A record low after they overstate the value of its inventory. A surprise in berlin the win of a new sbd left wing leadership set the german bund yield to a threeweek high. And the uk election focus turns to terrorism Prime MinisterBoris Johnson and Jeremy Corbin clash as they blame each other as the Early Release of the attacker. Well, good morning and welcome to street signs. Just in the last 10, 15 minutes or so we have been getting the final pmi manufacturing numbers across the eurozone. The final november has come in at 46. 9. That is higher than the flash estimate of 46. 6 so, little bit of an upside there, so some improvement versus the flash pmi numbers which came out a couple weeks ago. In terms of the breakdown, we have the final manufacturing output pmi come in at 47. 4 again, this is an improvement on the flash number of 47. 1 and october number of 46. 6 final future output coming in at 55. 3 again, higher than the flash estimate and higher than the october number, 51. 9 you could say this data gives further proof of stabilization in the pmis and certainly an upward trajectory of where we were back in october albeit still below the 50 mark. 46. 9 is the aggregate final number for the eurozone. Speaking of manufacturing data, chinas Manufacturing Sector grew at the fastest pace in three years in november. Unexpected rose to 51. 8 thanks to higher output and new orders. And elsewhere, china has also asked the Trump Administration to remove existi ining tariffs f chinese goods. Its a top priority for a phase 1 trade deal were spending a lot of time about the prospects of that phase 1 trade deal and whether or not it can happen before the december tariff date lets look at how markets are fairing this morning we had a positive session ash sha markets, nikkei up 1 but also big nice jump in the shanghai we had those positive indication numbers the manufacturing numbers almost the highest levels we have in the last three years. The handover to europe is quite positive, stellar start for the stock 600 on this first trading day of the month up. 6 already. Let ees break it down by individual indexes ftse 100 up about. 7 of a percentage point there were seeing a good rebound in some of minors basic resources names doing as well on back of the manufacturing numbers coming out of china. Typically basic resources stocks do well on those days. Ftse 100 still shy of the mark germany up. 7 of a percentage point. One name were looking at luf tan sa shooting to the top after reports that Qatar Airways may have interest in those particular stocks. Dont forget that of course there has been some Political Developments over the weekend. France up about. 6 and ftse mib up a similar amount. I hinted basic resources are doing quite well theyre right at the top of the board up 1. 3 outperforming gas also having a good rebound session in line with the better data were getting globally positive sign for demand we have all the important vienna opec meeting this week anticipated cuts potentially and being pushed for by saudi arabia theyre also going to price their first of the aramco ipo. Luxury goods up. 8 Percentage Points down at the bottom, real estate all just below the flat line, but very strong start to the day for european equities. I want to take your number to fixed incomes seeing big moves i want to turn your attention to where the tenyear bund is trading. Basis points terms we have moved about 5 bases points higher this morning. As i mentioned, there have been some developments on the political side a change in sbd leadership this is one of the Key Coalition partners of the cdu party. Lots of questions about the future of that grand coalition and what it means as well for german spending. One of the reasons why german yields are moving higher 10 year bdp up 140 we moved on the day. Fixed income coming under quite a bit of pressure. I want to bring in the head of credit from Hermes Investment management lots to unpack let me take you back to china and the data were seeing there. As a fixed income investor, how difficult or easy has it been to navigate the various trade warheadlines that have come up over the last couple months . Its been as difficult as any other asset class and important to try to distance yourself from that noise on a daytoday basis and concentrate on more medium and longterm horizon when it comes to actually making investments. That said, its quite difficult to avoid the daily tweets as im sure youre aware. Some of them, you know v added volatility which has been potentially an opportunity in terms of being able to be nimble and opportunistic when it comes to investing. What do you make of the data globally we have the better manufacturing numbers out of china best in three years, again, seeing some improvement in the eurozone pmi, still sub 50 but its moving in the right direction, improvement from october for you as a fixed income investor, is that a signal that perhaps the outlook from here is for fixed income yields to move higher on aggregate. The data is encouraging but it does need be taken in context. Still a lot of numbers below 50 at this point. So its not like things are suddenly fantastic the other thing to remember is about on the valuation side there is a significant amount of positivity priced in both on the equity side in terms of multiples but also in terms of credit spreads within the corporate world. So for it to continue to be a performing asset class, this is going to not be a surprise this is going to be the status quo Going Forward and i would be quite skeptical about that. Just preparing for this i was reading your notes you said there were some high yield credit bonds in europe that trade at 99 fully priced essentially what type of distortion is this creating to the market, high yield credit market where typically in normal times you wouldnt see bonds with these types of fundamentals trading at those prices there is significant amount of disparage at the low end of the market and thats a reflection of likely rising default rate and companies in that space that are facing not just macro head winds but also technological disruption head winds. Beyond that, though, actually the rest of the market is an extremely strong space here both on technical side from buying and on the fundamental side. Apart from anything else, these companies are spent most of the last few years opportunistically refinancing and their cost of capital is extremely low on the fixed income asset its difficult to say what extent theres an opportunity at the very low end because those companies are very likely to default. The only exception to that rule is part of the basic industry and natural gas and Energy Spaces and top performers this morning with some of the data coming out, that scenario feels like its a little oversold, little unowned and potentially some opportunities in that space. Just a quick followup question on that again, i was looking at a stat this morning, back in 2009, the triple b rated companies had spreads that were almost 700 bases points higher than the Higher Quality companies today that spread is just over 1 . So theres been a massive tightening there do you think eventually the chickens will come home to roost for people who bought into that lower rate of credit i think thats a bet of a red herrings i would treat any weakness in that as a risk rather than a threat the market underestimates the ability to defend themselves, defend their balance sheets. Youve seen all of this Year Companies in that low end of the Investment Grade market cut dividends, cut share back buy programs, growth cap x being dialed down. All of this is a very credit friendly story and people sometimes miscommunicate whats good for equity versus whats good for fixed income. Our other top story today the future of germanys Ruling Coalition hangs in the balance after the social democrats elected to two critics of the grand coalition as the partys new leaders. They campaigned with the promise of renegotiating the Coalition Deal or pulling the party out of the government all together. The newlyelected sbd leaders said they would put the good of the party before that of the grand coalition. Translator we are very aware that this is not a question of victory nor defeat but a question of keeping this great social Democratic Party together and bringing it together again where it is already moved apart a bit. This is not only something that is great fun but also a great challenge. Translator we want to reach out to all we want to reach both our hands out to all those two decided otherwise and supported the other team, even in the preelection campaign. We know it you all know it. Now we have to stand together. Only together can we manage to make the sbd strong again, so stand credibly for a just future. Lets take a quick look at how the bund curve is reacting up about 3 basis points, 10 year bund up more than 6 bases points factorying in this future Political Uncertainty and perhaps little more spending out of the future german government. Lets get the expert voice, though anita joins us with more as i just mentioned, there seems to be an expectation that this new leadership out of sbd is less expected or less pardon me when it comes to the grand coalition. What could this mean from a political perspective from germany in 2020 . Well, worst case it could mean new elections if they really were to pull out from the grand coalition and Angela Merkel would not like to have a minority government. We are away from that extreme scenario we have a new spd leadership quite vocal about the fact that they dont like how the grand coalition was going and they dont like the content of the Coalition Contract thats the problem here. Thats at the center of the problem i would say because what they want is to have a reopening of the Coalition Contract. They want to have more spending, higher minimum wage and also yeah, as i was saying general more spending but also a clear commitment not to stick to the balance budget rule. I think that will be kind of breaking the neck of that round of negotiations because the cdu has already said that they are not in favor of reopening that Coalition Contract and especially they are actually not looking at all into abandoning that plan to have a balanced budget so i think they will be at logger heads here and a lot will depend on what the spd working group who is assessing the grand coalition on the social democrats with what kind of result they will come up with and what kind of vote they will have over the week and next weekend when the spd has its general assembly, Party Convention i should say. Most likely next week and well actually decide whether the spd will walk away from the grand coalition but that would have devastating affects also on the ministers. So you see the spd itself is still divided between those who want to shift them to the left, say the grand coalition has done us only bad things and the others who have minister jobs and do sit in the bundes and the majority of the lawmakers are not in favor of ending that. The jury is still out whether we see them walking away. Theres a lot of noise coming out of berlin on that matter and while most likely we get a bit more spending, but it wont be a revolution out of berlin, back to you. No. Never ever going to be seems like a revolution in german spending but at least theyre reacting to the potential of that i want to take it back to the politics what is the interest, what is in it for them to hold or push for a general election and break up the grand coalition. If you look at spds popularity in the polls, theyre only tracking around 11 . These are historical lows for the party. They dont have much to capitalize on if the country did go to another general election right now. Yeah. The new leadership and also the master mind behind that whole set of left policy which seems to be quite attractive to many inside the sbd is kevin who is heading up the young socialists. What they think is that its better to be in opposition and to kind of recalibrate the message of the sbd along the lines like the greens did it the greens which are hugely popular used their time as an Opposition Party i guess thats the narrative behind that potential option to walk away from that grand coalition because those people who are now in charge of the social democrats, they think its because of the grand coalition that the sbd has so low popularity with a recent poll having them at 14 or 11 as you were saying just now. So, i guess dont underestimate the potential to say we threw it all in the water to have actually a potential to recalibrate ourself to get our message right and to be attractive again to voters just to point out that according they are tracking 14 but in the context of history very low levels. Thank you for breaking it down for us a crucial week for german politics lets get back to the head of credit for Hermes Investment management this magic wand of miskal spending out of germany, does it come up in your discussions a lot and do you believe that germany will loosen the belt a little more going into next year in the case of germany, i guess, its possible but it certainly wont be a revolution as we just heard for me as much about the fiscal change as the likelihood that this potentially helps enable further flexibility with regard to the eurozone project itself i think thats potentially something that the market is also taking gains from this morning. Its a bit of a trade off because on the one hand what this type of news is likely to add more uncertainty and therefore more volatility as people price in different scenarios. Other, were it to transpire this would lead to more fiscal stimulus, more flexibility with regard to europe and that would be a market positive thing its too early to say which way to go here. Its interesting on the day like today, all the underperformance is being led by the core countries and germany and pef riffries are outperforming. If you think about it going into next year, theres less uncertainty in the per i haverries. Something people will watch very, very closely how you thinking about the debt here and trajectory for italian spanish debt in 2020 given how strong a year it was this time of year . It has been a very strong year so the valuation side needs be taken very seriously at these relatively lofty levels. It also has implications for the supply site and seen already in the last few weeks, for example, Something Like five high yield bond coming from greece. Banks moving loans into bonds for corporates that is a signal for what youre likely to expect going next year where there will be opportunistic supply again, that would likely be a head wind to any significant outperformance of the space given the already quite high levels. It seems everything youre saying to me, even though theres more supply hitting lower down the capital structure, theres an endless demand for that paper because the traditional paper is bought by the ecb, just reintroducing qe they still have the monthly redemptions. And so other investors are forced to go into lower rated and debt they wouldnt have bought in the past i think thats true up to a certain point and stops being true credit quality and certain level of cyclicality what you see on a day like today is significant outperforms like oil and gas, basic industries. You should expect them to be outperforms in any day like today. But only to a certain point and obviously if you look to the very low end of the market, there are suggestions that youre going see a meaningful rise in default rates. This technical coming from more buyers and sellers is not the same technical that will support low quality credit for that to perform, you need significantly higher growth. You potentially need a snap in commodities upwards and its a very different dynamic. Does it concern you that volatility levels were so low. I was looking at three month just the currency at record lows, lower than we have ever been even below the lows of 2007 thats for Euro Currency trading around 4 . When you look at that, does that fill you with a sense of unease going into next year because typically when volatility is this low, were bound to get some volatility shock, thats not good for carry trades. Agree we have had lower volatility for the best part of the last ten years for the most part. There is increasing stress risk attached to that particularly long eer duration than there us to be. That may well catch a few people out from Risk Management perspective. But again, if youre sized right going into these, it will ultimately be an opportunity all right the head of credit from hermerngs s Investment Management thank you for joining us on the stage. Uk Prime MinisterBoris Johnson and Jeremy Corbyn clash after a deadly terror attack in london more after the break beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. A lot of folks ask me why their dishwasher doesnt get everything clean. I tell them, it may be your detergent. Thats why more dishwasher brands recommend cascade platinum. Its speciallydesigned with the soaking, scrubbing and rinsing built right in. Cascade platinums unique actionpacs dissolve quickly. To remove stuckon food. For sparklingclean dishes, the first time. Choose the detergent that lets your dishwasher do the dishes cascade platinum. The number one recommended brand in north america. Most people think of verizon as a reliable phone company. woman but to businesses, were a reliable partner. W