These are your markets and we see a little pullback when it comes to european stocks, down by 0. 2 . S p futures gaining 0. 8 . The further correction we saw overnight is putting a little bit of anxiousness out there on the market. We spoke to a lot of market artisans and they say, look, it is too soon to see if the situation will stabilize. We will look at the opening of the was market to see if there are any tensions there. Its just too soon to make a call on whether or not the markets will be quiet right now. That is what we will discuss throughout surveillance. We will keep you updated on all the action throughout the morning. Plus, we speak to Iain Duncan Smith about how long theresa may can hold onto power. We also have an exclusive interview from milan. And later on, we hear from the chief executive of loreal. First, to the bloomberg first word news. U. S. Senate has passed a budget bill. That is as lawmakers seek to end a partial Government Shutdown that began at midnight local time. In other news, the Republican House will vote in a matter of hours. Donald trump could force america to borrow 1 trillion this year. It has been wanted this worsens the frenzy. Bank of america senior u. S. Economist has said the federal deficit was on track to exceed 5 of gdp by 4019, by far the largest for the economy while at full employment since world war ii. Chinas factory inflation has slowed for a third month. Theducer price index Consumer Prices eased to 1. 5 . Coulduing moderation signal winning support for the global reflation trend. There are concerns over price gains elsewhere that contribute to the market turbulence. In south korea, kim jong uns sister has landed at the airport, marking the first time that a member of the dynasty has officially entered another country since 1948. The potential for week your leader of the the foot angela future leader for the the potential future leader for the hermit nation will arrive in south korea. 10 million was spent on forastructure, like roads, and the olympic stadium. 12. 8 Million Dollars was spent in preparation, which is what we expected and we did not go over budget. And because it is now easier to access east coast cities, we will attract more people to the area. And we see this in tourism and thisconomy and we see th invigorating tourism and the economy there. Nejra global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Francine thank you. We are getting news about the Credit Suisse banker that had diverted some of the money from client accounts to cover mounting trading losses this was five or six years ago. Maybe longer because he was sentenced to five years this morning. He has been found guilty in geneva. We will get back to that. He had at the time personally enriched himself by 30 million francs. Now, on to our main stocks. Endedlloff looks to have midweek has come back with a vengeance. Into declines, exceeding 10 from the january highs. We are in a correction, but what is next . Here is what some of our guests, including william dudley, told us. For this to go on much further and be much more persistent, it could affect business spending behavior. That could influence the economic outlook. So far, i would say this is small potatoes. We have had a correction and 10 year treasury notes. Those are up 10 to 12 . Of 10 year a double treasuries and that has to have implications for the rest of the Capital Markets. I would argue it is not really done because these things take time and it is hard to have such a dislocating move without wreckage around that you are not expecting. I think this is much more the great unwind. Unwind is getting priced in. This is unwinding and i think the entire market is realizing that this decline that came from qe is continuing. Francine how long can the rut continue and what is next . Futures indicate a positive start to the day. For the latest on the selloff, the chief Investment Officer for germany at ubs. Thanks for joining us. What exactly happened overnight . Hand, we on the one had a continuation of the technical selloff together with the continuous increase in the bond market. We would say this is down to technical factors rather than anybody else. We would not expect one route to have any Lasting Impact on monumental. Francine ok, maximilian, were also joined by Julian Howard here in london. Thanks for joining us. How do you see this playing out . Other than the volatility clearing out, if you look at the vix volatility curve, we have elevated shortterm volatility, but looking out to the future, it is much lower. That is a bit of an inversion from the normal state of affairs. I think there will be a normalization at the point and then we have more stable markets. Francine maximilian, are you worried that other processes would be affected. It started in the vix, and it has touched equities. What comes next . Maximilian well, we have nothing massive moves with volatility in other currencies. More importantly, we have not seen any major deterioration of economic macroeconomic and microeconomic fundamentals. We have seen this will not occur anytime sin and that in turn should mean that fundamentally Financial Investors should step into this market and support the market Going Forward. Francine do you agree with that . Julian i tend to agree. On monday we had Chinese Service pmi numbers, which were positive. Today we have the chinese ppi numbers, which are pretty good. China is actually going through a goldilocks period. Global growth is good. This is a technically driven issue. There will be a clear out period. At some point, there will be an option for investors to buy into this market. Francine do you buy into this market, maximilian . And a do you need a further correction to then buy into it . Maximilian we continue to be risk on. Efore, having followed our advice completely, Global Equities are moving to equities further and further. Yes, this is a buying opportunity. Will this materialize within the next couple days, i have no idea. Over the next six months or so . I am not sure. Francine maximilian. Im try to figure out if there is a canary in the coal mine or something you are looking at as a sign to buy. Maximilian what you typically have with canaries in a coal mine would not be this lasting correction. Companiestment from and it evaluations in equitiesk for a major deterioration over investment from companies equities, orons in a major deterioration in terms of earnings growth. Looking at the current earnings season, it looks strong. There are very strong sales Growth Numbers and Going Forward also, we expect very strong earnings numbers from Companies Across the globe. Francine julian . Julian for me, it would be unwarranted contagion. That is the signal to get back into the market. You have to ask yourself, is growth ok . Are these rates stable . I think the answers suggest this is a stable and fundamental market. If it is selling off because people are trying to raise liquidity, that is a great time to get in on the other side. Francine what happens if it does not affect the trademark significantly . Julian there could be a contingent into the longterm borrowing rates. That would be problematic, but at the moment, i think growth will prevail over time. We have seen this in the shortterm, and only a few weeks ago we had a working paper which talked about the longterm return of everything from 1870 to 2017. It reconfirms the case for equities. But if you cannot handle volatility in the shortterm, then the market is not suitable for you. Francine we are looking at some of the market here in europe. The ftse is positive. We are not losing anymore. X, is it different in china vanke ithan in the rest oe world . Maximilian we have to put it into context. Last year we saw a returns close tage higher. What we are seeing there is quite a healthy correction. What do you make of china, julian . Julian i think china, and emerging markets more generally, is taking the air out of the credit market. I think these are healthy development. I think e. M. , because it has sold off the heart. This is an option to keep your allocations, or selectively add to. Francine do you think a lot of this market turmoil will lead to the fed not raising Interest Rates as much as they said they would . Themilian i dont think Federal Reserve will be changing its stance on Interest Rates. We were just talking about how financial conditions continue to remain good. So, if you are not seeing a major blow out in terms of highyield spreads, they will continue the gradual tightening path this year. We will see three hikes this year, 25 basis points each and 25 basis points next year. What would be more concerning was if the Federal Reserve would purchase more on inflation, in terms of asset price inflation, as well as cpi number is going higher. I do not think that is going to happen. That is clearly something we have to watch. Francine what about you . Julian Stock Ownership among u. S. Retail investors is pretty low. Its 15 of the household that has direct stock. That means the fed does not need to respond to a perceived damaging wealth effect. But on the political angle, donald trump has been touting this great stuff market and has been talking about how wonderful it is. Then starts to come off, maybe some subtle political pressure to bear. Obviously, the fed likes to see itself as independent, but we do not know how this will play out. The stock market has been central to the trump message. The white house only one week ago said it is all about the longterm. They do not want to look foolish either. If we had a more sustained correction, i think they will want to limit the damage and they can apply pressure in certain ways. Francine thank you, Maximilian Kunkel from ubs and Julian Howard stays with us. Stay with surveillance, plenty coming up. Lawmakers in d. C. With a key deadline. Plus, may is not for compromising. We spoke with duncan smith about the premised ares ne prime miw hard line on brexit. This is bloomberg. Francine markets, economics, finance and politics. This is bloomberg surveillance , and im Francine Lacqua in london. We did see a sharp selloff overnight. A little bit of the european stocks recouping some of their losses, coming back from intraday lows. U. S. Futures, well in the green. Bit lower,0 a little a touch lower, but pretty much unchanged. Italy is also lower, but less than it was before. If you speak to a lot of participants in the market, the pattern of trading suggests it is too soon to make a call on the market stabilizing. We are watching this closely for you to get to the bottom of what exactly happened, but it is too soon to call the end of the correction. We will get plenty more on your markets shortly. But here is nejra cehic. Nejra broadcomm has urged qualcomm to meet with them this weekend. This is after a rejected raised bid, saying the hostile offer materially undervalued the company. In response, broadcomm reiterated that this was the offer it final would make. The profit for next year will grow as much as 43 . That is after the owners of the worlds figure shipping company fell short of meeting expectations in 2017. The company said 2018 will have 5 range of 4 billion to billion. This will do well in most economies around the world, but 13 of existing capacity is currently under construction. So, if markets continue to grow have a relatively good position from a supply and demand perspective. Nejra the turmoil surrounding wynn resorts is unlikely to translate into a big acquisition in the casino industry. That is according to the ceo of rival mgm resorts international. We spoke about the huge opportunities he sees opening up in japan. We consider it to be quite as large as the singapore market in the market on the las vegas strip. Mgm has been here now for about iree or four years and personally have been up and down the country many times. Mgm, with a group of Japanese Consortium partners, is willing to invest upwards to ¥1 trillion for that opportunity. Nejra that is the Bloomberg Business flash. Francine the Senate Passed a two year budget agreement that would boost spending by 3 billion and suspend the debt ceiling for a year. A partial shutdown began at midnight d. C. Time after congress missed the funding deadline. What is next . Stephanie baker joins us with the latest. Julian howard is still with us. Stephanie, the partial shutdown, first of all, was because of a republican senator, rand paul. Concernedy, are we all the time, or just when we are in the minority . Stephanie that was a preview of what we will see in the house this morning. The spending bill they passed increases spending by 300 billion over two years, increases military spending and mustek programs. It al and domestic programs. It also blows up the deficit. There are republicans in the house that are concerned about this and have said they will vote against this bill. You also have democrats in the house who have said they will vote against this bill because they still do not have a deal on immigration. And House Democratic leader nancy pelosi warned house leader paul ryan to guarantee and a schedule a vote on immigration before they sign up for this spending deal. It is unclear how the votes lin ue up on either side. You basically now have the republicans and the democrats split, not just between themselves, but between their own parties. Francine so, if it passes through the house, funding will come back just in time when workers, i think, arrive at their jobs. If it doesnt, it is the second Government Shutdown in two or three weeks. What happens after that if it does not get past . Stephanie i think it gets kicked back. The house, they need to sit down and work out a compromise. People are now saying this is really in paul ryans hands. All he needs to do is schedule this vote on immigration. Hes said, im not going to schedule a vote on immigration until we get the spending bill passed. I will not schedule a vote on immigration until we have a bill that i think trump will sign. He does not want to come up with something that will be vetoed by the president. This is his view on how the november midterm elections are affecting todays politics. You have republicans in the house that are worried about however they might vote on this immigration bill playing out in november. Francine julian, what does this mean . If you look at this and sa y, im an investor and congress is dysfunctional, does that mean you take a position on the markets question mark would you say, i am ignoring the dysfunction . It does get resolved and people eventually get back to work. But stephanies point about the deficit is interesting. There is a really good chart you can run against the yield curve in the u. S. , as the deficit rises, the yield curve steepens. Back in the territory of long rising Interest Rates being pressured by a higher budget deficit. The neck it is him for that is risk premium on the u. S. Treasury market. Is ae premise for that risk premium on the u. S. Treasury market. Something we need to watch. If we get higher rates the last week as shown the market is already nervous about rising bond yields. Deficit could add to that pressure. Francine we are just getting pictures as the house continues to vote. That will is the rule set up the vote on the final passage. And the third will be the final passage, but we do not have a timeline yet. What is the probability of this passing because it has already gone through the senate, stephanie . Thehanie i dont think fact that it has been approved by the senate means it will go through the house. The, like nancy pelosi, she was digging in her heels. He gave this remarkable eight hour filibuster speech on immigration in four inch heels, showing how committed she is to this. Again, this is four republicans to embrace this bill is quite different from their position historically. Just under obama they had been arguing against anything that would add to the deficit. This spending bill on top of the tax cut will blow up the deficit like something we have never seen before. I think conservative House Republicans have very clearly come out and said, were not voting for this. Whether or not they can get enough votes from both sides of the aisle remains unclear. Francine are you worried about the risk of overheating . Julian not really, because if you look at wages, they will pick up, but there is still a very low participation rate. I think Jerome Powell said himself, look at the participation rate. Until that picks up again, we should not worry about labor market capacity. I think theres some slack still 4ft not a lot, but Million People could be added to the economy until you get a spike in wages. Francine are you recommending to buy anything in the u. S. . Bonds also look pretty expensive. Are they in a bubble . Stephanie now, i think they are on a gradual trajectory. Two years ago, we talked about a bond supernova ready to explode. I dont think it will be a supernova. I think it will be an orderly move upwards and that the equity market can withstand it, as long as the terminal rate is no more than 3. 5 on the 10 year. To julianthank you howard and Stephanie Baker. We are watching developments from the white house and concerns from the Trump Administration, including the tough time for john kelly. This is what the markets are looking at. I think a lot of the stories today will be on the market. This is the picture for europe. We did see a correction, especially starting in asia. China was down some 5 . A lot of people in the market say the pattern of trading this week suggests its too soon to make a call whether the market is stabilizing. There was always a move towards calmer markets in european hours, but the selloff began aga