Session, 0. 7 . We are seeing a decent move when it comes to the bond markets. The eurodollar trading up by 0. 1 . I want to show you what is happening. A lot of sound and fury around the middle of the session, but as it has for a long time, the pound going absolutely nowhere. We are up by just 0. 1 against the u. S. Dollar. Alix i feel like it is the same thing now with stimulus headlines in the u. S. Lets get the latest on brexit headlines. The u. K. Says talks are over. Prime minister Boris Johnson spoke on that earlier today. Pm johnson given that they have refused to negotiate seriously for much of the last few months, and given that this summit appears explicitly to rule out a canada style deal, ive concluded that we should get ready for january 1 with arrangements that are more like australias, based on simple principles of global free trade. Under in australia type deal, there would be no competence of agreement, and the bulk of trade would be done under less favorable wto rules, where both sides could impose tariffs. Joining us from london are mij Group Managing director, and judy dembski and judy dempsey, Carnegie Europe fellow. This is what we all sort of feared, a crash out hard brexit. Think the markets have priced in some of the drama we are now seeing. We are in the final stretch of negotiations, and as such, things are necessarily going to be a bit rockier. We are heading into that zone now where the big compromises are going to be forthcoming, and one should nor the eu councils conclusion. I think eu leaders talking to their domestic audiences in that context. But listen to what Emmanuel Macron said on fish. Listen to what Angela Merkel said, who is much more cautious and much more open. Look at what boris said quite explicitly. He didnt say no deal. He just said we need a change of approach. I suspect negotiations continue next week. We will see positive Movement Towards a deal. Guy judy, is your sense that talks are still on . We are going to see a frost barnier meeting this afternoon. Toy certainly the eu wants continue with the negotiation. Boris johnson has been completely inconsistent and put all of the stops over the past couple of months to put serious negotiations. Secondly, the eu does want a deal. Is pretty damaging for europe and for britain. It is back to the negotiation table, but one thing i will say here is that Boris Johnson has to decide if he is going to use the pandemic to do a hard brexit butoing to go for a deal, he is already in the blame game, blaming the eu for the breakdown of the talks because it is clear that britain has wasted so much time in coming to proper negotiations. Alix how does the pandemic play into that thesis . Dependentndemic plays into the thesis in the following ways. Says johnson can easily theres no sign of it going way, and the infections are going up, so i have to concentrate on this. But in fact, the pandemic, what is happening in britain, what is happening across europe is a european wide affair. Of the the number states eu are isolated from each other, nor is Great Britain. They all need each other more and more. An excuse not to take the hard decisions over a deal for brexit, this is johnsons decision. But to hide behind corona i thing is very disingenuous at a time when britain is going to need an appropriate trade deal more and more as it tries to get on its feet after the spend make. Guy Boris Johnson is currently speaking at 10 downing street, virus and the what is happening in manchester commode is likely to move up into tier three in terms of manchester, which is likely to move into tier three in terms of restrictions. The negotiation seems to be around state aid and fish. The u. K. Is trying to position at that if you are to give ground on fish, you do pick up ground in state aid. Does it state aid versus fish, or are these two different tracks . Mujtaba they are obviously related. I will just say on context on covid, that is propelling the government to do a deal that they have made a real mess of how they are managing the pandemic. I think Boris Johnson needs a political win, and that will ultimately drive him to do a deal with the eu. The government has moved a little on state aid and are willing to articulate what the regime they are going to implement after brexit will look like. They will accept the role of domestic regulator. There will be dispute resolutions. These are all the things europe has been looking for on state aid. The government does need to move further. It will only move further if there is an opening on fish, and based on discussions i have been having with senior french officials, officials in brussels, i do think they are preparing to move on fish, and i expect we will see a tradeoff between those two things at some point over the next few weeks. But this could run into mid to late november. Alix is the macron situation driven by merkel in moving france to one side or the other, or is there some thing is going on . Mujtaba we are all united. The 27 have been strongly united on the brexit question. They cant allow brexit to divide them internally. So i do think there are nuanced and subtle differences between their approach, but on the fundamentals, they are relying on the fun the middle. On the fundamentals. If it wants to trade on the eu Single Market, it has to accept binding and enforceable conditions in the labor market, and indeed state aid. I suspect the government, because a context, because of covid, scotlands concerns about the governments competence, they will be able to do a deal on the eus terms and avoid the risk of a no deal at the end of the year. Guy is there frustration in berlin as to the way paris is conducting itself, or does unity hold . Judy great question. Actually, unity holds. Issue,k to the fisheries the brexit negotiations are an integrated package, and the fish element just came up over the past several days. This is london trying to go for the maximum in this kind of deal. But i think we have to go for the Bigger Picture here. This is not just about fish, and fish at the moment is controversial, especially on the coast of the eu members that do a lot of fishing. The picture is in northern ireland. The Bigger Picture is in intelligence sharing, insecurity. It is in the trade relations that britain actually wants with the eu. Talking about australia and canada is fanciful at this moment. Europe is britains biggest trading partner and its neighbor. To squabble over fish and lucite of the Bigger Picture i think is very damaging, and that is why relationshipcron is very important. They see the Bigger Picture, but they also have to pay a little to some of johnsons constituencies, but they are not going to give much away. Alix the last three weeks, all we have been talking about his state aid and fisheries. Are the security conversations actually happening . Who are the key players in that . Where might that wind up . Negotiationsurity are very depressing in some ways because of a dispute between the eu and britain. I think britain is now going to pull out of the special galileo satellite system. I think the eu could have made a copper mise to include britain in this. Britains intelligence is still very good. But i think we are going to see Great Britain leaning more and more on nato, but heaven knows what happens to nato if trump is reelected, given president trumps attitude towards nato. But at the end of the day, given what is happening in the ,tlantic relationship, china all provokes a very Strong Defense array for the european union, and britain needs that, too, because britain cannot go it alone. Guy if we end up getting to a deal and the end of the year will around, how different the relationship be . How much friction will there be come january 1 of next year . Mujtaba theres going to be a lot. The u. K. Is leaving the Single Market in the customs union. Most of those economic unions guarantee frictionless trade. What the government is planning to do is a zero tariff, zero quota trade agreement. So trade will be free, but not be frictionless. That is important to understand. Even in the best case scenario, theres going to be substantial friction, so this is a hard brexit. In fact, it is the hardest version of a brexit absent no deal. That is the world we are heading to in the event there is an agreement. So economically, things will be more challenging. Of course, nothing the government does with the rest of the world will conference a will compensate for the loss it now experiences. I think it will be a bit more challenging, the bilateral , and i think rebuilding trust and rebuilding that political relationship will also likely take some time. Guy we will leave it there. Mij rahman, eurasia Group Managing director, judy dempsey of the Carnegie Europe foundation, thank you. Boris johnson speaking at downing street. If you would like to watch it, it is available on your terminal at the function live. Manchester resisting a move into that tier three highest level of lockdown. An agreement has not been made with greater manchester, Boris Johnson is saying. He calls the situation grave, and will intervene if necessary. He certainly disagrees with those calling for a national lockdown. Up next, we will address the market and put case and of what is happening here. John wraith, ubs head of u. K. And european rates strategy, will be joining us. That conversation next. This is bloomberg. Guy live from london, im guy johnson. Alix steel is a new york. This is the european close on bloomberg markets. Forrest johnson continues to speak at 10 downing street, ealing with issues Boris Johnson continues to speak at 10 downing street, dealing with coronavirus. Nding the focus is what is going on in manchester, the Northern City currently resisting the central governments decision to impose the tier three lockdown, the highest level of lockdown we currently have in the u. K. Andy burnham, the mayor, is basically saying he will not make that decision. That standoff continues. Boris johnson indicating that he will step in and intervene if necessary. We will see ultimately what happens there. We have seen lancashire today, the area to the north of and liverpool, that is going to be placed in the level three, and that has been, i understand, unresisted by local authorities. But we find ourselves in a situation where basically, we have this creeping lockdown taking place. Boris johnson resisting a national lockdown. His argument seems to be, and i think a lot of people are looking at this argument as well , how does a circuit breaker, a two week circuit breaker, actually work . Does it just delay the story . What is the exit plan from that . That is the argument coming from the more hawkish element within the conservative party at the moment. If you are to enter these more severe terms, how do you get out of them . What is the plan . Alix as a business, how do you make any adaptation when you may be struck with regional issues . Im starting to hear things from investors that the u. S. May be just six weeks behind, or is this going to be an anomaly . That is going to dictate where rates and fx, etc. Go. Guy you are certainly starting to see a pickup that would suggest that is the case. Maybe it is a simple weather thing. It got colder here earlier, as a result of which we have gone inside earlier. John wraith, ubs head of u. K. And european rates strategy, joins us now. I want to get your position on what is happening with the Brexit Strategy coming out of the u. K. Today, thing it will ultimately walk out of the talks. What is your sense from a market perspective as to what is happening here . Is there anything new . John not really, i dont think. No. What is new, i suppose, is the tone of the comments, but i think that is related almost entirely to the fact that the real deadline is getting closer and closer, and it has been the nature of negotiations as you head towards the end point of a deal for both sides to dig their heels in ever more. But i think with both sides still very firmly keeping an eye on an end ambition of striking a deal, i think the market is taking it fairly calmly. We would suggest there is going to be more volatility over the coming days, even though the endpoint for us and i think for the markets remains the likelihood of some kind of deal, which keeps disruption to a minimum after yearend. Alix is the asymmetric risk to the upside or the downside based on that . John if you look at where we are now, certainly in terms of the tradeweighted level of sterling, we are almost exactly in the middle of the range that we have traded in for nearly four and a half years now, ever since the referendum, and roughly 5 from either extreme that we have seen over that period. A would say on conclusion of reasonably clear deal which leads to disruption minimal, we will head towards the top end of that range. That is probably the limit of the upside as long as these other risks are clouding the outlook for the u. K. Economy. On the downside, if a deal really falls apart, theres probably significantly more downside. We will certainly head back to a lower end of that post referendum range, and probably another 5 to 10 beyond. So around parity on eurosterling would be our expectation. Guy i am trying to understand how this all affects inflation. Is the right way of thinking about it that no deal is inflationary because you get that big move in sterling that you just talked about, and you get a c can hike in tariffs a significant hike in tariffs . Is that the right way of thinking about it . Is, yes, i think it although on top of that, you have to layer in the fact that , leaving covid to one side, but in itself, that probably gives a boost to u. K. Sentiment and activity, and at the margins, that is a bit more domestically inflationary. With no deal, you get a spike in prices because of the fall in sterling and the imposition of tariffs. You probably get a weaker domestic demand offsetting that. The important thing in terms of the rates market and Monetary Policy expectations is to remember that the mpc has guidance explicit that they dont tend to publish data until the output gap is well on its way to be enclosed. That is going to be way after this year and after the u. K. Economy has grown well for a period and replace to this air pocket in demand we are seeing unfortunately as a result of the pandemic. For policy, i think a spike in inflation on the back of a new deal brexit doesnt mean anything for rates. The mpc is not going to tighten rates on that sort of inflation. Guy what about cutting . I think right now, weve got 10 bips priced for the lie come august of next year. Do you thing that is the right price . What could be the catalyst for it . John with think it is broadly right. To put it simply, a cut is more likely than a hike over the next year or two, basically. But we still think it is a pretty low probability that they do cut into negative territory, although they are preparing the ground. I think everything they say tells you they would rather not go there. They are far from convinced that it is an effective policy response, and they worry about the impact it would have on u. K. Banks. But if we get a no deal brexit, and especially if on top of that, we are getting bad news economically speaking from the worsening of the pandemic and perhaps the hopes of a vaccine dashed, they may well have to go negative. We are not inspecting no deal. We are not expecting worse news on the pendant into next year. We dont think negative rates is likely to crystallize, but it is still a possibility in those worstcase scenarios. Alix what else can they actually do . John they can certainly do more qe, as they like to keep her minding the markets, and we think they will in a few month time. If they are worried about the outlook, that qe will be greater in size or more rapid in terms of the pace of purchases. They can also change the Term Funding Scheme to make it cheaper for banks to access money and potentially do it for a longer period, lower the fees on that scheme, which has a much more direct passed through to the Corporate Lending markets than simply cutting the policy rates. There are obviously other schemes they can do in terms of supporting credit markets and giving incentives to banks to lend more aggressively to the private sector. Those things we think would be more effective in cutting rates to negative territory. It is a tool in their toolbox. With think it is well down the list of what they are likely to practically do in the near term. Alix as they have been trying to say. John wraith of ubs, thanks a lot. We appreciate it. This is bloomberg. Guy ongoing press conference at 10 downing street. Just been hearing from the chief scientific officer in the u. K. , driving in some ways the critique from the Science Community that the government is not doing enough. He is saying, we are not where we need to be on the virus. Scientists are certainly pushing the politicians at the moment to do more. In some ways, the politicians are trying to do more in the form of regional lockdowns. Then we are having a fight at a regional level. We certainly feel look disunited country. Lets take a quick look at where markets are right now as we head towards the close. A very positive session for european equities, as you can see by the final numbers that have been delivered here. In terms of where we sit on the week, a little less positive for european equities. The ftse 100 down by 1. 6 on the week. The close is next. This is bloomberg. Mberg. Guy 30 seconds to go until the end of regular trading this friday, alex. It is friday. We are up by 1. 4 on the european markets. Gapping higher first thing by the autos. Ill talk about the autos in just a moment. Negative week. U. S. Equity markets are continuing their run. Particularly the nasdaq. Here in europe we are looking like we are going to finish on a negative note over the last five days. We could take a look what the week looks like. As you can see we are posting a red number. In terms of the individual markets. 7 of 1 . By 7 broadly positive, we have this time yesterday posting positive numbers. Particular in the Leather Goods area. That has powered that over in p