hefir rst major interview since she took over the imf the. it she talked a lot about multilateralism. she also talked about trade piece saying that's going to be a bigger focus of the imf meeting this week in washington. the trade war is waiting on the minds of investors. a potential breakdown in the u.s. china trade talks. if we can take a look at what the markets are doing, we are off the very lows of the day but still pretty much down. 2900 on the s&p 500. it down a full percentage point. we are not seeing too many bids. of the major indexes, they are all down here. those are your primary lacquers. bright spots are in consumer staples and airlines. not the most encouraging signal at this moment. at 1:00 p.m. new york time, we are going to get -- there was concern about how this was going to play out after an

auction yesterday. today, iee rising should point out the 30 year u.s. treasury yield of flirting with the 2% mark. we are at 1.5 on the 10 year. 1.43 on the two-year. some interesting activity on the bond market. interesting activity in the fx market. we're seeing some bids in yen and gold as well. volume is reasonably light. stocks are trading lower. a bit like the united states we're just off the session lows. we currently have 104 stocks up in europe. 489 trading lower. very negative today when it comes to the european stock market.

the pound is certainly training -- trading lower. under the current terms it looks like a brexit deal is impossible. let's pick up on that theme. chairman ofs the the european banking authority. brexit potentially 24 days away. our europe's banks ready? >> we just sent out communication today on -- we think the infrastructure is in place. thanks should be ready for contingency particularly hard brexit. we think that in terms of actual hard movement, movement of data it is a bit delayed. they are saying that they would be ready if they had to but --

let's say it happens in 24 days time. of november, what is your big worry day one? my big worry is effectively banks will be able to open their will not be disruption and financial markets. the infrastructure is there but we have to make sure that infrastructure is effectively used. do you think that at least some of the shifts we have seen in moving employees from the city to city in preparation for this, do you think that enough has been done on that front so far? when you look at love the

other issues that have been going on, even outside of brexit and this general idea of trying to corral a bunch of different banking systems all onto the same page, all following the same rules, all following the same ethics of transparency, do you think that european banking authority has made enough progress on that front just yet? >> we have made a lot of progress, the banking authority has been in place for 10 years. the amount of progress that has been made in integrating european markets and promoting transparency and information it has been large. andcan never be complacent i think we have new challenges coming forward and still a lot of progress to do. integration of the industry overall and cross-border activities are still low. as we move forward, we have challenges of technology.

rates, let's talk about negative rates. emanatingve rates from central banks like the ecb destroying the european banking space? >> i would not say they are destroying because it's part of a micro complex. the balance sheet of the banks has been very strengthened over the last few years area and it is true that banks need to confront with the fact that the net interest income is low. probability is low and the ratio of european banks is not keeping up. banks need to effectively address this issue by cutting down their cost structure. >> today more news out of deutsche bank potentially 18,000 jobs on the line.

you think the cost outweighs the benefit? >> absolutely. we do have an industry that without doubt -- numberrofitability is one. it's the number one key to stability. >> only talk about the shrinking margins we are seeing, obviously some of these banks are trying to shrink. their staffing as well. banks are looking at other areas to try to experiment with cryptocurrency and digital forward type services. that opens a new front for regulation and for how you police the system. of open are you to some these new approaches to banking? innovation is not new to the financial industry. this time i think it should not be different.

innovation should not be negative. we should be encouraging innovation. it that innovation should be safe for consumers, save for financial stability and positive for competition. we should be open to it and apply to basic principles. we should be neutral in terms of regulations of what innovations should target the market. playerstral in which are applying the innovation whether it is banks, or financial firms. libra, theards to facebook stable core that has been proposed, other any significant discussions get around that? >> as you know, we have been engaging with corporations area they have also--

been discussions and the overall approach right now is we need to get more detailed information and understand better what the conditions libra would put forward as an initiative. innovationexample of that has brought forward a number of questions for to thinks that we need about how to address them in the future. >> the risks are mounting for the european economy right now. where talking a lot about the trade war between china and the u.s. affecting europe. you have brexit, potentially a hard exit doing damage is well. the data are all pointing in the wrong direction and we potentially could be heading for a recession in europe. are you confident that european banks at this point could sustain their business models

through a recession? >> we are confident without a doubt that the strength of the balance sheet of the banks is being -- regulation has been improved. it depends on the banks in some countries but in general overall it has been decreased by half over the last four years. that has been a strength and it makes the banks much more robust to face a downturn. when i think about profitability,, that is a challenge there. profitabilityk of as the first one to defense. , --nd aspect the last part which is the balance sheet of the banks is in much better shape. >> you merely answered the

question but not quite. you confident that the balance sheets are strong but not confident in the first or second line of defense. is the balance sheet strong deal with an economic downturn? to gete good enough these banks through a downturn? does regulations are going to fall quickly. at the moment, the regulatory requirement is high. , the banks are going to fall below that quickly? we will have another stress test in 2020. stress tests have been helping us over the years. banks are robust. to support a downward trend. we don't know what the recession will look like in the future. of expectation, we have

a robust banking system to front a possible downturn. >> think you for coming in. >> a lot of red across the board. with get a quick check of global markets. >> we have the bears out. the s&p 500 is down 1.1%. that is a bit of a bumpy continuation from last week when one day the 600 was down more than 3%. the bears are back out. that is also true for the stoxx. the semi conductor in the u.s. is down. on ratchet it up trade tensions between u.s. and china. especially sensitive confirming the idea that this is risk off. at the 10 year yield is down for basis points.

as for the s&p 500, let's look at a two-day chart. yesterday, a modest decline on the day but pointing to the idea that there is some uncertainty out there. especially today there ratcheted up trade terms -- trade tensions as president trump potentially blacklist eight tech firms. also flows of money into china pension funds could be limited and the possibility of retaliation. investors are not liking the uncertainty. underneath the hood, we are going to see all 11 sectors are lower on bottom financials down. that is not good for the lending activity. the best sectors, real estate consumer staples. but is also another piece of the bearish puzzle we are seeing.

areae best is all relative you can check out the function gtv on the bloomberg. it allows you to browse all of the recent charts each are on bloomberg tv. you can save your favorites for future reference. gtv . from new york and london, this is bloomberg. ♪

>> from london. i'm guy johnson. >> i'm romaine bostick. we're going to talk about the global markets. let's get the first word news. it cracks president trump complemented turkey today a day after he cleared the way for the country to invade syria. erdogan plans to visit

the white house next month. the president former u.n. ambassador nikki haley ended her tweet that was critical. or johnson sounding pessimistic about a brexit deal. antold angela merkel agreement is essentially impossible. he wants the eu to drop demands for northern ireland to stay in the eu. pimco warns the chinese trade war make the u.s. into a recession. >> the first half of 2020, gdp if to 1% or something and the rhetoric gets worse, you may be in a recession simply because the consumer will lose faith in what is happening. investorsas advised

to reduce risk and focus on capital preservation. boeing has its eye on the stars. it agreed to invest $20 million for a minority stake in virgin galactic. it is preparing to fly customers into space next year. boeing and virgin galactic say the relationship will be aimed at shaping the future of global space travel. global news 24 hours a day on air and at tictoc on her. this is bloomberg. my boss was talking earlier on the ceo of remco. of which there is a great deal of news today could potentially force the u.s. into a recession. let's get another voice from pimco. the cio of global fixed income

of pimco joining us now. could see trade forcing the u.s. into a recession. if that happens, where do you think the u.s. tenure goes? we are around 1.5. how that is the number go? >> if you have a u.s. recession, ,ou can see the u.s. 10 year look at where the u.k. is. moveould see a significant in the event of a recession. we see the risks as elevated owing to the u.s. china trade tensions. >> could you see a situation where that number goes negative? bei think that would unlikely in the u.s.. the europeans have done negative interest rates. i don't think that is likely ever in the u.s..

it's not obvious the evidence from europe would encourage anyone to undergo on that path either. that wouldn't be the central view but i'm sure it's possible of the recession and a bigger move in terms of global yields. global yields are what art tracking u.s. yields down. >> there is talk now about the deflation trade. this coming off of a time when everyone was talking about the reflation trade last year in 2017. if you look at inflation expectations now whether it is in europe at 1.15 or here in the u.s., we just got the data, is as deflation trade as crazy it might seem on the surface? aboutope has been sticky 1% of hasn't gone much higher.

if we avoid a u.s. global recession, the yields look too low but there is an elevated risk. it would be interesting to see how this plays out this week with u.s. china in the coming couple of months with a big whichse due in december would in terms of u.s. tariffs would have a big impact. it happens at a time where we see growth ready week in the first half of next year. you have at least some evidence of weakness manufacturing with the recent -- time. difficult time. it is possible with implications. time. it is possible with implications. inflation for lower bond yields.

we think you end up wanting to be neutral in terms of duration risk. the level of yields looks too low in terms of recessions avoided but 35% recession risk is elevated. >> let's go back to the idea of a recession being avoided. there is talk about the stall speed of the economy. u.s., iarly here in the am wondering if we are at some sort of stall speed, does that raise the risk of a recession if we do get some sort of shock? we have weathered the shocks well so far but it seems like now, you can get a smaller shock that will tip is over the line. >> broadly, i agree with you. japan has recessions and nobody notices. when you have lower trend growth rates, that's what we have at the moment in the u.s.. we think about 1% growth for the first half of next year, a shock you can get that lower. meaningful shift in terms of employment, unemployment etc. a technicalerent to

recession. it's a big risk. you have a global slowdown in terms of global trade, global manufacturing, germany is already in recession. europe is more vulnerable. if this does spill over in the u.s., it happens at a time when growth starts already at 1% levels in the first half of next year. >> you mentioned italy. months, it is tightened by 94 basis points. that has been one great trade. do you think it is done? if we are getting close to that point, -- >> i think that there's reason why italy has been tightening. there has been less political noise. it looks in terms of the ongoing budget stuff that it will not explode again.

you have the ecb coming in. italy is a clear candidate. levels,orts of tactically and think it makes sense to have a bit of an overweight but that's what we have had in some of our folios. as a long-term investment given the risks you have, what happens in europe and the -- next significant recession i don't think is a great long-term investment but as a tactical trade, there is further reported to compress at a time when you have the ecb re-engaging and on the italiane side. >> stick around with you to carry on our conversation. we need to talk about central banks. jay powell speaking a little later on. this is bloomberg. ♪

>> four minutes to go until the end of regular cash equity trade here in europe. the pound is trading at session lows. that's providing some respite relative to the peer group ftse 100. terms, you have 500 stocks down. 100 stocks up. of theves you an idea breadth we are seeing to the downside. volume is like the it has been across a number of sessions recently. feeling thecks pressure from the trade narrative emanating out of the u.s.. the european closes next. this is bloomberg. ♪

guy: 30 seconds of the lit end of regular trading in europe. we are pretty much uniformly down across the board.

continental markets down more than the london market. the ftse 100 is being protected to a certain extent by what is happening with sterling, sterling taking a beating on a difficult meeting -- phone call between boris johnson and angela merkel. the pound has continued to slide. .5%.tse 100 down only on the continent, down .9%. the cac 40 just breaking below 1%. theerms of the bulk of market, negative in terms of the volume. a little light, but on track for where we would normally be. let's take a look the sector story and break markets down that way. we do not have a single sector in positive territory. everything is trading lower. this is the function of the bloomberg. the best performing sector, telecom, the media sector, food and beverage. on the down days, these tend outperform the heavyweight stocks. food and beverage, that is

nestle, etc., some of the big swiss health care companies not dragging the markets down as much of the big on the bottom end. basic resources only down .8%. the trade story is front and center with brexit negativity being thrown in. travel and leisure is down. we saw numbers from easyjet. the lack of outlook from 2020 is not being taken particular well. retail also trading down more than the market. travel and leisure down 1.84%. a quick look at the single stop names to give you an idea of what is happening. i mentioned easyjet. the stock is down 7.85%. the numbers look good. the london stock exchange, the hong kong exchange walking away from o.a.t. -- from a potential bid for the hong kong stock exchange -- for the london stock

exchange. the negative day for the european markets. trade-in brexit doing the damage. that is look at the european close. romaine: about halfway through the session and the u.s., the s&p around the lows of the day, around the 2900 mark. we opened below the main pivot levels, below the 50 and 100 day moving average. keep an eye on the three year treasury. we do not talk about it much. there is a big option coming up but a sloppy short-term option. a huge disconnect between the 1.38% yield we are seeing in the secondary market and what investors might demand once we get to option. crude week again. seeing it in terms of wti and brent. that spread now only about six dollars a share. we are down 1% today. up -- io keep you in

want you to up -- i want you to keep and i banking stocks. the regional banking index down about 2%. if we can flip the boards, we can see the sentiment continues to weaken. the philadelphia semiconductor index down more than 2%. a lot of support tied to that report we had out of china with regards to the potential blacklisting of a lot of these companies. arella one of the big movers. of aolden dragon, the adr lot of the big chinese internet companies. that is tied to the concern u.s. may prevent pension funds in the u.s. from investing in some of these companies. alibaba down 2% or more. gold getting a bit. up .7% or more. volume in the vix. not often you see the vix at that 20 level. a little bit elevated, giving you a sense of where sentiment lies. guy: a bit of breaking news.

, the troubled swiss asset manager, is said to hold sales talks with suitors including the italian firm generali. we will look for reaction first thing tomorrow morning. let's take you to denver. investors listening closely when jerome powell speaks this afternoon at the national association of business economics annual meeting taking place in denver. he will be speaking at the silverton suite at lunchtime. joining us now from that meeting is bloombergs international economics and policy correspondent, mike mckee. over the last week of bids, the market has gone from not pricing october 2 pricing october as a near certainty. any change -- any chance jay powell pushes back on that today? michael: i would've told you a couple of days ago there was more of a chance he would do that. the fed does not like being led around by the markets,

especially when the data is not convincing. we did have numbers last week in terms of ism reports on manufacturing that were dismal. we had a pretty good jobs report with the 3.5% unemployment rate. you could've made the case that jay powell would say we are still watching the data and we are not going to make a decision until we get closer. now with all of the trade news you have to think it will be harder for jay powell to make that case because the markets will be very pessimistic about what is going on. he is speaking before the trade talks get underway. he is at a disadvantage and i would expect them to try to stick to the fed talking points. they will watch the data and do what is appropriate. that may not be enough to dissuade markets from taking a rate cut is a done deal. we also got ppi data out of the u.s.. a lot of folks talking about the deflation trend, betting the fed and a lot of central banks have

nowhere to go but down when it comes to rates. you think this talk around inflation is relevant at this point? michael: it is relevant, but less than it normally would be when you're talking about the fed. the fed does not have to worry about a rapid outbreak of price appreciation. they can sit back and do what they need to do in other cases, cut rates and not have to be concerned. ppi is a confusing animal because of the way it is put together and it does not feed directly into consumer prices or the pce index the fed uses. a lot of what we saw in the ppi today was energy prices down 2.5%. that had an effect on the overall price level, which was on a year-over-year basis at 1.4%. the drop in the core rate was not as severe. 1.7%. still pretty close to the fed target. it does not feed into their index, but it does show you there are other factors outside

the fence control in terms of inflation that taken off the table as an issue right now. -- that take it off the table as an issue right now. romaine: our thanks to michael mckee in denver. we will bring you live coverage of chairman powell's speech at 2:00 eastern time on bloomberg television. guy: that will be worth watching. global fixed income probably going to be paying attention to that. andrew, thanks for sticking with us. the fed looks like it is almost 100% priced for october 30. you think it will stop then or do you think it will state with the live meeting as well? andrew: i would think december is live. your correspondent was talking about low-inflation and we do not see a break out any time terms of inflation. it gives the fed room to ease. the cost of being wrong over easing they do not see as being

significant. october is likely. december looks possible. one are two more this year, two more quite likely. guy: you think there is a danger the fed waits too long before it takes action on the consumer. the consumer data are largely pretty good, but as we've been hearing time and time again, the world economy seems to be resting on the shoulders of the u.s. consumer. if we wait for any cracks to appear, will it be too late? two things. by the time the consumer cracks, it will be too late. the fed pivoted in december of last year. they have eased policy at a time when the data has been pretty strong. you are seeing evidence of spillover to the nonmanufacturing sector. wage growth was not strong.

it is hard to say they are waiting too long. they have eased despite the fact that based on the domestic data the u.s. economy looks ok. a lot of talk about the direction of rates but also the size of the fed balance sheet and to what extent the fed, if they are willing, would actually go. what you think the fed is going to do with regards to the balance sheet? you see an expansion and if show -- and if so, how much? andrew: in the event of a slow down, the fed is clear qe would be a tool they would use. i do not think they would do negative policy rates. there is a long way to go in terms of policy rates. they have been clear they would do qe if they thought the circumstances call for it. that is a way of elevated , but on oursk

central forecast recession is avoided. acceleration,ary but i think further down the road qe is possible if the recession comes to pass. romaine: it might be qe, maybe by a different name. what about the midcycle adjustment jay powell referred to a few months ago and this general idea that a couple of cuts, however many we get, that back be enough to move us into a prolonged economic expansion? you think that is possible? andrew: i think that is possible. the one problem for the federal reserve is the extent of the and-china trade standoff the impact that has had on business confidence. if you did not have this u.s.-china trade stuff going on, the outcome over the last 12

months would be quite different. i think it was reasonable if jay powell saw the potential for course correction and limited moves are still quite possible. we do not know what is going to happen with u.s.-china trade. do not think there is going to be any breakthrough this week. the upside risk is it does not get any worse this week. this is something -- the fed does not have a crystal ball. it is hard for them to deal with. willit looks like the boj be buying more foreign bonds. where do you think they will be buying, in what size, and what are you positioning for? andrew: across the complex in japan, the public sector, asset managers as well, there has been a tendency to buy u.s. assets primarily, including u.s. credit. i think that is part of this

overall gravitational pull on u.s. yields. negative policy rates. zero negative rates for bunds in europe. japanese monetary policy. the use of the japanese balance sheet. this is all putting downward pressure on u.s. rates, even at a time where growth has been pretty good in the u.s.. guy: are you in any way positioned for a greater level of issuance? fiscal expansion of german paper? you see any scenario where that happens in the next six months? andrew: never say never, but it seems unlikely you will have big and itfiscal expansion seems more likely you will have reinforcingbunds

the scarcity premium, with the ecb re-engaging. never say never, but it is hard to think of things less likely that a big shift in terms of german fiscal policy. , if we: on that topic were to get that push out of europe and a little bit more of a push out of the u.s., what you think the effect that would have with regards to the total -- not just the economic picture, but the action we have been seeing in the bond market? andrew: in terms of what central banks can do, there is not a great deal more they can do. in europe they are scraping the bottom of the barrel. japan as well. more they can do in the u.s. for sure. of policy rates, maybe in terms of qe. ,f you listen to mario draghi

he -- the fiscal authorities, if you look at the logic of what the japanese central bank is fiscalit is creating the authorities to react. central banks tend to be fast-moving and well ordinate it in terms of how they operate. they can respond in ways fiscal authorities find it hard to do. putting too much weight on fiscal is something you need to be careful about. in the event of a slow down, i think the u.s. would use fiscal policy in a timely fashion. the u.k., owing to brexit, there is a good chance they would see expansion next year anyway. the european side, i tend to think things would happen to get quite bad for them to do anything beyond windowdressing. briefly, can you see any scenario in which the global

investment community decides gilts are not worth owning? brexit could be 24 days away. we exist on the kindness of strangers. any risk to that? andrew: i would not place a big risk on that. the risk to gilts would be if there is a surprise and we get a deal. a lot of bad news is priced into gilts. i think that is a big risk. assetfts by international allocators into gilts in the last few years. see at low levels advantages over the continental european markets. the other thing to say is the currency has tended to be the shock absorber rather than anything else. guy: thanks for your time. thanks for staying with us.

pimco cio of global fixed income. news over the last couple of minutes. democrats in washington issued a subpoena for president trump see you on point in the impeachment inquiry, which seems to be gathering pace. a quick look at where european markets have settled for the day. we had a negative session. .7% for the ftse 100. the pound, the firm focus of the brexit story, it had been weakening throughout the day. dax down 1% and the cac 40 down 1.2%. the conversation will continue at the top of the hour on dab digital radio. the cable show will be taking the air. jonathan ferro in the united states. i will be joining him in london. this is bloomberg. ♪

guy: from london, i'm guy johnson. romaine: this is "the european close" on bloomberg markets. let's get a quick check on bloomberg first word news with courtney donohoe. courtney: the trump administration's firing the latest shot in the trade war. bloomberg has learned the administration is moving through with limited capital flows in china. china is outraged against the nba is getting worse. says it willctv not show nba preseason games. this started with a tweet from the houston rockets general manager expressing support for the hong kong protest. the nba commissioner spoke with reporters. >> it is not something we expected to happen. it is unfortunate.

that -- if those are the consequences of us adhering to our values, we feel it is critically important we it here to the values. silver says the leak will not tell players or team executives what they can or cannot say. one measure of inflation at the wholesale level dropped by the most in more than four years. last month, excluding food and energy, reduce or prices fell more than .1%. the smallest increase in two years. the inflation pressures give the fed more leeway to lower interest rates. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am courtney donohoe. this is bloomberg. guy: thank you very much. time for our stock of the hour. we have been mentioning it early on. the london stock exchange she shares fall close to 7% -- seeing shares fall close to 7%. emma chandra has the details.

the: that move coming as hong kong exchange withdrew its bid for the london stock exchange. it made an unsolicited offer last month which was rejected. if you look at how the stocks have performed that past month, the hong kong exchange has underperformed. theyey drop their bid, blame a lack of engagement from the lse. that may be because the lse is focused on its own takeover bid itiv, aa company refin competitor to bloomberg. this comes with a lot of risk for the lse. we will have to pile on the debt in order to fund that deal. we are looking at the net debt. it will take years for those debt levels to come back down. nevertheless, analysts saying that in the long run the refinitiv dealhe will be better for the london

stock exchange. this begs the question of what is next for the hong kong exchange. you look at how it has performed, it is the big underperformers with just a 2% gain for hkx. it has long been a gateway into china, but the lse says it can find a more direct route to china plus a number of other headwinds. not least the ongoing trade war between the u.s. and china and the ongoing protests in hong kong. that is your stock of the hour. romaine: emma chandra, thanks. from new york and london, this is bloomberg. ♪ everyone uses their phone differently.

that's why xfinity mobile lets you design your own data. you can share 1, 3, or 10 gigs of data between lines, mix in lines of unlimited, and switch it up at any time. all with millions of secure wifi hotspots and the best lte everywhere else. it's a different kind of wireless network, designed to save you money. switch and save up to $400 a year on your wireless bill. plus, get $250 back when you buy an eligible phone. that's simple. easy. awesome.

call, click, or visit a store today. romaine: from london -- guy: from london, i'm guy johnson. romaine: from new york, i am romaine bostick. type the bloomberg business flash. makeche bank is going to

half of its plan 18,000 job cuts in germany. they want to rely on savings at their retail unit to lower costs. deutsche bank has about 92,000 employees worldwide. there is a new ceo at nissan. the head of the japanese automakers china joint venture will become the third chief executive of nissan in as many years. he faces a number of challenges, among them, falling profits, massive restructuring, and problems with its top shareholder, french carmaker renault. in new york has rejected a hedge fund manager against the showtime show billions -- the court disagreed. it said billions and schultz do not resemble each other in the least. that is the latest business flash. guy: coming up, "balance of power." david westin taking the helm.

joining him on bloomberg television and radio, former national security advisor susan rice. that will be a fascinating conversation, particularly what is going on with the u.s. on turkey and syria. a quick look at markets. when it comes to the s&p, 38 stocks up, 468 stocks down. if you want to know where the weight of the market is on the downside, the banks are feeling the pressure. names like j.p. morgan and bank of america and chip stocks are feeling the pressure from the trade narrative. me, this is and bloomberg. have a great afternoon. ♪

david: from bloomberg world headquarters in new york, i'm david westin. welcome to "balance of power," where the world of politics meets the world of business. the markets are having a bad day. we want to get right to them. here is abigail doolittle. abigial: you are right about that. a very bearish day for the market in the u.s.. the dow, the s&p, and the nasdaq all down more than 1%. the nasdaq leading those decline , down 1.2% as trade tensions in the u.s. and china ratchet up. we have boeing as one of the baker drags on the dow, down 1.5%. fear is the relaunch of the 737 , pluscould be delayed southwest airline pilots suing the company for lost wages. a bearish day, risk off, trade tensions ratcheting up between the u.s. and china. the story of october. when we going to bloomberg and take a look at a great chart, what we have here is