Legislation. Matt and mickey under the microscope. Disneys 52 billion from fox. The president of the United States has already called to congratulate Rupert Murdoch. The fcc rolls back net moving themoves, power to broadband companies. Good morning and welcome to bloomberg daybreak europe from the city of london. We have breaking news from airbus. Airbus sees no further mandate beyond april of 2019 and the coo is going to step down in february of next year. In just three months time, big changes at the top of airbus. We will continue to cover this story for you throughout the day. Once again, tom enders is going to step down after his mandate ends in april of 2019 and Fabrice Bregier will leave at the beginning of next year. A lot going on on this friday and you are going to want to watch treasuries as the tax reform debate continues. Manus told you, once a larger child tax credit. Donald trump says he is sure rubio will vote for the legislation. Treasury yields up by one basis point. Brent crude is one you will want to watch as well, bouncing around between gains and losses, but still relatively high levels, considering u. S. Output is at a 30 year high. Can opec continue to hold those levels . Now, 733. Up right the interesting issue is, you can now use bitcoin as collateral for loans on the one hand. On the other hand, it costs a lot to short the currency. One Trading Platform is asking for a margin of 240 . Manus its going to be interesting to see who can divvy it up. Speaking of dividends, where do you want to put your money . Have a look at this. We tetherednt are by tax . The dividend yield, this is what you have got. A warning sign in the market. You have got the dividend yield, the white line. The s p dividend yield has dropped below treasuries for the First Time Since 2011. Is that sign about where you want to put your money . The blue line, the european markets, in positive territory, 2. 7 . The japanese market delivers 1. 7 . This is a sign perhaps that we are in midfair property. If you dont get a return, its better than treasuries. What are you going to do . Rbs stretch valuations . That is the mood in the market, 6109. They will talk about the treasury bonds, the bunds, and dee bank of portugal upgra from the ratings agency. Anna absolutely. I was just going to say you took the words out of my mouth. We will go to the head of Global Research at hsbc. He says the tax story is crucial for anybody watching the yield curve and u. S. Rates. Janet yellen did not seem all that impressed about the extent to which the tax change would boost the u. S. Economy. What does that do to inversion and the yield curve. At the bloomberg first word news. Juliette thanks. In japan, a new venture on the Central Banks board calling for more stimulus has prompted the. Oj for flag risks the change in messaging could explain why some investors wrongly interpreted kurodas comments on the reversal rate theory as a hint aof a policy exit. Japans companies are more confident than they have been in years as the Global Economic expansion boosted sentiment, both large and small. According to the quarterly survey, sentiment in large manufacturers rose to the highest level since 2006. President donald trump has said he is very short marco will vote to pass tax legislation next week. Het is despite the fact that says he will oppose it in less there are changes to the child credit, rising from 1100. Mexicos central bank has raised its benchmark Interest Rate for the First Time Since june in a split decision that some economists saw as a signal that more rate hikes are in the car ds for next year. The first decision as governor lifted borrowing costs 25 basis points to 7. 25 . The vote was split, 31. The u. S. Federal Communications Commission has barred broadband providers from favoring the allowingtraffic from websites to pay for better service. Over objections from the democrats, the fcc gave up authority over broadband providers, adding enforcement to other agencies. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. You can find more stories on the bloomberg at top. Lets have another look at how japan is closing of the session because what a wild ride the nikkei has been on today, finishing lower by 0. 6 . It has been in negative territory for most of the session, mainly on movement coming through from the yen, but also weakness from the telcos and banks. The hang seng, down by 1. 2 . We saw a little bit of buying coming through on the coskospi today. This as exit polls suggest indias ruling party retains crucial states. So, lets have a look at some of the stocks in detail. Kong, 1in hong billion in a replacement. Li and fung in hong kong, looking very good. It sold 1. 1 billion of assets. En coming under increasing pressure as analysts question the decision to get into the telco market. Now, to brussels, of course, where the eu leaders are expected to formally give that green light on the brexit talks to move to the next age. That as theresa may is seen as having complied with the conditions were starting negotiations over future trade. Speaking with reporters at the end of the summit thursday, chancellor merkel said there are still questions to be answered. Chancellor merkel we have dealt with the brexit question. We made it clear we made good offers to theresa may, which may suggests tomorrow we will see significant progress, but there are still many tasks to solve. We will talk about this tomorrow. Manus anna is in brussels. Matt is in london. Im in dubai. Whats the latest here . So, what is it . Some huge piece of theatre. You said, it is not going to be anything as dramatic as that. Anna we will see, but that is the order of business. There will be discussion as to whether the u. K. Has to enough to move the conversation on to trade. It looks as if enough has been done and that decision will be made, but as you said, Angela Merkel was being a little cautious with her language, suggesting there is still something to be discussed today. But there is the expectation that we will get that move. Was heret theresa may at dinner. She got a round of applause in the room as she spoke. She calls once again for ambition and creativity on the brexit side of things. This is where things get tougher, growth for the u. K. And eu. Yesterday, saying this be the tough part of the conversation and within the eu, we understand some diplomats briefing bloomberg that aviation, plans and services, goods and services, a host of areas, they are not on the same page. There is a lot to talk about during the next phase of the brexit negotiations. Matt of course, brexit is key for the u. K. , but the other 27 nations have a lot to talk about. Migration is my the big issues, especially when you look at Angela Merkel. There are reforms that macron wants to push through. Are the united or divided on those issues . Anna very divided. We spoke to the eu president about the reforms in the eurozone. He says the divide there is northsouth and when it comes to migration, the divide is eastwest. He was very candid about that. We are not expecting any solution on either of these. On migration, some of the language has been quite strong. Poland, hungary and chef of the locket, they all want tougher language on immigration. They are also falling out with each other. Appearance that they could agree on brexit today, there are plenty of other things they are not on the same page about. Matt i want to talk right now with someone who knows a little bit about the markets and the economy, how those things connect. Joining us is mike bell, Global Market strategist at jp morgan. Lets first talk about what is going on in europe, not only because of what is happening in brussels, but we also have the ecb in frankfurt doing a little bit of a victory lap. The economy seems to be plugging along quite well. How much does what is happening in brussels, brexit disagreements, or disagreements uroarea reforms concern you. Mike there are forecasts that we will see unemployment fall next year. So, significant further improvement. And you have got Consumer Confidence that authority near record highs. Its quite possible the eurozone confidence hits record highs next year. The brexit negotiation, i dont think they are a major risk in the near term for the eu. The key thing for the u. K. Now is that we get this transitional deal done. And then there is complexity about the final arrangement after that. The right now we have to focus on the transitional deal and that will hopefully provide some certainty for markets, at least over the coming year or two. Manus michael, of course, the one thing everyone is talking about is that it could be a canadianstyole deal, that we have some of the details on what deal wouldstyle be. What is the most acceptable benchmark to reinvigorate assets. 98 of tariffs disappear. Onhas got various impact beef, poultry, pork. Banks would those passporting rights. Is canada the lowest litmus test for you. Mike i mean, the canada benchmark is not enough for the u. K. We need a deal that is good for Financial Services and the canada option does not provide that. Obviously, the u. K. Once a canada plus, plus, plus, but that is asking an awful lot, unless we are willing to give in. I think for me it still comes down to the fundamental point, that the u. K. Will have to choose between whether it wants to control freedom of movement, or whether it wants to continue free trade of Financial Services. That point has not been faced up to yet. Anna good morning, mike. What is your expectation as to how the bank of england response . We heard from them yesterday regarding the brexit progress. There does seem to be a suggestion that that will help world. Markets are pricing in late 2018 for a hike, but some analysts saying we are in a holding pattern. What is your thinking . Mike if it was me, i would want to see Consumer Confidence picking up. If inflation is peaking, and it will start to come down over the next year, that could provide a little bit of a boost to Consumer Confidence as real wages pick up. I also want to see transitional deal agreed and that i would want to see just progress to the u. K. Economy in terms of wage growth picking up. You need further progress on which growth to get another rate rise. One of those things could come into play by the middle of next year, in which case another rate rise would be justified. Otherwise, i would hold on and not raise rates until you have those three things in place. Stay with us. Ou what have we got for you . This is coming up. The ecb says it will miss the 2 target in 2020. And a fox in the house of mice. Ofney buys 52 billion worth murdock assets. We hear from bob iger. This is bloomberg. Matt good morning, it is 6 19 in london. You are looking at the msci inex, down 0. 5 to 170. 22, case you are following that closely. Lets get the Bloomberg Business flash with juliette saly. Juliette thanks. Airbus has confirmed it is preparing for a complete overhaul of the top management. Tom enders plans to step down when his term ends in april of 2019, while coo Fabrice Bregier is set to leave in february of next year. The announcement comes as the european playmakers grapple with corruption allegations. Have submitted prillaman are he bids submitted preliminary bids. According to people with theyedge of the matter, also participated in the first round of offers. They declined to comment, but did nottatives immediately respond for comment. Walt disneys deal to purchase 21st century fox will need approval from u. S. Antitrust officials. The acquisition would make disney the number one studio owner with more than 1 3 of the market and given control over the fox cable channel. It would put the Sports Networks for fox under the same roof as epsn. Get a lotk this will of scrutiny from regulatory authorities worldwide. It will take some time. We think the proposition here is very proconsumer. Juliette Steinhoff International chairman is stepping down from the Supervisory Board after an accounting scandal. The board accepted his resignation to resolve questions of conflict of interest. A member of the board and the independence of committee will take the role of acting chairman. Twitter jumped to its highest in october of last year amid speculation of a deal following disneys move for fox. Shares rose after Goldman Sachs ceo. Disney had export the sachsility, while goldman was in those discussions. That is your Bloomberg Business flash. You thank the ecb has unveiled forecasts that should continued euro area growth. But it season place and averaging 1. 7 in 2020, short of the 2 target. The central bank said draghi said stimulus was still needed to prop up prices. Price pressures remain muted overall and have yet to show convincing signs of sustained upward trend. An ample degree of monetary stimulus therefore, remains necessary for underlying inflation pressures to continue to build up and support inflation developments over the mediumterm. Anna mike bell, Global Market strategist, is still with us. What does this tell us about inflation targeting if the ecb says it will hit 1. 7 by 2020, but at the same time it is talking about reducing the acid buying and rolling back qe . Mike i think those measures were put in place at a time when there were deflationr risks. Draghi is quite aware that the deflation risk has disappeared. They are still talking about keeping rates on hold for the foreseeable future. It looks unlikely that rates will actually rise next year, but it will still be a positive Monetary Policy backdrop and that is good news for european risk assets, where you have got very strong growth we think that will be the case. We will see very healthy growth in europe next year and still accommodative of Monetary Policy. That is good backdrop for equities. Manus on the equity backdrop, upgrade as a great well. That portugal is where i want to focus. There is a potential rerating later on the same evening. You could compress the spreads further, couldnt it . Mike yeah, i think it is possible and i think generally, the healthy growth backdrop in europe is going to be supportive for spreads in the eurozone, relative to bunds. I think everywhere you are likely to see the dynamics of stronger growth and the reduction of the ecb qe lead to some upward pressure on bond yields. Matt how much reduction and how quickly do you expect the ecb to do that . They obviously have extended until september of next year, but they have given themselves an out if the economy continues to grow quickly. Mike they will keep going through september and then whether or not they have a stop in october or extended for a few more months is hard to tell. It does not really matter that much. The point is, the pace is slowing. If you look at it bining with boj purchases it is the middle of next year it becomes an issue. Matt it sounds like manus [laughter] anna i will. Lets talk about the best way to play that growth story, mikek. When you are talking about where to put your money in european equities, it is all about the domestic groswth story. If so, where do you aim for . Mike as growth remains pretty healthy, that puts upward pressure on bond yields in europe, core bond yields. There is a very tight correlation way higher bond yield is good news for the financial stocks. Theres one area that could benefit next year. Matt that moment of somethingon was arriving behind me. It is live tv. Great things happen. Its 25 degrees, the weather check in singapore. I am off to the beach after this show. This is a we have got planned for you in the next 45 minutes. Coming up, we have the words of mr. President trump. He says he is sure marco rubio will back the tax bill, despite the Florida Republicans threat to oppose it. Were going to talk about tax, u. S. Equity stretching valuations, flattening yield curves, where you want to be positioned in 2018. Callu believe the pimco that it is all about the tax . We answer the questions. Matt good morning, it is 6 30 in london, 3 30 in the afternoon in tokyo. Looking at the u. S. Dollarjapanese yen, down almost 0. 2 . Lets talk about the u. S. Gop congressional leaders are racing against the clock to finalize their tax overhaul. Yesterday marco rubio would oppose tax legislation unless they agreed to a larger child tax credit, the President Trump says he is very short rubio will vote to pass the bill next week. Uncertainty around taxes is weihginghing on asian equities overnight and the u. S. Dollar this morning, affecting the treasuries market as well. Globally, it affects markets. Mike bell is a Global Market strategist. Hes still with us. How do you view this . This isnt exactly a reagan tax reform. Even janet yellen and the fed said this would maybe have a small effect on growth during a short time period next year. Why is it so important to all markets . Mike i think the key question is what is already priced in. Our best estimates only about 5 of the rally that has taken place since october of 2016 has been down to tax expectations. So, if nothing happens at all, then theres a 5 downside for stock markets, which is not the end of the world. If they get the tax cuts through, we think that will boost 2018 end of year estimates by 8 . We have had a 5 rally already. Matt so, it is a low metric. The upside is a little better than the downside. Mike potentially. If earnings are of good, then markets will be up somewhere around 8 . Becausentracts slightly we have already had some of that rally priced in, then perhaps the only get a 3 to 5 rally. In terms of growth, you are right, the impact of the growth will be much less than it is on earnings. We forecasted about a 3 boost to gdp growth as opposed to what it would have been. Manus take a look at this, 61 09, the chart i started the show with, the dividend yield versus the treasury. This is the dividend yield below the u. S. Treasury, the white line at the bottom. This is the first time we have seen is going negative since 2011. You get so much more bang for 1. 7 . En, what does this chart say to you . Does it flag up a risk of valuation distortion . Mike i am not sure that dividend yields are the right measure for the u. S. So much is coming through share buybacks. So, if you want to look at the Free Cash Flow yield, the u. S. Market looks more attractive on that measure relative to some other markets. Actually, with Global Growth remaining quite strong next year, you want to have overweight u. S. Equities. Matt if i am an Income Investor in the u. S. , i will be concerned about income, wont i . Mike obviously, if you are looking at it from an incomes perspective, then that does affect you and there are greater opportunities elsewhere in the world on a dividend yield basis. Reasonablell get a dividend yield if you look at other areas. I think looking at the valuation story is important when you look at it on a multiyear view. We take the view tah hat valuations in the expensive right now. So, materially lower. Valuations have historically been pretty usless in terms of telling you when the next Inflection Point will come. Outlook actually looks good. Anna do you look at the state of the yield curve as well, when you are trying to figure out when the next recession comes in . It is flattening. It has been flattening. Some are concerned about it. Some say, rates are so low that it is different this time. The yield curve is not giving the same signal, if it ever gave a clear signal in the past. Mike a couple of important things here. Firstly, the yield curve flattening has never been a sell signal. When the yield curve inverted it was a sell signal. It is not a risk in the nearterm, but it could become one. You have this complication of will the yield curve flatten . Historically, it flattened as the historical output closed. With quantitative tightening this time around, it is less certain you have the same degree of yield curve flattening because of the removal of Central Bank Stimulus in the form of qe we have had. But then you add, what is the yield curve does still invert . Is that still a sell signal, warning of an upcoming recession . Ecb is still producing, holding down the yield curve. , i would arguend that actually, there is a transmission mechanism whereby the yield curve inverting means that banks want to lend less because it is less profitable for them in the mediumterm when the yield curve is inverted. I think that is transfer to tighter lending standards. Matt we have done some research. The mliv team has done some research, showing equity rallies still go a year to 18 months after the yield curve inverts. Maybe stock buyers would want to hold off a little bit before selling. Obviously. It varied, its worth watching because of that transmission channel through the credit market. I think thats important as well. Banks reduce their desire to lend because of the yield curve inverting. That causes some companies that would have otherwise have been funding themselves to issue in highyield markets. That is what we could see over the coming year or two with credit spreads widening out, but equity still doing ok. And eventually, it feeds through to the equity market, but i think we are at least a year away from that. Anna and you start to look for Equity Opportunities inside the United States. People have been talking about how expensive tech stocks are. We have seen changes in Net Neutrality overnight. Where are you looking . Mike i think you need to be selective on tech. That is not to say there are no opportunities in tech. On the other hand, you can buy a basket of tech stocks for less, which has Earnings Growth about double the market expectation. I think the opportunities are intact, but you need to be selective. One area which stands out as providing a Good Opportunity still is financials. You look at how the market is pricing the two year yield at the moment and that is pretty low compared with our expectations of what will happen to fed rates next year. I think that will be beneficial to stocks. It benefits jay powells view that banks are regulated enough already. Banks are in a good position where higher Interest Rates and less regulation coming through also, when you look at it from the tax perspective, the banks are one of the key beneficiaries of corporate taxes. I think financial stocks stand out. Up on that, cking the pieces we saw from the president yesterday, cutting the regulation on the regulation piles. Cutting the ribbon on the regulation piles. Weve run the numbers, and he has cut nowhere near the number he has suggested in terms of regulation. But looking at growth, this is the growth index. Up 36 . We are still less than the average of 44 , in terms of 1995 through to today. If you believe in tax, dere gulation, repatriation of dollars, and even a portion of that gets spent on capex, how much of that would you want to put into growth . Mike i think that is a very difficult question to answer. If you look at it, you would expect normally in a rising yield environment tax cuts come through, putting upward pressure on the 10 year field. There has been a correlation where rising 10 year yields are good news for stocks at the expense of Growth Stocks. In the late cycle phase of the equity market, you did not see the momentum trade of Growth Stocks doing well. I would rather look at it from a value growth perspective. I would look at it in terms of stocks which benefit from higher yields, things like financials, at the expense of stocks that do not do so well in a highyield environment. Mike. Thank you, good to see you. Mike bell, Global Market strategist from jpmorgan. Coming up, lets move on right now to something that is in the media world. Disney has agreed to purchase fox assets in a 52 billion deal. It splits of the global empire that Rupert Murdoch has built over three decades. Bloomberg spoke to bob iger and asked him what he is most excited about. Bob we are excited about a number of things. I have talked about the content and we have talked about offering it in more exciting ways. This allows us a more global footprint. 21st century fox has done an amazing job of growing the International Businesses with an ownership of its peiciece of sk, the ownership of star in india and so, this gives us far greater International Reach than we ever have before and an ability to reach consumers directly. The other thing that is compelling about this combination is the talent that comes with it, not just the creative talent that fox has been in business with and will continue to be, but management talent as well. We looked very carefully at the talent of their company and we know them well. We have competed with them over the years and we are looking forward to them becoming colleagues. Reporter he will be inheriting a lot of talent. When we talk about synergy and cost savings, that means job cuts. Is this latent for job cuts again . Bob there are synergies. We will take a look at the overlap between businesses that are similar and look for efficiencies there, but the synergies and efficiencies will come from multiple directions. Ultimately, we believe we will create a lot of opportunities for the number of people within the fox organization, opportunities beyond the opportunities they have had today. We look forward to planning the integration of both companies and getting to work to grow the company that will exist for the shareholders to create longterm value. Reporter with the longterm value, what can you extract out of sky news. What do you want to do with the asset, bob . Have you spend much time thinking about that . Bob sure we have. 21st century fox will continue to pursue its acquisition of all of sky. Were hopeful they will be successful in doing so. Sky is just an amazing platform. Not only does it provide consumers with a great Consumer Experience in terms of access to programming, but it creates a lot of great programming, from sports to news to all forms of entertainment. Weve distributed a lot of our programming on sky. We are impressed with their user interface, their ability to attract and retain customers, the Value Proposition to their consumers and that obviously, is ar real crown jewel in the assets of 21st century fox. We looking forward to the opportunity to have sky be part of our company. Manus bob iger, speaking to jonathan ferro. Hes the man on top of disney. If you are traveling to work, it is always a hard one. But if you are, tune in to bloomberg radio, live on digital radio. Coming up, this is what we have planned. We will talk about make or break for south africa. The nation stands at a crossroads this week and as the anc chooses its successor to president jacob zuma. Were live in south africa. Matt good morning, 6 47 in the city of london. In new york city, the Empire State Building lit up blue and white for hanukkah. Lets go to the Bloomberg Business flash. Juliette airbus has confirmed it is preparing for a complete overhaul of its top management. Ceo commenters plans to step down when his term ends in april of 2019, while Fabrice Bregier will leave in february of next year. The ceo of the helicopters business will take over bregiers role, putting him in mind to take over the top job went enders retires. According to people with knowledge of the matter, nestle, as well as a group comprised of private equity firms also participated in the first round of nonbinding offers. All declined to comment. Representatives for mylan and nestle did not initially respond to comment. Walt disneys deal to purchase 21st century fox will need approval from u. S. Antitrust officials, who will scrutinize thetie up that concentrates hollywood moviemaking and sports broadcasting. In controlake disney of 1 3 of the market and put foxs sports under the same roof as epsn. This will get a lot of scrutiny from regulatory authorities worldwide, that we think the proposition here is very proconsumer. Juliette Steinhoff International chairman Christo Wiese is stepping down from the Advisory Board after an accounting scandal. The board accepted the resignation to resolve questions of conflict of interest. A member of the board and independence of committee will take the role of acting chairperson. That is your Bloomberg Business flash. Anna thank you, juliette saly. Fairbanks ceo says things are tough for his bank in europe. Its russias most valuable company, but is under a strain because of sanctions imposed by the United States. A move to nonbanking markets could insulate the bank against the effect of sanctions and that includes blockchain technology. Now it is a very difficult thing for us to work with sanctions within the european market. We have had to reduce our activities in europe. Maybe we will implement more in europeanence countries, but reduce our physical network in eastern europe. But i think its a little too early to discuss this. Reporter cryptocurrencies are a hot topic, bitcoin particularly. You have spoken out on a ban against cryptocurrencies in russia. Do you see working with bitcoin, working with other cryptocurrencies, as a potential profit for sberbank . Herman no. Cryptocurrencies, bitcoin, its part of this technology. About investment in cryptocurrency. Mark your clients must be asking you about bitcoin. Herman if somebody would like to invest in bitcoin, they can ask the professionals. Mark do you have a view on it . Is it a bubble . Herman yes, its a bubble. But it is one of the bubbles we see now in the world economy. Mark what are the other ones . Herman many. Many of them. I think i would like to speak about the most promising technology. Lot ofd like to have a moneyments with private as a new trend in the world economy. A huge opportunity business. Ne in our matt that was the sberbanks ceo herman gref speaking with mark barton. Airbus is planning for an overhaul of its top management, while he grapples with corruption charges. Leavee bregier is set to as early as february. The ceo of helicopter business will take over bregiers role. We are now joined from berlin. Is he the obvious candidate take over from enders eventually . Reporter it does look that way. If you look at the press release this morning, it came out 45 minutes ago, tom enders does describe him as the next generation of our leaders. The next part of the generation. He left to join the car industry. He is french, which is good because they like to alternate the nationality of these people at the top. He knows the inside of the company. Yes, and he is also young. He is 49. He is tom enders junior. He brings a lot of the things they are looking for in the next generation of leaders. Anna good morning. Where does this leave bregier, then . He has been talking with regulators, trying to deal with the bribery allegations. Thats just one of the most recent crises. There have been a few, havent there . Reporter that is right. Bregier is a tragic figure in this. In the press release, he says, i have been working here for 25 years. Hes been waiting for the top job for a long time and it did not materialize for him. Why it did not work out, we dont know. . As it the bribery case was it that he did not have the chops to be the ceo . He is different from tom enders, more of a technocrat, more of a methodical person. Maybe the thinking was, we are looking for somebody different here, a different generation of people and maybe that is what ultimately they decided it was not his job. Matt thank you very much. Lets say as you say, a changing of the guard at airbus. Continuity is what investors like to see. Now, its almost a quarter of a century after nelson mandela, who led the African National congress to power. It stands at a crossroads, delegates of the ruling anc need to choose a successor to president jacob zuma. The voters face two choices, favorsexwife, who the push of a radical transformation, or the deputy that is pledging to fight corruption and revive the economy. We are joined from south africa. Who is in the lead . Theres a secret ballot. Ballots,y, there are but from what we know so far, who is leading . Reporter like you said, the two front runners it is down to the wire. Deputy president Cyril Ramaphosa looks like he is in the lead. However, it does seem as though his main rival, nkosazana dlaminizuma, the former African Union chairwoman, as the biggest number of branches on her side. So, the number of bridges that have elected her have the biggest number of delegates. It could really come down to the numbers when we get into the secret ballot, which is expected to start sometime on saturday. Anna thank you very much for the update. Well catch up with you next week. Joining us there from south africa. Up next, european leaders will approve the next stage of brexit talks today. But with diverging views on what a deal should look like, has eu unity reached its limit . On brexit, migration and other matters, perhaps. This is bloomberg. Manus good morning from dubai. This is bloomberg daybreak europe. Im manus cranny. Anna i am anna edwards. From the eu summit in brussels. Matt and i am live in the new Bloomberg London headquarters. Here are todays top stories. Green light for trade talks today in brussels. Eu leaders are set to give the goahead for brexit negotiations to enter the next phase. Senator marco rubio says no to the overhaul, unless there is a larger tax credit. President trump he is very sure that rubio will vote for the legislation. Disneys 50iette billion offer for fox is under scrutiny. Meanwhile, the fcc ends Net Neutrality. Matt we have got breaking news on h m, the Clothing Store coming out with fourthquarter krona,f 50. 39 swedish compared to a lower estimate. To put that into context, 50 billion krona is about 6 billion u. S. Dollars. Decreasingter sales by 2 compared to the same quarter last year. And a couple other headlines coming out of h m. The company is going to extend its collaboration with alibaba. Hopefully for those people investing in it, they will sell more close over that online platform. And they are talking more as well about development of that ecommerce platform that is the low cost. Keeping costs down, working with alibaba, and missing Sales Estimates and also missing comparable numbers from the same quarter last year. Manus . Lets get into these futures markets, because you have the u. S. Markets coming in slightly better grain. Slightly better green. This is the european complex. You have this slight dip in the markets. Asia starts paring its gains. It is all about the tax. The traders have no patience for marco rubio. He is the loan he is dissent. Wolf of they see good times rolling into 2018 for global economies, but they are just warning that this could come later. People, 80 en with are predicting a recession that could start in the next three years. Theresa may and anna are in brussels. Theresa may left brussels, anna decided to hang out. Matt let me just quickly give you some of the assets that might move your risk radar. Keep your eye on u. S. Treasurie as we continue to get headlines across the terminals about the tax reform keep your eye on u. S. Treasurys as we continue to get headlines across the terminal about tax reform. Still hanging out near a 2. 5 year high. Near there, especially considering the production out of the u. S. 30 year high. Only opec keeping that up. Bitcoin up. 17,000 is how much bitcoin costs. Very interesting stories on the bloomberg terminal about bitcoin. To can use it as collateral get a loan, although we are not sure if anyone has done that yet, and you have to pay a lot of margins in order to go long or short, especially short. 240 is the margin you have to pay to some Trading Platforms to short this currency. Manus we are beginning to understand what volatility is all about when they come in. Lets talk about the bond markets, because we got the bund. Growth estimates were raised yesterday. You see the bund pickup 80 pips. It is all about portugal. If you look at the potential spread against the germans today, it is about portugal. They will give us their decision. Portuguese bonds could enter the index early 2018. You have italy doing a Debt Exchange today. They are buying back short that. The growth rates are up. Reduction in the economic slack in. October he talks about a gradual reduction. The u. S. Bond market, adjusting 23nds. It is all about what happens with the. I know you have some breaking news. Anna absolutely. Is this the definition . I think it is. Bt customers will be able to sign up for all of the now tv content. Ago, theber many years only way to watch the games was btsky and the dk men and came in. Content onn pick up whichever platform you have. A lot of media stories to talk about today. Manus, you were saying it has been a busy week in central banking. A very good week to talk to steve major. He will be joining us very shortly on the program. Lets get the bloomberg first word news. Reporter good morning. In japan, a new dissenter calling for more stimulus has prompted the boj to adjust its communications to flag risks of additional easing, according to those familiar with the discussions. The change in messaging could explain why some investors wrongly trusted that comments as a hint to a policy exit. Reflation is joined the board in july. Are moreompanies confident than they have been in years. Sentiment at firms large and small. Sentiment among large manufacturers rose to the highest level since 2006. In the u. S. , President Donald Trump says he is short senator rubio will vote for the tax plan. Intends to vote against the legislation as written, unless the refundable part of the tax credit rises. Mexicos central bank has raised its benchmark Interest Rates for the First Time Since june, and some see it as a signal that more rate hikes are forecast for next year. The first Rate Decision for the it toor, the bank raised 7. 5 . One board member called for a 50 basis point hike. The u. S. Federal Communications Commission has swept aside rules banning broadband providers from her net. They voted to remove the prohibition, sending the future of Net Neutrality onto a likely court challenge. Over rejections of its democrats, the fcc gave up authority over internet providers. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Manus . Manus edward, thank you very much. To brussels, you leaders are expected to formally give the green light prebrexit talks to move on to the next stage. That as the u. K. Prime minister theresa may is seems to have complied to negotiations for a future trade deal. Anna is in brussels. What is the latest on the talks because there was the political wrangling before we got to this down during in terms of whether there was to this gathering in terms of whether there was ago inhat we saw a week brussels to the wind out of the sails. It seemed to be a bit of a done deal. Then, there was a bit of backtracking from the u. K. It did not go down well with the eu 27. It seems like they will agree that enough progress has been made to allow the u. K. To move forward in the brexit negotiations to trade. But the german chancellor speaking lies night, looking, speaking last night, looking cautious in the wording. We made it clear that we have made good they to theresa may, which may suggest that tomorrow we see the decision. But there are still many talks. We will talk about this tomorrow. Anna last night we heard from theresa may. She has gone home now. As she was calling on them to move on from the subject of transition to implementation. Diplomats are now saying this is where the tough works start. Sameu 27 may be on the page today, but not on the myriad of decisions they have to make about the future trade relationship when it comes to that trade conversation, which is the next stage of this brexit process. Although it matt seems like that is the only thing in the world when you are here in the u. K. , in europe they have other things going on. Is pushing for reforms, and Angela Merkel is dealing with the migration wave. Do the leaders agree on any of this stuff . There is a lot of disagreement on this stuff. To some divide is extent france and germany are not on the same page at because the German Coalition government building process is getting away of the timetable. We have the eastwest divide over immigration. Some countries choosing to go their own way. They are trying to stem the flow of migration. There is a lot they disagree on, including how to handle the rule of law issue. The eu budget commissioner saying in the last few minutes, speaking on german radio, that to decision to tr trigger article seven against this weekend. They are trying on other matters. Manus trying to show unity. We have more to get into because of the bank of england alessi decisionmakers policy decisionmakers. They kept rates unchanged at 0. 5 . What better man to put it all in context for us. Steven major joins us, he is the head of fixed Income Research at hsbc. Think you for joining us. Here we are. We have the bank of england on hold. No shock there. Given the data we have seen, retail cells were not that bad. Have the unemployment numbers. What does all of this due to the bank of england from your perspective, 2018 . On hold in perpetuity, on hold until 2019 . Where are we . Steven i heard what you just said regarding brexit, and if i added all up, and that includes looking at the data and making productions for 2018, i get the sentence they are looking for air cover to increase rates, for whatever reason. In the last you months, there has been an inflation rationale, because there has been some upside surprise. There has been discussions about the Financial Stability side, worrying about asset prices and leverage. Now you have got the brexit breakthrough, if you want to call it that. Is pointing in the right direction to continue the modest increases in rates. I think the idea that Interest Rates go up is not going to be a surprise to anyone. They want to keep that in the forwards. Itself,tightening in because if the bank of england points to higher rates, one hike or two hikes, if they do that, it keeps a floor. The interesting thing is sterling seems to be doing much of the work in this regard. While we tend to look at gilts, i doubt they will move it much because the slack has been picked up by sterling. Matt would you call it a brexit breakthrough . If all three say theresa may did a great job, doesnt that mean it is about brexit light . I would rather not call it anything. One of you guys said brexit breakthrough. Matt it is a term a lot of people use. Is it staying under eu regulations, getting jurisdictions, paying for everything past 2020 . Steven lets put it slightly differently. If the markets and everyone concerned is so obsessed with how bad everything is going to be, it means they are on the lefthand side of the tail risk and they are worried about doom and gloom. Anything that constricts us from things being terrible is a move to the right hand side and is lightly more positive. I think that is more precise. Anna this is about giving the bank of england an increased rate. Will the u. K. Economy be Strong Enough . What is your assessment about how strong it will be with the reduced speed limits, as the bank of england likes to talk about . Steven you have got to take everything into context. I mentioned just now how you have asset prices and Financial Stability as a key factor as well. What would happen if, for example, the data was ok and brexit negotiations or all right . But asset prices were falling to play . That were falling sharply . I am not saying it is a possibility that in 2018, you could see house prices going down or equities rising. Centralwhy all of the banks, including the bank of england look at much more than the cyclical data pattern and the inflation rate. It is much more complicated now, because we all recognize that the asset prices have become more inflated. For 2018at is a debate in terms of whether we get the taxes, global Interest Rates. But what happens with the yield curve . That is something we have debated in the u. S. Take a look at this. It has got the u. S. Curve and the u. K. Curve. That theyou lovely, which isvely, which yield curve see, yield curve do. I am more worried about the propensity for the u. K. Curve to flatter and potentially even invert. Steven it is a good point. That 40 to 50 year segment is already inverted. If you look at the yield curves, you can find all kinds of different signals. The inversion has happened. The real challenge for the bank of england is how to hike rates when the curve is already very flat and indeed inverted at some points. Bizarre, andeally as far as i am concerned, it is pretty unprecedented for a developed Market Central Bank to be tightening into a flat curve. Regarding the points to look at on these curves, we must be very careful because you mentioned the u. S. There. We are all tending to look at the 10 year point for reference on these yield curves. That is where the least amount of action. Look back on 2017. The 10 year has done nothing, sat in a very tight range, while the twoyear range has been in a bear market. The 30 year yield is down a bit. Of it,ve has seesawed and that is what tends to happen. We are staring at the screen looking at the 10 year saying nothing has happened. Actually, there has been a lot of action at the front end. It is normal. Matt we will get to the u. S. More in depth in a minute. I want to ask one final question or make one final point on the u. K. I have a great chart here that should cheer up britons looking for a job. If you take a look at this, it shows the number of people applying for each job opening. You can see that we are at the lowest level since 2001. My question is inflation is but wage at 3. 1 , inflation is not doing that great in the u. K. Does this chart means people will be able to demand more money and that Wage Inflation will come . Steven that sounds like a phillips curve question. There is plenty data mapping average earnings against the unemployment rate, and you see this symmetry. , there is more people in work, but they are not getting paid. The phillips curve is not working for the last has not been working for the last seven or eight years. People are waiting for this to start kicking in and there is a good chance it might. Matt it is common sense, right . Or twoonly got one applicants for a job, i am probably going to give them more money for what they demand. Steven we think about this long and hard. Nobody is going to question the fundamental of economics here about water supply. We all ge about modern supply. We all get that. Here you have to add in technology, global competition, demographics, old people coming back to work. It tends to make the historical analysis less relevant for the future, because we know that you do not have pricing power. Try asking your boss for a pay raise, matt, and see what happens. Matt i am not going to do that right now, but it is a fascinating issue and topic to think about right now. It is getting a little too personal. Save me. Has confirmed it is preparing for a complete overhaul of its top management. To step down when his term ends in april 2019. Urri ahead of the helicopter business will take over his role as the head of the plane building business, putting him in position to take over the top job. Disneys deal to buy a chunk of 20th century fox will need approval from antitrust officials who are sure to scrutinize the tie up that concentrates hollywood moviemaking and sports were casting. The acquisition would make disney the number one studio owner, with more than one third of the markets. It also puts foxs regional Sports Networks under the same roof as espn. Anna thank you very much. The ecb raised its Economic Growth forecast and stop short of saying it would meet its goal by 2020. Inflation is on course to breach and another banks at a hike could happen in 2018. These decisions follow on from the fed, which raised rates at a final policy meeting of the year. These central bankers from around the world. The significant reduction of economic slack gives grounds for greater confidence that inflation will converge toward our inflation aim. The first Interest Rate increase will take place probably at the end of 2018. The longterm inflation pressure is unchanged and very low. The inflation forecast published, the socalled conditional forecast is unchanged. But behind the inflation forecast. I consider it an important priority to make sure that inflation does not chronically undershoot by 2 objectives. We want to see it move up to 2 . That was ending with janet yellen. Steven major is still with us. Oft is the definition normalit 2018y . Is when we are going to return to normal in policymaking . Steven normal, whatever that is, requires a much lower rate than previous cycles. Start with the u. S. It will have a two handle. There are only a couple of rate hikes, two or three from here. That is about half of the previous levels that we saw. So back in the 2004 to 2006 wasod, our tightening systematic, but we went to 5 in the treasuries sat in the 4 to 4. 5 range. Whatever normal is, it is much lower than in the past. You just put in front of us on quotes you those just put in front of us on inflation, ultimately that risks being pushed into the next year. Been a say if there has focus in the last six months, it has been more toward Financial Stability and access debt and debt inate excess the private sector leverage. That accounts for the modernist it is not in the context of what we have seen before. Manus if i can jump in, one of the stories we read this week was the tsunami overseas. The synonymy of money left the tsunami of money left. That could mean a bit more flow of money back. Do you expect that trade . What can that do to cap our yields in europe . Steven that is a very interesting question. I get it all the time. I think the flow affect is what people want to talk about, so they talk about the monthly purchases and where that money ends up. We know now because we have the data that the money has flown overseas, so there is less money being created to flow overseas. I think you are right. There will probably be less of that moving forward. In terms of currency markets, it is probably supporting for the euro, all else equal. Aspect ofnly one supply because a complete analysis will be looking at the flows, thefree markets call that the stock affect. When you do that as many times as i have, you realize it is not satisfactory because flows, it s one aspect of the whole business. Having done this flow versus stock analysis, you have to look at demand. And that is a much more complicated thing. You look at what the banks are doing, what is happening with regulation, and ultimately the market tends to get itself wrapped up in these floor debates and there really float debates and it is really not that important. Steven major, global head of fixed Income Research. That is it for daybreak. This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Guy good morning. Welcome to the european open. I am alongside matt miller and our new headquarters in london. The start of cash trading is less than 30 minutes away. Guy the ceo and coo plan to step down as airbus grapples with corruption allegations. Who is going to be the next pilot . Senators oppose the gop tax