♪ morning. welcome to "bloomberg markets: european open." we are live from our european headquarters in london. i am alongside matt miller in berlin. matt: back in berlin. today the markets say, let's not get ahead of ourselves. asian equities outside japan haltsand the haven exodus as the risk on the move fizzles out a bit. europe points lower, so does the u.s. the cash trade is less than 30 minutes away. ♪ anna: is it all priced in?

u.s. and chinese negotiators agree on a tariffs rollback if and when a trade deal is reached but stocks and futures slipped from asia to europe. in europe, jean-claude juncker says president trump will spare autos from tariffs ahead of next week's deadline. the hong kong protests caused revenues to slump. the city prepares for another weekend of demonstrations. good morning. matt: good morning. less than a half-hour from the start of u.s. trading. we saw haven assets really catch a bid, especially over the last few days. this is the three-day chart of treasuries. you can see the yield jumped up past 195. it is coming off a bit today. right now, we see 1.91. yesterday, we saw a real change in sentiment, it looks like. for example, gold, which had been catching a bid in the last

few weeks and months on concerns about the trade war, dropped $30. we will watch that and talk about that today. in terms of what we are looking at in terms of the trade in less than 30 minutes time, we see futures down across europe right now. dax futures are often 0.25%, as are ftse futures. although the moves are slight, in terms of size, they are all the same in terms of direction as well. nasdaq, s&p, and dow jones futures are all down. what do you see on the gmm? anna: it has really been a risk on week, hasn't it? different,look a bit a little bit kind of pause for thought, handgun, have we gone too far -- hang on, have we gone too far with this narrative? a lot of on the gmm. it is the japanese market that

stops the overall asian picture for asian equities from looking worse today. s&p 500 hitting yet another all-time high in yesterday's session. a lot of optimism around the trade narrative. will that deal ever be signed? will we ever really be talking ?bout rollback of tariffs that is all contingent on a phase one deal being signed. equities going lower. let's put up the other side of the gmm. we want to mention what's going on in commodities. the commodities complex has been catching up with the narrative around trade and has been boosted this week around trade. that has been the general picture around oil, even if it is weaker today. iron ore down by 3%. another city talking about weakness in iron ore coming through. let's talk about where we are on the markets. we are joined by mark cudmore,

who is in singapore. good to speak to you once again. we had a chinese trade data out, which for some people could have been a reason to carry on the rally, some sort of line in the sand. maybe have -- we have reached the bottom on trade tensions, and yet it has not been taken as such a positive by the markets. what is going on? >> i think there is some end of week profit taking from short-term traders who feel we have quite a bit of optimism priced in around trade and may be some cynicism is creeping in. i do not think we will get anymore optimism on the u.s.-china trade front until we get concrete details. those details are a place for signed, a date for signing, what amount of tariffs will be unwound, will the threat of other tariffs be removed? once those details are down in writing, we will get much more positivity again.

until then, i think the trade seen can't buy us much more positivity. i do not think markets are going to suddenly collapse. at the moment, everyone believes a trade deal will be signed at some point. unless stocks break down completely, i think any slight negativity will probably be not long-lasting. matt: we are just seeing headlines across the bloomberg terminal right now. china car sales down for the fourth consecutive month, according to pca. the chinese car market has been a real concern for the global industry all year, last year as well. we started to see this downturn. how motivated are the chinese right now, in terms of trying to get tariffs rolled back, in terms of trying to boost sales, trying to boost domestic demand as well?

, trying to boost domestic demand as well? mark: look, saying how motivated they are is a dangerous topic for me to weigh in on. looking at the economic situation in china, yes, of course, they are probably going to print a 5% gdp number over the next year continuously. we are going to have a numbers which would change the narrative around china. it is still a very faster growing compared to the west, the u.s., all oflooking at eurot is still slower than what people were thinking a year or so ago. ultimately, yes, they want a trade deal. do they want it enough to sacrifice some of their t intentions, to open up key parts of their economy that they want to protect? this trade story is something that will not get suddenly resolved in the next couple of months. we are likely to get a phase one deal. the phase one deal looks like it has little of substance. we are still going to negotiate on exterior. whether it gets assigned or not, i don't know.

it is unlikely we get some kind of deal that solves all the issues for both sides anytime soon. the phase one deal does not tackle the issues that both sides have a from either angle. anna: but this week, we have seen yields going higher, having we -- haven't we? let me get to the markets live question of the day. how much higher yields can stocks resist? the trend of the week has been for yields to go higher. stocks have also gone higher. there are people asking whether that continues, whether if we see these yields going higher, people in the stock market might say, i'm going to sell this and get back into bonds. what's the thinking? >> this question was preempted last night. we had this rate of change in 10 year yields, it is normally on impending swoon for u.s. equity markets. it is different this time.

this is genuine optimism that is fueling this rise in yields. there has been a real narrative shift around the trade war. we have slightly more resilient data, few data points around the globe. overall, people are saying, even if there is going to be a real economic problem in the u.s., it probably won't come until the second half of next year. even if the trade war might not conclude in a grand deal, we are unlikely to get disappointment anytime soon. the disappointment is likely to come after the phase one deal. at some point, they are going to struggle with higher yields. i think the tolerance for higher yields might be slightly higher than normal. what it will probably do is just mean that that year-end risk rally, which is looking likely, will be a slightly slow and jerky one rather than a kind of booming market higher. matt: thanks very much for joining us. mark cudmore there. you can join the debate on today's question of the day,

which is how much higher yields can stocks resist? this thisking about morning as i read through the mliv blog. hillary threw together this chart that really puts a point on how much more important this story is for the u.s. than it is for europe. in white, you see the u.s., the s&p 500 yield premium over treasuries just at the zero line. yet, coming off but never went that high to begin with. in blue, you see the stoxx 600 yield premium over bunds, which is a lot more pronounced, still at 3.8% right now. great chart to focus on. you can get that on your terminal. let's get the bloomberg first word news. ♪ >> thanks, matt>>. there was a clear message from

the white house to ukraine, according to one senior state department official. he told house committees last month president trump want to investigate joe biden. he says the three words been pushed by the administration were investigation, biden, and clinton. in the u.k., prime minister boris johnson announcing plans for special visas for doctors and nurses. the new system would be introduced after the u.k. leave the eu. health care there is set to be a key battleground in the election campaign. opposition leader jeremy corbyn has repeatedly accused johnson of trying to sellout the nhs to win post-brexit trade deal's. in hong kong, a student who fell at a car park near clashes yesterday has died. the victim was 22 years old. he was a second-year student at the hong kong university of science and technology. police say he fell from the third to the second floor of the car park. global news 24 hours a day, on air, and on tictoc on twitter, powered by more than 2700 journalists and analysts in more

than 120 countries. this is bloomberg. anna, matt? anna: thank you very much. next, the u.s. and china agree on a tariff roll back only if a deal is signed. are stocks skeptical? that is the conversation we have been having so far this morning. that is a conversation we will have a further. bloomberg is live on your mobile device or on the radio. this is bloomberg. ♪

♪ to "bloombergback markets: european open." right now, we are 16 minutes away from the start of cash trading across europe and the u.k. futures are pointing lower after the big gains we have seen so far this week. optimism may be taking hold -- may have taken hold of equity markets, but below the surface, stocks are undergoing one of the most violent rotations is 2002. it is factor friday and here with the moves of the week is dani burger. >> we have seen this rotation into value and momentum continue steam. up value gaining more than 2.5% this week while momentum falls nearly 3%. the biggest rotation since 2002, according to data from wells fargo, who also points out that

this rotation typically occurs when we have found a bottom in pmi's. perhaps manufacturing will pick up from here but the traded news from the u.s. and china reaching a preliminary agreement, rolling back tariffs helping sentiment. citi warns to watch out for value traps, especially for financials. it is extremely bullish value, at least for the short term. barclays alln, calling to add into value. especially their founder is a staunch opponent of factor timing. he says value is so cheap that it makes sense to at least add a little bit of value, calling for investors to sin a little. anna: thank you very much. let's get a bloomberg business flash. ♪ >> disney bringing amazon on

board for the launch of its new streaming service. all in all, the partnership ensures the company will have access to tens of millions of viewers when it launches disney plus next week. this alongside fourth-quarter profit that topped expectations, fueled by films like "the lion king" and themepark growth. saudi arabia tapping some of its most wealthy citizens to buy stock in saudi aramco. some control sprawling groups of companies and it is not clear how they buy the stock or if they invest their personal fortune. gap slumping after saying that it's ceo will step down. the termination coming after years of struggles for the company. his turnaround efforts failing to reignite sales growth. the company is now bringing back a member of the founding family to lead while it figures out a longer-term plan.

that is your bloomberg business flash. matt: thanks very much. a tariff alk of rollback that has really been behind the big equities rally. both china and the u.s. have agreed to reduce levies on each other's goods as part of a preliminary deal. larry kudlow confirmed a rollback to bloomberg, but said that would only happen if there is an agreement. meanwhile, china's trade data also had bright spots in it, as exports declined less than expected in october on rising trade optimism. imports contracted for a sixth straight month as weak domestic demand continues to bite. joining us from singapore is our asia economics correspondent. inre do things stand on this terms of u.s.-china negotiations? you outlined earlier and as

mark cudmore was tracking the market rally and it is waning in the later hours of the asian open. you know, we have seen this fool me 38 times fool and equities will be skeptical. we are awaiting a more firm response from the u.s. side. you mentioned larry kudlow sounding optimistic. kellyanne conway adding to it. really, we are not clear on how and when that might happen. of course, the ultimate here is how president trump might weigh in. i thought it was interesting that we have not heard from trump yet. we have heard from peter navarro , who said the president has not made up his mind yet. he at least has not announced anything on this front so we should be careful in saying there has been an agreement. peter navarro saying that there is no agreement yet on the rollback of those existing tariffs. we are hearing a lot of

conditions, a lot of ifs. we know that china has demanded this be a precondition for other sides of the negotiation. u.s. disagreeing with that and saying we need to hold onto this leverage in the wake of negotiations and see where things stand with china. they have disagreed on this for a long time and there is no clear indication that it is a solid commitment to go forward at the same pace. anna: a lot of this only unfolds if other things happen. what do we expect from the days ahead? are we expecting things to solidify? >> well, we can only hope. we are always looking for certainty, especially in the markets. what we are looking for now is a range of details. we have heard from china interestingly enough on some efforts to fight that smuggling. that is top of the list for president trump and the u.s.. we may hear more in the days ahead with the sides are doing and how that might impact

negotiations perhaps moving into phase one of the deal. the big logistical question now is this a guessing game around what location they will choose. there was some talk of iowa or alaska on u.s. soil, which would have been a big and interesting development for china to concede on that. now, that is out of the picture. it could be in my neighborhood or yours, europe or asia. we do not know the location yet. those are things we are watching. right now agenda is any sort of clarification on how the u.s. reacts to this scoop our china team had on this rollback of tariffs that has really set off this debate as to whether or not that is true, that they have both met that agreement. matt: thanks very much. our asia economics correspondent out of singapore. i think it is interesting. for china, maybe it is good news that they continue to export and bad news that they are not

importing quite as much. for the u.s., this is exactly what donald trump does not want. this chart is 5085. it is actually pretty cool because i can show you also on the bottom panel the yuan has been strengthening. nonetheless, china's trade surplus with the u.s. is growing. that is exactly what trump was trying to stop with this trade war. we are minutes away from the open. up next, we will take a look at your stocks to watch at the open, including the owner of i wc. they missed estimates as hong kong protests really hurt sales. this is bloomberg. ♪

♪ the: minutes away from start of the european equity trading day. let's get around the newsroom. let's talk about which stocks we are covering here. we are covering richemont. annmarie hordern is looking at allianz and dani burger is focused on numbers on credit suisse. let's come to you first on richemont and once again, the hong kong effect here. >> the focus really is on hong kong this morning. operatings first half profits missed estimates but the 10%, more than 10% decline in sales from hong kong.

after five months of protests causing shop closures. put that in context, china and hong kong sales accounted for about 25% of the company's revenue last year. we are seeing shares moving lower in johannesburg this morning. it is expected that may well follow when the swiss market opens. up surely -- other luxury names in hong kong may follow suit. we had at warnings from the likes of prada. matt: you are looking at allianz . i know dani is looking at credit agricole. both really are in some senses a wealth management inflow story. >> that's right. pimco had 22 billion euros of inflows. that more than offset the sister unit. the call for allianz going to the open are mixed because the

property and casualty business had a slip of 10%. anna: credit agricole, you can tell us about that later. thank you all very much. this is bloomberg. the open is next. ♪ here, it all starts with a simple...

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of the last cash equity trading day of the week. this is "bloomberg markets: european open." marketsok at where the in asia have left us, a little weaker. some of the negativity because the japanese market was resilient. dropped 0.8 percent or so, perhaps we read too much into the trade narrative. to buy into detail this and go risk on. weaknessg we will see in the u.s. and no doubt in europe first. gold has done badly this week.

we saw havens being sold. it is weaker today, in conjunction with the pause in this narrative. through the week we have seen commodities move higher on the back of better news around trade. expect to see some weakness at the start of the trading day this morning. will we see european equities retreat? or will we see them pause and wait for direction on trade? the potential for rollback of tariffs, that everything remains contingent on a phase one deal being signed, the market may be losing faith. the ftse down by 0.3%. .uro stocks down by 0.1% the french market down by 0.4%. we are seeing weakness coming through. it will be interesting to see how this plays out.

as. features point negative well. perhaps this is not one of those days where things turnaround. one sector in focus is the auto. we heard from jean-claude juncker who is confident president trump will not impose those tariffs on european automakers. financials pretty much in the red. basic materials and energy stocks and utilities in the red. we definitely have a predominance of stocks to the downside. what do you see in the individual movers? matt: i am looking at mostly losers. .50 stocks down, 130 up anybody who has anything to do with asset management, wealth management, high net worth clients is doing quite well today.

forecast.s upped its only upd unicredit 0.5%, but unicredit is on fire, hockey sticking up. six sessions in a row we have seen gains for unicredit. it is amazing that it continues to run after it was up 5% yesterday. wealth management is a great theme today because of allianz and inflows we have been seeing across the industry and region. take a look at the losers, it is funny when i say that, allianz is one of those, even as it ups its outlook the cousin of the better wealth management story, the stock is down 1.9%, maybe the news involved in that.

we also see nestle down as well as asml, bp. the defenses stocks are down. some of the tech stocks are down. we will keep an eye on those. anna: let's talk about where we are on these markets. european equity markets retreating, down 0.4%. signs of abating yesterday as asian stocks traded mixed and negative, and u.s. features also suggest a retreat. joining us now is stephen macklow-smith, head of european equity strategy, jp morgan asset management. very good to see you. it has been a busy week with the risk on momentum. this chart is a trade deal feeling momentum in stocks.

it is interesting if we have gone too far too quickly. your thoughts around the rally in risk assets this week. stephen: if you think about it in the context of the last 12 months, what is interesting is that last year was ugly, a selloff around the world triggered about trade tensions. now those trade tensions have ratcheted up. it became clear short-term growth was holding up, so you had a rally. stocks have held that level. now that people are backing off of trade rhetoric, you are seeing stocks make new highs. when you pick the bones of that, from a corporate point of view, growth is not plentiful but it is ok. there are some sectors that have had earnings since the global financial crisis. bonds are treading with negative

yields. picking up on what you just 0.4%, if youdown look at bond markets, it looks as if bond markets are discounting a strengthening of the short cycle, and that is reasonably good news over the next few months. much more toave run? i realize 2018, especially the end of the year was bad for risk assets, but 2019 has been incredible. if you look at europe outside of the u.k., we are up 25% year to date. some markets up almost 30%,'s almost like in the m trade in the developed world. it has been a good year after a frightful year. last year stocks looked that extremend now

valuation has narrowed. on au think about it cyclically adjusted basis, stocks with medium-term averages . if you get further growth in there is room for markets to improve further. anna: my colleague maria taddeo is in brussels. >> the idea of debt not being a risk-free asset, where do you think we are going and what is your position? , it think it is positive now opens up the discussion which is a good thing. a lot of debate on how exactly

to structure the banking unit in such a way that we reduce risks rather than create them. that will be the theme going forward. , it isrisk reduction outdated, do you agree? it is intellectual right, when you want to guarantee system, it is essential to make sure you reduce risks. one of the things we learned throughout the crisis is there is no such thing as risk free sovereign debt. you have to treat it for what it truly is, and you have to acknowledge the fact for different countries, the risks are not the same. >> what are you looking at? the banking union is a thorny issue.

what are you looking to? >> things do not go with the speed of light here. it will probably take quite a while. at the same time, it is crucially important we finally kick off this debate, because it is one of the missing links in the european infrastructure. if we do not have it in the next crisis, it will haunt us. >> talk about fiscal spending, because the european commission said too many risks are playing out. you made similar comments but the finger-pointing is being directed at germany. that is up to germany and every individual country to make .ure it reforms its economy it takes a path to sustained economic growth, and its budgets . we are doing our very best in

the netherlands, we have gone through a lot of reforms in the last five to 10 years, and the economy has been doing well the last couple of years. i would love to see other countries take the same route. >> you are going to talk about cryptocurrency and facebook, libra. what is your thought? >> those colleagues have been risksto point out the this specific idea. i am looking forward to the conversation. >> do you want to hear more from facebook in what they are looking to do? >> it is always a good idea to fully understand the picture. so far, what i have heard, it is not positive. jean-claude juncker believes trump will not an act tariff --

europeanriffs on the automakers. >> the larger point here is that a trade war is lose-lose. even if it would be a trade war between the west and the chinese, that would hurt the european economy to a significant degree, so i think it is imperative that the americans and europeans stick together to avoid a trade war. that was wopke hoekstra speaking in brussels. that's get back to stephen macklow-smith, head of european equity strategy, jp morgan asset management. conversation started talking about the banking union, and every time we talk about it, skeptical voices pop up and say this is not any more likely to

it was. there are still barriers. one of thethink interesting things is the way he things which had not been previously related in one being theon, move towards the insurance and risk-free assets. risk-free assets are important for banks, because they need to hold excess cash and capital in a risk-free environment. if you decide the italian government debt is not a risk-free asset, what are the italian banks supposed to hold? you do not have to define what a risk-free asset might be and achieve agreement on that. in order to get to a more perfect banking unit, you have to reach agreement on those. at bond market yields, one is more risky than the other. stephen: by the same token, one

is less liquid than the other, , theye in german bunds run the black zero budget. that means the only thing you can hold his german bunds, that is not a workable solution either. is a fascinating conversation back can go on, and one that will go on in the halls of muscles and frankfurt. stephen macklow-smith, head of european equity strategy, jp morgan asset management is going to stick with us. we have more to talk about with of moreide of the idea shared risk in europe. up next, haven assets get abshed as investors worries ate. how do you trade this exodus? is it here to stay? we will bring you that conversation next.

this is bloomberg. ♪

the: welcome back to european open. 15 minutes into the trading day. lower, buts point only by a little bit, not as much as they were. let's get to the havens trade narrative.

is said now is not the time to be aggressive in the markets. speaking yesterday, he said investors should take on less risk in the current rates environment. >> i think the ultralow interest rates of zero and below have warped a lot of calculations. in the small picture sense it makes sense that companies have taken on more debt because it is so cheap. matt: despite caution from marks, the goldman sachs president sees the opposite scenario occurring. we actually see a pickup in risk appetite. i think what has happened with the federal reserve and central banks injecting liquidity and

being dovish has helped. seemed tothe market agree. we have seen a big shift out of .avens and into risk assets that is moderating a little today, but it still has put some at levels weold have not seen in a long time, off $30 a troy ounce in one move yesterday. stephen macklow-smith, head of european equity strategy, jp morgan asset management is still with us. that is not it, we see bond yields at 1.9%. over 109 yenell for your dollar. risk assets seem to be a great play this year, losing their luster. what do you think? issues that of the safe havens face at the moment

is you are getting little return on them. hideously, you could park money in safe havens to make a modest set outurn, and volatility and other asset classes. now if you want to get into safe havens, you have to accept the negative real return while you wait for volatility and other asset classes to play out. it is a more paradoxical world for investors, and if you look at the relative forms of stocks which provides total return for equities and bonds, if you look at the switch between equities and bonds, despite the fact that bonds are in a multiyear bull market, equities have performed remarkably well because caring bonds is so low. i will not umpire the debate theren the have-nots, but

is room for risk appetite to pick up. if we do get the elimination of tension politically and globally over trade, then that will play into risk assets. one thing we have seen as the diminution in the manufacturing sector. they are willing to deploy capital and capex, and we would like to see capital investments more generously for investments. anna: your conversation around bonds and equities, our team has been asking this question, how much higher yield in treasuries can stocks resist? can stocks keep rallying from here? you seem to suggest equities can rally further. stephen: my sense is equities can rally further as long as the , you are seeing a

my sense is it can rally further, and we have to wait and see. the issue we face is the thatenge for investors is safe assets give you a negative real return. if you back up so far that you get a positive return, the mutual attraction of those asset classes would shift again, and you would have a more even debate. uphink equities are beaten relative to bonds. matt: we are going to keep you with us a little longer, stephen macklow-smith, head of european equity strategy, jp morgan asset management. he is our guest cohost for the hour on a day when we see a little pullback but after a week when we have seen an incredible rally. up next, the eu warns worst may be yet to come, they cut the

euro growth forecast. germany could enter a technical recession. we will see the first reading of the third quarter gdp print next week. this is bloomberg. ♪

anna: welcome back to "bloomberg markets: european open."

a negative session underway for european equity markets, u.s. futures flat to negative. has cutpean commission its euro area growth and inflation outlook for 2020. the new projections show more pronounced weakness amid global trade tensions and political uncertainty. for more mullets good to emory quarter. annmarie: the trade war and policy uncertainty means resilience will not last forever, that is a warning from the european commission. it cut its growth and inflation outlook yesterday and warns the possibility of a disorderly brexit remains decidedly to the downside. france is proving more resilient but it really shows no sign of meaningful recovery, and muted growth for germany. drag.ojection was another the country is set to slip into

a technical recession after growth contracted last quarter. that probability has climbed, but this morning we saw a huge beat on export numbers, coming in 1.5% for september when estimates were just 0.3%. could this be a sign that germany may dodge a recession? matt: thank you very much, annmarie hordern with a look at a preview of what we can expect next week. stephen macklow-smith, head of european equity strategy, jp morgan asset management is still with us. seen an incredible equity rally here, but isn't it likely we see a german recession? and with more headlines like we have seen today, china's car sales dropped for a fourth consecutive month, doesn't the future look bleak? stephen: if you had germany going into a technical recession , would that be actually

material in terms of the overall picture? i would suggest not, because if consecutive confes quarters of contraction, there are areas where the economy is holding up well, employment is good, real income growth is good . if you have not pullback in the manufacturing sector, that has had an overall impact. but you are not getting the effect of a recession that would really threaten prosperity for companies and individuals. you are unlikely to get massive growth and unemployment. looks as if german growth is weaker than hoped, but i am not totally sure the impact will be as pernicious as a full-blown recession. anna: better news for the german

auto industry perhaps. thank you for joining us, stephen macklow-smith, head of european equity strategy, jp morgan asset management. bloomberg radio. more conversation on germany, 30 years after the fall of the berlin wall. ♪

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trading day, let's get your top headlines. is it all priced in? negotiators agree on a tariff rollback if and when a trade deal is reached. stocks slide as risk appetite abates. jean-claude juncker says president trump will spare autos from tariffs ahead of next week's deadline. richemont slumps. missing estimates as the hong --g protests way on sales weigh on sales. good morning, and welcome to "bloomberg markets." i am matt miller in berlin

alongside anna edwards in london. anna: 30 minutes into the trading day, this is the mov function. 386 stocks going down. we have a bias toward the downside here. down by .3%. as we show in the graphic, u.s. futures have been paring those losses. iswe see whether wall street as weak as it might have looked. let's look at where we are on the upside. this is not where the dominant narrative is. we have seen companies responding to their own earnings statements. british american tobacco is going higher. there was news in the u.s. around juul. we are looking out for movement in tobacco. tate and lyle up 1.8%. the bias of the market seems to be going to the downside.

investec the biggest fallers. the texas down by 5%. richemont is in here at the number two spot, down by 5%. hong kong taking its toll on this particular business and luxury sales. credit agricole also putting out numbers down by 3.6%. matt: saturday it marks the 30 year anniversary of the fall of the berlin wall. this moment and the political changes that followed were a watershed event in the history of europe and the world. but how has germany fared since and what is the outlook for europe's biggest economy? i took a look back at the nation's journey. ago, the berlin wall comes down. germany, unified for the first time since world war ii.

the cost of integrating the former satellite state does not come cheap. industrial production takes off and germany becomes the dominant economy of europe and in some sectors the world. basfwagen, bmw, siemens, to name a few at the heart of the machine. january 1, 1999, the euro is born with the central bank headquartered in frankfurt. berlin loses its beloved deutschmark but becomes the chief beneficiary of the common currency. problems emerge. crisis andgion debt an increasingly hostile russia, the immigration crisis, dieselgate, brexit, and the trade war sapping germany's export dominance. collapses, export slides and germany teeters on the edge of its first recession in more than six years. with merkel in the twyla of her power -- twilight of her power,

pressure builds on the government to spend its way out of the economic malaise. even if the fiscal tabs are open, will it be enough to prime the one time engine of europe? joining us is the president of biw, the german institute for economic research. this has been a success story for germany. it has done quite well for the last 30 years. we see an east german state voting overwhelmingly for the former ornomists -- communists jackbooted right-wing party. why haven't they come along for the ride? >> expectations were high in the 1990's. the promises were you would have the same standard of living as the west and it has not been achieved yet.

we have seen the rise of 30% per capita income to 80%, so it is a success story. but it was an economic takeover. west german companies came into the east. all management positions and political leadership positions are people from the west. and most importantly, the problem i see today is many of the young east germans left so we had a massive out flux of young motivated, well educated people. like, in the east feel look, we have not had promises fulfilled. and future prospects for that demographic are actually quite scary. helmut kohl really made some great sacrifices to bring the east closer to the level of the west.

but we have not seen any dax companies headquarters in the east. i took a look recently and was shocked to see none of the dax companies headquartered in the eastern states. but he mentioned 130 secretaries here in berlin running the country. but only three are from east german states. , i hasn't there been hesitate to use the term affirmative action because it is so hotly debated, but some sort standards.o even out marcel:marcel:, but of course, it is very difficult. we have done the research. if you look at people today between 20 and 40, you have people or in east germany and being socialize there at the same level as west german. so it is just a matter of time. and let's not forget about the

east germany colony was completely obsolete. we had an obsolete political system. 30 years may sound like a long time, but if you talk about such fundamental changes in the structure of an economy, 30 years is not that much. matt: it does not feel very long. i remember when the wall came down. i came over here to visit and it just does not feel like it was that long ago. anna: i remember when the walk-on down. -- wall came down. let me ask you about the imbalances and how that should inform the debate about fiscal spending. christine lagarde will be keen to talk about fiscal expansion. should this be feeding into that fiscal narrative? marcel: absolutely. we see the gap in investment that we have in all of germany. particularly east germany. we have a week digital infrastructure -- weak digital

infrastructure and a gap in education. we need moreny, midsized companies that are innovative and attract young people. so there is a huge need for investment the government is sitting back and is really scared. they don't really have the courage to do fundamental reforms that are long-lasting. so the main policy of the current government has been essentially to hand out financial favors to the voter groups. matt: getting away from the east-west debate about ray dalio -- debate, ray dalio came out saying extraordinary monetary policy is responsible for increased income inequality which is a problem we see here as well. i spoke with the deputy ceo of deutsche bank.

deutsche bank has famously railed against negative rates at least for the last few years. he says one of the results of negative rates is also the income inequality we are seeing drive voters these extremes. what do you think about that? marcel: i think they are barking up the wrong tree. you need to look at the root causes a polarization and it has nothing to do with monetary policy, quite the opposite. monetary policy help create 11 million jobs. you had an employment miracle. we have record high employment and record low unemployment. wealth inequality has not increased because of monetary policy. simply, the bottom 40% don't have any wealth. we need an honest debate at the root causes and this has more to the system between employers and employees. we have an unusually large low wages sector in germany.

it is really more of a political problem, and yes, the financial sector needs to do their homework. all over europe, we have the massive need for financial consolidation. matt: marcel, always a pleasure. i would love to continue this discussion on banking unions, but we will have to do that at a different time. w,cel, the president of di the german institute for economic research. let's get first word news in hong kong. >> thanks, matt. the u.s. and china have agreed rolling back tariffs will be a key part of any agreement. the big question, is a deal any closer? trump's advisors don't sound certain. talks are ongoing. the timeline is yet to be decided. allianz lifted its outlook for the year as inflows at pimco helped offset lower earnings.

the asset management unit attracted $24 billion in the third quarter. assets under management rose to a record nearly 1.7 trillion euros. city mayoryork michael bloomberg is considering a run for president. and advisor says he is concerned the current crop of democrats won't be able to defeat is an trump. he had considered a run but decided to support other efforts. he is the founder and majority owner of bluebird lp, the parent company -- bloomberg lp, the parent company of bloomberg news. global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. anna, matt? anna: thank you very much. up next, we bring you stock movers this morning. richemont is falling as hong kong protests weigh on sales. this is bluebird. -- bloomberg. ♪

anna: welcome back to the european open. 44 minutes into a negative trading day. stocks are down .3%. let's get the stocks on the move this morning. annmarie hordern has them for you this morning. annmarie: i want to start with one of the biggest gainers. up more than 5%. one of the companies on the november list had a potential addition to the msci global standard index really giving it

a boost. richemont to the downside. it did not make earnings results to the fact there was a double digit slump in sales in hong kong. hong kong is really crucial for luxury watches. they are actually a little bit cheaper in hong kong. credit agricole also to the downside, more than 3%. interesting given that they had record inflows. but a little bit softer below dictations. that could be why we are seeing pressure on the french bank this morning. matt: thanks very much. annmarie hordern looking at your individual movers. saudi arabia is pursuing a commitment from its wealthiest citizens to buy into the upcoming aramco ipo. they are trying to shore up demand for the listing but international investors bought at riyadh's insistence the energy giant is worth $2 trillion.

joining us is our energy reporter. saudi's are able to confirm a commitment from the same people they locked up in the ritz-carlton. what do you think? steven: that's a problem they will be facing now. they are looking at a number of companies, some of them locked up as part of a corruption shakedown. they are seeking money for this enormous ipo, the range of which they are hoping to raise $40 billion pushing the valuation up -- usd. 2 trillion ust the folks they are courting includes saudi arabia's largest family-owned conglomerate as well as a number of other smaller wealthy families within the nation. anna: give us the broader

context than. -- then. how is investing in an energy business important for diversifying away from energy? the saudi vision 2020. stephen: this ipo is the cornerstone. it is a large part of them getting away from oil. aramco's largest oil company in the world, but using that ipo money and a large capital injection will allow them to put more money into other things that will help them diversify. that includes services and renewable energy technology. it will require hundreds of billions of dollars of investment. getting this ipo off the ground, doing this first will help them raise capital. looking at next year to do an ipo on a foreign exchange which will help them continue boosting and getting this cash to help them invest in

new areas. anna: thanks very much. bloomberg's energy reporter stephen on aramco. hong kong protests are weighing on richemont. the cartier owner is slumping at reporting earnings that missed estimates. sales felt 10% in the city -- fell 10% in the city. m&a is part of the conversation around the luxury space and we have gotten thoughts from richemont on that front. but sticking with their experience in hong kong, that seems to be at the forefront of investor minds. hong kong is clearly an incredibly important market --ll in the process activity and the protest activity has had an impact. >> a lot of consumers come there

to shop. the prices are slightly lower and it's something they like to do visiting. clearly, a big hit from these protests which happen outside of the luxury boutiques. they have taken a 10% hit. matt: the one thing i don't understand is if i'm wealthy enough to buy a cartier watch jewelry, iy, -- or can do it in a number of cities. spending $25,000 on a watch also travel and will buy them other places. >> yeah, it's interesting. withve seen a divergence other luxury companies like lvmh and gucci. hermes has its luxury handbags. they have all held up well despite this affect because of

exactly the phenomenon you are saying. a wealthy chinese buyer can travel to tokyo, paris wherever to buy these. or even buy them at home. , hong kong hasns this historical action jewelry and watch industry -- connection to the jewelry and watch industry. so there is more of a pronounced effect. anna: the sector has been excited by top of m&a. maybe that is looking less

likely because richemont does not seem to want to enter that fray. >> the cfo has made comments suggesting they are inclined to stay out of the fray. there has always been a bit of a doubt about how much cash they would be able to muster. it does not look like they are interested. they are not commenting directly on any interest, but it does not look like they are inclined to jump in and push up a bidding war. , thank you for joining us and talking about the luxury sector which is on the move down in a big way. up next, we have been asking on the mliv blog all morning how much higher yields can stocks resist? how much higher can yields rise without pulling stop down -- stocks down? fxtalked to our rates and strategist richard jones about that next. this is bluebird. -- this is a bloomberg. bloomberg. ♪

matt: welcome back to the european open. just about one hour into the session, we see some red arrows to finish out the week. some traders want to get even as they head out. it has been a strong rally and we are looking at all-time highs in the u.s.. jones, rs is richard mliv fx and rate strategist. on the blog, you have been talking about the yields we have seen. point --lds up to one 1.16 yesterday. is that drawing investors away?

richard: equities will be fine as long as the fed does not take away the punch bowl. if we look at the short and calendar spreads, it is still looking at yields. as a result, equities can probably withstand the push we have seen higher in yields. if we go further at the start pricing out and accommodative fed, equities come into trouble. but for now, i think they are fine. anna: they will be even more fine if we get details about this rollback of tariffs. ofmore specifically, details progress towards an actual signing of a trade deal. that could still add more upside. , but a: i guess it could lot of the good news in terms of a fade one trace deal is already in the price of stocks -- phase one trade deal is already in the price of stocks.

but you are right. until we actually get it signed and negotiations are completed, there is still going to be uncertainty. the way equities and the bond markets have been trading, a lot of that good news is already priced. so we might get a situation where phase i is announced and we get a reverse in price action. matt: we had a great story on christine lagarde today. she did not say much when she spoke a couple of days ago, but now she is looking at the countries that have the fiscal space to move. richard: i think this will be something that is constant from her. she started out with that as the dominant theme. as a former finance minister in france, she has credibility with finance ministers in those places where she is looking for increased fiscal spending. so i think it is something that we remain part of her narrative -- will remain part of her narrative. matt: thanks very much, richard

jones, our fx strategist. anna and i are headed to radio. "surveillance" is up next. this is bloomberg. ♪

francine: the u.s. and china agree on a tariff rollback, but only if april luminary deal is reached. richemont misses estimates as revenueg protests hits -- hits revenue. we are joined by the chief executive of intesa sao paulo and credit agricole. we talked business in the era of extended rates. ♪ welcome to "bloomberg surveillance." first