Madrid want to dance . And the chancellors confession. Merkel reaches a cover must with her csu allies on a migration cap. Well make to the green party at 8 30 on the wider Coalition Talks. Matt we have a half hour to go until the European Equity markets open up for cash trading. Taking a look at the futures trade this morning, we see gains with the exception of the ftse. Tehe dax futures, the cac futures, up 0. 2 . Take a look at the bund trade here. Here is a chart of the last three days of the yield. It came up substantially yesterday and is now back down a little bit. Pesky462, the bunds stuck in a tough range. Guy there are two other big stories we are watching. The chinese market, bouncing strongly. The banks really reacting. We are playing catchup. We have had the golden week holiday, but we had that rrr story we were factoring in as well. The hong kong prices are getting priced in for bradley. The china market and the equity market, the upside, but on the downside, we have this turbulence on the southern flank. The turkish lira, certainly under pressure. We are talking about a nato country here having a massive diplomatic spat with another native country, america. Story, a difficult something the market will pay a great deal of attention to. They goes to the heart of the e m story as well, what is happening with the dollar. Plenty to talk about. We have got turkish equity futures opening up right now. We will talk about that as well as we work our way to the equity open. Lets get a bloomberg first word news update. Reporter lets start with the United States. A senior republican senator said toald trumps threats other countries could set the nation on a path to blood were three. Iii. Path to world war this came aftert a series of insults betweenhe president and the tennessee senator. Rally in barcelona over the weekend, a Senior Member of the Catalan Administration has called for dialogue with madrid. The Regional Foreign Affairs minister warned that all of europe faces damage. The olive branch came as the catalan president spoke. Angela merkel has agreed to an annual cap of 200,000 net migrants to her country. It is the first policy fallout from the recent election where support fell to the lowest since 1949. Opec secretarygeneral says output restrictions are rebalancing the oil market, but further steps could be needed next year. The current cuts expire in march and there is a growing consensus that extraordinary measures could be required to ensure stable prices through 2018. Theresa may has triggered speculations that she could shake up her cabinet to reassert her authority and end infighting that has put brexit talks in jeopardy. She told the sunday times, she is not one to shirk a challenge analysts are questioning the future of Boris Johnson, who is seen as being out of step with government policy. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Bloomberg. Guy, matt . Matt thanks. An escalating diplomatic spat between turkey and the u. S. Has tumbling, most notably low against the u. S. Dollar. Visa services have been suspended for citizens looking to visit the other country. Relations between the countries took a nosedive, following a arrestedational being after the coup of president erdogan in july. We are joined now from the sample. It is beyond me why washington would care that much about the arrest of a Turkish National, even though working at the u. S. Consulate. Why is it so important . Reporter this latest development is deeply disturbing, a development between two nato allies and f riends. As you said, last week turkey arrested a Turkish National that worked at the u. S. Consulate in his symbol, saying he allegedly had ties to the failed coup attempt that took place last year. At the time, washington said this development was deeply disturbing and damaging to bilateral ties. And this is exactly what we are seeing now. This is a shocking turn of events. A few weeks ago President Donald Trump praise to the turkish leader, saying president erdogan was becoming a friend. This is unnerving for investors. The lira hit a record low against a basket of currencies. It has depreciated as much as 6 against the dollar. Its currently recovering slightly at 3. 68. Its headed for seven days of declines and its worst losing streak since may, 2016. This is not the only worrying factor for the turkish lisa. Last week it depreciated the most by far in any emerging market currency and this was mainly due to the Federal Reserve signaling it would raise rates further this year. Guy great stuff. Thank you very much, indeed. Lets talk about the market reaction. Singapore. Mark cudmore joins us from there. Mark, to a certain extent, this story adds to a story that has been there already. The market has been getting nervous over the turkish lira over the last few weeks. This is the latest piece of ammunition. Matt absolutely, and that is why it is slightly worrying. The only aspect that are suffering are turkish assets. There is very little spillover to other markets. Turkey has been slightly weakening in the last couple of weeks, along with other emerging markets and turkey has been vulernable because of the high inflation print. It has one of the largest current account deficits in the world and it is not great when you have a large cardica deficit , but suddenly higher inflation means you are not offering real yield. That is why investors started to move to the exit last week and i think it will become a stampede this week. Investors a very complacent in emerging markets, but i do fear a risk of contagion, especially when we see a strengthening dollar and higher u. S. Yields. Matt i we really seeing a weakening lira against the dollar, or is it more of a dollar story . This spat does not really some of donald trump has a problem with erdogan. And sounds like something the state departments are dealing with. Matt turkey is not at a record low against the dollar, but the eurodollar basket, and that is relevant for turkey. Germany is their main trading partner, not the u. S. A lot of their debt is actually euro denominated. Does matterlar here. The turkish lira is that a record low today against the basket and that is why it is vulnerable. Guy im curious about how this week is going to develop. We have a current account data coming out. The cardica story has been going rong direction for a well. We have a survey pointing to a sharp bounce back in the current account story. We are going back quite a long way. That survey turns out to be correct and a current account deficit narrows significantly, as the survey suggests, is today a buying opportunity . Mark i think it might be too early to be too brave. Certainly early, turkey has positives. It has a strong growth story and offers high yields. The debate is whether or not those yields are high enough right now. The current account deficit is funded by hot money. In the last few months, local investors continue to purchase fx, and sell the lira. Clearly, locals are not as convinced by the local story as they used to be, and that is a weird dynamic, because of 15 years, used to be that whenever the turkish lira started to strengthen again, the locals would hasten the high yield as well. Normally, locals of the biggest believers and the emerging markets story but this time, they are worried about the domestic dynamics. I dont think we could say this issue is over yet, even if we get no change on the cardica deficit number. Matt what about chinas role, and the role they play in all emerging markets . Could we see a political pboc shift change the way emerging markets are dealing with Currency Pairs . Mark well, it is interesting that you raise that point because one of the big things we have seen this mornings emerging markets have not reacted to turkey and they have it much more positively and it is showing the increasing influence of china on emerging markets, becoming the most important country for trade. It is the most important country for trade for many of these countries. Lets not worry too much about what the dollar doing, but lets worry about how china is doing. The china story provides confidence. The thing to worry about is, most of the debt for the emerging markets is in the dollar. So, the currencies of still matter, but the growth story revives a positive dynamic. Up, thet as a wrap treasury market will be closed stateside to give us a moment about what is happening in the us. S. The market took to the story on friday, saying, lets ignore the headline number on the payroll. The dollar treasury yields are increasingly becoming correlated. You pointed that out this morning on the blog. What happens next . Is this just grind higher . I know you are longterm bearish on the dollar, but in the near term, what is the outlook look like this week . Mark the more and more investors they are going to go, lets ignore the terrible headline number, we can dismiss that because of the hurricane, it doesnt matter. It seems investors wanted to buy into the positive story. Those which numbers are really good and people will start buying into the narrative that maybe the fed is right. Maybe inflation is coming through. Suddenly they will start focusing on the fact that the fed is determined to hike rates in december. Maybe then they will start pricing in that this is not the end of the cycle. Maybe the fed look at as many hikes next year as they plan. The start of this year, nobody believed there would be three hikes, and we are now getting there. The fed look like it will deliver on its expectations, which is a bit of a novelty for the fed compared to last year. I do think that provides a support for the dollar and four yields. To the dollar and for yields. There is not as amazing domestic story to back it up. Unless you get than tax reform, i dont see that sudden jump or yields,he gdollar but i do see them grinding higher in the next week or so. Guy mark cudmore, thank you very much. You need that smart analysis, its good stuff. After a major demonstration yesterday in favor of spanish unity, what will be catalonias next move . This is bloomberg. Guy welcome back. We are watching turkish futures carefully. We have already seen the move we have been talking about with the lira. Now, and want to give you a heads upon the equity story. Futuresan see, sharply lower this morning. He will continue to update you as we work our way to the market open in 12 minutes time. Heres business flash. Reporter Chinese Markets are back online today in chinese bank shares have surged today, catching up with the gains seen in hong kong last week. Jumps the most in nearly two years. The nations secondlargest lender also rose sharply. Deutsche banks ceo is yet to meet his companys largest investor, but plans to do so. He will sit down with the chinese conglomerate, which has a 9. 9 stake in the german letter. He has been avoiding meeting with hna since the holding was raised in march. Two previous attempts to arrange talks failed. Hsbc has reportedly selected john flint to be its new ceo and has asked the bank of england for permission to make the appointment. The londonbased banks board approved the appointment after the arrival of mark tucker last week. Spokespeople declined to comment. Matt after a major demonstration yesterday in favor of spanish unity, the Foreign Affairs chief of catalonia said his door is open for talks. Speaking to bloomberg, he warned that all of europe faces economic damage unless the revolution is found for the standoff with madrid. If they want to come to the negotiation table, we will be there. We have always been there and there is no reason for not being at the negotiation table, whatever the situation is. I think politics is always the answer. And we got the interview joins us live from barcelona you. What are the chances we get a unilateral declaration of independence, that had been promised for i believe, tomorrow . Maria there is a procession here in catalonia. The parliament finally reconvenes. The question is, will he get the declarations . We know that they have come under a lot of pressure. The more conservative side says, just drop this, it is creating a lot of uncertainty. At a meeting on saturday, they begged him, please drop the unilateral. However, it is a Weak Coalition and the more radical fighters say, we need to do it now. The question for tomorrow is, will be get the word unilateral . It is some clear because they will not commit to deadlines, they wont commit to the content. Yesterday, remember the official we just heard said, parliament will do what it must do. The question is, what will parliament do because the law makes them quite clear . Madrid will say, there is nothing to talk about until you drop the word unilateral. We are exactly at the point we were one week ago. Guy where does it leave the movement if they decide not to go down that road with the unilateral line . And if they do go down that line, what will the Spanish Government do . It, will the Spanish Government offer them anything, because the pressure has been there . Im wondering if madrid has to do anything on the back of it. Maria at this point, you will understand why rajoy has remained so quiet. He has the upper hand. The voters were convinced, this time it is for real. This is not the first referendum. We were here in 2014 and again in 2015. For madrid, it would be a complete discredit for the administration. However, if they proclaim the independence, lets just go back to basics. Nobody actually recognizes the vote. The question is, does rajoy have to do anything at this point . Not really. He has already said, we will use the tools we need. If we have to use article 155, we will. They want to see what the Catalonian Administration does tomorrow, knowing that whatever they do will make them look good. Guy thank you very much, maria tadeo. We will continue to update you on that. We are minutes away from the market open. Take a look at the movers in todays trading. The open, seven minutes away. This is bloomberg. Matt welcome back to Bloomberg Markets the european open. Im matt miller in, berlin, alongside guy johnson in london. Stocks to watch will be a lot of banks today. The bank of england is hsbc is one of them. They need a replacement for Stuart Gulliver and they asked the boe for permission there. Guy we will take a look at what is happening with turkey today. This is what we are looking at, at the moment. Europeansome of the banks, having a little bit of exposure here. One institution that does have some turkish exposure. Just bear that in mind when you look at how these markets will open up. Weve got industrial data out of germany this morning as well. This is bloomberg. Guy welcome back. Lets take a look at the features to get an idea of where the markets are going to go this morning. I think sideways. No clear direction coming off of the futures london. The spanish market is still down by 2 and is likely to climb more than most, as you can see. Not a great deal. A clear focus on what is happening in turkey and how that market is going to trade. Keep an eye on what is happening there. Matt i am looking at the turkish lira. A great chart put together here. You can access it. One day moves in the lira. This is the biggest drop against the dollar we have seen all year. A Turkish National was arrested that worked at the u. S. Consulate. We have some strong labor data out of the u. S. Guy markets are opening. I am focusing on my bloomberg now to see what is happening. I suspect you will see some of the airlines under pressure, the Turkish Airline will be a big mover. In europe, that is the picture you are looking at. The ftse 100 just a little softer as we anticipated, trading down a little bit. We are seeing some weakness coming through there. The European Market space trading a little bit higher. Manus you have sterling managing to bounce. Oil is big. If the turkish story it is the only major emerging market that had a considerable downside on it. Look at the roundup your. You have german Industrial Production at a twoyear high. That is a nice additional piece of data. At the bottom of the screen coming you can see the turkish market. Screen,e bottom of the you can see the turkish market. Take a look at the housing data for shanghai and beijing. We are going to get more luxury tonight. A get a little bit of complexion of the touring chinese. When i talk about the pound, we have managed to bounce. Last week. September was the strongest month for cable. What happened next . What happens next . Does theresa may do something more aggressive . For major was calling policy and a shakeup. If europe really that homogenous . Falter before the end of the year in terms of a trade deal. Those are the averages. Lets see where cable goes this week. By sixt market down small points. Not seeing a huge move there in terms of the bond market. In terms of what happens next at the bank of england, b. N. P. Paribas was saying it would be folly or a policy faux pas to do so. They think we are hitting the top end of the inflation spiral. Therefore, the rational to raise rates is perhaps undermined. I am off to digital radio. Come join me there. Thank you very much, indeed. Lets take a look at what is happening with the movers. The markets just taking to the upside. Ticking to the upside. You are seeing something of a catalan affect any markets this morning. Flip it to the downside. Im would you change this to index points. Airbus the biggest loser this morning. I need to check out why. We have to be thinking of the suspect may be having an impact on peoples travel, which may ultimately impact airplanes. I could be wrong about that. I will check if there is another reason. Airbus is trading down. On the turkish story, matt. Matt it will be interesting to see why. I think the turkish story may be a stress for airbus. A stretch for airbus. Lets talk about the turkish story specifically. The lira has plunged again. The u. S. Dollar, tensions between the two countries and turkey the u. S. Have suspended Visa Services for citizens visiting each others kinder streets visiting each others countries. Working at aional u. S. Consulate was arrested by turkey for alleged involvement in last years field military coup. Lets get the latest from benjamin harvey. Donald trump has recently big upped erdogan.