Done to rescue the worlds oldest bank. Caroline caution ahead of the market open. Futures signaling a down day. Caution about the north korean missile, caution about Monetary Policy. Is the party over . We are down 0. 2 on the euro stoxx 50. Guy lets figure out what is happening. Daybreak is pretty good. This is what we are looking at around the world. The dollar is down. Theres a bunch of things going on. We need to figure out what it means. Are Central Banks outside the fed beginning to run out of bullets . Theres a really interesting fed note that has been highlighted. Then youve got the speech monday, plus draghi, plus the japanese as well. It really feels as if we could be at an inflection point. The euro is trading at 1. 1277. The japanese yen reacting to what happened in north korea overnight. Lets get the bloomberg first word news. Heres christine harvey. Christine thank you, guys. Be a lotte gasquet ceo has agreed to step down. He leads the bank in the midst of a plan to bolster the Balance Sheet and attract new investors. He will stay in the position until the company can find a successor. Chinas factory gauge deflation erased eight straight months in august. Consumer prices rose the least in almost a year, climbing just 1. 3 , trailing estimates for a 1. 7 increase. Jeffrey gundlach says it is time for fixed income investors to prepare for Rising Interest Rates and higher inflation. Recommend they reduce the duration of their positions, move money into cash, and protect money from volatility. Gundlach says that while rates may not rise in the near term, he thinks now is the beginning of something and people are supposed to be defensive. North korea has confirmed that it conducted its fifth nuclear test. 68thxplosion comes on the anniversary of the nations founding. South koreas president has strongly condemned the latest provocation from kim jonguns regime and warns its action will lead to its selfdestruction. Global news 24 hours a day i would more than 2600 journalists in more than 120 countries. Guy thanks very much indeed. Lets stay in asia. Lets talk about the reaction to that north korea detonation. Shery ahn standing by. Definitely risk off sentiment across the board. The nikkei just closed, losing all earlier gains. The yen stronger now. On top of that, north korea news, the fifth nuclear test, the kospi down 1. 3 . Risk off sentiment across the board. Although north Koreas Nuclear test does make headlines every time, we are seeing that investors have factored in largely the north korea risk. What were seeing now is that the rate decision, when they , weally left the key rate saw some change in the kospi there at around 9 00. Then we saw the headlines coming out of north korea. Not a lot of movement. 12 30, north korea just confirming they carried out that nuclear test. The south korean finance minister saying that if there is bigger move on the markets, south korea would act. Markets rightity now are relatively stable. Analysts agreeing that the negative impact from north korea will not last that long. Is big story out of asia chinese stocks. Were seeing the hang seng index soaring. Mainland cash is flooding the hong kong exchange. We are hearing from authorities that they are allowing chinese insurers to buy into hong kong stocks through the shanghai link. Were seeing that buying through that shanghai connect at more than 700 and dollars every day. 700 million every day. We are seeing hong kong gain overall. Ill pick up from here. Thank you very much indeed. That is the risk sentiment at the moment. Lets check in on the big action yesterday. Mario draghi says officials will study options to ensure the Quantitative Easing Program doesnt run out of hans to buy as he played down the need to commit to new stimulus for now. Taskedgoverning council the relevant committees to to ensure a options smooth implementation of our purchase program. The risk to the euro area Growth Outlook remains still to the downside. This assessment is probably reflected in the september 2016 ecb staff macroeconomic projections for the euro area which foresee annual real gdp 1. 6 asing my 1. 7 in 2016, in 2017, and 1. 6 in 2018. We discussed the assessments of the economy. We didnt discuss anything else. Changestime being, the are not substantial as to to act. A decision the committees have full mandate. They will look at all the options that might be used to redesign the program. Guy joining us now to talk about what mario draghi said yesterday is hsbcs head of Asset Allocation. Good morning. Nice to see you. Im going to quote a note that a couple economist put out. It is a note that came out from karen ward, talking about the fact that sequence really encapsulated it the ecb is not going to hit its mandate as far as the eye can see, yet it is failing to act. Is thaty say increasingly, the credibility of the ecb is going to be called into question. I couldnt agree more. Hes also suggesting that modern transmission mechanism has never worked better. I can see his point of view in that, but i cant agree with him. Then we would both be wrong. This is an environment in which not just the ecb, but pretty much all the Central Banks are facing a massive credibility issue. Tweak inat they can , at least theal minimum amount of time to do a qe program, because at the end of the day, when we are looking at this and keep underperforming on inflation, and if that is their target, i would suggest they have to act. But were also in a point in time that they dont have enough room to do that or Political Capital to do that. It is from your point of view the fact that they dont have the ammunition rather than keeping powder dry for later in the year . To some extent, i would also try to maintain a little bit of dry powder as it were. But i think this is a longerterm credibility issue. I think the credibility of not just the ecb, but also the fed, being severely questioned now even amongst members of the fomc. Day, i no end of the longer believe that we have the ability to offset any significant statistical weakness or market volatility through the use of Monetary Policy by itself. This will have to get into fiscal policy. Drivenket is still being by Monetary Policy, which i would suggest simply hasnt really worked. If low Interest Rates and qe are so growth generative, where is all the growth . Guy that is a point made in the telegraph, we should have an economy that is roaring. Policy,prices, monetary we should be off the races, but we are not. Hes talking about fiscal policy. They wrote a piece about the fed, talking about a note from the fed that was written, talking about the fact that the fed is going to be out of ammunition. That down cycle could be coming sooner than we think. We also got Jeffrey Gundlach pointing to the fact that inflation is beginning to pick up. This chart here, inflation back on the radar. This is beginning to take up. Weve seen that coming through. Then youve got this speech on monday which everybody seems to be excited about. Shes a massive dove. Shes scheduled a speech just before the dark period and theres a hand that maybe shes going to point us toward september. Other Central Banks have run out of policy ammunition in this cycle. Where is it now . Fredrik our official view is they are not going to act until mid part of next year. There is still not sufficient amount of impulses, positive impulse in the u. S. Economy, to warrant a rate hike now. Odd tothink it would beod do that so close to the u. S. Election. On top of that, i would suggest that our leading indicators, theyve been arguing that for a while now the cyclical outlook is pretty weak globally. Continuing to hike into an environment which looks weaker, i would suggest would be a policy error. All that being said, i think theres a market risk that you get the perception that the fed is behind the curve, especially if the inflation number starts to pick up, then you see rate hike expectations coming through. Guy ok. Nerbrand,fredrik stick with us. We will be digging into all your Asset Allocation calls. We got another great conversation coming up. Is the british pound going to be helping or hindering those splashing the cash at the pub . J. D. Weatherspoons talking prices versus your and my desire to get drinking. This is bloomberg. Guy welcome back. You are watching on the move. Earnings for j. D. Weatherspoon Beat Estimates with fullyear 0. 6 millionit at 8 pounds. Founder tim martin joins us now. Congratulations on the numbers. What changed to make you more positive . A very good question. Im worried about what is going right. It is always difficult to say. Pubs have their own rhythms. To like sales have been generally positive. It has been a nice summer. It has been good weather. Britain did very well in the olympics and most people are happy with the referendum results. The Football Team got knocked out by iceland, but we knew that was going to happen in advance. , theis my reading feelgood factor. Caroline explained to me this. Your readings, slightly improved trading to come. Reduction in consumer confidence. They are worried about the tougher trading environment to come. Why so different a picture . Tim it is always difficult to say. Im tempted to say we are a Better Company than greinke. But i know that wouldnt go down very well. There are differences. Green tea have just bought a very big company. They are taking over other companies. I think the inflammation coming out of the trade generally in the last couple months is that people have been going out for a pint, going out for a meal, so it has not been dan. I think greene king are doing ,lightly worse than average which they will recover from. How far forward do you buy wine and when do you expect to see the effect of the cheaper pound impacting that cost . How far forward do you buy by forwardk that we a few years, although there are certain clauses that allow suppliers in some cases to increase prices if the currency moves the wrong way. Im very optimistic about line in particular. We by most of our wine from the new world, south america, south africa, australia, new zealand. We sell more of this than any other company in the u. K. When we leave the eu, the tariffs that we pay on noneu wine will be eliminated, we hope. So the price of wine will go down. A bit of a plus from the referendum result for wine drinkers. Caroline weve got to remind our viewers, you are a great proponent of brexit. I urge our viewers to read your statement. It is fascinating. One of the ones that made me laugh, boris johnson, david davis, will achieve far more for the u. K. By copying france and playing bowls in plymouth rather than hankering after any you agreement. You want to say goodbye to some of the taxes online. How can you get that without an agreement with the eu . In order to strike a deal with someone, every businessperson knows, every house buyer knows, there has to be a willing person on the other side, a willing counterparty. If you go into negotiations desperate to do a deal and think your Economic Future depends on those negotiations, youve got a very weak negotiating position. We havent got a trade deal with the united states. We havent got one with china, with india. States,arly the united an enormous trading partner. Rules. Trade under wto if the eu wants to do a deal, we are all years. If they dont, it is up to them. Guy a lot has been made of the data over the last few weeks, certainly pointing to the absence of armageddon when it comes to the economy. Early,ou say it is too even in your optimistic view, too early to say what the effect is going to be . Prognosis frome the imf, the oecd and so on, was around the Immediate Impact of a brexit vote. That has been proven to be untrue. Looking further into the future, it is difficult to be precise. What we do know is that the key element which economists generally just dont get is that democracy is what creates economic success. Look at japan after 50 years ago. It rose from the ashes. South korea versus north. West germany versus east. North america versus south. If we get more democracy, which we will get if we or when we leave the eu, it will improve our economic performance. Being more dissect of than that is being more difficult. Generally, already weve seen the gloomy prognosis has been wrong and i think we will continue to do well. This is a point that you made in your statement, saying those economists should go and stick it in their pipe and smoke it. Great to speak to you. Thank you very much indeed for joining us. Guy, we are minutes away from the open. Up next, looking at potential corporate movers. J. D. Weatherspoons called up about 0. 2 . The focus is on the worlds oldest bank as well. More next. Caroline a beautiful 8 54 here in berlin. Another scorcher lined up, but not so scorching on the futures. Futures acrosstheboard a little lackluster. The ecb restrained from adding more stimulus. Lets look at the banking sector. In italy, keep your eye on monte dei paschi. The oldest bank in the world looks as though they are getting a new ceo. Farewell to the eula. Hes going to be helping steady the ship onto a new leader is found. The treasury officials are saying, situation is under control. That stock could rise about 2 . Unicredit could fall about 1 . Reports that unicredit is potentially eyeing up may be a Capital Increase to the tune of 10 billion euros. Weatherspoons, weve been talking to the boss of that business. Hsbcs head of Asset Allocation is with us. Overweight or underweight stocks at the moment . Fredrik underweight. Earnings story, we are still sitting with earnings estimates from 10. I would argue that is significantly lower. All the arguments that lower Interest Rates drive the net present value of stocks higher i would suggest is faulty or very simplistic. We are looking at environment which looks much more of a little. Much more volatile. We have greater independence on emerging markets, all of which leads to higher economic volatility, which drives risk premiums higher. Guy stay with us. The market open is next. This is bloomberg. Guy good morning and welcome. You are watching on the move. Im guy johnson and i am alongside caroline hyde, who is in berlin. Caroline has your morning brief. Caroline the yen jumps as south korean stocks sink. North korea detonated a nuclear device, sending tremors across the region. Is draghi done . Central banks look like they are out of bullets. Ousted ceo of the monte dei paschi doomed from the start . What can be done to rescue the worlds oldest bank . Guy we are likely to see a negative start to the session, but there is a lot going on in terms of the central banking session. Yesterday, with old off by a little bit. Lets show you how we think these european markets are going to be opening. Here we go. The ftse is probably where we get the first action, just really flatlining. Perhaps a little bit of a negative tendency coming through. But we are absolutely flat. We might go up a little bit here. The cac also, looks like it is opening a little bit softer as well. We are waiting for the dax to come through. What are we seeing in terms of the other assets . This is the stoxx 600 broken down by nations. Portugal and norway, just flirting with the flatline. Denmark, ireland, and spain, the losers. How is the gilt market doing . Caroline we were between 75 and 76 basis points on the 10 year yield. We are up one basis point at the open. Yesterday, we saw yields across the sector in europe head higher after mario draghi somewhat disappointed the markets, not by the fact that he did not do anything, but because he did not even discuss expanding qe. Lets take a look at how the stoxx 600 is doing on the imap. We can dig a little bit deeper on these Industry Groups. Pretty much red across the board. You have Health Care Stocks leading the losses, down. 5 . Materials are following closely behind, down almost. 4 . On the upside, utilities are the greenne edging into the with most of the other Industry Groups heading lower. I want to start with a couple of u. K. Stocks in the beer and pub sector. We got numbers from weatherspoon earlier and basically, four year revenue came in at 1. 6 billion pounds. The estimate was them to 2. 7 million pounds. The estimate was 72. 7 million pounds. Comments on brexit that i could find, though we were looking out for those. The final dividend is coming in he bank is moving quite quickly to assemble their Capital Raising scheme. They have made a couple of disposals already. It is no secret. It is wellknown that he is moving quite quickly. Whether or not they will get to 10 billion remains to be seen. Pioneer, you know, they came with to wrapping of a deal santander, then they decided to end that at the end of the summer. What interesting now is whether or not they do move ahead with a full blown sale, rather than doing some type of joint venture with another partner. Guy thank you, always a pleasure. Dan liefgreen, joining us. View that the banks need a steep curve . Over the last feet days, we have seen little instances where stocks have just gone straight up. In terms of looking at what Corporate Management would like guy when i say hsbc, i mean from an investment point of view. From an investment point of view, yes, a steeper yield curve would help. But having said that, i cannot put together a macro case why that is going to be the case, really. Be could bit engineered . It could be engineered, in the way the fed is always talking about the fact that we need a higher level of inflation coming through for nominal growth rates to recover. That is the only way. Fiscalwith th packages coming through, perhaps helicopter routes, in those circumstances, yes. The other argument for a much steeper yield curve would be an area of protectionism, which would drive down competitiveness and drive up inflation rates. Given some of the political stories we are seeing, that becomes an increasing risk, as far as i am concerned. That ultimately, is a risk. Caroline we could be getting there, in terms of these deepening of the yield curve. We saw it in the german reaction yester