Twist which may lead to a Credit Rating downgrade. Mark european equities are trading, we will look 30 minutes away from the end of the tuesday session. Global macro movers come in the stocks are declining. Netherlands, denmark, luxenberg, but expectations of the federal rate hike in december is increasing as stocks all. They are falling against the dollar. On fields are climbing. On the insurance is down. Commodities on the far right are declining. This chart shows the correlation between the oil market, wti, and. He global stock market developing stock markets. There has been a lot on investors minds. The rate hike in december, the brexit, throw in the u. S. President ial election. The rebound in oil, the blue line, has been a boost for the stock market. Ook at the 40day correlation we have roughly at. 9 0, 1 means we are moving in correlation. Oil is driving sentiment within the equities space. There is a lot of big geopolitical events on the horizon. This is a wonderful chart, which on the day of the ftse 100 new record high, albeit temporarily, the ftse is the blue line, which , as you can see. The white line is the spread between the twoyear and a 10year government bond. That spreadat widens, going back to 2002, which we have seen as the ftse 100 has declined. The ftse has seen a rise since the brexit because of sterling decline. Because of the widening between the twoyear and 10year, history tells us we could be witnessing a decline in the ftse 200, coming back to sterling versus the dollar, declining. We fell in the flash crash on friday to one. 18. It shows you the 1. 18. It shows you the precariousness. The alltime much record low going back to 1971. 90minutes into the trading day in the u. S. Charts. Im looking at the rate side of the equation looking at currencies. An increase in the 10year yield. This unusual pattern is because bonds were closed yesterday because of the columbus day holiday. Increasing to the highest level since june as we are seeing Great Expectations for an increase in december going higher. You were talking about the pound. The dollar has been strengthening, not just versus the pound, but other currencies as well. We are seeing the rate expectations being ratcheted up. You are seeing the pound falling versus the dollar. The euro falling as well, not the same amount. The dollar string thinning versus the South African round. The country the dollar strengthening versus the South African rand. Also versus the japanese yen with talks with the bank of japan. We are seeing a trend reverses these various currencies. Bring it back to u. S. Stocks if we are seeing stocks keep the lows of the session as perhaps investors are recalibrating based on the new rate expectations. The nasdaq 100 closed at a record. The pullback from some of the big performers. S p pulls backe out of its range . It does not look like it for the moment. We will look at that in more detail later. Onnie things for that lets check in on bloomberg first word news with eric johnson. Eric in the u. S. , officials in North Carolina say three more people have died in the aftermath of hurricane after you. Governor mccrory says all but one of the reported casualties were vehiclerelated. In a firewas contributed to the storm. The death toll is 31. In South Carolina power is slowly returning to holmes. According to the associated press, 300 thousand customers are without electricity, down from 100,000 on monday and 850,000 last weekend. German chancellor Angela Merkel visiting ethiopia, meeting with its Prime Minister on issues, including the newly declared state of emergency. Ethiopia is one of the largest hosts of refugees with thousands having fled from somalia and south sudan. Summoned to appear in court on fraud charges next month. The latest twist in a struggle with president jacob zuma that cause south africas Credit Rating to be downgraded to junk. Gordon says the summons is politically motivated. German authorities believe a 22yearold Asylum Seeker arrested on monday linked to the Islamic State considered berlin airport a potential target. The suspect managed to evade police during a raid on an apartment last weekend. He was later overpowered and tied up by fellow syrians who contacted the police. Theresa may might be known for butng brexit means brexit, the london court will decide if it is up to her to decide when the u. K. Leaves the eu they will try to convince a judge she can trigger article 50 of the lisbon treaty, which activates the brexit without approval. The failure would force the issue into the Parliament House of commons and lords, both of which were largely proeu. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am erik johnson. This is bloomberg. Mark lets get back to a busy day for the markets. Sterling rolling for fourth day. The ftse hit a record before backing up. Joining us is the head of multiasset funds at legal and general. Theing at the ftse versus 210 year spread, there is a lot to think about right now . The president ial elections, the fed, the oil price, brexit, how does it play out across the asset space . Trump looking at the event in the risk of u. S. Rate hikes. The bigger story is on the inflationary side dictating with the u. S. Can get away with and how far europe can go. With the end looks like for japan. It is not really receiving any air time because of the other events. Mark you talk about quantitative exhaustion. What a wonderful title for discussion on inflation or deflation. Is inflation overestimated . Yes, yes, since symptomatically sell. So. That led to upgrades on the pricing of computer hardware. It is a problem that is ongoing that got worse with Computer Software not being priced. We think that it nation is overestimating official figures by. 5 or more. When we think about inflation, europe, we are talking about. 5 rather than over 1 . Vonnie at least in the u. S. There are so many different ways to count inflation. We have so many different ones. Is there a preferred one for you given thought on how we calculate inflation . Ohn yes focused on centralbank action looking at the measures the Central Banks look at. You have a pce in the u. S. , rpi europe. K. , and cpi in looking at those expected levels and thinking about how far away the Central Banks are and when they can afford to adjust. In the u. S. Your. 5 over target for the next 10years, but that is not big compared to europe where it is down to. 5 . Vonnie your contention is the metrics might be what the Central Banks and feds are looking at, but it is not an inspection of the economy. John it makes zero bound more important. In our opinion europe is looking towards inflation and miss measuring the risk of doing so because they are relying on this figure of 1 when it is lower. Mark anything the ecb can or wants to do. Surely you do not want to slide into deflation. How does tapering factor in . John that would almost guarantee deflation. There are not a lot of leg in that arena. You haves peripheral countries where the debt dynamic for a higher inflation, then germany, a creditor nation, very keen to control inflation below 2 . It is hard to see them doing more. They will run out of german bonds to buy. There are talks about moving away from the capital key to alleviate that, but it is hard to see the year before german elections how that could happen. Lationhow about stagf projections . Looking at expectations on breakeven rates, it is rising because of sterling decline. Is stagflation a real possibility . John we might get divergence, just not in the way we wanted. We have seen a push of a long 50 basis points along the curve out to 30years. It is telling us that people areeve the u. K. Assets worthless. The flipside is becoming more protectionist with an inevitable you in inflation because get less productivity and less growth inflation. Vonnie we are hopping over the yields and tips have been rising to 10basis points to 15basis points. If you look at my chart, how do you invest in this environment . You grab for yields . To you go to emerging markets . You stay away from the u. K. . John for us, the u. K. Is about fair value with the pound is now, reflecting future lower productivity and the shocks from not being in the free market, which seems inevitable given the comments on around a hard grexit. Hard brexit. Janet yellen has been right, there is space in the economy in the total unemployment. That would increase participation of allowing her to hold off on future rate hikes, but it will not carry on forever. There is still up side potential. In europe and areas like that, to focus on nominal assets because the chances of escaping deflation are lower. We think there will be preferred action from east tv and are positive on things like peripheral debt. Mark and stocks, this is a chart showing where we are with the ftse, where the record is, and where forecasters say we will be by the end of the year. We survey 9 of them in a project a drop in the ftse by the end of the year. We know it is linked to sterling, but with so many uncertainties, have we reached the high in u. K. Stock . Dont think so, because it is a function of the Exchange Rate and that has acted as a positive dimension. You have to look for positive value. We moved into energy with the idea of being that you are already feeling bond out, so is the potential for snap back on positive news. Head of assete funds at legal and general. Vonnie more insight on what is next four oil prices from jeff curry. This is bloomberg. Mark welcome. In london, i am mark barton, counting you down to the european close. From new york, bloomberg World Headquarters, i am vonnie quinn. Opec world companies, agreeing and deal implementing are different things. Remindsas jeff currie us spirit he called an agreement probable, that the intended consequences less than certain. You would know toward the end of q2 of next year. In terms of the seasonality of even the russian production hits a plateau in januaryfebruary of next year. You would not know until aprilmay whether or not anyone will adhere to the agreements. Vonnie that is jeff currie. The Goldman Sachs global head of Commodities Research for oil. 50 in new york, 53 in london. A look at some of the biggest business stories in the news now. At 100 28yearold aluminum producer is splitting into two companies saying thirdquarter earnings trailed estimates. Business declined. Alcoa changed its legacy metal producing business from its value added hearts operation. The British Retail Consortium has joined leaders warning about a price hike in u. K. s doors is britain exits the eu without locking down a good deal. Think on the behalf of the entire resale industry it is important to maintain free trade. Vonnie he tells bloomberg there is still a lot of fluctuation from brexit and how it will impact operating costs. Retail has benefited from multicultural members benefited by the 28member bloc. Ahead, the pound sliding, the fourth day, questions being raised about the possibility of the u. K. Remaining in the same market after brexit. He will have the latest, next. This is bloomberg. Vonnie from bloomberg World Headquarters in new york, i am vonnie quinn. Mark i am mark barton, counting you down to the european close. Checking the chart to my right. 4 21 in london. The sterling falling for the against the dollar, revising longterm forecasts weather the u. K. Can negotiate a deal that lets it remain in the europes angle market. Europe Single Market nearly asked about that possibility. The u. K. Is a the u. K. Is a mee eu until the brexit negotiation has ended, not started. Also, with the idea that with the great bridge and outside the eu will remain a european country and we need to cooperate in a deep manner. That means if you consider the market, it has to be complaint. Complete. Mark joining us is bloomberg first word fx editor. Sterling falling against the dollar for the fourth consecutive day. Maybe since 1985, we have not sincehe pound this weak then. October 30, first question, using the power of the bloomberg, how love the sterling go . It is probably not the bottom. Crash on friday we have seen revisions as well as 1. 18. Mark 1. 05 is the line that i love. It is the low. The record low from the 1970s. Record modernday low. Is anyone even dreaming about parity, or is that too far for sterling to fall . To say itis willing will definitely reach parity, but it is coming onto the markets radar. In the Options Market we have seen possibility for parity within the pound and the dollar. When is the question. It is in the horizon at this point. Mark why is sterling falling when rate cutting expectations are receiving . You would not expect that to happen . As early as a month ago we have seen every time rate expectations received it is usually a positive. Crash and of the days leading up to the flash crash, we have expectations for when article 50 will be triggered. Increased the negativity of the pound. The reason expectations for the boe rate cuts are receding is because of the pounds decline and the impact on Monetary Policy. Mark why to be love this chart . The relationship with u. K. Rate markets throughout this year, you can see up to a couple of months ago we have seen yields and the pound moving in tandem, which is in line with what we have seen historically. Since the flash crash and the days leading up to the flash crash, we have seen the reverse and correlation between these two markets. Mark yesterday, when we were talking about the flash crash, decline. Iscussing a it is more akin to a frontier currency, not something you witness often. This highlights the similarities between sterling and emergingmarket currencies. Ristine thats right you see the correlation last week reached the highest since midseptember. That is significant as we have regarded the pound as a reserve currency. It still is a little bit of that, but because of the developments on the political front, when brexit will happen, that is receding a little bit. The perception of a reserve currency. It is starting to behave more like an emerging market currency. You for joining us. Bloombergs first word fx editor. Market fixed rate, heading to the close. Stocks falling for the fourth day in five. The ftse will not close above the record. Mark live from new york and london, youre watching the european close. Im mark barton with vonnie quinn. Four days of decline. Will raise Interest Rates in december. Dont listen to me. Our function. Thats the likelihood the markets are telling us of a fed rate hike in december. Lets get to some of the big moving news. This is german investor confidence. Improving more than economists anticipated in october. Its a sign the economy remains robust. Analyst expectations rose to 6. 2. Since june. Highest factory orders growing the most in five months. That was data. This is big data today. This is about south africa. This is the rand and these are the big banks in south africa. Falling against every single major currency in the world. Thats the most since the day after brexit. Its more than two standard deviations below its main after South African prosecutors said they will prosecute the finance minister for fraud. They have summoned him to appear in court on allegations he legally authorized early retirement and established an Investigative Unit when he headed the tax agency almost a decade ago. This matters because it could happen that Standard Poors cut its rating. Its at saying distraction. A negative outlook. It says it is focused on south africas economic and fiscal outcomes. Keep an eye on these assets in the next few days. This has to be one of the charts of the day. This tells us everything you need to know about the global bond market. Value of the negative yield bonds fell by 10 to 10. 7 trillion. The record in june was 12. 2 trillion. The total was 476 billion. Japan accounts for almost half the worlds total of negative bonds. 44 comes from western europe. 5 u. K. Accounts for percent. Without a doubt the chart of the day. That is partially why u. S. Treasuries are so attractive. And they are rising. 175 on the 10 year. The 30 year yield 2. 48 . That looks almost healthy when you consider how Much Negative yielding debt there is around the world. The yen is stronger. It was at 97. 2 before the jobs report. Lets take a look at broader u. S. Markets. 1 of the s p 500 and 1. 2 for the nasdaq. Abigail doolittle is in midtown manhattan. Abigail we are looking at a selloff for the nasdaq. More than reversing yesterdays gains. On the close yesterday was not ideal. The nasdaq had been on pace for an alltime record closing high for most of the day. Close it closed below that level. We have currency selling off. All of this as the 10 year yield is at levels last seen in the beginning of june. A big drag on the nasdaq today is health care. On pace for its worst day since september 9. The last time rates really hiked up and spooked investors. Biotech, lumina. Up a negativet preannouncement. They expect to make 605 million in revenue in the Third Quarter missing estimates by about 3 . It looks like its the companys genetic sequencing machine. We have been talking about biotech as a tell for the nasdaq overall. Big losses in the biotech index. Weekly basis the nasdaq biotech index had its worst selloff since the brexit. This has taken the index back below its moving average. We have shown it before. The point of showing it is the fact that we have this moving average that would suggest the sector is gaining momentum and yet the sector has dropped below it. We have biotech below that 50 day moving average. We could see a drop toward the bottom of the range which would suggest a 15 drop for biotech. It could suggest broader declines for the nasdaq ahead. Lets check in on the bloomberg first word news. Erik johnson is in our london newsroom. Officials in bermuda are warning people to prepare for hurricane conditions as Tropical Storm nicole intensifies. Passtorm is expected to over the islands early thursday. It has maximum sustained winds of 60 miles an hour in the cold is expected to strengthen into a hurricane by late today or early wednesday. Hillary clinton leaves donald trump in the latest National Election poll. 46 of theld receive vote and trump 41 in a twoway race for the presidency according to a political survey. Gary johnson at 10 and jill stein with 3 . Russia and china made jordan voices to minimize the threat posed by the u. S. Missile defense. Russian military Officials Say it would upset Nuclear Balance and a road global security. They dismissed claims by u. S. Officials that the system is needed to fend off threats from north korea and iran. And russia held military defense drills this year and plan more. Putin has indefinitely postponed a visit to france. Thats according to the kremlin. His decision followed a suggestion by the french president that moscow was guilty of war crimes in syria. Press said the reason for the cancellation was the events planned during the visit had changed. Global news 24 hours a day powered by more than 2600 journalists and analysts. Im erik johnson and this is bloomberg. Mark lets get back to the South African rand. Interest after s p summoned moments ago said the summons of finance minister isnt a huge surprise. There are concerns south africas negative outlook rating could be cut. Joining us now is head of emerging Europe Africa and middle east economics. Perfect timing to come on in light of those comments. Just to reiterate focus on south africas economic. The rating remains stable. Negative outlook. The summons is a distraction. Its not a huge surprise. Next month is the biggie. Could we here next month . Mediumtermeen budget statement on the 26th of october. Thats what they will use to base their decisions. Ofhave movies on the 25th november. I think if you ignore all the the positiveg on numbers look like a one off as some of the numbers move on. I think that will really highlight the lack of reformers in the budget. We were probably getting downgrades energy way. Anyway. I think they can go early but not on this. Be s p doesnt want to dragged into this daytoday commentary on whats going on. Intentionally there is a cycle of downgrades if they downgrade on him being removed. I think we have a quite tricky situation. Mark how does that affect sentiment towards south africa, its political system . The key problem for investors is they have been asleep on the watch. Turkey. Ar versus i think people have overlooked that there is very serious political war going on the needs the surface. It hasnt gone away. I think the wakeup call today to investors was to suddenly realized that all these assumptions the market has made about the finance minister is not relevant. Todaylearly the case from that those sorts of pressures are not coming to bear on them and they are more focused on the succession battle and the war going on in the anc. Vonnie what exactly is going on with the anc . Hard to know whether he actually wants him to stay or wants him to leave. Are they changing their minds every day about who should be leading the treasury . Big problem has been that zuma is trying to discuss the perfect narrative for how you can get access to national treasury. Only institution in south africa that is labeled in the constitution. It has amazing power overspending most obviously. Also wider policy. Municipal levels and state enterprises. I think the lesson he has youned from last year is construct a decent narrative that can be believed within the anc not focused on markets or the wider population. Thats why the move today is an important component of that. If we ignore the court case meant to take place in november, what could be the next catalyst . A key thing that has been grinding on has been the public protector. She is out of time in office. Her term in office ends saturday. She is conducting a report into state cap sure. The interim report could intentionally potentially be quite explosive. Prevent it being published that would be a huge event. The problems are quite slow moving. The next bigthe next big date ie mediumterm budget at the end of this month. Mark and within your space the u. S. Election. A lot of big geopolitical barriers to overcome and what has been a stellar six months or so for the emergingmarket assets based. Can it last . I think its going to become much more selective. What we like to see as we move in our lower volume of yields. Central banks along qe. Think investors will become much more picky around the markets they are choosing. Thate looking for stories can have proper growth moving forward. Africa i think will fail on that Structural Reforms story. You at all the politics on top. Thanks for joining us today. Up, how willg Rising Oil Prices impact russias Economic Policy gecko we will hear from Russias Central Bank governor. This is bloomberg. Mark live from london and new york, im mark barton with vonnie quinn. This is the european closed. Oil prices hovering around 15 month highs. That could lead to lower rates in russia according to the central bank of russia governor. She spoke exclusively with bloombergs narrow chain pitch who joins us now nejra cehic who joins us now. Last month what we saw with Russias Central Bank cut its rates from 10. 5 to 10 but add that it would keep rates unchanged for the rest of the year. One analyst referred to it as hawkish easing. It has been called a moderately tight policy. What russia has to balance is in its worst recession in two decades. It is also having to fight high inflation. What the central bank is doing is prioritizing centralbank credibility over Economic Growth which is why they are basically targeting that 4 inflation target by the end of 2017. Ask if there was any possibility of any rate cuts to come either this year or next year and she kept her cards close to her chest. She said there was a possibility that they might cut rates next year what its all data dependent. One thing she said could affect that policy is Higher Oil Prices. Take a listen. Is a Higher Oil Price it can lead to a stronger ruble. Through the Foreign Exchange that can cause a more rapid decline in inflation expectations. Then we can ease Monetary Policy much faster. About the prospect of fed tightening what does she have to say . I went into the channel of brexit by asking about sterling. One of the questions about russia is about how its diversifying its fx reserves. I asked her whether the precipitous fall in sterling in any way makes the pound less attractive for russia as a reserve. Heres what she said. We continue to see the pound sterling as one of the currencies for our assets. Unfortunately the range of reserve currencies isnt too wide and the returns on them are mostly low. Are there any impacts of brexit that concern you . The longterm consequences will be far more significant. A lot will depend on the terms under which brexit will be implemented. That could affect financial markets. Everyone is worried about the fallout and whether a repeat of another country wishing to exit the European Union is possible. That could have serious consequences. We continue to monitor the situation. Fedhat impact will a tightening cycle have on russias economy and are you prepared for it . There are two main channels for indirect influence. Becausets the oil price the main channel by which external factors influence our economy is still the price of crude. There are other factors of supply and demand. Thend is the volatility of financial markets. We see Market Participants are quite sensitive to all decisions made by the federal reserve. Optimistic because the fed prepares the markets for the decisions it lands to make. We dont expect such high volatility in financial markets. Notnteresting that shes expecting much volatility. When i asked her about what keeps her awake at night she was fairly sanguine about the u. S. Election. Fairly sanguine about some aspects of brexit as well. What she is most concerned about is how any of these things and china included feed into the oil price. Thats what matters most. It is interesting this comes on the day we have seen higher Oil President the back of Vladimir Putin saying russia is willing to join efforts by opec to stabilize the markets. Mark coming up, battle of the charts. Fed hike does the rates before a u. S. Election . A little History Lesson is coming next. This is bloomberg. Mark time for our global battle of the charts. You can access the charts on the bloomberg by running the function featured at the bottom of your screen. Kicking things off is dani burger. Take it away. Earnings seasons kicked off today with alcoa with a bit of a disappointment. Analysts expect this is going to be another declining earnings season. Im going to show you how investors are playing this through an etf called a smart data. It attracts certain features of certain stocks. This is a quality etf. Companiesy it tracks that have the strongest of flow steady balance sheet. Look what happens. We have a spike in july heading into another earnings recession. This has been 18 months of this recession. Get those safe earnings from those companies. Its happening again which might be a bit of a bearish sign. Here is 350ight million over the past seven days straight of inflows. Hass the most of this etf ever had in its creation since 2013. Mark what a topical chart. Can you beat it . Thought i would give you something educational. Its really fascinating. Of collections in the United States and what Interest Rates have done and what the fed has done. In the last 30 or 40 years there have only been to election years where the fed has neither raised nor cut rates. Int was the election back 1992, bill clintons first term coming into office. And 2012. Have raised rates once this year. Look at these lines. I thought this was fascinating as well. These three election years the fed both hiked and cut. You can see that chart in the bloomberg library. Vonnie had her teaching have to on today. As a man who loves to be educated, she gets the tip of the hat. Vonnie i finally worked you out. Its all about appealing to the judges vanity. Take a look at where european markets ended today. This is bloomberg. Vonnie its noon in new york. Im vonnie quinn. David im david gura. Welcome to bloomberg markets. David we are covering stories from washington to johannesburg to tel aviv. Hedge fund legend reiterates he did nothing wrong after being charged for insider trading. He says the case has damaged his firm. Were a public company, trump probably would be ousted as its ceo after his recent comments about women. And the dollar rising to its strongest level in 11 weeks as investors wager that the fed will boost rates this year. We are halfway through the trading day. We will go to julie hyman for an update. Julie we have seen pressure from medical companies and tech. All of that equaling a down market today
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