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tv   The Pulse  Bloomberg  October 7, 2016 4:00am-5:01am EDT

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francine: sterling zwicker pounding -- the currency plummets more than 6% in two minutes. pledges discussions with a possible $14 billion fine on the table. germany's biggest bank is said to be exploring options for raising capital. december. the markets expecting a fed rate hike by the end of the year. investors await the latest jobs numbers from the u.s. ♪ >> welcome to "the pulse." live from the birds european headquarters. i am nejra cehic.
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we've got a great show lined up for you today. at 9:30 we have our special weekly program brexit, what is next? our panel will round up a dramatic week for the u.k. next line the ftse's rally. we bring you all of the political news as the country plants its exit. at desperate forget to all of that, let's take a quick check on what is happening. the big story is sterling today. it dropped more than 6% in two minutes. 12455 -- 1.2455. it did drop as low as 1.18 41 and one point. the ftse 100 pointing higher, up .5%. still well above the 7000 mark. a lot of the gains in the ftse have -- the currency effect of a weaker sterling.
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by .5%.x 600 down just to take a check on the 10 90r gilt yield, where at basis points there. let's switch of the board and take a look at another essay class. the dollar up for a fifth day. desk that it's of the ahead of the jobs data we are getting out of the u.s. later. the market beginning to price in that fed rate hike in december. we are seeing its longest rally since may from the bloomberg dollar index. taking a look at the 10 year treasury yield, we've got a sixth day of gains. up one basis point. gold unchanged. we have been seeing a weaker gold price, near a four-month low. that is on the growing expectation for a third rate hike.
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i near a four-month high as well. those are your markets. we got breaking news for you. norway's well-funded returning 4% in the third quarter as a stocks are gaining. we'll keep across that and bring you anything more on that as we get it. this get to the burke first word news with markus karlsson. >> deutsche bank is holding talks with a security firm to explore options including raising capital should mounting legal bills require it. they say senior adviser are speaking to representatives of the german lender about ideas including a share sale and asset disposals. -- an reports the bank is ipo of its asset management units. deutsche bank declined to comment. china's foreign exchange reserve
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declined to a five-year low amid --culation the central bank the pbo see says stockpiles just below economists estimates. japan needs a double dose of monetary and fiscal stimulus including further easing next month. so says honda, one of prime minister of is -- prime minister abe's advisers. it is the biggest reason confession is not risen to the central banks target of 2%. hurricane matthew is said to be the strong this storm and one of the costliest to hit the united states since 2005. it is then down on florida's is coast forcing nuclear reactors to shut creating fuel shortages and threatening to knock up electricity. the category four storm with winds of 130 miles an hour is
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expect to make landfall near cape canaveral and then track into the atlantic coast racking up as closest $50 billion in economic losses. global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am markus karlsson. nara -- nejra. nejra: it has been a brutal week for sterling as it hit a 31 year low, cap by a more than 61% move . .e is a chart for the week the pound at its lowest since 1985. to make sense of this move is christopher langner. he judges from singapore. christopher talk to us about whether it was computers the cause of this flash crash. that seems to be at the assumption which is why we saw that quick recovery and sterling. christopher: anything points to computers because of the speed
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at which it happened. computers have increased the speed of trading and the speed of precious. if you look at the way the computers work, they will have a system that says you should sell when there is a move of 1% down. they will do it at the same time. that is when you have a flash crash. it is unlikely that a fat finger alone would've moved a pound by 6%. that is a cap -- that is a currency that moves in the hundreds. it was computers that pushed the flash crash. nejra: what can be done about this? christopher: i think it is time for regulators to step in and have a look at how computers skew the marketplace. there has been a lot of discussion about curbing traders. there needs to be a grown up in the room who says you guys are
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all operating together in the same way, and very fast and very efficiently. that is moving markets and causing this locations in the markets and the one we saw today . everybody agrees the pound to be lower, but should move 6% in a matter of minutes? that is not how it market operates. nejra: thank you so much to christopher langner summing up that flash crash for us. an hour before that flash crash, bloomberg caught up with philip hammond who had this reflection on sterling. >> we do not target and exchange rate, therefore we have a free exchange rate. the market will make its judgment on the appropriate level of sterling at any given time. history tells us those judgments on move freely significantly fairly small provocation. nejra: let's welcome our guest
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for the first 20 minutes, valentin marinov. great to have you. i want to show you, you can see this job we saw in sterling if you look over at my bloomberg. a more than 6% drop in two minutes. i so you reacting a little bit with what christopher was saying. let me get your initial reaction. --colm: -- valentin go valentin: there was some people betting on the downside of trying to cheap in those bets by adding a barrier. once in barriers get triggered, you have to pull out, right? that explains the short move higher. if you are short but then you have to take the money off the table, then it pushes sharply higher. that is when to compound the move. another reason is we are also seeing -- a client wanted to use
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a downsized bet by using one touches or exotic structures on the downside to open the hold. the whole move may indicate -- maybe in the option market dumbly. got more of what they wanted. as emily once in their targeting, make the money. it feels like there may be a period for the pound but the worry is [indiscernible] we still well below the levels of yesterday. they're still appetite to sell the pound. francine: given what happened overnight, does that affect any technical support levels? just 85, 84 really. -- the, given
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fundamental outlook for the pound may be changing, where is until now, i was able to tell you the pound is selling off but at the same time, u.k. stocks are up. u.k. yields are down. that is a function of qe, but also a function of defined by foreigners, right? why -- despite the weakness in the pound and uncertainty. we are seeing the selloff in the pound has coincided with an uptick in u.k. yields. that is can -- that is concerning. if you are in a foreign investor -- also on the real asset, the fixed income, that is becoming a worry.
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it is the worry is compounded by the fact that the inflows into the fixed income markets are used to fund the u.k. deficit. in other words, the latest development, not necessarily the flash crash, the combination of weaker pound, high-yield, may pose worry. a disorderly move in the pound if a payment crisis becomes a risk. pulse.stay with the there is plenty coming up including jobs day usa. traders pricing in more than a hike. 10 chance of a rate george's options with a possible fine of $14 billion from the u.s. government, germany's biggest bank is set to start raising capital. we will bring you the story. an hour brexit special show, a dramatic week for the u.k.. ftse's rally as all of the
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political news. this is bloomberg. ♪
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nejra: you are watching the pulse. . am nejra cehic let's get the bloomberg business flash with markus karlsson. >> samsung has posted better-than-expected third-quarter earnings.
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5.5% to $7ncome rose billion. samsung did not specify the financial impact of the recall. analysts estimate it could be between $1 billion and $2 billion. delta lloyd has rejected nn groups offer. conditions were not except. the head of the five euros and $.30 a share -- as a 29% premium. shares and delta lloyd are trading higher on that news. nordea bank proposed merging with abn amro early this year that is according to a person with knowledge. it would've been the biggest bank merger in europe since the financial crisis. nor day it says it never comments on -- also declined to
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comment. rio tinto says that mongolia will not receive any dividends from the giant mine for 10 years. the world's second-biggest mining company prioritizes an underground expansion. it will be one of the top copper mines in the world. >> delivered any dividends to anybody. we should not forget that it is a long-term+++
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remember the underground is 80% devalue of the project. -- 80% of the value of the project. to be able to pay dividends, you need to be profitable. until we get to a steady-state which is 10 years down the road, we will not pay dividend to anybody. marcus: that is your bloomberg business flash. they know -- nejra. nejra: it is jobs day in the u.s. investors will be focusing on the numbers out at 12:00 noon u.k. time. rate jumped to 64% ahead of those numbers. valentin marinov is a still with us. let me start with this chart on the bloomberg, the best thing on the fed. what is tracked is the odds of a fed rate hike in 2016. going up along with it. you think we are going to see a little bit of dollar strength in the next three to six months?
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>> the dollar will continue to rally until the year and as we expect the fed will hike in december. that is the ascension that hillary clinton will be the new u.s. president. a potential trouble of victory may change all that. that's a potential trump victory may change -- a potential trump victory may change all of that. what is encouraging in the rest of the move in the rates market is the renewed -- the fact that investors are pricing in that only a december hike but more for hikes -- but more hikes further down the road. you is important because if -- which was the biggest driver of dollar trade over the last two or three years. there was a spread between the two year -- the slope of the .hort end of the u.s. curve it is a robust driver.
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nejra: beyond that, are you thinking the yield curve is going to continue steepening oh you can see a steeper -- a flatter yield curve? >> another development which will gain more prominence later next year, meaning beyond six months is the fact that the likes of boj, ecb will be starting to run other functions to ease further. it is considering a domestic economy but at the same time, it has to pay attention to the impact of policy it is having on the global economy. if draghi" or continue to provide stimulus. it is tapering fears growing, those banks will start to expire. the fed will be the only central bank that could accommodate by
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hiking. it will be the only central bank with the ups now the to respond. that's with the only option to respond. the only thing is the u.s. yield .urve likely to remained flat we don't think the dollar will be up to cycle hire. the taper fear, that escalates. nejra: valentin marinov, thank you so much. up next, capital concerns. deutsche bank is said to weigh its options. when will investors be put to ease? we discussed that next. this is a bloomberg. ♪
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>> the first quote they came out at 37.30 was a good confirmation of how the market value is -- market values it. it is going to be a bit of a ride today and maybe on monday. so far, it holds up and it is a good sign because we have a price -- we have not out price of the market. we're not disappointing in of our initial investors. i think that is a good start. nejra: that was peter terium.
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today is green energy spinoff business. deutsche bank is working on an ipo and its asset management unit in a bid to rebuild capital buffers. this comes as reports suggest holdingttled lender is informal talks with security firms to explore crisis management options including a capital raising. let's bring in lionel laurent. how soon might deutsche bank move? isnel: i think the big issue -- we still don't know how much the final number is going to be? that really limits banks options. it could protect if you try and ways -- try and raise some capital. if you're able to raise $5 billion, it doesn't help you if the fed comes in at $10 billion. the real issue is telling a
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story to investors if you're relying on them to give you capital, then it is what we talked to say the story is we want to raise the money to pay off a fine. there are issues here. i am not sure how quickly they connect. the priority should be getting the final number defined and we can look at how to manage the crisis. nejra: if a look at deutsche bank shares today, they're up 1.9%. the shares have been resilient all week barring a little bit of a drop at the close yesterday. what you think is behind this? is it the prospect of a tapering? is this something individual? >> i think it is something individual. a value at play something that is hit autumn and real rebound -- and will rebound. the idea of assessment being near is what is helping
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investors geared toward the positive. talk of asset shales -- talk of asset sales. realistically, we are going to have to wait for the number. from a managerial number, i don't see how you can raise all of these issues without knowing what the number is went to be. nejra: what are we likely to get over the weekend? meetingsis talks of with the u.s. authorities with a lot of public policy makers encouragements to get to a number. hopefully the market is going to be waiting for an announcement. we have had a before and they have not come to pass. much tohank you so lionel laurent updating us on deutsche bank. stay with the pulse. our weekly show with the brexit, what is next? may gives currency -- gives clarity.
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we tie it all. this is bloomberg. ♪
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nejra: welcome to our weekly brexit show live from bloomberg's european headquarters in london. i am nejra cehic, in for francine lacqua. we will make you smarter about what is best for britain, this is brexit, what is next. we are getting some industrial production numbers. looking at month on month we are down 4/10 of 1%. the expectation was for a increase by 1/10 of 1%. year on year was up 7/10 of a percent. surveyalso a mess on a -- miss on a survey.
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if you look at the manufacturing production month on month, also a miss. of 1% and we were expecting 4/10 of a percent. coming in a little bit in line with estimates more or less. the trade deficit on the screen for you. at 1.2436.e are we did have a bit of a flash crash overnight see sterling dropped more than 6% in asian trade, the biggest drop since x -- brexit. we have a little bit of a recovery since then. it did drop as much as 1.1841. its check in on where the markets are. i have already mentioned sterling and where we are with that. the ftse 100 still holding well about 7000. we sought hit that record high in the past few days, up 6/10 of
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a percent. if we look at european stocks, down 3/10 of a percent, down for a third day heading for the second weekly decline. we are keeping a close eye on the 10 year gilt yield. we are at 97 basis points now. as a roundup of the brexit stories, let's get to marcus paulson. prime minister theresa may ended speculation on the timing of when the u.k. would begin its legal exit of the eu. she declared the government thed trigger article 50 by beginning of 2017. christine lagarde says it was a good step but the most important is still to come. >> the terms in which it will trade with europe, it is not yet really certain what it will be
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so we welcome to certainty about timing. ascus: sterling fell as much 6.1% against the dollar earlier today, the biggest decline since the day that the brexit referendum results were announced, a move traders say were exacerbated by computer initiated cells off -- selloffs. meanwhile, before the flash crash, philip hammond spoke to john mickelthwait about the pound. >> we do not target and exchange rate level. we have a free exchange rate and the market will make its judgment on the appropriate level of sterling at any given time. history tells us that those judgments can move fairly significantly on fairly small provocation. news 24 hours a day powered by more than 2600 journalists and analysts and
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more than 120 countries. nejra: two minutes of chaos in asian trading sparked a plunge in the pound to a 31 year low, with traders saying it was exacerbated -- exacerbated by computer selling orders. that is the biggest decline since the eu referendum result was announced. let's introduce this week's fol. great to have you. we all remember what happened to sterling on the day of brexit. this wasad views that largely due to computers that exacerbated the selloff, but do you think there is something sinister? ask the question,
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why are there so many sell orders in the system? we could be in for a decline. we have already seen a significant sterling move down in june as a consequence of the referendum. this has been a horrible week for sterling after what prime minister may has said. that has left sterling very vulnerable and we focus on the fears that sterling could have further to go. fatnce this might have been fingers, we would suggest it is a vulnerability that is still in sterling. nejra: you do not think that shorts are getting too crowded? jane: it is difficult to say that given the political uncertainty that we face of the next couple of years. brexit has not begun but i think with theresa may suggesting march is when article 50 is
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triggered, it is the start of brexit, the start of the formation of people trying to figure out what is that post brexit trading relationship going to be? if there is a hard brexit, then investors are going to be quite spooked. nejra: simon, sterling is played into the fairly benign economic data that we have had since brexit. do you think that will continue? simon: so far the indications we have seen, it is great news the economy is holding up. it does not tell us or anyone about the medium-term outlook and it is conceivable that the u.k. could have a shock of this size and not have a slowdown in investment and activity. you get this on top of a bad structural position, fiscal deficit, lack of productivity. it is unsurprising the currency market does not like this and what we might be seeing is a bounce of currency
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vigilante-ism. clipped the wings of the bond vigilantes so now we have fx vigilante-ism. nejra: if we continue to see sterling weakness as we very much might do, what negative impact could that have on the consumer or other parts of the economy further down the line? simon: the obviously one is inflation. we have a relatively high inflation forecast, creeping up to 3% next year. one third of the uk's cpi basket is imported, and if you think stirling is going to fall further as we do, as this gradual realization of the brexit uncertainty, this is probably going to happen quick and the markets and inflation will erode consumer slowdown. , thatl be more volatile
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is where the rubber will hit the road. nejra: i have this chart which illustrates what you mentioned where you are seeing weaker sterling but the economic surprise index i believe is at a three-year high looking at cities. any comments on this relationship? if welook at -- jane: look at political uncertainty, sterling does not like clinical uncertainty. there is plenty of room for economic surprise and it has been quite interesting this week because as you mentioned we have had some better economic data but the pound is not looking at that. it is not about the here and now, not about the fact that some companies have made hay. it is about now, what are we going to look like in two or three years time? what are our trading relationships going to look like?
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given this huge wake of uncertainty there is plenty of room for volatility. nejra: in terms of looking at bloombergf england, intelligence has pushed out its expectations for another rate cut to the beginning of 2017. where do you stand? we wouldthink narrowly still favor a 50 basis point cut in november. -- 15 basis point cut in november. the governor was saying the other day he wants folks to think very much on the medium-term. is the bank of england going to --ne -- bremain wedded remain wedded to its theory? it is much more touch and go but i think they will still haps -- perhaps not provide the medium-term and we will get a rate cut. nejra: simon wells and jane foley. they stay with us.
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coming up on our brexit show, we have a problem. the word of the uk's chancellor speaking at the imf. we will look at the opportunity for the u.k. as it seeks a new future out of the european union. "surveillance," we kick off the conversation with erik nielsen as well as bill rhodes and adam posen. this is bloomberg. ♪
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>> government is a pro-business government, strongly supportive of open markets, free markets, open economies, free trade. but we have a problem, and it is not just a british problem. ,t is a developed world problem of keeping our populations and gauged and supportive of our market capitalism economic model. nejra: u.k. chancellor philip hammond speaking to bloomberg's editor in chief john mickelthwait in washington. let's talk about some of those problems and opportunities for the u.k. as it seeks a new future out of the european union. with me as simon wells, chief european economist at hsbc and
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jane foley. simon, i want to start with you because you have been writing for a while about this idea of hard versus soft brexit. what has changed for you over the past couple of we -- over the past week? simon: we first wrote about hard and soft brexit in 2015 before there had been a general election. union wouldustoms be a pretty hard exit back then and now liam fox is talking about no customs union at all. i think what has changed is at least now, it looks like we are on the cards for a harder exit. the debate up to now has centered a lot around paris, and the work we have done. of course paris is important -- s isorists -- tariff
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important. we have identified thousands of these things. those could really slow trade and they could be equivalent on many goods to a tariff of 10% to 15% so it is an enormous issue that is not being talked about much. nejra: what are the implications for the u.k. economy and are there any possible opportunities or upsides? simon: the implications are obvious. trade is with our the eu and they are our largest trading partner so these indications are well known. in services trade, the u.s. is our second best trading partner. we do not have a trade agreement so it shows it can be done. as long as we can join the wto with our own commitment and exploit those opportunities, this is what some brexit misters are talking about because their vision of the u.k. may not chime
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with many brexit voters who are voting against globalization in many cases. there is a lot of political uncertainty to calm. -- to come. nejra: the perfect segue into fx volatility, i have pound volatility, the implied volatility spiking after the flash crash overnight. this comes in an environment where we have been seeing volatility fairly subdued. fxyou look at jpmorgan's g7 model, do you think we are going to see this increase and in what time frame? jane: i think it is quite likely. the lack of volatility has been caused by quantitative easing, particularly the u.s. yield curve. that has caught up in the lack of volatility and foreign exchange but if we consider political uncertainty, there is the possibility going into 2017
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at this could be very significant, not just about brexit but in europe we have elections in france and germany. the position the europeans are taking with respect to brexit, it seems that has hardened over the last few days. we have comments from the president of france saying this is the crisis. also merkel has hardened her stance, both warning that we cannot -- they cannot give up the principles of free movement of labor and give a constable entry or discussion to the u.k. ,ith europe being more hard they want to protect the free movement of labor, it does seem more likely that the u.k. will see this hard exit. that really does have negative implications for the pound. nejra: what implications does it have for euro-sterling?
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we have been talking about sterling against the dollar. we had a five-year high this week in euro-sterling. jane: i think euros sterling will go up -- euros selling will go up and the pound will depreciate. anti-eu sentiment as well. nejra: thank you so much, simon wells and jane foley, senior fx strategist. thank you both for joining us for our brexit special. date,t, may set the sterling gets pounded, we wrap up all the action from this week. this is bloomberg. ♪
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nejra: for a roundup of the brexit stories for this week let's get to marcus. marcus: prime minister theresa may ended speculation of the timing and u.k. would begin an exit from the eu. she indicated the government would trigger article 50 by may 2017. christine lagarde said it was a good step but the most important is still to come. >> i think the terms under which it will trade with europe, for instance, it is not yet really certain what it will be. we welcome the certainty about timing. marcus: sterling fell as much as
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6.1% against the dollar earlier today, the biggest decline since the brexit results were announced. it was a move that traders say where and as she -- was exacerbated by computer initiated sell orders. crash, philipash hammond spoke to bloomberg editor in chief john mickelthwait about the pound. target and exchange rate level. andave a free exchange rate the markets will make its judgment on the appropriate level of sterling at any given time. history tells us that those judgments can move fairly significantly on fairly small provocation. marcus: global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am markus karlsson. nejra: thank you so much.
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it has been a huge week for brexit watchers over the weekend. the u.k.ay declared would trigger article 50 by march 2017. what ensued and the markets has been huge, sterling steadily moving -- losing value pushing the ftse to a high. we saw a midnight flash crash. here to take us through everything is simon kennedy. after we heard of the actual timeline for the triggering of article 50, do you think we now have more clarity or confusion? simon: more clarity. there was questions she would wait until after the election but we learned she will start before the first quarter. what we do not have his details of exactly what the british are seeking about a future trading relationship with the eu. people want some clarity, and
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the warnings from francois hollande and andrew -- angela merkel that it is not going to be an easy negotiation. priority isse their cracking down on immigration. at the same time, that might mean losing access to the single market if the european leaders stick by their warnings. this prioritizing emigration over things like bank passporting and access, over easy trade for exporters. that is a lot of reason you see this selloff in the markets, this feeling that the economy is not necessarily the priority. they are playing with the short-term economy in hoping that the long-term is better, but the gamble is that they can get control of immigration in the meantime. against have sterling 16 major currencies, down against all of them at 1.2426.
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we have recovered slightly from the overnight flash crash but we are at a 31 year low. some up what you have been hearing in terms of the impact this is perhaps having on u.k. stocks. we saw the ftse flirt with record highs and it is up today although europe's equity benchmark is down. simon: the pound is down, stocks go up. that is played well for the ftse. you do have to wonder perhaps as we saw this selloff in the past two days, if the economy is not performing as well as some are speculating. the imf cutting its forecast for next year. will that affect the ftse? it is a more difficult time when the weak pound high stocks trade does not necessarily come through, and we are seeing some sense about. nejra: simon kennedy of bloomberg news, thank you so much. that is almost it for our brexit
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show. let's bring you up-to-date with the markets. sterling, 1.24. , holdingup 6/10 of 1% well above 7000. european stocks overall down 4/10 of a percent, the fourth day of losses for the stoxx 600. we are keeping a close eye on the 10 year gilt yield, up 10 basis points. if that hit 1% would be the first time since june. we are at 97 basis points right now. sterling dominating the market. we are closely watching the dollar ahead of the u.s. jobs report where on a fifth day of gains with the bloomberg dollar index. increasing expectations of a fed rate hike by the end of the year , that has been impacting gold. it is unchanged today but has had a bad week. 52.62.rude at
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a lot of dynamics and the market. "surveillance" is up next. tom keene and francine lacqua are in new york. ♪
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francine: sterling flash crash, the pound plunges more than 6% versus the dollar. a crucial test, traders are putting the odds of a rate hike this year at 64% as they await september payrolls data. treasuries fall and the dollar jumps. deutsche bank is said to be exploring options including asset disposal and share sales. this is bloomberg "surveillance i am francine lacqua in washington with tom keene.

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