S p and fitch approve their assessment of the u. K. s Credit Outlook, but the pound continues to slide as fears of a Nodeal Brexit mount. Fedex in freefall. The carrier cut its profit forecast for the second straight quarter. Deutsche bank called the results rest taking lee bad breathtakingly bad. A 5050 merger. Of course, one is buying. The others. We will sort out which. They will sell some of their steak but not all in peugeot. Lets get more on that major socalled merger with milan. Ureau chief tommaso i know that pr wants us to believe this is a merger of equals as so many do. Is psa buying fiat . Tommaso good morning. Good morning, matt. How many times we have discussed on bloomberg tv about the industry. Now, the deal is really announced after more than one month of talks between fiat and peugeot. The question the answer to your question is fiat and peugeot will put together their 5050 percent company. Actually, the new company will have half the shareholders by fiat and half by peugeot. Value of the two companies is almost equal. The board will have a director from fiat. This is where we can say peugeot is getting something. The 11th member of the board for the first five years will be peugeots ceo. But that does not mean that after the first five years there is any rule who will be the next ceo. The peugeot ceo will run the company. The deal between the two companies will be the chairman of the new company. Anna we certainly saw the share prices moving in an anticipation, didnt we, in recent months . Tommaso ebhardt, milan bureau chief. We will be in paris and milan throughout the morning to keep you uptodate with all the latest on this tie up between these two carmakers. Just under one hour away from the start of a cash equity trading day, lets take a look at the futures and european futures looks at for a little bit of weakness at the start of trade. The ftse 100. May be a little bit more muted. We have something of a pause coming for equity markets, it seems. Lets look at u. S. Futures and see if they tell us the same. The pause comes through loud and clear when you look at what is going on in asia. U. S. Futures with muted with slight look muted with slight downward bias. The u. K. Publishing space in focus with news out of pearson, but look at the gmm. The big picture is we are not moving anywhere very quickly on the asian equity session. Just as well on that. Show story on that story. Value,erprise substantially moved. We will see that particular business in the publishing sector and the united kingdom, when that one opens up a little bit later. On the gmm, moves to the upside from some individual markets. The asian equity session not really moving very far very quickly. He saw a new high on the s p yesterday in the u. S. , just eking out that high on that stronger data coming through from the u. S. From factory and in the housing sector. We have seen the pboc making some small moves. A little bit of generosity, prechristmas, prethe holidays. We will talk more about that in just a moment. With all of that in mind, lets get to mark cudmore, who joins us now from dublin. Ony good to have you with us the program in dublin. You know, usually, that is what we are talking to you about, and lets focus in on that and what has been going on with the pboc. A little bit more generosity from the pboc. Not exactly a rate cut, but something to shore up the economy a little bit. If it was needed, what work . Would it work . Mark it is not an official rate cut but it does not provide that signaled this morning. Of course, we have had that increase in open market operations, 200 billion yuan as well. They are not particularly shocking but they provide a sentiment boost, the support for chinese assets going into that low liquidity period over the christmas next two weeks and end of year. Overall, its a good move, but it is not necessarily groundbreaking. Matt are the markets pricing in a rrr cut in january after the spring festival holidays . Mark that is definitely speculation that there will be one. He is kind of saying to us that it is most likely going to be the january 15 date. It seems difficult to get it ready in time and they seem to come on january 5. That is when the traders in china start to speculate. That is another sentiment boost needed there. It is emphasized in this longrunning picture we have seen throughout all this year that china is being very practical about controlling the growth slowed down and reacting to the trade war we have seen. I think they are managing that overall as well. We are not seeing any hard landings. I think this kind of measure of doing the repo lending cut, the adding more money in the open market operations, and the rrr cut are all part of that same picture of gradually massaging the growth slowdown. Anna talk to me about what is going on in hong kong. Up for a nice day, set for its longest gaining streak since 1987. That sounds significant, but of course, it has been under pressure because of what we have seen taking place on the streets of hong kong. Mark i think this move was a little bit surprising. We have seen a squeeze in local money markets, the squeeze in the shortterm rates. It was supporting the hong kong dollar and seeing dollar hong kong come lower. It has gone further than most of us expected. It is kind of squeezing the volatility curve as well. The way you are seeing it does suggest this is more about a yearend liquidity issue that supported the shortterm money market rate and not about a fundamental shift in hong kong so after we get over the yearend break, we will see it return and dollar hong kong drift back up again. Matt thanks very much for joining us, mark cudmore, bloomberg mliv managing editor in dublin today. Next, we are going to take a look at your stocks to watch at a companyncluding slashing their full year outlook. Live on yourio is mobile device and dab Digital Radio in the london area. This is bloomberg. Anna welcome back to the European Market open. 10 minutes past 7 00 in london. Downside risks to the equity market session. 15 minutes until we start the equity trading day here in europe. Lets get a bloomberg first word news update. Thanks, anna. The u. K. s Credit Outlook has been upgraded by both ssp and fitch. That is after Boris Johnsons conservative party won a decisive majority in last weeks election. S p raised the outlook from negative to stable. Fitch took the u. K. Operating watch negative. That removes the immediate threat of a downgrade, but the agency did maintain a negative outlook for the u. K. Trump hasdonald accused Speaker Nancy Pelosi of turning the house into a star chamber. Thatis a Medieval Court became synonymous with abuse of power. Probably that trump laid out his defense. The house is effective to vote later today. The u. S. Has little leverage to prevent the pipeline project. That is the view of senior officials. It is a rare admission of failure after a years long effort to prevent what the administration believes is a threat to european security. The u. S. Will pivot to trying to impose costs on other Russian Energy projects. News, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Matt thanks very much. Your first word news. Lets get your stocks to watch from around the newsroom. Felipe is looking at a health care company. Annmarie hordern is looking at stereos. They are slashing their outlook. They were expecting revenue to grow by single digits, and now, they are saying there is going to be a drop of 13 to 18 . It lost more than half its value this year. You can look at its rival in the u. S. That has grown 45 . This morning, shares are going to drop. Anna we will keep an eye on that in the stereos business. Lets go to philippe. Big mover yesterday but more news flow this morning. Thats correct. This should be a very active session for this as well. The company felt the most on after yesterday in london muddy waters put out a report saying they are shorting the stock because you see there were many deals that were made here in the uae that were overpaid and they say their margins are way too high versus some of the local peers and we just had a statement by the Company Earlier today, a few minutes ago, actually. They say everything they are saying is basically unfounded, baseless, and misleading, and they are actually starting now a Payback Program of about 200 million that was already approved. Definitely, this is a name to watch as soon as london starts trading today. Matt thanks to both of you for joining us. You can get all the latest stocks stories from our Equities Team by typing first go on your bloomberg terminal and you can get the Bloomberg News on your mobile app. Lets get some more stock picks. Christian data care, head of ourarch, joins us from bureau. Talk to us first about the way you do your research, how you screen for stocks. We have a team of fundamental analysts who look at the of valuing aays stock when i look at earnings dynamics. It depends very much on the center. What we do on top of that is also to have a layer, to see what the market is currently, up analysis ofchnical the important input to see how the dynamics are and also to time some of the recommendations. That is quite helpful, i think, especially in a market that grew ever more efficient. The only thing you can actually see is the price action. Anna let me ask you what you think about the postal delivery business, the Parcel Delivery business at this point. We had an update from fedex that resulted in a big negative after hours share price move in fedex. We expect perhaps to see some reader cross into European Companies this morning. Fedex trading at a discount to ups, as you see on the chart. Is this a sector you want to avoid at this point or are there reasons to get in . Christian it is certainly a very competitive sector, and therefore, this is all about volumes and margins. It is certainly one of those sectors that fits into this secular scene. Where there is recovery, there should at least be momentum. We constructerall, this despite all of this negative news flow. The Market Reaction beyond the day will be interesting. We see some informed buying of that. The only thing we can spot is if on that news, stocks were to rise or stabilize, and then we see some rising price action. Especially in cyclical steps, probably the worst is over. Matt they had problems, of course, due to the holiday announcement from amazon. They will be banned from delivering goods for thirdparty vendors. You do like a lot of stocks that i think resonate with the holiday shocking theme, christian. Let me kick it off with the Bigger Picture stock of the week. Why do you like the credit card issuer . It is a structural growth story. We cannot see an end to that one. This is really the trusted Payment System of the global internets. Growth. Vide tremendous from all we can see, we continue to deliver it. Investors pay up. Havethat point of view, we no concerns. It is pretty much neutral. This is one of the important Building Blocks of a global stock portfolio. Anna i know that you like caring, but m a is a luxury sector and has been a real theme. It turned more positive. You dont like the companies being box, but the doing the buying, what does consolidation in luxury mean to you . Christian in luxury, as opposed to other industries, takeovers value m a were not adding in the red lecture he in the luxury goods sector. Usually, strong brands. They take over and are able to build further. There is a prime example of that. Companies inellent adding brands and building them on top and adding value for investors. Anna we are going to keep you with us. We have more to talk about with christian gattiker, head of research at julius baer, with us out of zurich. Coming up, the return of . 50. Options has the legendary, at least in our nerdy sort of global wall street terms, trader. We will explain and discuss, next, with bloombergs manus cranny. And when you are traveling to work, tune into Bloomberg Radio on your mobile device or dab Digital Radio in the london area. This is bloomberg. Anna welcome back to the European Market open. We are 40 minutes away from the start of the market open and this is what futures tell us about this mornings trading day, expecting weakness to come at the start of trading, in particular in the london market and the german market. U. S. Futures also pointing tentatively to the downside. The moby dick of options trading may have made a return. Thats bring in manus cranny to discuss. We are not talking about you of course, but tell us what is out there about the trader known as . 50 . Manus . 50 had a number one hit. Matt is standing by with number one on the billboard so that impressed everyone i know. Anis a moniker given to options trader who will ship in a few options on the vix. Take a look at the chart. By the way, the vix, fact of the day, it averaged 19. 15 since 1990, so we are way below that level. This will be the eighth year in a row that we are sub the average level of the vix. What does it take to explode the market to almost double the price that it is at the moment . That is the options trade that has gone on. There is a huge options trading that was put through yesterday. 100 30,000 call options. That is betting that the vix will double in the next 30 days, guys, anna and matt, so that is the trade. The reason why people are saying it could be . 50 is because, man or woman, that came to notoriety in buying these very short dated options and making a bundle of cash over the past couple of years. There are lots of people saying there are slightly more vix,ient ways to trade the which is buying call spreads, buying something which is a little bit more nearterm like 16, and you sell out of the money options, so it is a huge options trade, big in size, big in scale, and bake in a school board if it happens risk reward if it happens paired what would it take to double the volatility in the u. S. Equity market between now and january 22 . Manus well, matt there are so many things that could do it. You just need some problems with trade. Any geopolitical strife, certainly. It is a cheap bet to make on something thats got infinite possibilities. Manus, thanks very much for that explainer and for the . 50 for the 50 cent song in da club. Markets, more broadly, seem to be in a Holding Pattern after hitting those alltime highs on monday. Lets talk about the risk ahead. Fishing gallagher, head of research, Christian Data with gattiker is still us. What could kick up a little bit of volatility for 50 cent . Christian there is still the biggest risk for markets, which is markets itself. It is a market intrinsic event. We saw that over the Holiday Season last year, when suddenly, the thing was completely out of control and we saw probably nobody knowing what was going on. We saw some trading. This is usually triggered by some events, which by itself is maybe not as meaningful, which can trigger a lot of repositioning, and i think that is still the biggest risk. We are talking here about flash crashes and the like, but this ,s something they get paid for being able to weather that risk. There are trades and volatility going all the way. It can kind of workout maybe over time, but for the long haul, i think this is about just staying in and holding the course. Anna so you think the biggest threat to markets is markets themselves, something to do with Algorithmic Trading on the like. That makes me ask the next question. How strongwilled this years rally be . You sound as if you are a person who is a little scarred by ghosts of christmas past and we remember Christmas Eve of last year. Christian i think a lot of those dislocations are tied to the liquidity picture. Happened especially in the Fourth Quarter with liquidity. The dollar squeezed, central bank. A very difficult situation and that triggers uncontrolled reaction. Take it from here and i think it is the risks are a lot less at this stage. Trading and Monetary Policy and the fed actually ejecting liquidity and we have seen a lot of Institutional Investors being short or behind their benchmark. A repeat of what happened 12 months ago would be very surprising because a lot of things have changed. Matt thanks very much for your time this morning. Christian data occur, head of research at julius baer out of zurich this morning paired up next, more on our top story this morning. Up next, more on our top story. Fiat chrysler and peugeot are going to combine their businesses to make the fourth biggest automaker in terms of global sales. We are going to have all the latest details on this acquisition. And remember, Bloomberg Radio is live on your mobile device or dab Digital Radio the london area. This is bloomberg. Matt welcome back to the european open. 30 minutes from the start of cash equity trading across the continent and in the u. K. Im matt miller, in berlin, alongside anna edwards in london. Anna lets talk about whats coming up today. The Ecbs Christine Lagarde will speak in honor of been michael vick at 8 30 a. M. London time. The iphone will be released at 9 00 a. M. London time. The november readings showed slowdown have reached its low point. There is a reasonable chance that improvement will be recorded in the month of december, so we will be looking to where you are at the german data, matt. At 12 00 p. M. , chancellor Angela Merkel is going to take questions. Watch for any comments from her 5ghuawei and germanys networks. Later in the u. S. , the house of representatives is planning to vote on president Donald Trumps impeachment, with a likely januaryrial to begin in. Thats another i dont want to say end of a soccer, but a middle of a long saga that you will want to keep uptodate on. Lets get some thoughts with the head of research at julius baer, joining us from zurich. What do you think about the u. S. Economy in the coming year . It is going to be so important for President Trump and probably more decisive for his 2020 Election Campaign than the house impeaching him. Exactly, its all about the economy when you look at the surveys. The number one topic from both sides, democrats and republicans. The vote is one, good economy, and economic security. In the rust belt, where the states were helping donald trump the last time around, the weakness could be felt. There is a vested weakness from the white house to keep the economy going, and isaac thats we have the trade deal and i think thats why we have the trade deal. Anna quickly, where does that leave markets . Over ave rallied quickly phase one deal. To the details not really matter . Is the sentiment hind agreeing with something really important . this is some kind of a truth. People tell me this is not enough, not applicable and will not be implement it as much, but i think will be good enough ed as much, but i think we will have a scenario where Global Companies and consumers held back a lot of their spending, just for the fact that they did not know the rules ahead. I think that will create easing, especially in the United States. The rhetorical the white house will help as well. We have had very disappointing manufacturing data out of germany, very closely connected to the u. S. China trade war and uncertainty about the u. S. Eu relationship. What kind of data do you expect today, christian, and how do you see it faring in that kind of data in 2020 . How do you see that kind of data faring in 2020 . Christian if any positives come out of germany on the industrial side, it will be surprised. This is one of the harshest industry recessions, especially of the pastndustry, decade. It will take some time to stabilize. I assume that most of the answers to the survey were taken before the announcement last week on the trade agreements. I think this is just more of the same. What is interesting will be how , now that reacts there is a the worst is over type of thing, meaning a positive reaction. I think this will be taken as kind of the worst is over and we will see some positive reaction, but that remains to be seen over the next few days. Anna christian, thanks for your time this morning. Great to get your thoughts on the program. Matt, lets talk about the car sector. Matt absolutely. Psa and Fiat Chrysler have agreed to combine in a deal that would create the worlds fourth biggest automaker by sales. The carmakers signed a binding accord for a 5050 merger of their businesses, according to a statement they released in the past hour. The new company will be led by psa chief executive Carlos Tavares with john elkann on holding the same role with holding thelkann same role at the large company. How much is this building on the strategy of the late sergio marchionne, and how important was it for john elkann to get this done . Hi, good morning. Today is really an important day for the auto industry. Thatve discussed for years they need consolidation. The most vocal opponent was sergio marchionne. The argument are there, especially now that we are seeing a transformation in the industry with new technology, new electric and self driving cars. A huge amount of investment. You need to share those investments. This is why they are doing this combination right now, fiat and page on peugeot. Anna let me ask you about the larger term logic for the deal, which we talked about many times. We have seen the market and investors decide who is getting the better deal here, and we have seen sale prices adjust already. We expect it is all in the price now . I know don thing is going to be reducing its taken psa. Is this all in the price reducing its stake in psa. Is this all in the price . Tomasso the news is priced in. Fiat, when the deal was first announced in october, was clearly undervalued. Got a premium of about one third of their value, then fiat shares rose, and other peugeotalue of fiat and are the same. Also, they will receive an extra dividend of 5. 5 billion euros. So they will cash in from the steel. Peugeot isow taking the market risk with fiat. Why for fiat this deal is important, also because it is ,etting on board Carlos Tavares regarded as the best. Matt i dont know, if they had elon musk, maybe they would be worth even more. Combined make a . 5 billion per year, yet they are only worth 46 billion. Meanwhile, tesla makes fewer than 250,000 cars a year and is worth 68 billion, just to put that in perspective of how the market values these companies. Thank you for joining us. We are going to be live in paris and milan throughout the morning to keep you updated on the latest with this merger to create the fourth biggest carmaker by sales. Up next, a tech tussle. Concerns over huawei threatened to divide germanys governing coalition. We will get the details next. 19 minutes until the start of equity trading. European equity markets expected to be lackluster at the start of trade. U. S. Futures flat to negative this hour. Lets get a Bloomberg Business flash. Fedex plunging after cutting its profit forecast for the second straight quarter, as Weak International demands hurt sales. Fedex and amazon cut most of their business ties this year. Thats also weighing on sales for the delivery company. It has also suffered from weaker pricing and trade tensions. Pg e has won Court Approval for two multibilliondollar wildfire settlements. It has to win over californias governor. Last week, pg e drew a rebuke from the governor, who said the plan did not comply with state law. The company says it is still in negotiations to resolve the difference. Tesla is considering cutting the price of its chinabuilt cars next year. The price of the model three sedan could be slashed by 20 or more. Tesla is betting the move will help more buyers as demand flows in china. Sales of electric vehicles have fallen for months after the government skilled back subsidies. And thats your Bloomberg Business flash. Matt, anna . Matt thanks very much. Risksdispute over huawei dividing germanys governing coalition, after chinas ambassador to the country threatened berlin with retaliation if it excludes huawei as a supplier of 5g wireless equipment. For chancellor Angela Merkel, it is a delicate balancing act. On the one hand, she seeks to address security concerns both her own security concerns and those out of washington, d. C. On the other, she is trying not to upset berlins relationship with china, germanys largest trading partner, and with washington, d. C. , which also has an issue with away in terms of the issue with huawei in terms of the trade war. We are joined by the German Governments transatlantic court nader. You deal with this coosatlantic court nader rdinator. You deal with this elation ship. Is paul waite truly concerned about the Security Threat in the 5g network, or is it almost a pawn in the Trump Trade War . The first reason is at the core of our concerns. Have a lot of, we information from our Intelligence Services that makes us a little bit uneasy. I think it is a strategic decision that we need to make for the future, that we should not give ourselves and our infrastructure into the hands of led bynment that is not democratic thought and principal. Rinciples. Matt so, does the Chinese Government spy on other companies, governments, citizens through Huawei Technology . Peter there are thousands of cyberattacks on institutions here in berlin and also in the private economy sector. Thats what we know for sure. And there is evidence that another parts, where Huawei Technology has been involved, that there is spying. You dont want to take that risk. It would be a smart political move and decision if we and the government, and especially the german parliament, debate on constituents,our and in the end, make an informed business judgment. Anna is it possible to make a Decision Just around huawei based on the facts as you see bem, or will this inevitably interpreted as picking a side and a broader conflict between the u. S. And china . Peter i think you will not see the word huawei in any political draft bill that we are going to parliament,in our probably at the beginning of next year. We will not extol any specific company. Said, the German Government and parliament have to get the balance right. It is a delicate issue between our economic interest and business interest in china and our security concern. This is a question of national security, let there be no doubt about that. Matt you have a couple of delicate issues like that. Nord stream 2 is another one. Germany wants to be able to get affordable and easy access to the gas coming out of russia. On the other hand, you dont want to punish ukraine by bringing the gas from the north, and you dont want to reward Vladimir Putin when he does things like annex crim a a crimea. How can Angela Merkels government justify the nord stream 2 pipeline . Peter it has been a commercial project ever since, but with a huge geopolitical dimension attached to that. With the sanctions congress has decided upon, and i am expecting President Trump is going to sign that, it does not come as a surprise. It has been around for over half a year that something will be coming soon, and now it is happening. Its a political decision, and we need energy diversity. Matt but isnt it a moral decision . Dont you want to avoid funneling money into what some see as a sort of criminal enterprise, being russia . Peter i dont see it as us financing maligned activities. Thats not what it is about. It is about energy security, energy diversity, but i am one of the critics, as a parliamentarian, that there has to be political communication in the beginning, because it is not only the United States criticizing us. Many of our neighboring countries in the European Union say, wait a minute, you make yourselves too dependent on russia, and geopolitically you should have thought better. And chancellor Angela Merkel is trying everything to get a written guarantee from vladimir so far only said will not interfere with a which is complete the outdated. We plan to monetize the gas created in the u. K. , in the ukraine. It is a little delayed, i guess, financing maligned activities of the kremlin, we would not want to do that. Anna it seems the u. S. Still putin place a plan to sanctions. That would may be too late for that, given the progress that has happened on the pipeline. It would be too late for it to have an impact. You think sanctions will have any impact around nord stream 2, and what should the message from the German Government be to america in light of those sanctions . Peter about a week and a half ago, i was in washington and met , thesenator Chuck GrassleySenate Finance committee chairman. I have talked with him and others about that issue. Sanctions areg, coming, which we have been hearing for over half a year already, if you have that interest, you had better hurry up, because this thing is almost being built completely. I am expecting that the sanctions, if donald trump is going to sign that bill, will not have a big affect on the if the economic volume is really limited. It is bad for the companies involved, but i dont see that that is going to stop the pipeline project. From a european standpoint, not only germany, we need to diverse our energy interests. We are also interested in receiving lng from the United States of america. Lngsited one of the largest terminals in the United States. Its interesting stuff. The German Government has already promised to billed at lngt one, maybe two terminals in germany. Cdu bpeter buyer is a undestag member, and he is responsible for the washingtonberlin relationship. Its time to get some morning calls. Ti are at and ci loggerhead. We will take a look at em stocks. This is bloomberg. Anna welcome back. Six and a half minutes until the start of equity trade, a little downside at the start. U. S. Futures almost entirely flat this hour. Time for morning call. Todays strategists take on the rallying emergingmarket assets. Dani burger is here with details. The battle of emergingmarket calls. Theirays they have cut outlook on em in favor of u. S. Stocks. They say valuations at this level are not attractive after all. We did cem rally to an 18 month high. To the fact that despite there has been movement in trade tensions, we see global volume slowing. Finally, they say china Monetary Policy is actually tightening, not loosening. Taking the other side of this bet is jp morgan. They say they like em, specifically bonds and affects in the emirate and fx in the emerging nations. But they say recession odds are at 25 versus 40 , what they saw prior. The reason for that, they say down to trade tensions and easy money. At somets take a look of the stocks to watch ahead of the open. Weve got the psa deal for Fiat Chrysler. Those two combined will become the worlds fourth biggest automaker by sales, not in terms of market cap, of course. They are still a Smaller Company manymany out there than out there, volkswagen, general motors, toyota, and tesla. Delivery businesses in europe could be and focus today after fedex cuts its profit outlook, the second consecutive quarter admitted amid Weak International demand and higher investment that we have heard this negativity from fedex. Deutsche bank analyst describing the numbers out of fedex as breathtakingly bad. Deutsche bank is describing the numbers out of fedex as breathtakingly bad. Startect weakness at the of trade today. What are you doing back there, junior . Since were obviously lost, im rescheduling my Xfinity Customer Service appointment. Ah, relax. I got this. Which gps are you using anyway . A Little Something called instinct. Been using it for years. Yeah, thats what im afraid of. He knows exactly where were going. My whole body is a compass. Oh boy. The my account app makes todays Xfinity Customer Service simple, easy, awesome. Not my thing. Anna welcome back. A minute until the start of European Equity trading. Chrysler agrees to a 5050 merger of the groups. Some but not all of the shares of holes in persia. Fedex in freefall, they cut its forecast for the second straight quarter. Deutsche bank calls it breathtakingly bad. Boost, s p and fitch butove their assessment, the pound continues to slide as fears of a no deal brexit mount. 40 seconds to go, what do the futures tell us . Matt we are looking at futures that are pointing down across 0. 3 e, not huge drops, but in frankfurt, and sarah. 25 percent on the ftse. 0. 25 on the ftse. Pause for breath, and thinking where we have come. Where we have not yet got to. . S phase one in the bag what expectation can we have for phase two . Do we need to fear algotrading in the quiet period around the Christmas Holidays . The ftse 100 a little sluggish, fairly flat. As is the cac. More weakness in germany, down by 0. 2 . Quite a substantial move in the euro, that is not helping german exporters. The euro is a little weaker. In terms of the data picture, we look forward to the iphone number. In an hour we will get that update. The dollar with upside bias. Comingnd, some weakness through, concerns about how willing and ready the government will be to go to a no deal situation. That is happening impact on the currency and stocks. From a sector perspective, it does not look like a day where we are getting a convincing sector to. Health care is mainly in the green, utilities in the green. We have a defensive picture coming through. Industrials green and a little mixed. Financials looking red. I. T. Companies and Information Systems in the red. A pretty mixed picture in the sectors. We are pausing and assessing where we are coming in 2019 and trade. Matt we have a dead even split in terms of stocks that are gaining in falling, 290 on either side right now. In terms of Companies Helping to boost or hold the stoxx 600 back from losses, you have volvo up there at the top as it moves out some of its truck making unit. Asml is a gainer. Then you seek to show peugeot gaining 3. 7 as it goes into this historic acquisition of chrysler. On the downside, sap, not a big drop, but it is a heavy company and is taking points off the stoxx 600. So is bp and royal dutch shell. Oil producers are all down this morning. Down asitton, hennessy well. Some of the luxury and Retail Stocks are having a tough time today. A pretty even split, falling slightly to the downside with the stoxx 600 off 0. 4 . Anna European Equity markets pretty mixed, the stoxx 600 down. The ftse 100 the only green spot. On global equities, and the european story, how much can we expect that to move into europe . Dan kemp, cio emea, Morningstar Investment Management is with us. Good to speak to you. Lets get your thoughts on european equities. How bullish are you one european after seeing the progress made to date on the global trade war . Germany really has been at warepicenter of this trade because it is an important part of the china supply train, so closely integrated into global trade overall. It has been hit, and there is negative sentiment. It will be instant to see if that improves in the survey later today. When we look at European Markets, particularly the u. K. , they look more attractive than the u. S. A lot ofseems to have good news priced in, particularly in the more favored stocks, whereas in europe that is not the case. There is pessimism hanging over the market. While european stocks do not look absolutely cheap, they look relatively cheap compared to the u. S. Matt the concern over the last couple of days has been weighing on the pound is that Boris Johnson is legislatively tying , andands behind his back clearing the way for the possibility of a hard brexit at the end of 2020. Does that not bother you . Dan politics bothers everyone, including me. It seems amazing that at the end have19 we do not seem to learned the lesson that you cannot draw a Straight Line between political outcomes and economic outcomes. There are surprises in the way. What we saw at the back end of last week, a strong reaction to the conservatives taking a sizable majority in the house of commons, but now that optimism seems to be fading as people realize the job is not yet done. We have just got to the starting line of brexit. There is that risk of a no deal hanging over the u. K. While most people welcomed the ofults last week in terms hope and certainty, in reality it seems people were overenthusiastic, and that is coming away now. That is why we feel it is so important to focus on longterm valuations rather than predict the outcome of politics. Anna we will perhaps return to politics. One particular sector in european equities, the auto sector. Dani burger has the first take ugeout ared pe performing today. Lets go to dani to find out. Dani one of the things i noticed, we have chrysler and renault,ing, but but this is indicative of the read across the industry. Today despiteng one of its biggest shareholders saying they are down from the 12 stake to 4. 5. The idea is they are holding a lot of the company, it is not a big selloff. Fiat is down about they are up, rather about 0. 7 . It explains why they are not up more, we have elevated call interests on fiat coming into the day. Perhaps we had traders saying now is the time to exercise these options, which might be dragging the price down. Otherwise, some of this is baked into the cake, even though it will create a giant auto conglomerate between fiat and wh peugeot. A little optimism being reigned in on fiat. For thank you very much that, one of our top stories of the day. Still with us is dan kemp, cio emea, Morningstar Investment Management. You have 217 billion of asset management, i am sure you own automotive related assets. I wonder what your take is on the Global Industry right now. We start to see the consolidation. Is it late, and how important is it . Dan i think the important thing to say is that we are primarily asset allocators, multiasset investors. I am not going to give you a view on individual auto manufacturers, that is for my Equity Research colleagues to weigh in on. As we think about the industry as a whole and the broader sectors in europe, as we were saying earlier, they are at the epicenter of concerns of global trade. It is an industry that faces clear challenges around sustainability and what is happening to concerns about carbon. There are longterm structural challenges, but more acutely we have seen this worry about autos and trade, and what is happening in the white house. If we see some of those concerns rumblings ofee the a solution to the trade war really coming to fruition, then potentially there is some positivity that can come back into that sector despite the longterm overhang. Anna is it the shortterm cyclical relief that will be the thing that drives automakers, relief on the trade front . Or will it be the mergers, the structural changes designed to as wethe burden transition to electric vehicles . What is the catalyst for the sector . Resolutionre is that to the trade war, this will be a shortterm bounce, but investors are not thinking about the next few months or next year. You have to look long into the future to reconcile the capital that is given to you to invest with what is happening in markets. As we look longerterm, the structural challenges are likely to play a more larger role in the valuations of these companies. That does not mean there cannot be a strong bounce if pessimism disappears. Matt we will keep you with us, our guest cohost for the morning, dan kemp, cio emea, Morningstar Investment Management. Up next fed officials are stressing rates are on hold, unless there is a big enough shift in the u. S. Economy. We will bring you the latest after bloombergs exclusive conversation with dallas fed chief robert kaplan. And we are keeping an eye on macau, president xi jinping arriving for a threeday visit to mark the anniversary of the that returnedony to china in 1999. This is bloomberg. Matt welcome back to Bloomberg Markets european open. We are 14 minutes into the trading day. We have live pictures of president xi jinping arriving for a threeday visit, marking fridays 20th anniversary of the former portuguese colonys returned to china in 1999. There is macau, that was the colony. A gambling capital of china. The Bloomberg Business flash from hong kong. Latest nordic lender implicated in a moneylaundering scandal. It is exploring fines against the lender, figures were published showing 90 billion of nonresident money flowing through its operations. A third of that is suspect. Seb says it has not seen the preliminary assessment. Tesla is considering cutting the price of its china built cars next year. The price of the model three sedan could be slashed by 20 or more. Is falling in china. Sales of electric vehicles have fallen for months after the government scale back subsidies. For has won Court Approval wildfire settlements. Win overs to californias governor. Last week it drew a review from the governor who said the plan did not comply with state law. The company says it is in negotiations to resolve the differences. That is your Bloomberg Business flash. Thank you so much. Fed officials are stressing rates are on hold unless there is a big enough shift in the outlook for the u. S. Economy. The comments reinforced last weeks message that policymakers believe they have done enough to support growth. We speak exclusively to dallas fed cheap robert kaplan. We will have week manufacturing, sluggish global growth, sluggish business investment, with a strong consumer, there would have to be some Material Change for that outlook. Matt lets get back to dan kemp , cio emea, Morningstar Investment Management, our guest cohost for the hour. What is your view of the u. S. Economy . How do you see it in 2020 . , we as we look at the u. S. Can take some cues from the economy, there has been some form of slowdown that was supported by the fed. What is more interesting to us is the valuations that are baked into asset prices. It seems to us that when we look at consumer focused stocks and the technology sector, we see a lot of good news baked in. As thefuture plays out dallas fed governor suggested it would, and we have that strength in consumer weakness elsewhere, the stock market seems position for that. However, if we have any weakness in the consumer, it seems there is a lot of optimism baked into u. S. Equity prices. It is a question of whether we have a mixed economy as suggested, and how that is affected, or if we have some surprises, either surprising strength which could boost outoffavor stocks, or weakness which could take the shine off those consumer stocks. Chart that shows the bank stress indicator has been falling because we have made progress, or understand progress is being made on a phase one trade deal. Whatthis backdrop, given you said about valuations, are you cautious enough on valuations to go outright bearish on u. S. Equities . Or are you not as in favor of those . Dan absolutely. We see some spots in the u. S. Economy that we like, generally one of our lowest conviction weitions in the sense that can see more attractive opportunities around the world. We are holding far fewer u. S. Equities than we would normally the, and that reflects valuations. We are seeing that reduction in financial stress, and that survey is already reflected in the price of most u. S. Equities. Matt you will stay with us a little longer, dan kemp, cio emea, Morningstar Investment Management. I want to show you again president xi walking down the plane,pet of his arriving in macau for a threeday visit. It marks the former portuguese colonys returned to china in 1999, and has since become the gambling capital of the world apparently. Overtaking las vegas in terms of. Onthly gambling revenue way back in the beginning of this millennium, macau has done quite well since it has been in termsted into china of producing revenue. You see president xi shaking hands with the local delegates. Thanksy assessment to my colleagues percent of data on this the size of the Gaming Market in macau is eight times as large as in nevada, which seems phenomenal. The Gaming Capital of the world. We linger on these pictures of president xi arriving in macau marking the 20th anniversary of the former portuguese colonys returned to china in 1999. This is bloomberg. Matt welcome back to Bloomberg Markets european open. You are looking at live pictures of chinese president xi jinping speaking in macau ahead of the 20th anniversary of the portuguese colony returning to china. Capital ofambling the world in terms of revenue. 10 times higher revenue every month in macau than nevada. You can check out live go if you want to see more of president xi speaking in macau. We will keep you updated on any important headlines. Lets get you to Annmarie Hordern in london to walk us through the big stock stories in this early session. Annmarie a lot of corporates to keep an eye out on, peterson up 3 . A change at the helm with the ceo stepping down. They are shutting the remaining stake in random house. Has lost nearly two thirds of its value this year. 0. 8 , another sign of consolidation. Olson plunging down 14 . It is the fourth profit warning for the company in a year. No doubt why it is down. They are ending the year on a bad note. Thank you to Annmarie Hordern. We are still watching live pictures of president xi speaking in macau talking about future developments, and it is a activity in protest hong kong. That is what we do not see in macau. , cio emea,o dan kemp morningstar investment thoughts on the chinese economy and what they need to do to stimulate or not at this point in the cycle. Challenge facing the chinese economy is the ongoing transition from being an export economy to a Capital Investment economy to a more traditional consumer economy. The challenge for the government is promoting that consumption. There is definitely some uncertainty around whether the company will be able to make that transition, and how quickly it can make that transition. Concerns that the headwinds provides, but it is just not about the economy but valuations. Matt thank you so much for joining us, dan kemp, cio emea, Morningstar Investment Management. He will continue the conversation with us on Bloomberg Radio at 9 00. This is bloomberg. Matt welcome back to Bloomberg Markets european open. We are 30 minutes into the trading day. I was happy to be with you yesterday in london, and i am happy to be back in berlin, there is a lot going on in thean data, including , andr we will get to see how concerned consumers and businesses are about this economy. Anna interesting to see what we note on the European Equity session as we wait for that data. U. S. Futures are positive. In terms of sectors, to the upside, the media sector. Pearson is the biggest gainer. They have decided to sell the remaining stake in penguin. It is not just pearson on the rise. A move higher in that sector. Relx adding more points. Also to the upside. Lets get a first word update from hong kong. Plunging after a fourth profit warning in a year, and it is raising questions about the stereo makers future. Sales were considerably lower than expected. It sees fullyear revenue down as much as 18 . Investors will not get full details until january 14. Prime minister Boris Johnson will not attend next months World Economic forum in davos. Is branding his administration the peoples government, and we have learned they do not want to undermine that image by the sign of the Prime Minister with the global elite. Johnson has not been against attending the summit, he went twice as mayor of london. The trump administrations plan to bolster enforcement of irans sanctions has driven oil exports to unprecedented lows. It plans to increase pressure on shipping and production, the next plan to squeeze irans economy. No choiceo give them but to negotiate new limits on its nuclear program. The u. S. Has little leverage to , avent the gas line project rare admission of failure after years long effort to prevent what the administration think is a threat to european securities. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Anna thank you very much. Lets get back to one of our top stories of the morning. Chrysler shares pushed higher at the start of the trading day. They agreed to combine in a deal that will make them the fourthlargest auto manufacturer. Chief. Et to our bureau we see both of these stocks moving a touch higher at the start of trade. We talked about the rationale and why this is necessary, why this is being done. Fearing thisto be combination . Which Companies Globally have the most to lose . Question thatood i think every investor is asking this morning. Lets take some numbers on the table. Carmaker, 8. 7gest million cars a year, clearly they are big in europe, number two in europe after vw. Marginosted the profit number that has been posted more by premium carmakers. Who can potentially have an issue in the region, probably the other french one, renault who was in talks with fiat before they abandoned the offer for renault. The first answer is renault and the other carmakers. Then we see what will happen in the u. S. , which haswith jeep. Ncreased the u. S. Margin field to playger with, and probably the other carmakers should start having a strategy. Eir bit i love to look at the data on market share and production. You can type bi go to get all this great data on the bloomberg. The bigger carmakers, toyota, and just in terms of sales, if you look at the data of market cap, there are a lot of carmakers that are bigger. Daimler is bigger, even bmw is bigger in terms of market cap. Have tos peugeotfiat do to boost the 46 billion market cap number up to 50, 60, 70 . What do they have to do to grow in that sense . Differentket has two stories. Dataot, if you look at the , the market cap in the last few , they managed a turnaround. Fiat which is worth about 20 billion was close to 30 billion. Bout a year and a half ago the new leadership with the new difficulties the industry faced in the last couple of years, fiat brought the market cap lower. They can bring back interest from investors to a growing company. He needs to improve fiats business in europe, and the big question is, are they going to make it in china . If they start selling cars in china, that will be an interesting prospect. Matt thank you very much. Biave clicked into the market share, and volkswagen in the orange is the biggest. The gray is all the others. In green you can see renaultnissan. If the oped combined with them, it would have leapfrogged everybody else. It is interesting to get this reallytion from bi go easily from the bloomberg. To u. S. Ts pivot politics, because President Trump has accused nancy pelosi of turning the house into a medieval star chamber. That is a court known for its abuse of power. He last out in a blistering sixpage letter and laid out his defense of the charges he abused his power and obstructed congress. The house is set to vote on impeachment this afternoon. What was your main takeaway from trumps letter . I think the main takeaway is trumps defiance. A are seeing trump go in characteristic away, he is potentially about to be the third president in u. S. History to be impeached, and he is coming in saying this is a sham in his view, and a partisan exercise, illegitimate, does not have any basis in legitimacy. Trump, characteristic what we have seen from him time and again, but breaking president ial article in tone and length of the letter, and some of the accusations he leveled arenst nancy pelosi different from what we see from most president s, but that is trump. Remember the democrats were saying the same thing about the impeachment of bill clinton, but he wasnt. Bill clinton was not saying any of that publicly, even if he was angry about it privately. It is an interesting contrast if you look at those two impeachments. What will you be looking for in the house about . Will it be completely along party lines . Will there be some republicans, more than a handful, or are we only looking at a few rebels . Will there be any democrats that voted against it . We know there are two democrats who will vote against it, one who will not be a democrat anymore. There are 31 democrats to watch some of those elected in 2018 in districts that trump won in 2016. Hey fear political fallout those democrats will be the most interesting to watch. We will be watching republicans to see if anybody breaks the party line, but it has been fascinating to see her unified trump has kept the republicans in the house and senate, keeping everyone in lockstep behind him even as half the country think he should be impeached. We have not seen a big change in republican support for trump or the opposition to impeachment. To maintainowed him this level of support. Anna it is worth noting that this builds to proceedings in the senate which are likely to go in trumps favor. It would take a super majority, nobody thinks that will happen. Anna thank you so much. Agreement landmark over green finance regulations. We will discuss what it means for investing. This is bloomberg. Anna welcome back to Bloomberg Markets european open. Things have turned around a little bit, but still some u. S. Futures flat to positive. About something different, the European Union reached a landmark accord on green finance regulations. The socalled tax is a centerpiece of the eu plan to see which can be sustainable as investors look for greater clarity on how to address Climate Change in their portfolios. Pictures ofng live Christine Lagarde speaking in frankfurt. She has been known to talk about Climate Change, but she is speaking on different matters this morning. We will bring you anything she says of interest. Listen to what is being said. Ecb, and all along your leadership in terms of thinking, in terms of exploring new concepts, in terms of adjusting to the situation. A powerful leader in mario draghi, but when he pronounced those now famous words, there had to be people in the back of the room who crunched numbers, looked at how the pipes worked, and how it could be most efficient to deliver on the mission he tasked you with. Also thesty, but leadership you applied to the process. It is only today that is recognized in the presence of your friends and colleagues, some might not have agreed with you at the time, and some might not have agreed with the measures taken, and some might not agree today, but there is a general consensus that thank goodness it was done at the time. Part due too small whichd the implementation was never at a safe place. It was there but never used. If the lawyers are happy with it, we should all be happy. Yousecond memory i have of is almost a foreign minister of president draghi. I do not think there was one single g7, g20, one of those many meetings around the world to address the financial crisis that you did not attend. It thing that you all know, is not that he did not attend, but he attended in full. Meetings were at 3 00 in the morning, many had left, including myself occasionally. He was still there checking on the wording, making sure the intentions that had been expressed by the leaders would be delivered. Not many of those ambassadors actually do that. Your resilience, your instancesing in those was remarkable. The last thing i would like to modesty, you, your your humility only rivals your intellectual power. And your capacity to lead other people. Those combinations are rare in people. Not only are you intellectually powerful, and the many books you published together with friends attest to that, but you are capable of inspiring other people around you, empowering of not onlyd you, giving good speeches about diversity, but promoting diversity on your teams. The panels, as you will see later today, are very diverse in their composition, that is testament to what you really believe in. Is worth whatal they can accomplish if given a chance. For all that, thank you very much. I will miss you, many others will miss you, but we will see you around. To go toten have brussels, so we will see you again. Thank you. [applause] lagardeat was christine to theecb paying tribute ecb board member as he departs his role. Her personal reflections. Up next, we will get into the conversation about bsg investing, and we will be joined by the head of research to talk about that. This is bloomberg. Matt welcome back to Bloomberg Markets european open. We were looking a few minutes ago ecb president Christine Lagarde speaking at an ecb event honoring a board member retiring in frank for. Now you see mario draghi giving his words as well. We will bring you any headlines, although i am not sure how much news the former ecb president will make today. If he does, we will bring it to you. Earlier this week the European Union reached a landmark accord on green finance regulation, the socalled centerpiece of the eu plan to decide which investments can be considered sustainable. Lets discuss with yo takatsuki, head of esg Research Active ownership, axa investment managers. Us andou for joining standing by while we watched those words. What do we know about this . Whiche eu ruled investments can be considered green and which cannot . Yo there will be a little bit of waiting over the next month exactly whattify that final piece will look like. That this wills happen. It is important that it happens because over the past 10 years we have been thinking carefully about what is structurally sustainable, how can we define amongst ourselves what belongs in a world of low carbon economy. West it has been a wild for many different players to define the parameters. What is been working on not green bonds, but allowing companies who are not green to become more green. Explain the way this works. Yo the big challenge we have to meet the paris accords is not just about focusing capital energyions to renewable anna abandoning the others . Yo the postworld war ii economy has given us great disparity but has come at the emissionsgh carbon and social risk. What we want to do is focus on the transition, the change the real World Economy needs to make. Anna how does the Insurance Industry look at this sector at the moment . We talk about bsg risk more now with investors, and guests who come on. The Insurance Industry has to make decisions. Are we in a danger of creating more on the investment side, but what is clear is that insurance are longterm asset owners. When we make investments on fixed income, we are making it for 15, 20 years. Some of these risks we are , theyg in our portfolios are actually around the longterm risks we talk about, Climate Change, societal inequality. Issues around public health. That is why we believe it is powerful to be considering and integrating this more actively. Matt thank you very much for your time. Yo takatsuki, head of esg Research Active ownership, axa investment managers. That is it for the european open. Stay with bloomberg television, up next you will see surveillance. Anna and i are going to radio. Tune in on dab Digital Radio. Former ecbith president , mario draghi. [ dramatic music ] this holiday. Ahhhhh ahhhhh a distant friend returns. Elliott. You came back and while lots of things have changed. Wooooah woah its called the internet. Some things havent. Get ready for a reunion 3 million light years in the making. Woohoo yeah francine will europes new car giant be able to take on the world . It upgrade for the u. K. Two credit agencies boost their view after Boris Johnsons election win. Be set tomp will become the third u. S. President only the third u. S. President to be impeached. Francine this is bloomberg surveillance. Markets, a lot