The stock up close to 100 this week. Is that a squeeze or a fundamental reevaluation . We have seen travel stocks really rising quite sharply this week. Lets take a quick look at the european markets. Theres a bunch of factors i want to focus on, plus a global view of what is going on. You can see what is happening with the chinese currency. 0. 5 ,an stocks up around pretty much matching the gains in the united states. We are watching stimulus pingpong. Italian 10 year, there it is. Some pretty big moves over the last few days. Then weve got what is going on with the chinese currency. China back today from golden week. A huge bid in terms of equities and the currency. Will the pboc squash that one . We will wait and see. Europe focusing on what is happening with the lockdown story and what is happening with the bond markets. Lisa the pandemic ongoing, leaders stepping up to contain the surge in virus cases across the continent. Bloombergs maria tadeo joins us with more. What do we know . Maria we know the government of spain has put the city of madrid in a more restrictive lockdown for the next 15 days, and that its in an effort to try to contain the coronavirus. What i would say is that the situation in particular in madrid is very different to what we are seeing in other places in europe. This is really a national story, very much about the politics and about the management that has been going on in the city of madrid for two weeks. It has been a political football in the national government, the regional government. I would stress it is a mistake to try to do a read across and madrid to the rest of europe. This is a very particular city. What we have seen across europe is a number of infection spikes, and warnings from european governments that this is a second wave, and we are going to see inevitably more restrictions. Theres no sign of a National Lockdown happening anytime soon anywhere. Guy maria tadeo, thank you very much, indeed. Lets talk about the Market Applications of all of this. Chiefbaweja, ubs strategist, joining us now on the line. Yesterday, greek 10 year hitting a fresh record low. Today, italian btps hitting fresh record lows. Given what is happening with the virus, with the economic data, is that a real different is that a real reflection of what is happening in europe right now . Bhanu in italy, i suppose it is, because politics have also changed. That makes a very big difference to how the market perceives risk in italy. Marketsident of the thinks that europe has brought a fiscal impact as well, so it seems to be the view that the market is taking, but that view is completely and entirely underpinned by the pepp. Phere were hopes that the pep would be extended. Dominant factor here in these markets, as in every market, including the s p, has been liquidity. When philip lane says we are going to add more liquidity, that just squeezes the spread even further, and that ironically helps the euro. At this moment, i think you will probably continue to see the spread under pressure. I think the big question is going to be when we normalize. I think normalcy for europe will look at different will look a little different to the u. S. It would be a different situation for the spreads. I think that is the situation when the risk premium picks up. It is not a time to sort of go aggressively short italian spreads. If anything, i would argue that btp spreads can come in further the tip to spanish spreads, given some of the problems spain is facing right now, not just in terms of the virus, but the overall economy. I think that spread can drop another 20 basis points. There any risk of perhaps a disappointment when it comes to the fiscal marriage and the happy talks around the increasingly tight european union, the idea that the fiscal plans will come to fruition as people expect, and there could be more pushback in terms of normalization sooner than later with the ecb . I think there is a terminus risk of that happening once we come close to the end of the pepp program. The view the market seems to be taking is that fiscal dominance is in fact the issue that Monetary Policy will become subservient to. But fiscal dominance is only an issue if you believe that fiscal is a european problem. If it is a national problem, if germany think about it in a different way than italy things about fiscal, which i think the , ility is actually that think that will get found out only when the liquidity ends. I think it will be difficult to fight that trade ahead of that. In my mind, it is reasonably clear that the fiscal compact isnt here, and the market is getting ahead of itself. You can play that trade today if you have very longterm horizons. If you have two month horizons, i dont think it is advisable to go short. Guy lets talk about the transatlantic trade. Why are we seeing the spread widening there . Why is the u. S. Market selling off and bunds catching a bid . Is that a sustainable position . Bhanu lets see where we are coming from to understand where we are going. In the last two years, almost exactly two years, u. S. Real rates have dropped 210 basis points. German real yields have dropped about 15 basis points, just to give you context. The pen has done zero. Stimulus inendous the u. S. System, but fiscal, and particularly monetary, so real yields have completely come in, and that is why there is more inflationary impulse. When you look at the net issuance in the German Market and the italian market and the u. S. Market, the u. S. Market has much higher net issuance. The net purchases from the fed has much higher issuance, and that means the supply is going to lead to term premia increasing slightly. Third, with the election, i think there is this view, similar to my point earlier, i think this would be the wrong view, but there is a view that inflation is going to pick up aggressively with a blue sweep. Inflation expectations therefore could rise another 10, 20 basis points. That is another factor leading. O that spread i think that can widen a little bit more. But certainly one of these reasons, which is inflation, i dont think Inflation Expectations will sustain. I think that will eventually come a little bit lower. Inflation expectations are already high. Inflation may push them a tad higher, but i really dont think that is the trade for next year. Lisa lets build on that, because that is a somewhat contrarian thesis. Are you predicting deflation in the u. S. . What does that mean in terms of yields and where they are currently . Agree that this is the question. I think this is the fulcrum of the markets. I disagree that inflation breakevens coming lower is the same as deflation. Inflation breakevens cycle hi high was about 2. 1 . As we sit here today with a massive negative output gap, we are already at 1. 7 , so only 40 basis points shy of the cycle hi. ,hen the output gap was closed at that time inflation breakevens were at 2. 1 . We were only 40 basis point away from that. If you were to drop 40 or 60 basis points from here, that does not constitute deflation. I do think there are tremendous disinflationary forces. Printsst of the cpi recovering, we have to be very careful because a tiny sliver of the overall cpi is giving you super returns. It is giving you very high numbers. But if you look at the broader basket, a much more significant component in the u. S. , that is disinflationary despite the housing bucket. The biggest point is the labor market, is wages. With the lower skill segment, i think that is where the biggest disinflationary risks lie. Therefore i dont think there is a risk for the medium or nearterm at all. Guy given all of that, if we continue to see a pickup in yield in the united states, do you think the fed stepped in and deals with it . The data may be giving us a false read on a headline level of what is happening with inflation. Bhanu that is absently right. If you see real yields that is absolute right. If you see real yields, i think the fed will step in and channel liquidity to the longer end. I think that is eminently possible. At the risk of complicating this, what we need to focus on is the gap between real Interest Rates and low rates. Real Interest Rates collapsed. Growth rates showed you a vshaped recovery. That is great for the stock market. The risk is that in the next three to six months, the growth rate plateaus and r begins to pick up as you have more and more supply. The fed would be very alert to that, and i think the fed is going to come in. If real Interest Rates rise, i dont think the fed is that concerned. If that happens independent of growth, which i think is a bigger risk, the fed will definitely come in and buy more direction more duration. Lisa you are going to be sticking with us to talk more about what the scene is over in europe. From new york and from london, this is bloomberg. Ritika the white house is once again shifting its position on a stimulus package. Treasury secretary Steven Mnuchin told House Speaker nancy pelosi the administration now once an agreement on a large scale relief bill. Earlier this week, the president pulled negotiators from talks. Louisiana is bracing for hurricane delta. The storm has picked up strength and is now a category three, with winds up to 120 miles per hour. It is expected to slam into an area still recovering from hurricane laura. The hurricane has forced Energy Companies to shut down almost all Oil Production in the gulf of mexico, and most of the gas output. British and International Banks are being warned of possible disruptions when the brexit transmission the brexit transition. Brexit the transition period ends. Global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. Im ritika gupta. This is bloomberg. Guy staying with the u. K. , chancellor of the exchequer rishi sunak announcing new support for jobs in covid hotspots. Today i am announcing an expansion of our job support scheme, specifically to protect those jobs of people who work in businesses that may be asked to close. If that happens, those workers will receive 2 3 of their wages for the time they are unable to go to work. I hope this provides reassurance and a safety net for people and businesses in advance of what may be a difficult winter. Basically, a local furlough scheme. Lets talk about the u. K. Bhanu baweja is still with us from ubs. I want to understand where we get the Biggest Movement in assets. Covid is a huge story all the way across europe. The pound is obviously going to react. I want to know where else we are going to see reaction in u. K. Assets. The u. K. Interested in inflation market as well. That assuming deal is probably deflationary, but no deal to be really quite inflationary as we see tariffs coming through in the pound getting hammered. How should i think about how some of these assets are going to be affected, and what would your expectation be . Are among. Real rates the most negative in the world, both because the central bank has been buying, but perhaps more important because Inflation Expectations have gone significantly higher in the u. K. Because of the fears of a no deal. Just about a month back, we begin to see inflation swaps price in a little lower inflation, and eurosterling volatility beginning to come a little bit louder a little bit lower, so that was the first time that the market began to think that perhaps the no deal talk is posturing after all, and eventually we are going to get a deal through. Similar thoughts are being priced into the front end. Not looking for negative rates from the boe at all. One of the biggest moves we could get if we were to avoid a no deal brexit is higher real rates in the u. K. , both because that would mean that the worst fears of the economy are behind us and we will get reasonable supply coming through as well, and you wont need to see the same degree of buyin from the boe, but most importantly also because inflation breakevens are going to come down, so fears of inflation because of a no deal brexit are going to proceed. Youre going to see a significant kick in real rates in the u. K. Were a no deal to be avoided come a much higher than you could get in the u. S. , for instance. If that was to happen, you really want to be. Looking at u. K. Banks clearly to be looking at u. K. Banks. Clearly, all financials are compromised, but there are periods for which you want to play technically. With the u. K. Banking system, some of the local banks trading at very cheap multiples, plus real yields potentially going to go up if we avoid a no deal , there is some reason to believe these provide decent risk reward. Lisa so you like u. K. Banks. Bold call. I wonder how much this is dependent on the idea that any additional lockdowns emblem ended throughout the region will be brief and will be countered with a vaccine in the next couple of months. That clearly is a risk. I would say that all of the ,ncreasing hospitalization thank god the deaths are not increasing at the same rate as in the spring. That means it will not become remised to the same degree. Lockdowns are not going to be as strict tony and and exhaustive draconian state as and exhaustive across the state. Growth continues. We are hoping for a vaccine to arrive, but a vaccine is not dont to solve the worlds problems digitally. But Financial Markets being what they are, which is a discounting mechanism of the future, probably will price things in digitally, and i think that is why we need to position for it right now. In fact, the disappointment of a slow release of vaccine, perhaps needing a second booster shot, all of these could mean that they sell the fact trade could be just as important as the buy the rumor trade. We dont think financials are a sector in which you want to sell your house andbuy financials house and buy financials, but there are times you see cyclical rebounds, and i think this is one of them. Guy wanted to ask you a question about what is happening in asia, and pivot away from europe to asia. Two or three months ago, everybody was excited about europe. We had a deal that was going to deal with the redenomination risk. That has definitely faded. Talk china. Golden week is done. China reopened today. The currency is flying. The stock market is flying as well. Money is pouring into that market. How much longer do you think that is going to be the case . Bhanu i think money can still continue to come into china, particularly chinese fixed income. Some of this is linked to the aggregates that china is now a part of, so you will continue to see that fixed income flow. This has been coming for a while into china, and only broadening out in north asia now. Thus far, if you look at other equity markets, nine chinese equity, you really havent seen any equity flow. China has basically dominated, but for good reason. We compare the u. S. , 95 basis points, china is positive 2 . There is a gap of 300 basis points between real yields in these countries, and that is why youre getting the inflows into china. Again, i think this trade makes sense, particularly the duration trade. How far will the pboc allow the trade to go . I think that is a very important question. If you consider how far it is from a time when there is no tariffs, you are about 1. 3 away in terms of the trade weighted index. We are still recommending a long, but it is probably not a trade you would start on a clean sheet of paper. You can potentially get to 6. 50, 6. 55, but we dont expect they will let it go much beyond that. But Chinese Government bonds i think is quite an attractive trait. Lisa bhanu baweja, thank you for being with us, ubs chief strategist. I love declare of acacian. You love you kate i love the clarification there. You love u. K. Banks, but dont go selling your house to invest. More coming up. This is bloomberg. Ritika it is time for the Bloomberg Business flash, a look at some of the biggest this and the news right now. There could be a 30 billion takeover in the chipmaking industry. Advanced micro devices is in talks to buy xilinx. The deal could come together as early as next week. Xilinxnation of amd and could break intels stranglehold on the market for data center components. Shares of Water Utilities fell today according to reuters. A fridge court has ruled in favor of trade unions looking to block the sale a french court has ruled in favor of trade unions looking to block the sale of suez falls. Most american choppers say they this holiday malls season. Just 45 of consumers plan to go to the mall in november and december, down from 64 a year ago. It is just another blow to malls already reeling from the pandemic. That is your latest business flash. Guy thank you very much, ritika. Touch. Down a other european markets up by around 0. 6 , 0. 7 . Nancy pelosi indicating that she hopes to have a stimulus agreement soon. The pingpong continues. The european close is next. This is bloomberg. So youre a small business, or a big one. You were thriving, but then. Oh. Ah. Okay. Plan, pivot. How do you bounce back . You dont, you bounce forward, with serious and reliable internet. Powered by the largest gig Speed Network in america. But is it secure . Sure its secure. And even if the power goes down, your connection doesnt. So how do i do this . You dont do this. We do this, together. Bounce forward, with comcast business. Guy 30 seconds until the end of regular training in europe. The week is almost done. Lets give you a final look at what has been done. Relatively tight range. Just off session highs in europe. On the week, we are just over 2 to the good. On a currency adjusted basis, that is in line with what we have seen in the united states. On adjusted basis to the europe is up around 2. 5 . They gains coming toward the back end of the week, but both sides of the atlantic being driven by what is happening with the stimulus narrative. ,n terms of individual markets this is the story. The ftse 100 up. 6 . The dax and the cac 40 the dax is flat but the cac 40 up. 6 . In terms of what has driven the sector story this week, it will definitely be the travel and leisure sector. We have seen rotation toward some of the more value ends of the market, and the other area we have seen considerable outperformance from continues to be small caps. You take a look at this chart, european small caps at the highest relative level to the bigger markets since 1995. The market is broadening out. The value trade as part of this. Small caps on both sides of the atlantic started to play catchup. In terms of the single stock names, we will get more details on rollsroyce. Rollsroyce up around 100 this week alone. Euro buying t