Terms of the divorce, not the trade relationship. You are welcome to bloomberg daybreak, our flagship morning show in the city of london. I am and is cranny. Manus cranny. Anna the Prime Minister theresa may has been putting the a finishing touch to the letter. It will be delivered by the barroweu ambassador tim into the hands of donald fisk. At the same time the Prime Minister addresses the comment hear are the to details. Will it address Divorce Proceedings, will it talk about the right to be a citizen, we tone it to hear what adopts. We have lots to talk about over the next day and a half hour and a half. Manus it will be a long haul over the next few years. What will the content due to markets . This is your brexit barometer and sterling. Chart goes all the way back to 2001. The pound is how we are seeing growth. All part of the brexit parameter. Bloomberg intelligence has adopted it. That relationship between the pound and how we feel is almost in syncopated move all the way through 2009. Heres the debt crisis were the feel and how we accelerates ahead of the rest of europe but the pound in the beginning of a moderately long goodbye. Is isestion for markets that pessimism over done . Brexitlook at the riskometer. The pound has dropped since the 23rd of june. The euro sterling is down. The euro up by 14 and the ftse up by 16 . The pound is the cheapest currency in the g10 basket on a relative sense. We are overly pessimistic is what they are saying. That 136 could be attainable in the next few months. The risk radar is slightly different personification. We have enough with the negative vibe from the u. S. And you are seeing the dollar put in a baseline 99. 74. The dollar on a decline, we had a four and five month low yesterday. Yieldsr yeilds should. Two hikes is what we will have. Nymex crude, you have a second day of rallying in crude. Libyas biggest oilfield, reducing by 560000 and there is the aussie market closing up by. 8 of 1 . Coastlineucers on the have shuttered their operations. That is the day in the markets. The we will talk about markets and the fed commodities, all of that coming into the program as a go through the next hour and half. Lets go to denver mouth deborah mao. Deborah the u. K. Is set to trigger its exit from the eu. Ofy will limit the scope upcoming talks. According to three people familiar with the matter they will be negotiating divorce terms and not the future trade relationship. That would be a blow to the u. K. That wants to discuss the breakup and future ties in tandem. Scottish lawmakers have backed plans by the National Government to pursue a second independence referendum. Allowment voted 6959 to Nicola Sturgeon to request the legal means from u. K. 30s to hold the vote by spring of 2019. To decision sets of promises be lengthy and acrimonious showdown in the u. K. In the midst of exit negotiations. President trump has issued an executive order rolling back his predecessors carbon cutting commitment, or missing a new energy in revolution and fossil fuel resources. He rolled back rules interactives to combat Climate Change that president barack obama made a central issue. He called Climate Change a hoax and wants to reorient policy to help u. S. Oil and coal producers. We have already eliminated a devastating anticoal regulation area that was just the beginning. Today, i am taking bold action to follow through on that promise. My administration is putting an end to the war on coal, clean coal, really clean coal. Call miners have halted a third of output from the biggest coking coal revolution. That is as the remnants of cyclone debbie continue to dump rain on the state of queensland. When court is among producers that suspended operations in a total of 12 mines. It was the worst storm to hit since 2011 which helped push prices to record highs at the time. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Anna thank you. Lets get you an update on the markets. Juliette saly has that for us. Confidence Consumer Confidence putting a lift under asian equities. Juliette that is right. We did have that strong reading and Consumer Confidence and that has boosted asian equity markets. You have seen the nikkei close looking fairly flat. Topiding to the topics x, it is in the red. Elsewhere it has been broadly stronger in terms of sentiment. The asx 200 closing up. 8 of 1 to its high level the highest level in two years. If we look at some of the stocks we have been watching, this is a nikkei report that the westinghouse unit has filed. To see me is up in the late japanese session. H shares continue to rally and Energy Players in the back of the rally on oil. To watch ins story australia, one of the best performers on the asx 200 today. It is also worth noting it is 40 below the bloomberg consensus oneyear track on that stock at the moment. A good day for that one. Lets have a look at the g chart. Or come close to rounding out the quarter. The white line is the china volatility index on the msci china index. The blue line is the 12 month estimated priceearnings ratio. Stocks are quite expensive but the volatility is low. s bestperforming interest this quarter. Manus lets talk about the u. K. Ended state with destiny. As the u. K. Will start the talks. Prime minister theresa may trigger the brexit process. Her divorce letter reaches the eu president donald tusk. Here are what some of the biggest names have had to say about the negotiations. The british people decide and the European Party people will decide. We will accommodate and not ask their opinion of what no one of what it does. No one wants to the script markets. That could be devastating. Ive value i Value Financial Services and i assure you we can keep Financial Services in london and global britain. , werrespective of brexit need to get on and execute it. Andon will return remain Global Financial center. I believe that the revenue impact of brexit on Financial Services will be made good into a three years time. May be the most difficult issue and of course, Prime Minister may has announced there is no passports and we will have complex negotiations. This will take a very long time to get the full clarity that the banks and corporations and investors and people want to have. It will go down that it will end up being a fantastic thing for the united kingdom. It will be a tremendous asset, not a tremendous liability. With the Financial Sector is looking for for the fact that Financial Services make it to the top of the priority list of theresa mays government. From what we read and what we hear we do not have that impression that that has yet happened. Manus political and Business Leaders speaking to bloomberg on the run up to the triggering of article 50. Welcome to the show. A historic day for the u. K. But as it starts, and we understand the thing that the u. K. Wanted to try and achieve which was a and theon about trade, Divorce Proceedings probably will not happen. Donald tusk me give guidelines where he can talk about the divorce terms but not the trade relationship. It does not bode well. There is a unanimity in europe in terms of they driving the agenda, not her. It seems the case that when you break down what the next steps are, achieve the negotiation and discussion about trade, it will be 12 months time. They talk about the exit deal and settling the accounts with the eu and the next stage will be talking about securing the rights of eu citizens within the to tradewe will get on negotiations. Anna good to see you. What are the chances that we will make it onto trade within the twoyear time horizon or one and a half years when you factor in the ratification process is that need to take place. What are the chances we do not get onto that subject and we spend whole time talking divorce . Guest it is unlikely that we spend the whole time talking divorce because theresa may will want to move on with those negotiations so they can get on with the bulk of the negotiations but when you look at that bulk, the likelihood of it being completed by the end of that twoyear deadline seems very unlikely. We think a transitional deal is likely. About this. Talk this is the brexitometer. Model we havei. Created. It shows the syncopation between sterling and the economy. That relationship has been breaking down for some time. Give your worstCase Scenario on sterling and give what causes tactic rally and Short Covering rally. Guest we have done a lot of modeling of currencies and what we find is if we put the worstCase Scenario into our models, the level we get for cable comes in around 113. All that is suggesting is that a lot of value is priced into the pound but not quite all of the bad news. The risk and scope is negotiations do turn out to be [inaudible] and the pound will lose more value. You tell me the flip side and throwing this question. How do you overlay on top of that the performance of the u. K. Economy and what the bank of england does . Bloomberg intelligence is assuming the bank stays on hold for two years through this crisis. Does that seem at a fair assumption . Yes yes. That is a very good point. You have this disparity where the u. K. Economy is doing very well. If you look around the globe, the u. K. Looks most like the u. S. In terms of having a tight labor market and narrow outlook cap. The way we think investors should position is not in sterling. We think the better opportunity is in gilt. Low givens are too the state of the economy. Make slowhey progress. Room for bond yields to survive. We like our position, short position in yields. Manus have a look at this. It is more like a slowmotion slowdown. Growth becomes anemic rather than anything like a sharp accession. This is the most prescient risk, a slow demise. Misering of optimism. Guest this has been important over the last five years. Inflow stood at 15 of gdp. That is huge. If you do get this erosion to Investor Confidence you could see some of these inflows into the u. K. Be demised and that is a threat to the pound. Manus the japanese lobbying groups are saying negotiate. Anna edwards is outside westminster. She will be with us throughout this daybreak show. And starting today at 9 00 p. M. Ak. Time, the team will take deeper look at the rise of populism and speak with experts from around the world including jeanclaude touche triche and othe coming up, janet yellen highlights unemployment. Rs. Challenges what President Trump does to bring back the coal jobs. Herewith they have to say. This is bloomberg. Manus it is daybreak. It is 6 19 a. M. Debra toshibas board has approved a bankruptcy filing for its westinghouse unit. A spokeswoman was not immediately available for comment. Last month, the japanese conglomerate warned of a possible 6. 2 billion writedown on the Energy Nuclear energy business. Blackrock is said to be shaking up its struggling stock picking unit by cutting jobs and lowering fees. The revamped which embraces Quantitative Strategies moves 8 runion of the 201 billion by traditional stock pickers into cheaper offerings with some fees cut half cut by half. They said more than 30 employees including Fund Managers and analysts were let go. That is your Bloomberg Business flash. Manus thank you very much. Fed watchers tried to predict the piece of Interest Rate hikes. Chairear and beyond fed janet yellen gave some clues in her speech on the labor market yesterday. She noted improvements on the job pictures but highlighted challenges that still remain in poor and minority communities. U. S. As a whole has improved market markedly since the depths of the financial crisis. The persistently high unemployment rates in low income and minority communities show why workforce of element is so essential. President trump has signed an executive order in rolling back a number of obama era regulations to combat Climate Change. The order aims to bring back fossil fuel jobs by reversing president obamas clean power plan. That discourages utilities from using coal to generate electricity. Some said his administration was putting an end to what he called the war on coal. The miners tell me about that attacks and their jobs and livelihood, they told me about the efforts to shut down their minds, their communities and their very way of life. I made them this promise, we will put our miners back to work. Trump making good on many of his electoral promises. Janet yellen along with her cohorts trying to garrison toward the consensus of the dot which is to hikes rather than three. What does it take to shift the dynamic of the dots and the thinking of the fed to be more onressive and three bid hike. Guest they have time on their hide on their side to start pricing in. There are two more hikes this have as a view. While that is our base case and the feds base case the market looks at the ability weightings. It has to be within the data. As you get the data from slowly coming out, then you should start to see the markets are to be more comfortable in pricing that fed hike by the end of the year. What is important is the money that you have behind do, the Earnings Growth. Manus that is the Earnings Growth we have in the blue. The debate is how much slack is there and why the weights number has not gone higher. Guest you are comparing the labor market slant with nominal wages. That leaves you free to look at real wages. They have made an much stronger the last couple of years because inflation has been so low. Now is the time of the litmus test, inflation is starting to increase, our our employees going to be passing through those higher prices to the labor force and causing the average wage growth, that nominal wage growth to increase . The things you have said there is having some technical problems. Lets go back into the charts. I mentioned it. A 4. 5 month low. Not everyone knows what i do behind the scenes early in the morning. Anna steers the wheels and i change the gears. This is the great debate in the big boy indices. Through theake it moving average. They have reduced their positions and now the market as a whole we think is probably neutral. That is one of the reasons we have not gone through that average. Constant enough to go out right short. I went to ask you given what you said, however domestic should we be and how are you about u. S. Equities right now . Guest we are quite cautious. The reason being the amount of positive sentiment in the sector has been very strong. When you look at things like the earnings expectations and the profit Market Expectations for this year, they are very high. And also when you look at the gauges they are optimistic. This makes us three cautious. Where we think there is a better trade that is euro equities u. S. Equities. There is a lot of room from here for european equities to outperform which takes away from the u. S. And toward europe. Do youwhere in europe think is the strongest opportunity, is a germany or france once political issues get out of the way . Guest they then if it from the weak currency the most. They are also benefiting from the continued phasing. Phasing of fiscal risk. Anna thank you very much. Joining us. D we will bring you the boston fed president at 7 00 p. M. U. K. Time. More on triggering article 50. We will head hear from the head of the food and drink challenges inhe the industry that lie ahead. A big day for the european union. We will hear from donald tusk as well. This is bloomberg. Manus it has gone 6 30 a. M. Here in london. You are looking at tokyo where it is to 3 p. M. The dollar advancing the yen. Some are saying it is a little bit of Short Covering as you see treasury yields climbing and technicalities at 1139. You get everything here on daybreak. To lets get across to guy johnson. What iss talk about going on. At the moment this cable move is interesting. You have the pound selling off overnight. Take a look at what is being said. In londonpparently and we will see that liquidity story come back shortly. Traders a little surprised that we are seeing the selloff overnight into the triggering of article 50. In some ways you could argue that this is the reality of the situation. The next chart highlights the thing you need to know. Does you see data this work with a flag, it comes through wednesday and thursday and gets reported friday. The market is incredibly short the pound at this point. In some ways maybe it could be better to travel and arrived. It is interesting to see how the banks are changing some of their forecasts. His take is that cable advances from here on not aggressively but the stabilization with the move upward. That is something the market is talking about. The market is short. Positioning is important. The other thing i have been picking up over the last few days is all the Fund Managers that have looked really smart since brexit because they have belonged to the ftse 100, life could be about to get tougher. You can find that on your weei screen. This is a oneyear change and this is the euro story in the ftse. And towns and local currency, the ftse has done 27 over the last year. In euros, it is a percent. If you take that into dollars, the situation is even more negative. You have done very well in the ftse 100 because of that dollareuro revenue stream. That has been priced back into pounds. Managers reconsider the positions, will they change their positions on commodity trade . That is interesting as well. We are going to be about the pound today. Probably 7 30 a. M. To around 8 30 a. M. , it will be interesting to see whether the short position starts to get squeezed in how that feeds through in equity markets. Back to you. A new edition of daybreak. This is on your mobile, on your bloomberg, anna edwards is