoliticalhe mess coming on again as the economy slows down. There is anario, as lot of liquidity out there, people start to look at the credit risk you see around, so i think that will be the theme the next couple of weeks, more than the general theme that we started off with. Guy so would you be a seller, if you were a holder of equities, would you be a seller of a trade deal . Do you think the next phase is going to be so difficult that, once we get through this one with the richer equity valuations, that the market is likely to roll over . Erik exactly. Ive been a little been impressed at how far we went on the equity side, so im a bit long on this. But for some time, and certainly now, if i were an asset i locator, iasset would sell equities and strength. If you have another rally, i would start to exit and look for safer assets. But the problem is it is so difficult to find anything that is halfway interesting. Things like italy may come back and play again. It looks like they are getting a bit of political peace out of rome again. It is one of the places to get a little bit of yield. It is not easy to be an asset. Allocator vonnie its clear when china put out the statement that the u. S. Agreed to roll back, forgoing any kind of joint statement, you know donald trump doesnt like to be seen like looking like he is backing down. Obviously Peter Navarro or somebody got that through to him, and he said this morning, no we havent, and they are going to come here to sign a deal. This is going to carry on for a while. Is there a deadline for phase one to get signed . If it is, it will likely get signed, right . Erik it might be. I think you framed it very well. The terrible problem for businesses and for investors is apparente is no strategy of all this. It is all done in the oval office of the white house. Peter navarro may say what he want to say, but it is a wellknown fact from anybody when they come to washington that everybody immediately says trade policy is one person, and one person only will decide this, and that is trump. It seems he wake up one morning, may be needs a tv appearance or something that looks good for him, and then suddenly there comes something again. My impression on the other side, and china is frustrated with this uncoordinated approach to this relationship, but they have their plans. They are also too proud, and they are also looking to win the media story of this, although they have a better handle of the media story then the u. S. President , obviously. Vonnie erik, into next week and beyond, im curious as to how much youre seeing the trade story impact the hard data. It hasnt been impacted in other data. Even content is sort of holding in. Erik its a good point. To be honest, im a bit confused about this also. We know the Manufacturing Sector is not doing well. Theres no real signs of spillover into services or to the household. That is the good news. The labor market is holding up ok, even though there are clear signs in the u. S. And europe that they are beginning. We are coming off the cycle. That is the important part. ,hen we get this data last week many thought that gdb hires were higher than many saw that gdp numbers were higher than anyone expected in europe and the u. S. It is a very confusing picture. Its not inconceivable that all of this data are not heading downward. But they actually will get a second life. It is not inconceivable. I dont think it is the most lightly scenario, but it is not a scenario where you should speak with too great conviction of where you go from here. But i think the odds are for a slowdown. Guy stick around. Economist, chief looks like it is party time in berlin this friday night, just on the other of brandenburg gate. Erik it is good to be here. Vonnie not just any friday night, either. The big ceremony tomorrow to commemorate the berlin wall falling, of course, will be something to see. Lets check Global Markets now. Heres kailey leinz. Kailey we are looking at a mixed and very bouncy session. Stocks are well off the lows they first hit when President Trump said he is not fully on board with the tariff rollback. Investors try and weigh what every contradictory headline means. The dow is down by zero point 2 , the nasdaq higher by 0. 2 . We are a little lower in europe, with the stoxx 600 down by about 0. 4 . I want to check on the bond market because the selling pressure has been put on pause, at least for now. When we took a look at the week weve had, it really has been aggressive selling in the bond market, with the 10 year yield resin 20 basis points in the past five days. That is the biggest move upward in yields since back in july. I want to hop into the terminal at gtv take a look at what the market is telling us on what they expect the fed to do. For january 2021, how much lower the traders think the fed rate will be at the end of 2020. Right now they are only pricing and a cut of about 20 basis points, the right now at even a full 25 basis point cut. We are really rolling back those easing expectations. Finally, a few movers on the day. The Energy Sector is the biggest laggard on the day, in part because of oil lower by about 1. 4 on wti. Take a look at the biggest movers in that sector, exxonmobil and marathon down the better part of 3 , and valero and conocophillips down by about 1. 5 . Vonnie thank you for that. Remember the function gtv on the bloomberg allows you to browse all of the charts featured on bloomberg tv. Analysiswith key and savior have her its for future reference and save your favorites for future reference. This is bloomberg. Vonnie live from new york, im vonnie quinn. Guy from london, im guy johnson. This is the european close on Bloomberg Markets. Lets check in on the bloomberg first word news. Heres courtney donohoe. Courtney there may be a pitch in negotiations for an interim trade deal between the u. S. And china. Donald trump says the u. S. Hasnt agreed to a rollback on tariffs with china. In fact, he said he hadnt agreed to anything. President trump wont impose tariffs on european cars next week as threatened, according to European Commission president jump on juncker. President jeanclaude juncker. Eu has threatened to impose its own tariffs on American Goods if President Trump carries out his threat. House impeachment investigators subpoenaed acting white house chief of staff Mick Mulvaney for a closeddoor deposition today, but to no one surprise, mulvaney didnt show up. Democrats will release more transcripts from previous depositions today. Next week, the inquiry moved to public hearings. In alabama, Jeff Sessions will run for the seat that he gave up to become trumps first attorney general. He says he remains a strong trump supporter despite our ups and downs. After months of insults from the president having to do with his recusal from the investigation into russian interference. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im courtney donohoe. This is bloomberg. Vonnie thank you. Still with us from berlin is erik nielsen, Unicredit Group chief economist. I want to play a soundbite from rough out bostick of the atlanta fed from Raphael Bostic of the atlanta fed. He talked about the amount of room that the Federal Reserve has. I worry about the amount of space we have. ,hen you think historically leading to a recession, we dont have that much space. So i want to make sure that when we do deploy our tools, they are deployed to maximo effect to maximum effect in a way that leaves us with policy room Going Forward. Vonnie when you consider that yesterday, the bond market reversed practically half of the last rate cut anyway and one day, he makes a good point, doesnt he . Erik yeah. Im a bit confused about the fed, to be honest. On the one hand, they deserve a lot of credit for having moved incredibly fast or early in this potential slow down, thereby helping cushion, not prevent, the u. S. Slowdown. But there dots are still sitting way above the forwards, and the methods of holding back as an economist, you would say that doesnt make any sense because if you are holding back firepower just to have it, you are actually increasing the probability that you need it. So they confuse me a bit. We at unicredit, we are in the camp oozing the fed is going to cut a lot more than what they say now in the camp at who thinks he fed is going to cut a lot more than what they say now. For those of us who think the u. S. Will hit recession or near recession sometime late next year or 2021, or there about, because rate source are because rates are so low, it is not a cliff edge event that takes you down into recession. It is more the boiling frog story of slowly, labor markets hit you, and therefore you are having a slow move down. Our guess is that the fed will probably end up cutting another three or four times for a total of 100 basis points or something before you trough out, but it is going to be gradual as you slowly get convinced the u. S. Economy is actually slowing. So our base Case Scenario is that several cuts, but gradually and slowly. Guy the market is definitely not priced for that. Just looking at pricing now, weve got 21 basis points of cuts priced in by the end of 2020. How out is that . That is where Market Pricing is right now. Erik id take the other side of that coin. Thats how money is made. Im very happy to take the other side of that story. On our probability models, these are models that all economists on typical labor market data, but not the yield curve story. On the macro story, a normal probability would tell you that theres about a 5050 chance of a recession in the u. S. In third or Fourth Quarter of next year. It goes up dramatically after that. Then you look at the curves, which are flirting which in flirting with inversion. It is the largest expansion in modern history. Your thinking about the fiscal expansion the power to head the u. S. Economy. You hopefully dont think of that is something that would never have to be paid back. There are no free lots in life. You start to say, is this economy not going to slow . Yes, the fed is doing a good job, but if the central bank new how to prevent a recession, we would never have recessions, so of course its not going to be enough. It will cushion it. Im not going to make a call whether they bottom at zero or 0. 5 . Very happy to take the other side of that bet. Guy just Market Pricing versus where you are. On the ground in berlin, how did Christine Lagardes calls for more fiscal policy go down . Erik almost not reported, really. First of all, in berlin, we are all very excited about tomorrows 30th anniversary of the fall of the wall. More importantly, there is at the top political level really very little appreciation for this call. I have great doubt that Christine Lagarde can change the opinion. That said, if you take a rather mainstream stand today, we have a big picture of a road with potholes that says, your purse is full in the country is going bankrupt. Point being, fiscal is very strong, and it is not being on the country that is falling apart. The thought is that there is a movement in the population. Why are we running this fiscal surplus when schools are not being invested in properly, when the roads are not where they should be, and when the Public Sector in germany is so far behind the other western European Partners . So i think it is moving, but it is a long way before you get the top political level to appreciate it. I think it will be well into next year, but too late first too late for fiscal stemless to work. Vonnie it already looks like she is not going to let up. She talked about germany and 12 countries in total that have fiscal room for fiscal stimulus. We have more time with you. We are going to talk a little bit about what you just mentioned, the fall of the berlin wall, and a few moments. Erik nielsen, Unicredit Group chief economist, stay there in our berlin studio. This is bloomberg. Guy from london, im guy johnson. Vonnie from new york, im vonnie quinn. This is the rpm close on Bloomberg Markets the european close on Bloomberg Markets. Offlix, hbo, and a coalition other titans will make a crackdown on password sharing. They are considering a number of measures, among them, texting users a code that they would have to enter to continue watching. Investors still think that Saudi Crown PrinceMohammed Bin Salman on has too high a valuation for saudi aramco. Money managers like alliancebernstein think it is still too rich. They say lowering the evaluation will be a sign of strength on aramcos part. That is the latest Bloomberg Business flash. Guy european markets getting ready to close shortly. Ftse 100 the underperformers today. The oil stocks have been dragging it down. On the week, though, it is up by 0. 8 . It is a clipped by the dax, up over 2 , as is the cac. Continental markets had a very good week relative to pretty much everything else. This is bloomberg. Guy 30 seconds to go. Europe about to close. Wrapping up a week that has been positive but not today. The ftse is down. It is the trait you would expect to be coming off today after a big risk off week. It is the mining stocks, it is the oil stocks dragging the ftse lower. The dax is down. 5 . The cac 40 down. 2 . We will come back to that in a moment. Lets talk about what has been the sector story and get an idea of how we worked our way through the session. Today, classic risk off. We are back in two the utilities. We are back in to health care, we are back into the telecom sector. These are the sectors that have been beaten up. Markets may be thinking we have gone too far. We did not go down much of the president s comments related to trade. The rotation is not what we have seen this week. The rest of the week, the story has been positive with these stocks. Food and beverage down 1. 5 . I wouldve thought that would be moving in a different direction. Retail, banks, resources, travel and leisure. Food and beverage down 1. 5 . Lets take a look at stocks to give you an idea of what is happening with individual names. Two french banks out with numbers today. 7. 8 . The commissar worth focusing on. Both french banks out with numbers not doing well. Ridgemont rich down i want to focus on, 5. 71 . This is a l