good morning and welcome. this is the european open, first trade of the cash session coming up shortly. i am guy johnson in london alongside matt miller in berlin. what are we watching? 90 minutes until catalonia must cenfirm its independen decision. we will get the views on the future of the exchange and the saudi aramco ipo.

and the consumer crunch. elaine lever -- unilever delivers a topline miss. nestle sees its weakest nine-month figure in 18 years. thehe bond proxies worth price? matt: let's take a look at european futures, equity index futures showing a bit of a lack of direction this morning. we can see the unchanged eurostoxx 50 and ftse futures and cac futures. interesting what we have in the spread between treasuries and bunds. trip --ading at 40 basis points and treasuries at 234. the widest spread we have seen in 17 years. a very widespread here, this chart goes back to 2000.

17 year record here for that spread and that is why investors think the dollar could be ready to gain some ground against the euro. guy: let's talk about what else is happening around the world. let's talk about what is happening in the gmm. filter,t one is the g10 it looks like labor will be forming the basis of the next government in new zealand area the kiwi has been suffering as a kiwi dollar the versus the u.s. dollar trading down by 1.28%. that's keep an eye on that story. let me brought in and out and i will change the filters, changing to a g20 story. i want to talk about what is happening with the south korean two-year which is saying rising prices. we have is an interest rate decision that is being made, a confirmation that one member of a rise andoted for that came as a bit of a surprise and the market has been forced

to price that in this morning. matt: i am saying here some headlines out of spain, fusion he is ready for independence. the catalonian president says he will affect independence if article 155 is used. the gardycording to up. we do not have our own sources, i am sure we are chasing them but it is interesting that he is making this a little more complicated and more difficult than the spanish president would like it to be. he says he will affect catalonian independence if article 155 is used and rajoy has said he will use article 155 does not takemont his declaration of independence.

it will be interesting to see goes forward. the deadline has been set by rajoy so we will talk about this throughout the program. bloomberg first word news. >> china's robust factory output and consumer spending cap the economy humming in the third quarter. gdp rose 6.8% in the third quarter as industrial production increased 6.6% and retail sales jumped 10.3% from eight years earlier. a firmves president xi footing to deliver on his promises to cut pollution and shift to a more sustainable growth path. the u.k. has reportedly asked financial enforcement agencies to probe possible ties between hsbc and standard chartered to south africa's group to family. -- gupta family.

the banks may have handled the links via hong kong. have denied any wrongdoing. a spokesman for hsbc and standard chartered declined to traumatic. in the u.s. has conservatives are urging president trump not to reappoint fed chair janet yellen who is expected to meet with him later today. circulating an is letter on the house financial services committee to side against her re-important -- reappointment. he said in a letter janet yellen will not be a great successor to janet yellen. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. "bloomberg daybreak: europe thank you. thank you. there is no movement in spanish

features that indicate we will see anything as an outside downsized move at the moment. it looks very much in line with the rest of europe. the front of center story for us in europe. as matt already indicated, it will get more complicated as we work our way through the next 90 minutes. we have under 90 minutes until we have catalonia making that decision, the spanish government have given the catalonian president until time a.m. -- time.a.m. local this is what the -- matt was talking about. if that were to happen then that hashen charles puigdemont been pushed to say we will unambiguously declare independence. how do we think the next few minutes are going to go, what can we expect over the next hour

or so? headlines,re getting the president saying if our economy gets -- if we get suspended -- this kid make it more -- could make it more complicated. if the economy gets suspended and there is a unilateral republic he declared. something that he is doing and puttingimself time and rajoy under pressure. hashas promised -- rajoy calmest they will take over the region if they do not scale back to -- scale back. this has never been done before but right now it would be very unlikely for him not to do it because charles puigdemont shows no signs of backtracking and

with a little over an hour to go , madrid does not have a choice and the pressure is rising from rajoy. the point here is it does not matter where the article is triggered. charles puigdemont would get suspended. the key here is the kind of resistance we get from the catalan government. if charles puigdemont decides to lock himself in the parliament you would see how madrid would react. for him that could be an option for sure. --iano rajoy is it possible he said he will affect independence if article 155 is triggered. kind of aus at stalemate. is it possible, are you saying that there is another option for rajoy that he could arrest and remove charles puigdemont

without triggering article 155? maria: there are multiple options on the table. none of these leaders, roy is talking about the article. rajoy sittinge back. and separately let's remember this is the key, there is time for charles puigdemont to call a regional election. if it is framed as a regional election [inaudible] madrid will have to take the ,pper hand and declare at least they need to say this is what we are going to do but the situation cannot continue, it has been going on for weeks now. at what time today's does

rajoy leifer brussels? maria: he could trigger the article if you wanted to. the justice minister said everything is ready to go if we have to. brussels laterto in the afternoon, he could cancel. stay inreferred to madrid. we would have to watch out, anything could happen after 10:00 a.m. if you wanted to trigger the article he could do it at 10 of 5 a.m. and it would be fine. it would depend on how he reacts and kind of response we get from charles puigdemont. we know this will not be good enough for madrid. maria covering this for us since day one. excellent coverage. let's bring in our mliv strategist mark cudmore. what market reaction will we see

of catalonia does declare independence today because volatility is so low in europe despite all of these issues, turkey, spain, brexit, that you might expect markets to be roiled by. mark: i am struggling to call this one. i find it amazing, several of the bank morning notes did not mention catalonia. this is when they are talking about the euro. talking about german elections and brussels. catalonia and spain not mentioned. the market is very complacent about the issue. one is going to take notice of this until it is forced down their throats. will it come when independence is triggered, will it come when article 155 is triggered? this is still a very big issue

for europe. playit it is hard to because there is no immediate impact. it does not seem like a resolution. both sides are taking a hard line. there is no way that one could concede or let the other one win. it will -- implies this will become messy. we will have wide implications. i cannot tell with any confidence whether it happens today or not but i do not know why every trader is not glued to the screen. is: could it be that there an assumption that the ecb is a back strap -- backstop? o dampen down these events into a situation that is manageable for the market. there is a big buyer in the market regardless of the outcome. markel and that is a very important point. i do believe ecb are the backstop, they will do what it takes. we will see a massive correction

before that happens. that does not mean there will be a tradable correction if something bad happens. in asaying we are powerless situation where there is a potential for negative turn. it might see the euro drop a long way and bonds set off before the ecb have to do something drastic. a region in spain is trying to pull away and try to separate and it is unlikely they will succeed but if they get any is an incentive or motivation for other regions to separate. this is a bad situation for europe. i am surprised that european assets are not reacting. we have seen spanish growth forecast downgraded because it will hit growth and the longer it runs on and the more chance it gets, the more attention there is, the more growth will be impacted. still a negative for european assets. matt: i want to point out as we commemorate the anniversary of

black monday today, the dow again reaching record highs here 30 years later. there is a great macro view on daybreak saying that basically there is reason that volatility right now is so low and everyone seems so complacent. economic growth is steady and solid. what do you think about that? mark: i absolutely agree. the point is that we are not going to see equity volatility, we are not seeing gdp volatility. rangesrld where the between 1.5% at 3%, why should we see wild equity swings? whether equity was coming from 4% or 1% made a difference so there is a structural reason why we have lower volatility and it is not just gdp growth. we know rates will be better and we have better knowledge across assets and inputs and interest

rates, better forecasting the economy. all this means we should be in a world of declining volatility. this does not mean we get massive volatility spikes when something goes wrong, for example, the catalonia situation could be one of those catalysts but we should be in a world where the we get the crisis points, lower volatility makes sense. it is not a mistake, it is not complacency, it is justified by the lack of volatility in rates and gdp. thank you. it will be interesting in a few hours. there is great analysis on the blog. at mliv on your terminal. out thelatest map future. we will review this economic data from china. that is next. this is bloomberg. ♪

guy: and 11 minutes we will get a decision. you are looking at live pictures from the cattle and capital -- catalan capital. we are looking at a market that is barely budging going into that decision. the market seems complacent on this. maybe they are confused. that's get a bloomberg business flash. reported the slowest nine-month sales growth since it began reporting in 1999. and forecast similar growth for the year. revenue climbed 2.6% on an

organic basis beating forecasts. increased -- it is declining by 40 basis points in a lever has reported sales growth that fell behind estimates. goods sold this celebrated. whether cut command -- the ut demand for ice cream. 13 point $4 to billion.

they reiterated its forecast for the year saying that sales and core earnings per share which excludes some costs will grow by mid-single digit percentage at constant exchange rates. sap has raised its sales forecast for 2017. as more customers signed up for the companies flagship software. it expects revenue of between 23 point 4 billion euros and 23 .8 billion euros of 100 million euros from its previous forecast. the thirdales for quarter rose 4% missing analysts estimates. the london stock exchange has announced the ceo will leave the role by the end of next year. the board is initiating the process to find a successor. he has been at the board for nine years. yesterday speaking exclusively to bloomberg he had back at ruless who say listing were bent to pave the way for the potential aramco ipo.

>> there are some who say that there is a 25% liquidity rule as part of inclusion in the premium market. i have read some of these comments. there is a 25% governance rule 25% -- and a mention of liquidity. there is a liquidity test. >> that is your bloomberg business flash. matt: thanks very much. robust factory output in kept china'sding economy humming in the third quarter according to data out today. matchingh at 8.6% estimates with retail sales and production growth both rising in september. the data gives a firm footing for president xi as he seeks to rein in excess capacity, curb pollution and shift to a more

sustainable growth path although it has been pretty done sustainable this far. let's get the latest from the communist party meeting. it has been a good run, you've got to say for president xi. any surprises in the numbers? >> the skeptics would say it is surprisingly convenient that we get this number bang in the middle of the hardy congress as the political elite gather here in central beijing. 6.8% in line with forecasts. you touched on a couple of factors and that is the strength of the consumer, the chinese consumer remaining bullish and the external demand picture and export picture. a tick andpicked up that has been fueled by the expansionary credit and therein lies the rub.

forecast for the year, 6.7% according to surveys. xiterday we had president saying he wanted to see a different type of growth and the with thisecomes economic foundation he has this window in which to grasp of the metal.p the mattguy: what doing get -- whato wematt: get next? excitementome leading up to the congress when the governor said he went to see

greater liberalization of the yuan and remove some of these caps, these capital controls but he was conservative at the session saying there is -- the yuan reform process is slow and no need to change the trading band. we expect from the pboc moves that increase the rate in the money market but no big moves in terms of monetary policy to a tighter stance. that is the view from bloomberg intelligence. on the back of a stronger economic picture here in china. guy: thank you. and nestle looking weak and sap, keep an eye on that. ex dividend on the ftse 100. we have the airbus a3 neo first flight taking place today.

the market is a bad boy but keep an eye on the spanish story. do not ignore that. this is bloomberg. ♪

guy: lots of stocks we need to be talking about was wearing to rid some of the big bond proxies that could rebate as well. we see yields going higher around the world. think nestle and unilever on that this morning. let us talk about what is happening with the third all you calculations. what i think is interesting this morning on this is it is not an outlier. spain in line with the rest of the confidence. just over one hour, matt, until that spanish decision needs to be made. matt: on that note, i want to 10w you the spain/germany year spread here. it is not as high as you might

expect your here, we see it. right now, 120 basis points. so it looks like the market, as mark cudmore was telling us, is not really as much of a concern as it should be. we will see in just one hour's time. guy: let us talk about the numbers. there we go. ftse 100 opening, trading around the mid-75 level. there are big names this morning. we have two stocks going ex-dividend on thursday. not a huge clue. keep an eye on nestle and unilever. the cac 40 is yet to open. we won't see whether the ibex opens more softly than the rest of europe. much in line with the ftse, softer in percentage terms. a similar number posted by the cap. the ibex is not getting nervous about this decision that has to

be made in one hours time. manus cranny. will: many people reflects bets where they were when the dow dropped the most on record. down 5000 points. samsung securities warning the chip industry will have a tough time. more?aps on near go for what would that mean? sales growth in five years p unilever missing the numbers. by an eighth of 1%. the stocks are going to appear at the bottom of your screen. that is the swings in the euro stoxx 50. vstoxx at a record low. volatility, record low. the volatility, yes, you have got it. we can square it up. up by 32%. that is near record highs. that tells me that all of the

superlatives in regards to the united states of america, perhaps there is a subplot taking place and a little bit of caution in regards to hedging. the market is prepared to pay up for the cost of hedging their volatility. the gilt market is opening at the moment. this is where we are. the gilt yield remains unchanged in the u.k. bond market. i am off to digital radio with caroline. guy: thank you very much. running through the numbers when it comes to the losers we are seeing in europe and the individual stock stories. today is a market of stocks rather than the stock market. big names on the move. trading down by 4.15%. unilever on the back of its members, trading down. 3%, softening up. the next group softening up as

well in the financial services sector. this is an ex-dividend story this morning. you have the ftse 100. that is the mix. i am going to place feel on nestle. just shy ofnd 8%, 1%. stock a huge bond proxies that is just about in every major portfolio, as a result of which, dropping off. i can probably find that for you, shifting around. see nestleably showing up here. it is an interesting story in the morning. it is trading softer as well. big names in the moves. that is really where the action is. a whole bunch of big stocks and

again, we have to think about how these stocks operate and why they have been so well bid and are so expensive. if global bonds start going higher, do you get this rating as well? i wonder if that is part of what we're seeing today. matt. matt: our main focus is what is going on in spain. carlos has onent more hour to renounce his claims to independence or see the central government that in and take control of the rebel region. according to the spanish newspaper, the catalan newspaper, he has told them he is ready for independence. options as are his we near this deadline? maria: there is one hour to go. the ibex does not seem concerned. that if simply decide

use is been the economy, i will have to declare a republic. he could also decide to ignore the government, essentially buying himself more time where he could go all the way and announced his republic. he will wait and decide what to do next. the question here is what will madrid do? it all comes down to thrajoy. "youonservatives saying need to do something about this now." the goal took place october 1, a double whammy for rajoy. the yes won. the pressure is on rajoy what to do. the market seems to be a little bit complacent because again,

the question is even if he gets replaced from office, how sufficient will article 155 be will depend on the persistence we get from the catalan government and pretty much what they do from here. guy: we have an idea of how puigdemont will react if that is triggered. how will the people react? there is a lot of pressure on the local police force, how the federal police force will be used will be interesting. what is the sense of what the hours are for what that would look like? freddie: -- maria: great question. has been a lot of tension. ahead of the catalan police need every two weeks in madrid. that gives you a sense of the tensions we are seeing here.

things are not going to change overnight. that is one of the risks we are running into. what we know is that the regional government will not want to leave parliament. they are telling people to protest. triggered,'s gets and immediate push back. there are 2 million people who voted in the referendum. again, this is all going to be solved overnight. what we can expect is a major pushback from the pro-independence platform. they want a republic. it is what they want. guy: thank you very much indeed. she will be carrying on the great coverage out of catalonia. tilde wayne, global strategist from allianz global investors joins us. seems calm about this. is that the right reaction? >> yes, it is.

it catalonia wishes to leave, it may take 10 or 20 years to negotiate its exit. catalonia put more in then they get out and maybe madrid, because of the weakness of the government, has overreacted. guy: that is not how both sides are positioning. it seems like it is coming to an apex and you could end up with violence on the streets. ?s that he'll risk represented >> catalonia remains part of spain and the euro. it cannot secede in one day, and i think what the sad fact is, all of catalan businesses want to stay in the euro and they voted with their feet very quickly last week, particularly the financial banks, to leave the region. if you had had a properly run independents vote, it is not clear the independents would have won the referendum.

i think there is a load of processes which suggests the market feels this is more than a storm in a teacup, but not something that threatens the euro or the european union. matt: that is a good point. at last count, which i stopped counting last week, we saw 553 businesses leaving catalonia. it is not like they are leaving spain. it seems like they are moving -- is this why we do not see a bigger spread between spanish debt and german debt? to the point that guy made a couple of days ago, does this affect spanish debt specifically or perform debt at large? neil: it catalonia was leaving, but would have an impact, we think the sensitivity in europe is going to be much more

to whether the fed delivers the interest rate rises that the dot plots are forecasting, which is not priced into the markets, which would steepen yield curves and undermine the ecb policies. powerful that is fine where it is, and quite rightly, not reflecting much political risk in spain. we are seeing good economic recovery in portugal, which is why the upgrades are coming through to germany, now narrowing as well. matt: do we expect this to come out with national federal soldiers moving into barcelona? neil: i think there is no financial impact. it may hurt the tourist center for a while, but i do not think this has any financial impacts at this stage. what is interesting is the channel is where we have seen political tension was clearly keenly priced in.

there is a lot of politics happening in europe with the german story, portugal, spain. there is a whole bunch of factors. let us talk about fundamentals. this is a chart that showed earlier, the u.s. german, the two-year spread widening out with a 17 year high with interest rate differentials pointing for the stronger dollar, and you started to see it reflected in the risk reversals. gone negative when it comes to the euro. where do i stand near short-term on the euro-dollar rate? the structural story is longer term. neil: what we have seen mostly this year has been dollar weakness. trump has done nothing. people are over positioned in the dollar and therefore, we are

seeing income come to europe and emerging markets, which has been fueled by the weakness of the dollar. when it comes to the euro, the election for president macron and france is a real talisman because it is very pro-europe. some of the strength has been a lessening of the political risk. i was in milan last week. the italians are not talking about their election. the electoral reform bill makes it hard for the anti-european parties to actually win. they will be nervous in march for the italian elections. we think the risk premium is coming out. structurally, we think it is good for 135 on a two-year to three-year forecast. after theo think, optimism around trump and tax reform, the u.s. dollar looks set to fall another 10% to 15%, which will release further

optimism into emerging markets. guy: neil going to stick around with us. he is a global strategist at allianz global investors. if history does not repeat itself, it might rhyme. poetic justice. we will discuss the 30 year anniversary of black monday, next. i remember those days. ♪

matt: welcome back to "bloomberg markets: european open." i want to quickly check on how equity indexes are doing across europe are now. if you take a look at the stoxx 600, the broader european index, you see a drop of .2%. the ftse down a little bit more. the dax unchanged, as is the ibex in madrid, interestingly. very little changed in madrid. let me bring your attention to what happened in america. the u.s. stock market thoughts biggest single day drop in history. fast-forward to today, and the industrial average is trading time,23,000 for the first and some market participants are questioning whether lessons have been learned. if you take a look at this chart , i had to give credit to david ingles for bloomberg into.

#btv 483. it is worth taking a longer look at the big red drop you see on the left side of your screen. it was black monday. if that happened today, the dow jones industrial average would have to fall over 5000 points, which of course, because of circuit breakers, is not really possible. dwane, what do you think of the levels we have reached today? the length of the small market combined with the geopolitical tensions and the trump administration, would make you think investors were more concerned, but if you look at the vix or any other measure of volatility, they just are not? i would sayil: what about the geopolitical risk we have been wrestling with is out of the difficulties in the middle east which could influence the oil price, i think every other -- it is a binary risk.

at the moment, there is no evidence we are going to go to war with north korea and maybe some other risk we have seen because of the political risks. orther it is brexit or trump merkel getting their act together in europe could end up being good risks for the market. get real fiscal stimulus rather than monetary stimulus, which most of us feel increasingly uncomfortable with. that theonably relaxed markets are where they are, and i do not feel that there is a particularly strong parallel between the mobile market where we are now to maybe the one we saw. what i would say that concerns me about the historic parallel of 1987the great crash and today is today, under some market statistics, nearly 90% of all the volumes in the equity market are done by machines, so it concerns me that we have a lot of high-frequency trading, of the rhythmic trading,

searching of google trends trading, which is totally priced sensitive, and if the momentum was to change from going up to down, we would have the same type of computer driven portfolio insurance volumes we saw in 1987, which overwhelmed the market on that one day. ,uy: what i am curious about that's positioning. vix positioning, which continues to go down and down and down. i wonder how much of that, how that would be filled, and how those positions would be square, but i want to show you this chart which i think is really interesting, to make sure we get back. ratio tohis is is a imply what the vix is doing going forward. you have the rearview mirror and the windscreen view of the world in terms of where we focus versions are going to go. the rearview mirror stuff, the realized vol is lower than where

the vix it pure dispersions are so tight that even the vix is underpricing them. neil: certainly for a lot of the fund managersneil: that use the risk management walls, most of measures or use inside our portfolios is a rolling average of the last few years. guy: it is not forward-looking? neil: no, that gives you a sense of what might come out. you are losing all the prior spikes. and so, therefore, you are assuming the last three years will be representative of the next three years, and at the moment, as you say, the portfolios i am running have a maximum of 10, and i am realizing four, which implies it could be running higher to get more risk in the portfolio and it will notone day, be seven. it will be a lot higher. so i think that is the dynamic

we are in. is there is ag lot of structured products in andu.s., which is capped called in the derivatives market. it is going long the vix or short the vix. matt: neil? neil: yes? matt: i want to pin you down on u.s. stocks here. would you buy at these levels? you can type in ea on your bloomberg and get the earnings analysis, a great picture of the earnings analysis. we are beating by 5%. that is kind of par for the course. would you buy stocks at this level? do you think earnings are fully priced in? do you think we are too expensive right now? neil: we would say, strategically, we are too expensive. we like the equity markets in

general, but we think there is better value in europe than in asia. my concern in the u.s. is the concentration in the leaders through just as an aside, i would forget following the dow because it is one of the most useless indices that has ever been created. because you know, ibm is a very large share price thomas so it goes up 5%. that has got no informational content in it for me whatsoever. general,nk, in everyone is long the u.s., so my point would be much more good news can the u.s. take? i think there is quite a lot in for trump now. probably thatre he would get something like $500 billion of tax reform through, and the markets may be slightly disappointed with what congress is able to deliver. of course, it may take them longer. we are not necessarily anticipating tax reform to be on the statute books until the end

of q1. we might be waiting quite a long time before we see anything, and we will see the fed raise rates, so that will be another headwind maybe the equity market as yields -- guy: exactly -- matt: the government shutdown. that is a great point on the dow. it is something a lot of the pros know and take for granted, but a lot of the mom and pop retail investors out there do not really think about too much. it is an average, something guy likes to say as well. dwane, global strategist at allianz global investors, stays with us. after nine years at the london stock exchange, stepping down as ceo. in our exclusive interview, he hits back at aramco ipo's critics, the little but gigantic ipo. we will explain. this is bloomberg.

guy: messily stock trades south this morning. this is a bond proxy. if you are at -- u.s. rates go higher, -- neil: i don't think it does because it is one of the safest investments you can make. we are hypothesizing interest rates rise from here. we have got a very strong global company with very strong market shares. maybe one of the only

real aaa credits in the world. the 3.5% dividend yield. it might be a consensus long, but it is certainly a safe place to invest. guy: this is bloomberg. ♪

matt: 30 minutes until catalonia must confirm its independence decision. we are in barcelona. rolet is set to receive the exchange by december 2018. his views on the future of the saudi aramco ipo in an exclusive interview. unilever delivers a topline miss as nestle says it's weakest nine-month figure in the 18 years. are these bond proxy is worth the price? welcome to bloomberg markets: european open. i am matt miller alongside guy

johnson at our european headquarters in london. guy: 30 minutes into the session. a bunch of things happening this morning, one of which is the spanish market is not trading significantly lower. big names moving in quite outside fashion today. listings you have two trading down around 3%. s.a.p.'s up around 1.5%. roche trading .6%. down by 5%they are this morning, folks, and that is a big move. the unilever and publicist move standout. nestle, the huge blonde proxy stock, trading software as well this morning. fascinating stock moves in this market. at 50.48.rading bloomberg first word news update with sebastian salek. consumer: china's

spending kept the nation homing in the third quarter. gdp rose as industrial production increased 6.6%. a year sales jumped from earlier. that gives president xi jinping a firm footing to deliver on his pledges and rain in -- curb pollution, and shipped to more sustainable growth. the u.k. has reported financial enforcement agencies to probe possible ties between hsbc and standard chartered. according to the financial times, philip hammond said he passed on concerns that the banks may have handled illicit funds. guptas have denied any wrongdoing. they denied to comment. conservativesuse are urging president trump to not real point janet yellen, who is expected to meet with them today. warren davidson is circulating the house financial services

committee. he says "janet yellen would not be a great successor to janet yellen." new zealand's dollar has dropped the most in five months after the opposition party won the support to form a new government. the economy would slow under a labor led government that wants to have the bank of new zealand stability. the london stock exchange announced ceo's on your raleigh would leave the role -- xavier ralet. he hit back at critics saying the rules were not bench to pave the way to the future deal. >> there are some who say there is a 25% liquidity rule as part of inclusion in the premier market. and communal, i read some of these comments. there is not. in 25% governance rule that

mandates a minimum of 25% liquidity. there is a liquidity test. sebastian: powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy: leaders heading to brussels for a summit. while the meeting was only focused on brexit progress, and the lack of it, prime minister hosting for hints that trade talks to begin soon. donald tusk expressed some optimism. that it is still finalle to achieve this phase in december. for this, we need more concrete

proposals to be honest. from theld tusk council. let us go to brussels now. nejra cehic standing by. what progress can we expect on brexit? a lot of things happening in europe. how big a focus will brexit be and what progress can we expect? nejra: there are a lot of other things being covered up the summit, particularly today. they are expected to talk about defense and turkey. largely what markets are focused on is incremental progress on brexit. we are not sure there will be any. one diplomat told bloomberg there is a 50-50 chance trade talks could begin by the end of the year, and this is the key thing theresa may is pushing for. to move on tos trade talks. at the dinner tonight, she is expected to push for that, but

she is potentially expected to be rebuffed by the rest of the e.u. they are saying we will consider -- we will make internal preparations to potentially discuss and make a decision on starting those trade talks in december, but that decision, saying we will move on to trade talks, that is not going to come today or tomorrow. theresa may made a gesture of goodwill on citizens rights today. is anybody listening to her on that point? nejra: yeah, that is an interesting question because the three key sticking points where the e.u. wants to see progress from britain before it will move on to trade talks is the citizens rights, the brexit bill, and the irish border. on citizens rights, theresa may did say today "to the 3 million e.u. citizens living in the u.k., i want you to stay on after brexit." she would make that legal process fairly simple, so that is a little bit of a concession on her part.

she has been criticized as using citizens rights as a bargaining chips. they want more detail from the u.k. and theresa may about the brexit bill, what it will pay, how it will pay it. it does not have that. the concessions she made in florence, the e.u. has said he do not go far enough. it will mean these talks are not going to go as fast as theresa may wants, and you know what's more? the leaders are not likely to engage in any meaningful way with theresa may over brexit when she discusses this over dinner. what we are hearing is they are actually going to discuss brexit tomorrow after she leaves. not. guy. cehic inomberg's nejra brussels. with us now is martin look, chief investment strategist at germany. here in let me just ask, i feel like, because almost all of my colleagues are in london, there is a focus on brexit that the rest of europe does not care about. martin: i would not say the rest

of europe does not care about it. britain is very important trade antner and cash return is important part for the rest of europe, but in the wider world, it is a smaller issue. this is what we heard us feedback from the talks in washington from the imf is that the world is looking at the story as a specifically british problem, not necessarily as britain as a whole. -- as europe as a whole. for injured, it is a very british -- fraser, it is a very british problem. going on in what is catalonia right now. we have the issue of greece that the e.u. is writing unlimited checks for and will probably do the same thing, be doing the same thing for italy for a long time to come. with all of these issues, and you know, governments undecided in germany, the organization of why are european

markets just as complacent as u.s. equity markets? why is vol solo here? martin: it is a natural issue that in times of low inflation, which leaves central banks to address their monetary policy very slowly, this is almost the sort of goldilocks scenario that might be temporary, but of course, it is a very benign economic scenario. , the lowsearch volatility is a typical phenomenon in this very benign economic scenario, so this is why we do not think that this will change anytime soon unless we have a major disruption in the economic backdrop. london.d morning from it is guy. one thing we have in europe is an ecb that is carrying on with raising its balance sheet. down,d may be taking it

but the ecb will continue on, albeit at a slower pace. isn't that just a soft blanket that suits over europe are now? and all of this political turmoil we see gets hidden by it? the: and by the way, i have ecb balance sheet. i just pulled it up here with hillary's hope. this chart you can ask is on the bloomberg. you can see in white the ecb balance sheet, i mean, i am illustrating something you already know. it will continue to climb. martin: it will continue to climb for a while, through the largest part of 2018, because we the recalibration at ,he ecb itself and the tapering as the market tends to call it, the reduction in the monthly purchases of the ecb, starting from january, probably, and running through probably the

largest part of 2018, and over that period, the balance sheet will continue to increase. that is a given fact, very much justified. let us consider europe is probably four years by the united states and the adjustment of the economy to the effect of the financial crisis. the united states adjusted the banking sector in 2009 very swiftly after the financial crisis hits. europe took four more years to do the banking union. the adjustment of inflation in europe takes much longer than it did in the united states, and we are still talking 1.5% headline inflation in the euro area. it will probably go down further towards something like 1% due to data later this year. the ecb has every justification to keep monetary policy moose. on a daily basis, we talk about the fact that u.s. stocks continued to hit record spirit european stocks are way up.

we are 30% below our high. how much room to run do we have in europe in terms of valuation? martin: i think what we are seeing in europe is something we saw in the united states about five years ago. again, this is something that is very much reflecting the process of economic and political adjustment in the wake of the financial crisis. the european earnings cycle actually turned for the better last year, which is something the u.s. earnings did in 2011, and since then, the american growth earnings cycle has never looked back, and it has been growing ever since. i am not predicting the same for europe, but we had a very stable period. earnings is doing well in economic terms and there is no the earningsieve cycle cannot follow suit. i think that, in fundamental terms, and from a valuation perspective, europe looks much more attractive than the united eight at this point. guy: stick around.

thank you for joining us. martin lueck from blackrock. up next, testing the waters. we are going to hear from the sdp. that conversation, next. this is bloomberg. ♪

guy: 14 minutes until the catalans have to make up their

mind. yes or no to independence? the ibex is trading flat. the indications to the spanish press seem to point towards the fact that puigdemont will certainly move independent. the madrid ibex 35, trading down, only .1%. yeah, and this spread is not really blowing out either. we will continue to watch the situation in barcelona come in madrid. see if roy does flight -- if rajoy does fly off to brussels. i want to focus in on berlin here and germany. angela merkel faces a divided country in her task of building a coalition, according to the coleader of the german green party. exploratory talks are already underway. the chancellor met with leaders yesterday.

to two senior lawmakers. i spoke with michael toy are after he got out of the meeting and asked him about his party's demands in the coalition negotiations. privatize theto shares held by the deutsche post.m or deutsche that should be done step-by-step, not overnight. if we look back to the history of the deutsche post and deutsche telecom, it was necessary to have a state owned company to organize postal services and nowadays, we see the necessity that this stage is providing all around the whole country in access to high-speed internet and therefore, we propose to privatize these shares and to have the money

--n to invest into the that is our program. matt: do you get the feeling that frau merkel and the union on board? honest, that is far too early. we are now in the beginning of the first talks where we just want to investigate whether we really can't enter into a coalition negotiation process, and so today, i can look at our program and we have to check with the greens whether we platform, aamp on a modern design decision -- a modernization agenda. that will be the condition for enter intoan only

consideration. .hat was a major demand of ftp we want to reduce the state is oneconomy that argument from a market economy perspective and on the other them we want to mobilize to have the necessarily infrastructure. the major question will be, do we really open negotiations for a coalition, and we can only do that if we have the feeling that we can trust the others, that they really have the interest to change something in germany for the better. matt: that was michael toy or, the head of the party in the german state where mercedes and porsche are based. still with us is martin lueck,

chief investment strategist at blackrock. you know, it was interesting. the most interesting thing i got from him is something that is not really new for the fdp, which is that they want to privatize deutsche telekom and posts. this is more than $30 billion in equity stakes. a green leaders said they are down to do that as well. it seems like this could actually happen. martin: that is closely linked izationdigital issue. the christian democratic unions, the fdp, and the greens agree that germany is lagging behind. poorly is doing really on broadband access, so something needs to be done and the money needs to come from some sources. as german citizens are usually not very keen to reduce public debt, the money must be

privatization. everybody agrees on that. that will be probably one of the issues that would come forward in the next term of the government. chart here of telecom, which i have been following for years. obviously, it does not look good if you include the internet bubble, but i will take it down to, let's make it, a five-year chart. it is still not a pretty picture. you think of this business in germany? these incumbent telecoms, are they good investments? martin: i am not sufficiently expert to talk about this. economy, in the bubble, telecom services turned into something like a completely new story, and the world has changed ever since as we know. however, in the meantime, the classic telecom business has turned into something like a utility, and has been treated by the stock market as a utility.

this is why we have probably lacklusteracklog -- start performance truth the question raised in the interview that he made with him -- is it really justified to keep such a large state of the state and company 150 years after the groundbreaking works in the telecom is a structure? -- telecom infrastructure? the answer is-- probably no. guy: we are getting a bit of catalonianng to the story as we count down, seven minutes to go. they may declare independence unless spain suspends it. this is coming from a letter that puigdemont is sending to the spanish prime minister, mr. we are beginning to get to information so need to be talks, and things need to happen. this is on your bloomberg. wait. going to

we're counting you down until this news comes through. martin, i want to take you back a little and talk about the story that germany faces coming through from here. you talk about the massive lack of digitalization. it clearly relies on the rest of europe to act as a big market for its goods, germany, but it relies on china as well. china is talking about kind of very stable, steady growth going forward from here, but it does want to make some big investments and changes when it comes to digitalization and technology. is there a risk germany gets left behind by china, one of its key markets? martin: definitely true. and for some reason, one can say that germany has already fallen behind china in some respect, up also, you need to catch to an economy which is growing so fast. we can say chinese growth will probably come nearer to 6.8 or

6.9% over the course of this year, which is much stronger than china itself. but also in terms of structure and change, it remains to be seen if the new chinese leadership will put in place a change in the strategy of chinese growth, which was announced earlier on to grow less by investment, especially infrastructure investment, and you grow more by the buildup of service industries and by a private consumption on the demand side. this was pulled into question when the chinese economy was going to strongly. the chinese government changed course. the question is to what extent that strategy will put into place again in the near future. my sense is that there is a strong likelihood that it will be put into place again, and then the challenge will arise for a number of countries in the

western world, including germany industrialwith large -- where they have a big share of the economy. digitalization is the place to be in the future where this battle is decided. yes, there is a big risk that was more chinese investment coming forward, germany risks falling further behind. guy: what conversations will you guys be having at blackrock? will it change in investment thesis? martin: we last hour experts looking at the investment, teams looking at the product, in both equity and fixed income. as we have seen so far, the markets have not reacted very to that, and even if there were to be a further catalonianof the crisis, this would not necessarily mean that we need to change our investment position.

of course, we would look at the most likely consequences of this, and if they were to be, let's say, a big danger of losing money, we would try to protect our clients investments to this region. this is not the case and has often the case so far, and we will definitely look at what hour experts in the region say before we make a decision. matt: i want to bring you back to german stocks. this is a five-year look. that bringingstic in the fdp, the liberals to this government, will help get rid of the solidarity tax that germans, not just people, but also corporations are still paying since the wall came down? are they going to get rid of this old bureaucracy? martin: for the stock market, it would be good to have injection of fresh blood into the economy fdphe sense that the

participation in the government has always been positive. generally speaking because the fdp has always been asking for a lower role in the state of the economy. so i would see it as a positive. matt: i appreciate you joining us today. this is bloomberg. ♪ . . . retail.

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francine: catalonian residences it may be cut. will prime minister rajoy be forced to act? taking down yellen -- will president trump listen to the chief today? for china's gdp, but investors shrug at 6.8%. good morning, everyone through this is david:." -- this