Since world war ii, says Angela Merkel, are somewhat over. Matt lets check in on the bloomberg first word news. First off for that we go to taylor rigs. Taylor starting with the story in germany, the german commands lower Angela Merkel is signaling its a new era in europe when it comes to ties with the u. S. She told a Campaign Rally that relyal reliable relations forced are somewhat over and europe must take destiny into its own hands. During President Trumps trip he called germany very bad and blasting allies for not spending enough on defense. A member of President Trumps cabinet is downpraying reports that white house advisor jarred kushner was seeking secret communication with russia. The u. S. Homeland john said is was no big deal. They spoke to russians ambassador and proposed a back channel between the Trump Transition Team and the kremlin. Many of british airplanes computer problems have ended but the chaos is lingering. The airline is trying to recover from a Massive Technology failure that disrupted hundreds of flights and stranded thousands of passengers. They say the problem was caused by a power supply issue and no evidence of a cyberattack. In south africa, the president jacob zuma survived a attempt by some African Congress leaders to order him removed from office, according to members of the partys executive committee, the panel decided not to vote on a no confidence measure. Theres been pressure on zuma to quit since firing the finance minister and cost their credit rating. Global news 24 hours a day powered by 2600 journalists and analysts in more than 120 countries. Im taylor rigs, this is bloomberg. Matt . Matt thanks very much. Lets look at the Market Action now. Ill kick it off with equities and bonds just to show you a little narrative here in european trading. U. S. Markets are closed. The british markets closed as well for a bank holiday. Here you see the german 10year deal basically unchanged. We had a sizable drop in germany as wells a selloff. Looks like investors are getting more risk on but volume is very low. You see the stock 600 still down. 1 . Roughly, of course, a lot of the stock 600 is not trading since a huge chunk is u. K. Stocks. You see italys 10year field gaining about two basis points because investors there selling off the debt a little bit. Looks like investors are getting a little risk off moving into the session but very light trading. Nejra. The dollar yen is not changed. Sterling you want to keep a mark on. 128. 44. After sterling had its worst week last year last week. If we look at eurodollar were flat, 11186. Were keeping a look on the markets. Below 50 a barrel. Matt John Williams, president of San Francisco bank said hes seeing a much smaller fed sheet in 10 years. At the end of a unwinding process that can start with a baby step this year and spoke exclusively with Haslinda Amin in singapore. My view as we said we were going to start the normalization or shrinking of the Balance Sheet once the normalization and federal funds rate was well underway. Given my own view of the economy why i see Interest Rates, i expect to start the normalization of the Balance Sheet, the first step, the baby step on that towards later this year. That will take several years to take place and wont be a selling asset but we wont be well allow the assets we have to mature and decline organically over several years. Thats the telegraphed kind of views. Has linda is there a sum . John i think thats the process that could happen in the background and it could be boring hopefully and is a dream i have about it. Theres an open question youre asking which is how big will our Balance Sheet be, say, five years from now when this all has happened and something we havent decided on. It will be much smaller than today. The question is how much reserves is it best to have in the u. S. Banking system . 10 years ago that answer would be 30 billion and keep a very tight lid on the reserves. You know, in the future it probably would be easier to conduct Monetary Policy maybe better if we had several hundred billions in reserves. Its not a question are we going to reduce the Balance Sheet significantly . Its really heavy hand, is that Balance Sheet having 2 trillion or 2. 5 trillion. Im not making decisions. We havent made decisions, im not trying to communicate a decision. Thats the kind of thinking i think is the right way. Nejra that was San Francisco fed president John Williams. A big week, a big day for Central Banks. E. C. B. President mario draghi has his quarterly grilling before the European Parliament later today and will be his final scheduled appearance before next weeks Monetary Policy decision. While euro area data this week may show the strongest Economic Confidence in a decade, draghi may point to Consumer Prices that are struggling to lift off. With me now is Bloomberg Intelligence chief euro area economist david powell. So david, what are you expecting out of mario draghi just a little later . Will he have his dovish hat on . David probably will reiterate what he said and thats essentially he and along with the rest of the governing council are happy with the economic recovery, meaning the Economic Growth were seeing in the euro. However, inflation remains very ultimately the e. C. B. Has a mandate to bring inflation up to its target and as long as thats not happening hes going to be cautious and not want to move too quickly towards the exit of quantitative easing. Nejra if we look at the data were expecting out later this week theres an expectation well see a drop in the inflation and core as well. What is Bloomberg Intelligence expecting in terms of hitting the e. C. B. Target, when will that happen by . David it remains a distant prospect and well see a drop in inflation wednesday when those numbers are out and has to do with shifts weve seen from Commodity Prices and also the timing of the easter holidays relative to last year created a bit of a an effect there due to the volatile Package Holidays particularly in german iy. When it all washes out and we look at underlying measures of inflation, one measure the e. C. B. Looks at which weve created in Bloomberg Intelligence is supercore and thats been unchanged for the last several months and about 0. 9 and thats about half the e. C. B. s target. Matt of course their start is to a headline number, right . They dont specifically look at core inflation and they do seem to expect a move towards normalization by the end of this year. In fact, dozens of markets expect at least a change in language in the june statement . David right. Change in language is very likely, for example, the outlook to growth, the risks that outlook would probably be changed from balance to being skewed on the downside and is a reflection of the fact the recovery is gaining momentum and those risks have iminished. How about the fact of tapering . The e. C. B. Will tell you theyre not tapering and have moved in monthly bond purchases. When do you expect that to get closer to zero . David we suspect in september the e. C. B. Will be happy enough with the Growth Outlook to make an announcement on tapering that would begin in january and that essentially will probably reduction of of 10 billion euros per month through the first half of next year which would bring quantitative easing to an end by the middle of next year. Red matt thanks very much, david powell joining us from Bloomberg Intelligence. Lets talk about Central Bank Policy a little more with david rosenberg, chief economist and strategist and joins us from toronto. David, great to see you, first of all, happy memorial day. I wonder what do you think about the similarities between the e. C. B. Situation and the fed situation because a lot of Market Participants would like to see the e. C. B. Get a little more hawkish and seems inflation isnt giving them any reason to do so. Is the fed in the same boat . I dont think the fed is in the same boat because we dont have a situation in the u. S. Where we have the Central Bank Actions holding yields negative out to the mid part of the curve. Dont forget the fed has already raised rates three times and is pledged to do more. The u. S. Economy is in a more advanced stage in its cycle than europe is and the monetary tightening cycle is in a more advanced stage as well. So i think the comparisons really start and stop there. I think that youre almost in a situation where europe is where the u. S. Was three or four years ago when we had the taper tantrum. Theres no tantrum in europe now but i think the really polar apart in terms of where they in the cycle. The comparisons are apples and oranges. Nejra if we look where the 10year treasury yield is and the u. S. Yield curve, is the market very much underestimating inflation risks and also fed tightening . David r. well, the market may be underestimating fed tightening, that may be true. The question becomes where is the inflation going to come from . We have an economic expansion thats about to enter year number nine. We have a forehandle on the unemployment rate. Weve had endless chatter about inflation and had the most radical monetary experiment you can argue since the 1930s. Where is the inflation coming from . I think what people tend to be missing here is that there are widespread structural factors at play w whether its demographics or excessive debt, excess capacity. Youll get in inflation in the United States when you have Industry Capacity utilization rate at 76 . I think actually in my opinion, that theres more widespread disinflationary pressures in the u. S. Economy than there is inflationary pressures. The fed could be in its own particular message and well find out later when we get the transcripts what is on their mind and hard to believe with wage growth at 2. 3 and core inflation data in a couple months, to be concerned about inflation now i think is ludicrous. But it could well be what the fed is mostly concerned about is the financial excesses in part to the market that have been tantamount to for keeping policy too easy too long. Its not an inflation story at all i dont think. Nejra interesting because thats the big question were asking everyone is where is inflation going to come from . On that note, i want to ask you about financial conditions and the way that the fed responds to those. In the past it has had a tendency to misinterpret those financial conditions. A man from oregon has written a lot about this. Is it at risk of doing that again and what does it mean for equity markets . David r. we all know that for the better part of the past 30 years since the greenspan era that the fed has focused on the stock market and continues to focus on the stock market as the barometer of Economic Activity and a signal for the wealth effect. So i think that right now youd really have to see a monumental correction in the stock market to push the fed on to the sidelines as far as june is concerned and youd have to see a 10 correction to move the fed off its course or at least tightening over the near term. Does the fed focus on Financial Markets . Absolutely every central bank does and its no different this time around but every major average is close to an all time high so youd have to see a sizable downturn from here to push them off a june move. Matt i want to bring up dotgo and shows you the feds plot. You see 2019 the expectation is for about 3 , yet you think the bond market is telling it lower for longer story. Is this does this jibe with that lower for longer story . David r. well, you know the front end of the yield curve will move the most on what the fed does and the longer you get out on the yield curve, the more other factors come into play. One of them is Inflation Expectations which are clearly going down. Another one is real growth expectations, which i think are also going to be coming down as well. I would say that time may be a little less of an eco nomotrician and give you the narrative and the u. S. Economy is doing just fine and we dont accmommadatv imam tear policy but coming off the weakest expansion in history and with this unbelievable easy Monetary Policy. What happens when you take the punch bowl away . I think it almost has shades if you go to 1937, 1938. From a 32year low to 1937 and of course that was the great depression, this was the great recession. But g. D. P. Back then 10 at an average rate and stock market went up four fold and everything was hunkydory and the fed raised 110 basis points in 1936 and a huge recession in 19371938. It is a classic case be careful what you wish for when you consider the lags and the hit it will put on sectors of the economy. Nejra david rosenberg. Youll be staying with us. Coming up, e. C. B. President mario draghi will be speaking at hits quarterly hearing before the European Parliament and also is his final scheduled appearance before next weeks Monetary Policy decision, look for at the 2 00 p. M. In london. This is bloomberg. Nejra the first hints of chinas Economic Performance this month suggest a slowdown in growth is taking hold as policymakers beef up efforts to clamp down on financial risk. Joining us from hong kong is bloomberg chief Asia Economic correspondent enda curan. Run us through the latest data. Chinese markets closed today. Enda indeed it is a holiday today but after a very strong start to the year, theres some sign perhaps chinas economy might be softening somewhat and weve had a slew of sentiment indicators over may indicating confidence has dipped and weve en the survey of enterprises and there is a gauge of Sales Managers confidence and theyre all pointing downwards and comes as we see softening in and there are hints perhaps as the government pursues a Deleveraging Campaign theyre getting quite serious, at least theyre talking about reigning in risk to the Financial System and is a view that they pull out of the economy and will inevitably hit growth as we go forward in a month ahead after a stimulus push last year. It should be said that steps so far by the government appear modest and nonetheless seems to be enough to be a cooling activity, not a heartlanding per se but certainly a look at the margins. Nejra how concerned should we be about one set of data here if we look at the Bigger Picture . Enda i think overall it certainly needs to be taken aboard that activity might be slowing down and certainly taking aboard the government is talking about deleveraging and reigning in credits but if you look at consumption and the Service Sector they hold up reasonably well and is all important not just for the great chance igs transition china is pulling off as they move from from old drive partners and from consumer and real estate sector, they continue to hold up quite well and despite the expectations of a heartlanding perhaps, house prices for example and ongoing worries about debt over chinas economy in which we had a stark ripeder last week from the moodys downgrade. Though weve seen some High Frequency indicators slow down the overall picture remains reasonably intact. Matt thanks very much, enda curran joining us from china. David rosenberg, i want to bring you in and talk about, getting away from china and the emerging markets and get back to u. S. Equities because youre a noted bear and it just occurred to me in the u. S. Profits are booming and we have operating earnings far above the expectations coming in 14 year over year higher than they were last year and at 123 were now back to a new peak, im sure that sounds familiar because it comes from a story you wrote. Why do you think were so overvalued here . David well, i think that if you take a look at any ratio now, whether its price to book, price to sales, price to earnings, or look at the schiller p e, were pretty stretched here, not saying were anywhere close to where we were in the bubble territory in the dotcom phase in 2000 but weve taken away the valuation metrics that defined the peak in 2007. It doesnt guarantee you a big correction or bare market but tells you at these corrected levels theres limited upside. You mentioned the earnings,s year over year earnings are doing well and being skewed largely by coming off the lows in Energy Prices and all the ancillary effects that had other sectors in the First Quarter of 2016 when they hit their lows but the reality is that earnings right now are really a new high which is true but almost very little change from where they were three years ago and the market has ripped more than 30 since then. Back then i would have said the market is fair value. We really have flat earnings on a threeyear basis, relatively flat, and the market has gone ahead and risen 30 . So that brings you into overvalued terrain. And when you look at the stock market, you know, the volumes have been very low. The breath has been very weak. You have a handful of names that have driven it into these new highs. You take in a look and say at the sectors that managed to bring you to a new high in the stock market, theres only been four of the 11 sectors are actually at a new high. Seven of the 11 sectors are not at a new high and two those four sectors at a new high include scurem times and utilities which are sectors you want to have in the portfolio if youre thinking economic downturn is right around the corner. Its really quite a bifurcated market filled with nonratifications at the moment. Matt david, because weve seen a huge rally since donald trump was elected president in november and youd expect to see construction infrastructure plays gaining because he wanted to spend more there and he wanted to also give money back to the people and cut taxes, reduce regulation. So maybe even consumer maybe you see Consumer Staples being the losers in that group. Why dont we see that kind of optimism fading now that stuff isnt happening . David i think whats called this trump trade is practically a classic oxymoron. You actually are supposed to be seeing the small caps lead and you havent been and youre supposed to be seeing the sectors most directly exposed to the u. S. Economy because of buy america leads. That hasnt happened. Youre supposed to be seeing the materials and Energy Stocks i think are actually flat to down for the year. And the financials were always everywhere the poster child for the socalled trump rally and the financials are actually down for the year, same for energy which is supposed to be beneficiary of trumponomics. The stock market is doing what its doing and i dont know if donald trump has anything to do with it. As bob farrell, my hero, lven said one of the 10 market rules to remember is exponential rapidly prizing markets go further tan you think but dont correct by going sideways. This has nothing to do with donald trump, its just the market doing what it normally does which is actually breaks out sharply at the highs and see if the highs will be sustained is the more important question if youre going to drive looking through the front window, just as at the lows when you get a dramatic decline to the lows like march of 2009 and people are there talking about the s p going to 500, well, that never happened either. So its very important not to extrapolate the last couple weeks or months into the future. Nejra david, if we talk about the reflation trade and trump trade i have to ask you about the dollar. A lot of people have gotten that call wrong this year. Where does that go from here . David i think near term technically looking at the charts, you would argue the euro right now i think is overdone on the upside but wouldnt be surprised if within the next few months we see it at 120 and i think youre seeing a political rerating in europe. Because the big fear was that rexit was going to turn into frexit and hasnt happened and is a rerating. Look at the bond market. What is the treasury market telling you about what the economy and earnings will be doing the next year . Bond market usually gets it right. Nejra it does indeed. David rosenberg staying with us. Coming up, e. C. B. President mario draghi will be speaking at his quarterly hearing before the European Parliament and well bring you that. This is bloomberg. Nejra live from london. Matt and im in berlin. Im matt miller. This is Bloomberg Markets. Lets look at some of the nejra go ahead, matt. Lets take a look at how stocks are going. It is a little bit of a strange morning, lets say, because the u. K. Has a bank holiday and so do many asian markets. Of course in the u. S. , we have memorial day. So a lot less volume and a lot less direction. We do have a german 10year deal no longer being sold off. We have some sense of a movement because earlier we saw the dax down and the german bund being bought. Thats turned around and the italian yield are sold off. Najra . Nejra im looking whats happening in the fx stays. We saw the dollar trade sideway as lot of last week. If we look at dollar yen, thats pretty flat now and 11132. Sterl up. 3, 1. 2844. It was the worst week this year for the pound last week, having a bit of a rebound today. Eurodollar is fairly unchanged. 1. 1186. Cruise is below 50 a barrel, down. 3, and now lets check in on the bloomberg first word news with taylor riggeds. Taylor john mccain called russian president Vladimir Putin a bigger threat to the world than islamic state. Mccain said it was the russians trying to destroy the funlts of democracy by interfering with the u. S. Election. He said russia tried to affect the outcome of the recent french president ial election. German chancellor Angela Merkel is signaling in the donald trump era europe must shape its own destiny. Merblingell told the Campaign Rally the reason the g7 meeting showed old reliances arent reliable anymore. During President Trumps to europe he called germany trade surplus very bad and blasted the nato allies for not spending enough on defense. Meanwhile, President Trump said hell decide this week whether to pull the u. S. Out of the landmark paris climate accord. The u. S. Took the unstress dented step of breaking with the other six nations at the g7 summit saying in a joint statement america is reviewing its climate policies. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im taylor rigs. Nejra . Nejra jarred kushner, President Trumps soninlaw and Senior Advisor considered setting up a secret line of communications between the Incoming Administration and the russian government merely to discuss a resolution in syria according to a person familiar with the matter. Joining us on the phone from washington is Bloombergs National security editor. Bill, bring us up to speed with this, please. Bill sure, good morning to all of you. President trump got back late saturday night and came back from a european trip had a had hits and misses to a real storm in washington. Reports are out jarred kushner was trying to set up a communication back channel with the russians before President Trump took office. So when there was no real official role for jarred kushner in the white house at that time. He also comes back to a washington wondering what hes going to decide on the paris accord on Climate Change and if you remember from before his nineday european trip he comes back to a decision about who his next f. B. I. Director will be. The best news for trump i think coming back at this point is that congress is out of session. There wont be any big hearings this week but definitely comes ack to a lot on his plate. Matt how important is kushner to this administration . He seems to almost be Donald Trumps right hand man really. Bill i think its hard to argue theres anyone more central to Donald Trumps presidency in his first couple months in office than jarred kushner. Hes the soninlaw with a portfolio that includes everything from restructuring u. S. Federal government to the middle east peace process. Hes at the center of everything. We talk a lot about lines priebus his chief of staff and steve banon, his chief advisor but theyre in a lot of ways lower in the pecking order compared to jarred kushner. Hes family and trump trusts family and you know, he is someone who can read the president probably better than anybody else. Matt thank for you your time. It is a holiday but obviously a news cycle wont stop in the u. S. Lets continue with political tensions in washington and how theyre impacting the economic backdrop. For more we want to bring in david cole. Head of Community Research joining us from frankfurt. David, first of all, how much does this kind of political scandal thats not directly related to markets, how much does it play a role in Something Like the dollar trade . David dollar trade, it makes it less popular and weve seen that, from the beginning of the year, just look at, for example, the speculative positioning in the dollar. Its reached very high levels the beginning of the year. And since the scandal, since the disappointment came in, for example, Health Care Reform but also in terms of the fiscal policy outlook this has weight on the dollar and depressed the u. S. Dollar and what remains the supportive factor for the u. S. Dollar is the u. S. Economy is indeed strong even without politics or stimulus Interest Rates are high. Nejra there youre talking about fundamentals, david. I want to bring you to a chart which shows you hedge fund close to exiting their bets against the euro. And here this chart is really interpreting that as kind of it being about fundamentals in europe versus the u. S. If we are seeing leveraged funds kind of coming out of those shorts on the euro, for you is this a story to do with fundamentals or is it more with the Political Risk pendulums swinging from europe to the u. S. . David probably both and in terms of fundamentals, you have to really distinguish, i mean, the fundamentals are better in the u. S. The dynamics and fundamentals. Going from being a negative in terms of fundamentals and improvement, this definitely is something which supports the euro. So we have a Monetary Policy which sets negative Interest Rates and we have a Monetary Policy still buying bonds in the euro zone and the fantasy of course is there with improving fundamentals that these kind of policies which are depressing the currency will disappear. Really the dynamic supports the euro currently when we ask whether you get actually higher carry and where do you get higher Interest Rates than in the u. S. And where do you have higher growth rates, its in the u. S. And indeed the dynamics are disappointing not only on the political fronts but look at economic surprise indexes and in the u. S. Weve seen a constant flow of disappointments here and also on the dynamic side, rather in favor of the euro. Nejra ok. So in favor of the youre in favor of the euro, david. You say it will move higher in coming weeks but im interested in why you think that is. You know, were talking about these yields moving lower in europe because of Central Bank Policy as youve just discussed. The bund yields and 10year struggling to close above 3. 5 . Where is the momentum from the euro coming from . David the euro is coming from probably the European Central bank will do something on this negative Interest Rate and will remove actually rather the burden. We are not entirely convinced this will happen. Its really from a currency perspective, its really difficult to say what is the more attractive currency, is it the euro or the u. S. Dollar . So the preference should be here actually to play both currencies probably against other ones which have more clear disadvantages against hese two currencies. Matt what do you think about the pound . In the midst of the brexit negotiations next week, the pound has shown some real resilience and why does it hold here at 1. 28 . David because the whole negative factors out of the brexit have not materialized. The pound has weakened considerably since june of last year, since the brexit decision was taken. What has not happened, what has not materialized yet is indeed that Foreign Investments, probably the strongest factor which supports the pound at these levels has not dried up into the u. K. , so everybody seems to wait before he withdraws or slows Foreign Investment flows into the u. K. , we think this would be the deciding factor when the pound can weaken. Again so far weve seen very resilient flows and thats real money flows into the u. K. And as long as this persists, this can stay with the pound no matter actually what the election outcome will be in june and no matter how the economy develops in the u. K. Nejra i want to quickly pick you up when you said you should look at the euro and dollar against other currencies rather than against each other, which wand in particular, the yen . David the yen would be a good candidate. There we have definitely not the euro ynamics in zone, not from the improvement in terms of growth dynamics but also not from this fantasy or speculation that the bank of japan will withdraw from its policy. The bank of japan had said very firmly the guidance not only will there be a zero Interest Rate policy but also that theyre trying to control the bond market on the long end of the curve so we think this is a perfect counter currency actually in this universe which doesnt share the same fantasies in terms of the euros and in terms of improvement but also it doesnt share the same amount of Interest Rate carry like the u. S. Dollar. Nejra interesting. Avid kohl, head of the chief economists. Talking oil after last weeks opec meeting with tom petri. This is bloomberg. Taylor this is your Bloomberg Business watch. Im taylor rigs. San francisco fed president John Williams expects the central bank to have a much smaller Balance Sheet in five years. He spoke to bloomberg tv in singapore. John given my own view of the economy where i see Interest Rates going, i expect to start the normalization of the Balance Sheet, the first step, the baby step towards later this year. That will take several years to take place. It wont be a selling assets, it just well allow the assets we have to mature and decline organically. Taylor policy matters are coming up with a plan to reduce the feds 4. 5 trillion in as pets. Saudi gold agreed to buy being 777s and is in line to expand long haul routes outside of saudi arabia. Saudi gulf began operations in october of 2016 with four airbus jets. Building lauren says a casino in japan hed shoes osaka over tokyo. Hes among the heavyweights seeking entry into japan after lawmakers voted to open the country to casino gamblings. He says theres nor opportunities to develop osaka as a entertainment destination. Thats your Bloomberg Business flash. Matt . Matt thanks, taylor. Oil trading in new york just below 50 a barrel. By that i dont mean in new york literally because the nymex is closed but the new york contract right now, that after opec got an extension on its Production Cut deal. More now with tom petrie, the chairman of Petrie Partners and been an active advisor in more than 250 billion in Energy Related mergers and acquisitions including many of the largest in the industry. He has led the team that advised saudi arabia on its Natural Gas Initiative and alaska on gas pipeline options as well. So tom has talked to us a lot about oil. Hes talked to everybody in the world a lot about oil and people listen to what he has to say. Im going to pull up the contract right now and see how the nymex west texas intermediate trade is, 49. 70 a barrel. In europe we tend to look at brent more often, considered a Global Benchmark of sorts at 52. 06. The point is oil has had a really incredible rise over the past couple of weeks and then last week at the end of the week, it came down fairly substantially, possibly on a kind of buy on the rumors, sell on the news trade as far as traders were concerned, this opec thing basically was in the bag. Lets go to tom now and ask him if opec has anything more it can give to investors. Tom, it looks like the market kind of expected what they gave us and wasnt that impressed. What can push oil back up through 50 and up to, i believe your forecast is about 60 a barrel in the second half . Tom i think one of the key things, matt, will be the real evidence of pickup in Global Demand growth. You know, right now the concern is that permanentian basin production is going to completely offset the cuts. Thats unlikely. The market did effectively discount everything they were guided to by opec in the prior 10 days to their decision. But when you think about the five concerns that are out there, Oil Demand Growth globally, shale Production Growth and where it happens, were the imbedded declines in the conventional base and then the questions that came up with the budget in the u. S. , whether the s. P. R. Will be selling oil or not and offsetting some of the opec actions and then finally, do we have the classic cheaters . Well, three of those five really are likely to exceed expectations but its not happening this week or next eek. Id say in the course of the summer we get a sign in pickup and Global Demand growth will put these concerns i think more in perspective than they are today. Nejra certainly demand is something we have to talk about and you mentioned the u. S. Shale there as well. If we look at opec, how much do came ink there could be a on the upside down to concerns opec might go back to this pump at will policy it had in 2014, that its still fresh in traders minds. Tom its a good question. I actually believe the bulk of what theyre going to achieve will be accomplished by saudi arabia, russia and iran and theyre not natural allies on all issues but on the issue of wanting a higher price and frankly very much needing higher prices they are aligned nd not confused. More organized that dan there has been in the last decades. The other players on the margin, you could have some expectations, realize that there will be some increases in brazil and some in canada and so on. Its all within the margin of error, visavis what those three big countries do. And theyre aligned. Theyre not confused about whether they have to deliver on expectations. One of the real keys matt why cant tom go ahead. Matt we have a function of the bloomberg go that gives you a wealth of information but the bottom line is opec controls so much of the worlds oil, why cant they just say were not selling anymore until we get the prices where we want them to be . Tom well find out and theyll be tested on that proposition this time around because thats the function of the permian basin, which is going to grow. And thats going to keep their feet to the fire and unless they get either the pickup in have to mand or they then come through with the real cuts. This last time around, the saudis exceeded what they promised. Iran actually behaved as expected and couldnt get to the ceiling they were given and russia only delivered about a 1 3 of what they said they would do. This next time around if russia doesnt get up over half and probably closer to 2 3 of what they promised, then nothing will happen in terms of improvement and price. I think thats probably not going to happen. I think they will surprise on he upside. Matt appreciate your time. Happy memorial day, chairman of Petrie Partners. Coming up later this morning well continue our oil conversation with steven shork. This is bloomberg. Nejra today french president will host Vladimir Putin for a tour of the royal palace at versailles and the two leaders are expected to discuss a range of topics including what macron called an invasion of ukraine and role in syria. Lets bring in henry meyer from our Bloomberg Bureau and greg from our paris bureau. Greg, let me go to you first as host nation of this meeting, a number of tricky topics that could be discussed here. Officially the meeting is to talk about a art show of peter the greats visit to france and isnt an official visit. Ere are some frosty problems between the two countries. There are obviously on the different sides of the issues when it comes to syria and the ue contain. Ukraine. Probably the trick iiest one more so than donald trump a few days ago. Matt the g7 did agree to work with russia on some effort in syria, henry. I wondered what you think about how things seem to be shaking out. Angela merkel yesterday in a speech in munich said theyll have to go it alone in europe though theyll remain friend with, and she named the u. S. , the u. K. And russia kind of in one group. She and obviously macron are in another. Is this shaping up to be those two kind of allies aligned or gainst each other. Henry there was a frosty meeting with Angela Merkel and macron, the talks now, there arent High Expectations in moscow but it is significant that putin has arranged this fairly short notice so soon after macron coming to power. And you know, they do have to make an effort to try and build bridges even though there are these very difficult issues you mentioned, syria and ukraine. Those wont be overcome. Matt something well watch to see what comes out of this meeting. Henry, thanks for your time, henry meyer in moscow and greg joining us from paris. Coming up next beal hear from the San Francisco fed president John Williams on the Central Banks big, big Balance Sheet. How much smaller can it get and when . Plus, coming up tomorrow, james bullard, Federal Reserve bank of st. Louis president , recovering from all were covering it from all angles. This is bloomberg. Live from london. Is 2 00 p. M. In berlin. I am matt miller. Welcome to Bloomberg Markets. Matt lets get top stories we are from bloomberg and around the world. Unwinding the Balance Sheet. The feds next move could start as early as this year. We will give you more from that exclusive interview. Will mario draghi be able to answer the riddle of inflation before he peaks to the European Parliament . Matt drifting apart. As the g7 dust settles, relationships forged since the and of world war ii, over. Lets take a look at the markets this morning. A fairly lightve day with london on a bank holiday, the u. S. Not scheduled to open until memorial day, and we are getting very little sense of direction. Not a lot of movement. 03 . X is up 0. 33 , and right now the italian 10 year yield up about two basis points, 1. 81 . I am looking at the dollar. The dollar index moving in its tightest range this year. Dollar yen, pretty much unchanged now. Sterling on the front foot after two days of losses. The 129, making it to though euro is steady ahead of mario draghi and crude holding below six dollars or barrel, up by. 1 . Taylor has more. German chancellor uncle a merkel is signaling a new era for europe. She told a Campaign Rally relationships are to some extent over and europe should take destiny into it sold into its own hands. Blasted nato allies for not spending enough. Senator john mccain called russian president Vladimir Putin a bigger threat to World Security than the islamic state. Mccain said it is the russians to try to does very the fundamentals of democracy by interfering with the u. S. Election and said russia try to affect the outcome of the recent election in france. Trump is once again lashing out at what he calls fake news. In a series of twitter messages come the president said many of the leaves coming out of the white house are fabricated lies. He referred to fake news as the enemy. Now in recovery mode after a fiasco left thousands of passengers stranded. Still processing thousands of passengers who missed twice or lost luggage. Alex denies the problem is related to cost cuts. News global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Matt thanks. Federal reserve banks of san of thepresident start of the fed triggering the Balance Sheet, this year will and andut five years and a process that could leave for Balance Sheet considerably smaller. He spoke in singapore earlier today. My view is we would start the. Hrinking of the Balance Sheet i expect the start of the normalization of the Balance Sheet. Hat will take several years decline organically over several years. I think that is the view. Me one moment. I think that is the process to happen in the background. It will hopefully be boring. The open question your asked in, how big will abounds sheet be five years from now once this has all have and . That is something we have not decided on. Uch smaller than today the question is, what is the best have in the u. S. Bank system . Ago, that would be 30 billion and a tight lid. Probably easier to conduct Monetary Policy, even better. 700 billion in reserves. Question of reducing the Balance Sheet significantly, inset the end, will that have 2. 5 chilean dollars . Orhave not made decisions p im not trying to communicate a decision. I think that is the right way. That was john liams earlier this money. The stake of the state of the European Union in focus. Mario draghi set to testify before the parliament in about an hour. The head of the ecb is likely to be pressed on his lands to scale back in his final appearances ahead of the Monetary Policy decision. For more, lets head to david. Have talked about how the recovery is strength winning that mario draghi, a push for tape ring with the question of where is inflation. So i ask you where is inflation . That is the problem faced right now. It is because of that dilemma there is disagreement in the ecb as to how Monetary Policy should be handled and how quick we stimulus should end and help with we should move toward the exit. Mario draghi will have to manage the disagreements and communicate a message today and he is like to say that while he is leased with recovery, inflation remains weak and therefore the exit is not something we will see immediately. Matt even though the ecp does express 2 , i was told that last week, the market does not seem to buy it. No one seems it sees it getting that high. What will they do if they cannot achieve the target . They will have to keep stimulus in place. The purchase of additional bonds is adding stimulus. Stopping will not withdraw stimulus. It is just creating more stimulus. The ecb has to decide if the recovery is Strong Enough to add additional stimulus. That could be the case i next year and underlying inflation, it is likely to eventually risk on to the recovery in treaty he and by that time show some signs of life. Matt thank you, david from Bloomberg Intelligence bring us a bit of a review. For more on the emerging policy of the u. S. Federal reserve and the central bank, lets ring in the head of north american strategy, what you think about the conundrum mario draghi seems to find self in . The market expects them to normalize. They signaled they will begin the process, and of the year, communicate that to the market. On the other hand, they cannot get inflation above 2 . Classic think the markets are running ahead of themselves in terms of the ecb pulling the plug on qe at this point. We see a little policy diverts less in the euro in the next couple of months the fed us of a tactical trade. Theres a lot of euphoria around french elections and around a reflation trade taking base in europe. The markets are anticipating is we would get a much more hawkish tilt in the next month. We think it is a mature. We think potentially september or december, but to kick start that process, it is a little too early. He will get a more constructive tone with the ecb where they will talk more about the Downside Risk to the economy and also the outlook a little more balance. Following on from what you are saying on europe listening, i have got a chart tracking the eurodollar and it is against the treasury bond thread. Spread. When you look at that chart, you could ask the russian of whether the euro is that strong. You gave reasons why the euro is positioning that way. That has been our view for the last both weeks. What were seeing now, you have coming from the u. S. Political side. The trump discount on the dollar here the other thing were looking at is highfrequency models where we are looking at currency as a function of financial and thats, Interest Rate differentials, commodities, and european currencies against the dollar, euro, sterling, swiss, or others running close to where they are from the level where we get his models. There is a little euphoria around growth. There is a reflation trade transitioning more toward the European Focus to the local risk shifted from being a negative narrative you have in your to being much more row european political stance. Political risks seem to becoming a little more from the u. S. Relative to the risk premiums in the market, it is too stretched. Itthink the markets had mr. Misread the minutes from last week. Seems a little more hawkish than what markets had taken away in terms of price action. Tacticalit is more a scope especially can fear in currency. Matt do you play the year the and currency short . Do you see the town fallen from these levels . 128 . Yes, i think so. ,ou have your tactical outlook a month to three months. You have your mediumterm and longerterm outlooks. We are structurally there. We anticipate the geek in the dollar, we have seen this trend since 2011. We do not see much more support for the u. S. Dollar going forward. What drives this sentiment and positioning. All of those things have moved in a negative direction for the dollar. Pull a coilingu spring before you pop in the other direction. Within the u. S. Dollar will start to ever because of how much markets have positioned negatively against it. Strongs or level were looking for. For sterling, maybe 120 five is a level were looking or later and maybe 127 in the short term. Great thanks so much for joining us. Will hep, mario draghi get his hearing before the are in parliament. His final scheduled during for next weeks monitor policy decision. Look for that at 2 00 p. M. In london. This is bloomberg. Lets take a quick check on your markets. The bloomberg dollar index and a type retreating range this year. The dollar yen, while 1134. Sterling up. 3 after two days,ot quite 129 but still 12847 11188 on the dollar, pretty much flat. Were keeping an eye on the rand as well, weakening their. Picking of the van, lets turn to merging markets. The chairman spoke to bloomberg about the implications of the emerging get index. You are going from being a big fish in a small pond, the index was about 8 , and now it will be maybe less than 1 , its very lucky, percent at most for the emerging market index here. T is a big loss the focus on pakistan will be less. Lets bring back Mark Mccormack from toronto. I want to ask you, looking at fx in particular, there has then an on theting piece written bloomberg saying we should not overstate the dollar and that on emerging markets. Is it time to refrain that debate around her and . Think currencies, there are a lot of idiocy that it drivers, thinking maybe dollar on and off, a simplistic way to look at it. What has been driving over the last couple of weeks has been at focus on china, growth down a little bit. Itetary conditions while cleaned up reserve outflows and slow down the out close. I think what were trying to see Interest Rate differentials between the major yen economy in terms of real Interest Rate differentials, along with growth expectations and evaluations. If you have a week or dollar environment, which we have seen it is a narrow Good Environment for. Inflation trade, Industrial Production picking up, higherlevel inflation, that is all good for the markets in general. Live we are looking at teachers of Vladimir Putin and Emmanuel Macron shaking hands. Putin just arriving at palace and i just want to take a moment to watch this historic meeting. Very interesting as we saw the with anf the g7 unfold agreement to look for some sort onlike to work with the chef syria also, continued condemnation of russiass action in crimea and ukraine. The western media, we just dont talk about russia really from an investor inspect onspective, but the ruble the other hand, there is no bitcoin but the ruble has been doing quite well over the last year. It has gone from almost 72 the dollar, now it is no 756 for the dollar. See the trend easily. What you think about russia and the invests ability in the drupal on the dollar . Think what you get, a lot of other currencies, it is a commodity currency. Oil prices euro for your have recovered 60 percent from the host 2000t a year ago or 10 and 2015. For oil price is now, lows close to 20 below 20, it is an important impact on currencies and the ruble. There has been a breakdown because there is not a synchronous driver driving all of these emerging markets. If you look at brazil, it is more about those issues. Keithk to russia and the and you want to think about is there is not a lot of clinical risk. There is political stability that tends to generate capital flows. The weighted pupil viewer oil prices are going, to go back to the reflation or environment, it is one that is good for the u. S. Dollar because u. S. Economy is at its full potential but higher commodities will generate mores force currencies in the room moving forward. Your we talked about how its generally an environment for currencies, of course there are idiosyncratic stories within that there are other any currencies you avoid . It is a difficult time right now. I would say brazil is the one right now. Fresh news on corruption scandals and a lot of uncertainty. , what were looking at have seen out brazil, a lot of capital flows coming out of the equity market, pushing the rates even though there is a light Interest Rate differential relative to the rest of g 10. Story has been one or economic reform, this capital flows supporting brazilian currency. The issue now is a lot of that is in reverse. It could turn a little more negative or so just given we have a lot of uncertainty around structural warm and budgetary issues. It is so important for frizzell. As one currency we are more negative than we were say a month ago. South africa is another one to keep an eye on. A lot of Political Uncertainty there as well. Matt thanks, Mark Mccormack from td bank. To you. Come back coming up, ecb president mario draghi will be speaking at his quarterly hearing before the European Parliament. It assists final scheduled appearance for his policy decision in estonia. P. M. This is bloomberg. Matt the british pound recovering after a selloff hit a growing concerns of a shrinking lead in the upcoming election for the u. K. s conserve party and Prime Minister treason may. Fears of a hard race it to the forefront. Lets bring back Mark Mccormack from td for his take. First off, a hard brexit, isnt that the only choice . Can you see another way out of this . There are probably two choices, hard or chaotic. People are hoping for a hard brexit. We have an election coming up next week. Ando more muscle forgeries i guess youe bit, could say would move remove a little terror tail risk. Toward re headed many people said the trade of the year, youre looking at sterling yen. Would you agree with that or are there other things youre looking at . Like one of the crosses we his sterling it is really a reflation area environment. , expecting a60 oil lot of good risk and oil pricing with sterling. Upside, little more being a little more hawkish, growth recovering in check in canada. Selling andling long euro sterling, a lot more upside risk from here at least. Matt great to get your take this monday morning. Thank you. Happy memorial day. Coming up, more from our with johninterview liams, fed president. You do not want to miss this on bloomberg. Live from london. Matt in berlin, i am matt miller. This is Bloomberg Markets. Lets look quickly at how the asset is actually trading today are playing out. Londona bank holiday in and in the u. S. , memorial day, and a lot of the markets overnight work those does well. Difficult to find direction. Yield up right now to 218. A very interesting treatise people selloff. You have not seen the germany investors selling off debt as well. 12,600 602, and the broader european benchmark with a lack fewer stockss, trading at a lower volume than to all. I am looking at some of the currencies maps and the type of trading range this year. The dollar yen, premuch unchanged at 11130 or. Short of the 129 handle but still above 128. The euro steady ahead of mario draghi speak to the European Parliament. Also keeping a close eye on crude holding below 50 per barrel. Taylor riggs has more. In 14 suspect arrested in the manchester terrorist attack. Hundreds of miles south manchester. None of the suspects have been charged or dennis p they are held on suspicion of violating the terrorist act. North korea fired another ballistic missile. Kim jongil ands regime. 218 miles toward japan, it may have reached waters in japans economic zone. After the group of seven pledged to halt its nuclear and missile tests. German chancellor merkel signaling that in the donald trump era, europe must shape its own destiny. She said the meetings showed the old alliances are not so reliable anymore. President trump called germanys. Rade circle very bad global news 24 hours a day power by more than 2600 journalists an analyst in more than 120 countries. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. President trump faces challenges to enact in his agenda given the Ongoing Investigation into russia us is involved to the election, which has now reached the innocent inner circle of his white house. Joining us on the phone from washington is a white house for order for Bloomberg News. Just bring us up to speed on the latest allegations against Jared Kushner. What is being alleged is he by therson of interest fbi, the special counsel bob mueller who has been investigating ties between the Trump Campaign and russia. Jared kushner was very involved in the Trump Campaign am its first day. Never officially Campaign Manchester manager but basically ran a campaign. I do not think it is an is an enormous surprise that when you are looking at ties between russia and the Trump Campaign, you would want to look and talk to Jared Kushner here at is not the target of the investigation. No wrongdoing has been suggested or reported, but he is someone the f vi is interested in look into. Matt are we talking about setting up communication with russians in an attempt to do that . Maybe zacks editions . There have been a number of. Eetings with russian officials the highprofile one being reported is during the transition, that he may have been involved in trying to set up a back channel munication between the u. S. And russia. Has andtioned, nothing suggested that has been illegal that he has done. No suggestions the term back channel close vote just sounds shady and what does that mean . It would have set up a direct line of communication between the russians and the u. S. Outside of the government owned capabilities to survey a russian communications. That has been criticized as going around the u. S. Government and trying to circumvent the a private citizen. At that point, this was during the transition phase and kushner was not a white house official and Michael Flynn security advisor and not a u. S. Official. They were essentially acting as private citizens of that point, although through a transition trying to form a direct line of communication , anda Foreign Government there is a lot of information we do not know that has to play out, and the worst a scenario, that could be viewed us trying to some hurt u. S. Intelligence and u. S. Government. Matt on the other hand, a lot of diplomacy gets done through back channels. But it is definitely an interesting story that we will keep up on. White house of reporter for Bloomberg News joining us on memorial day. On a completely different subject in alex this of, John Williams discussed his optimism over the u. S. The money. I think the data has been good. 100 80,000 jobs a month in the u. S. , twice what we need to do to be on a sustainable level. Ice the unemployment going lower for the rest of the year. See the economy doing well, good momentum. Optimistic about the economy. We need to continue the process. Us, seniorng economist and from our bureau in toronto, strategist john osborne. Ask,e start with you and is the fed getting ahead of itself . Do you really expect another couple of rate rises this year and continued increases in 2018 . Yes, from the fed communications that we have just listening to, it has been decent enough for the fed to continue. Question, weey have seen the mark its repricing hikes, aftere june, what happens with inflation of the tick alert, gdp health First Quarter, and the week in various sex is, what ,appens with the Balance Sheet in the early stages at the moment. My feeling is the market will focus on communication after the hike if there is a hike in june and very like leaving rice the yield curve, looking forward to the second half of the year. On that yield curve, obviously, we have seen it flatten over the past few months , do you expect that to change and what will drive it . Will it either Balance Sheet unwinding, placement dictations eking out . To be fair, we have seen the moderately tong the issue of the Balance Sheets. Ofely a small scale change balance reduction. ,o me it is all about inflation term premium and term structure. Amounts belowo fed expectations. That has to eat to a broader repricing. Ofething new maybe in terms measurement issues, we have seen how such a small change vacation significanted to changes on the broader index, whether it is about the index rate in the next two months. Matt if we assume the fed will anyone the path the mark and asked the x and the ecb is really having trouble getting inflation to stick to 2 , why isnt the dollar worth more against the euro . Good question. We think it is a little rich here, the euro. In the course of the next few it seems to me there is a challenge ahead of it. I euro we historic a generally set tends to correlate strongly with Inflation Expectations in the euro zone. Rebound inthe recent the currency has coincided with a drift off expectations in the euro zone and we are not far off in terms of the five year and. Ow it is a more aggressive qe process. The in about early at the euro zone is immature this point. I think mario draghi is likely to express that. If we are looking at the dollar, you think the recent selloff has been a little overdone. Many few will this wrong so far this year. Where does the momentum come from now for the rest of the year and how far do you see the rally going . I think unfortunately, we are. Robably in a transition phase we may be pretty much range bound over the summer as we policye to focus on moves in the year in the u. S. As well as the eurozone. Political risk transferred essentially from the eurozone to which mandatory training the ability of the u. S. Dollar to rally significantly from this point. There is no doubt the u. S. Dollar still enjoys significant Interest Rate premiums relative to much of its g 10 pierce. I think the issue for investors is how much is that price and and what risk is there that narrative weve had as a driver of Dollar Strength changes the transition from the latter part. 17 into 2018. Says where i think the real risk for the market is purely may well see the market changes little bit. Some of the more bullish expectations seem to be a little bit the economy starting to show decent signs of growth momentum now. The are in a better position to think about interestrate policy later in 2018. Quickly, you are talking about interestrate differentials. The 10 year treasury bond differential, we have seen that in recent days dropped to the lowest since november. You expect that to reverse . We probably would look at the shorter end of the curve from a currency point of view at least and ther the dollar euro, basically, the twoyear spread has then fairly consistent. A bit of a correction, but still substantially supportive from the u. S. Dollar perspective, very close to 200 basis points in nominal terms at least. That still constitutes in my opinion a significant source of support for the u. S. Dollar debts that the u. S. Dollar wont we can significantly, but it probably will not get e. On that 200 basis point level. Ok. Staying with us. Coming up, mario draghi will be speaking at his hearing before the European Parliament. Look for that at 2 00 p. M. In london. This is bloomberg. The growingn now to uncertainty over the u. K. Election next month. Us, in geneva and from our toronto bureau, chief currency strategist sean oz one. Let me go to you first. If youre looking at the election, the context of brexit, termsre you focused on in of the potential pitfalls for the u. K. Economy ahead . Questions looking at opinion polls, moving significantly over the past few days, im not sure super confidence and trust into those holes there. I amis clear to me is struggling to find it positive out some with election in terms of the price negotiation. Whether there is a narrow orty of conservatives, thinko majority at all, i it has not been very clear to me at least on the outside, what the position was, the official position was and will be in terms of red lines on trade, etc. Surprise thata helps theresa may with the new i think a hard time for the u. K. Economy is ahead of us. Matt so you think the best Case Scenario is a big win for conservatives or at least Something Better than a narrow win for conservatives . Assuming the Prime Minister manages to form a stronger consensus, not make strong concessions, but to show to the eu what the official sense will be for the next few years here there will be this at women for sure but uncertainty is worth than disagreement on the matter. Morell only help to lose time in the process. A negotiation of the extension, or making a review more different. Looking at the other side, more united than before. It is very clear what the eu sense has in. And now with the commission coming up with a negotiation, even if you have a national agenda, i want to talk to you about sterling. The number of april i asked whether the u. K. Election, the market events, they responded no, but we did see sterling have its worst week this year last week. Some say to is down the narrowing polls. How much of the event for the u. K. Election is you and how much is that for . Weree reason people suggesting it was not such a market event before hand was the , we enjoyve party such a significant lead in the opinion polls and what appeared to be and what people suggested might be a landslide for the election. Now the polls are obviously much closer and much closer than some of the meetings we had in april and early may. I think there is real concern for investors and you have to expect a little more volatility and weakness in the pound in the runup to the election. Matt we appreciate your time today. Thanks to both of you for joining us. Coming up, hedge funds are giving opec some credit again aired we will get announced stephen, president of the short group. This is bloomberg. Matt moments from now, mario draghi will address lawmakers. From our toronto bureau, chief currency strategist sean austin. Let me get your sense of what the market expects. I know the ecb does not want to surprise the market. Have they set us up well for a shift in the language here . Been annk there has internal debate going on about where it is heading. It seems to be contingent on policy makers where the board d probably have them the message from mario draghi and his colleagues more recently has been trying to push back against the idea and stressed the idea that mantra policy as it stands at the moment, the continuation of qe in its current form a total program ends, and then consider the potential for rate increases after that, that is the review opposed torsue as speculation have had bubbling under the markets recently that there could be a rate increase before the end of qe. It is kind of like pushing on the brakes and the accelerator at the same time. Tohink mario draghi wants make it clear that is probably not a policy option at this point. From his perspective, it will be a steady as she goes message, really trying to emphasize that point and push back against the idea we could see were stripped of policy in the next few months. As far as i am aware, you are pretty much in agreement in terms of sequencing, right . Yes, i think it is too early to make any change. We know what the ecb will do in june but the communication will be less dovish, and we will remove the most elvish elements from the language. More interestingly, a couple of things. The first one is there are committees to look at exit options. That is where you go back to the sequencing. Make it possible for the sequencing to be reversed. Great, that will be a surprise for markets may be in for next year, that the completely ruled out rate hike before the end of qe, surprising. The second thing is we have the update of the forecast and that is where i look at something more on the dovish side. Inflation likely to be revised downward for the first time in a few months because oil and because of a stronger euro. The key question to me is not this year or next year, but is9, the mediumterm, that where we get essentially a surprise. It is all about inflation, isnt it . Where is inflation is what mario draghi might be asking shortly. Thank you so much for being with us. Coming up next, we go live to the European Parliament where ecb president mario draghi will be speaking at a hearing. It is a final scheduled appearance before next weeks mantra policy decision. This is bloomberg. London, welcome to Bloomberg Markets. Here are the top stories we are covering from the bloomberg and around the world will stop draw the dilma. Will be ecb president be able to answer the riddle, where is the inflation . We bring you his comments live. Sheet,ng the balance hinting at the feds next move saying it could start as early as this year. More about of that exclusive interview. Drifting apart, german chancellor Angela Merkel says election chips forged since the end of world war ii are to some extent over. Forged relationships since the end of world war ii are somewhat over. We have markets closed in the u. K. , closed in the u. S. Happy memorial day if youre watching out of the u. S. Chinese markets are closed, too. You can see the stoxx 600 pretty much unchanged overall. The dax as well not moving too far. We have been saying some losses in italys ftse. 10 year italian yield, that is up seven basis points after some comments from renzi, some perhaps interpreting that as concerns about an early election in italy. Down slightly. Take a look at the board. U. S. Dollar index, in the highest trading range this year. We are seeing thinner liquidity across markets. The dollaryen pretty much unchanged. We take a look at sterling. 3 , rebounding from two days of losses and its worst week this year last week. Videodollar steady at of mario draghi speaking. Were keeping a close eye on crude, holding below 50 a barrel. We have some headlines just crossing the bloomberg from mario draghi of the ecb saying the economic upswing is becoming increasingly solid and saying Downside Risk to growth are further diminishing. We are waiting for him to speak at the European Parliament. You can see that there. We will bring you that shortly. First, lets check in with taylor riggs. Taylor russias president Vladimir Putin is in france meeting with president macron. His arrival came just hours after u. S. Senator john mccain called him a bigger threat to World Security than islamic state. Mccain told Australian Television it is the russian to try to destroy the fundamentals of democracy by interfering with the u. S. Election and the recent one in france. In the u. K. , police have arrested another suspect in the manchester terrorist attack. The latest took place on the south coast of england hundreds of miles south of manchester. None of the suspects have been charged or identified. They are being held on suspicion of violating the terrorist act. German chancellor Angela Merkel signaling a new euro for europe when it comes to ties with u. S. She told a Campaign Rally that reliable relations forged since the end of world war ii are to some extent over and that europe own take destiny into its hands. During President Trumps overseas trip, he called germanys trade surplus very bad and blasted nato allies for not spending enough on defense. Sayshile, President Trump he will decide this week whether to pull the u. S. Out of the landmark paris climate accord. The u. S. To the unprecedented step of breaking with the other six nations at the g7 summit saying in the joint statement that america is reviewing its climate policy. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Nejra thank you, taylor. Joining us down from toronto for more on mario draghi and the ecb, sean or is born shaun osborne. Were waiting for mario draghi to respond to questions and the European Parliament. Meanwhile, we have headlines crossing the bloomberg from prepared remarks. Draghi saying the euro area still needs very accommodative conditions, says the ecb is firmly convinced the euro area still needs support. Some of the till risks have receded measurably, Downside Risks to growth, though, mario draghi says, are further diminishing. I just want to get your initial reaction to those comments so far, striking a little bit of a dovish tone there. I think he is making some concessions to the rebound we are seeing taking root in the eurozone from a growth point of view at least. I keeping the door closed on any swift change or prospect of a swift change in policy settings at this point. I think the messaging here is pretty much in line with the statements we have had from the ecb, so not too much in terms of a change of you. It seems consistent with draghis recent position on this issue. Nejra if we look at the eurodollar, really going nowhere. Are you expecting to see Much Movement in the q a portion of this and what can bring that about . Concessionthink any to a change in policy will be probably seized upon by the market. Today, very low volume, low volatility day. If theres anything significant that comes from the comments, the markets will pick up on that later in the week when we have more participation and more volume. I think we will be stuck in a bit of a range for the eurodollar roundabout the 112. We have right a bit of data later in the week coming out. I think it has to be something pretty significant from draghi which is not one to do. Terms of his messaging for markets, i dont expect we will get too much significant news today from draghi. Nejra still wondering whether the markets will seize upon anything they can given were dingng fairly thin tra another huge newsday. That said, what is your longerterm view not just against the dollar, but on eurosterling and euroyen . View thata longterm we probably would see the eurodollar weaken a little bit more than weve seen in the first half of this year. June forecast of 102. The low point we had around 103 may will in fact represent a low point for the cycle. We are taking a more constructive view of the euro from that point on really because we expect the u. S. Dollar itself to start rolling over from a longerterm perspective in the later part of this year into 2018. The euro itself i think still looks in pretty decent shape. We have a lot of risks in the u. K. In the short run, which is probably going to keep eurosterling and the euro yen. The main thing to watch is the Risk Appetite over the next few months. Were entering in the period part of the year where the volatility, equity markets, if they want to underperform come it occurs in the middle part of the year period to the significant Political Risks building in markets of nikkei and u. S. At the moment. In the u k and u. S. At the moment. The volatility may pick up any yen to strengthen. Euroyen is at relatively elevated levels. Mario draghin see in the live pictures just walking up to the podium. We are keeping a close eye on what he is going to say in this thesection in front of European Parliament. We have already had some comments from him in a prepared statement that we brought to you a little earlier. Mario draghi saying Downside Risk to growth, further diminishing saying some of the till risks have receded measurably, but saying the euro area still needs very accommodative editions. Thank you, shaun osborne, great to have you on the program. Lets listen to mario draghi now. Nejra still waiting for mario draghi to pick up on the q a portion ahead of the European Parliament. We have already had, as i say, prepared remarks from the ecb president. He is saying ecb is from the convinced the euro area still needs support them although, he is been saying as well some of the ta risks have recededil. The market poised eurodollar fairly unchanged ahead of this. Lets listen in. Our agenda, which i consider adopted. Thank you. Welcoming European Central Bank President mario draghi for being here for this second monetary dialogue of the year. Figureremember, place on six the previous one took place on february 6. This will be followed by a hearing of mario draghi as chair. Know, since the last monetary dialogue, the ecb monetary stance has remained unchanged. Also relating to standard monetary measures, well know the governing council has confirmed that those measures are intended to run until the end of the year were beyond if necessary. And in any case, until sustain adjustment of the pace of the part of inflation that will take that the also governing council stands ready the assete if purchase program, if the outlook becomes less favorable. So with this decision comes ecb bes that it will not put at risk and confirms that it with necessary and munitions to respond to any economic, political or geopolitical contingency. Until now, the ecb and convention of policies have played a crucial role in repairing the Monetary Policy transmission channels and in supporting domestic demands, and have decidedly helped across euro area, both private and public. We are already seeing the results of this policy which should come in due course, lead tour theion involving ecb inflation target. President draghi will present the ecb perspective on economic and military developments monetary developments and discuss the consequences of brexit for financial responsibly. Discussion with members also cover to topics, selected by the coordinators in preparation for this monetary dialogue. Namely, the issue of financial innovation and the implication for Monetary Policy and the question whether the rising of longterm Interest Rates did or did not overshoot. We have done some preparatory work on these two items with the contribution of distinguished scholars, as usual, and in regard to the seven second rate, one longterm the one hand, increase in the u. S. Longterm Interest Rates after the reversal in the feds monetary stance. On the other hand come on political tensions across europe, which generated Political Risk. What a former fighter might continue to drop the Interest Rate, the second one might reseed with the result of the next elections in the one we just had. Moreover, one of the dish pulling the plug on qe to sin might under some of the benefits might undo some of the benefits. We have a lot of interesting topics to discuss. We have a lot of expectations as to your presentation and a president draghi i give you the floor. Thank you, mr. Chairman. Mr. Chairman, honorable members of the committee, ladies and gentlemen, it is a pleasure to be back speaking to your committee for the second regular hearing of this year. I am also clijsters that you have chosen as the i am also pleased that you have chosen as the topic, the role of financial innovation. This is only one element in the broader process of innovation, which is taking place in the economy. But it is a decided one. Even the central role played by Financial Markets in the resource allocation. Before addressing this topic, let me first review the Economic Outlook and discuss the Monetary Policy stance. The economic upswing is becoming increasingly solid and continues to broaden across sectors and countries. Real gdp in euro area has expanded for 16 consecutive quarters, growing by 1. 7 year on year during the First Quarter of 2017. Unemployment has fallen to its lowest level since 2009. Consumer and Business Sentiment high,sen to a sixyear supporting expectations that will further strengthen growth in the coming months. Downside risks to the Growth Outlook for further diminishing and some of the tail risks we were facing at the end of last year have receded measurably. The fact that domestic consumption and investment are the main engines driving the recovery makes it more robust and resilient to Downside Risk, which relate predominately to global factors. Despite a firmer recovery and looking through the volatile ratings of hi cp, inflation over recent months, underlying inflation pressures have remained subdued. Domestic cost pressures notably from wages are still insufficient to support a durable and self sustaining convergence of inflation towards our mediumterm objective. For domestic price pressures to strengthen, we still need very accommodative financing conditions which are themselves dependent on a fairly substantial amount of monetary accommodation. At its june Monetary Policy meeting, the Guardian Council will receive an update of the staff projections in a more complete Information Set on which it will be able to formulate its judgment on the distribution around the most likely outlook for growth and inflation. Overall, we remain firmly convinced that an extraordinary amount of Monetary Policy support, including through our forward guidance, is it Still Necessary for the present level of underutilized resources to be reabsorbed and for inflation to return to stabilize around levels close to 2 within a meaningful mediumterm horizon. You asked me to discuss with you today the dynamics of longterm Interest Rates. Over the past few decades, longterm bond yields have been trained trending down in both nominal and real terms. Why lowering monetary rates reflect Monetary Policy among other factors, the declining real yields has been driven by structural factors. These factors include notably rising net savings as aging populations plan for retirement. Relatively less public Capital Expenditure in a context of high public indebtedness. And a slowdown in productivity growth. If longterm real Interest Rates are to rise again to sustainably higher levels, it is those underlying causes that need to be addressed. And this requires structural action at national and european levels. Our Monetary Policy has been instrumental in addressing the cyclical component of the balance between the supply of savings and investment demands. And its priced stability applications. Dishporting nominally nominal incomes, are policy measures stimulate investment and consumption, which are preconditions for inflation to climb back to levels below but close to 2 . And a more dynamic economy over time will favor a healthy return to hire policy Interest Rates. The irrelevance of financial innovation. The relationship between savings and investment leads me to the topic you have chosen for todays hearing. Greater financial efficiency in the euro area is crucial in improving the allocation of capital and ensuring it is put to productive use. Innovation in financial instruments, services, and infrastructure, as well as changes to the organization of Financial Markets can play a useful role in this respect. Financial innovation is a continuous process. Innovations have constantly arisen in the past. An example of innovation includes the introduction of preferredbt and stock, which were developed to a line incentives between parties and address information a symmetries. Some innovations of the past were instead introduced to minimize transaction costs, and have become part of our everyday lives. For example, take credit cards or atms. Today, the application of new technologies to banking and Financial Services is a potentially transformative force. We are closely monitoring its development for several reasons. To better understand its impact, to assess their rates, and to adjust the Regulatory Environment and supervisory approaches where needed. And also to a. As an institution and support innovation where justified. Let me now give you some concrete examples of why it is directly relevant to our tasks. A deep knowledge of the channels through which Monetary Policy affects the economy is of crucial importance for us. As a financial innovation more broadly have the potential to impact on the way the economy is financed, in the future, they may affect the transmission mechanism of Monetary Policy and ultimately, financing conditions. As a central bank for the euro area, we does remain vigilant thus remain vigilant in making sure his closely tracked. As central bank of issue for the euro, the ecb and the euro system also have a statutory interest in the safety and efficiency of Payment Systems and market infrastructures. One of the most active fields of the innovation which might affect the process in payments and securities is that of distributed ledger technologies, dltsa, such as the block change. This the rapid change in field, the need to constantly monitor and assess potential or new pronounced risks resulting from the application of new technologies such as dlts to payment. Clearing and settlement infrastructures in particular. One such possible risk is an increase in market fragmentation. If different dlt approaches were to become firmly established in parallel in different Member States. Moreover, the euro system Oversight Framework has to remain effective if we are going to discharge our responsibility in this new environment. And the euro system will of course continue to act in toance with its promote the smooth operation of Payment Systems. It also gives the Financial Sector more generally a chance to provide more efficient and Effective Services to households and companies. Think tech can, for instance, a good easier for banks to adjust your business models, cut costs, and exploit new business opportunities. The companies can also complement the lending capacity of banks by acting as an additional channel for accessing credit. For instance, for pure to care lending platforms. For peertopeer lending platforms. This may help reduce the economic fallout from disruptions in the provision of bank credit to households and firms, including smaller ones. At the same time, the increasing relevance of known banks and Digital Innovation in the provision of Financial Services may also harbor new risks. It is, for instance, essential to gatherhe framework for the increased role of known banks and financial innovation. Ensure the existence of a level Playing Field for both new and existing players. And provide supervisors with adequate tools to address new risks. To this end, we are actively involved in ongoing work at both european and international levels. Furthermore, risk stemming from the use of new technologies need to be carefully managed, particularly, in the context of heightened cybersecurity concerns. Cyber risks has long been a priority for national and european supervisory authorities. Since 1981, the ecb banking supervision has also addressed the issue from various angles. As Financial Market infrastructure overseer, we also need to ensure that individual systems as well as the network as a whole are operationally resilient to cyber crime. We also contribute to financial innovation by acting as operators. Securities that would live in june 2015 is now a cornerstone of the Capital Markets Union Project and has given a strong impetus to promoting and creating harmonized, integrated, and efficient payments and securities post trade services. The ecb is acting as a catalyst in the creation of a truly single European Market for payments and securities. Financial integration and financial of element are distinct, interlude interrelated. Therefore, in designing the necessary institutional and regulatory frameworks, we need to make sure that financial integration and Financial Development reinforce each other, thus improving the performance of the Financial System. Legislators have an Important Role to play. A europe harmonized and principlesbased framework to regulate thing tech in the context of the Capital Markets union agenda would indeed help to create a level Playing Field from the outset. This would in turn foster crossborder investment and expansion. See, they have the potential to improve efficiency in the Financial Sector, create utter products, and push prices down better products, and push prices down. It is in all her interest to rise to this challenge. As it involves the entire Financial Sector, different regulatory responses are likely to be needed. Depending on the nature of the technology, the responses may need to encompass prudential, consumer protection, and other regulations. But at the same time, they should not harm the development. Allow me to conclude. The euro area Economic Outlook is improving and Downside Risks are moderating. However, these positive signs should not distract from the need for firmer and higher structural Economic Growth. In this context, higher productivity growth is needed. And that productivity growth requires innovation. Structural reforms are essential to create of this this environment that is conducive to innovation and Regulatory Environment that adapts accordingly. Initiatives can contribute to this effort. We want to make sure economic so Monetary Union thrives, we need to upgrade these institutional frameworks. Ratedeans we should be this ready to foster innovation wherever necessary, including in the functioning of the eu in that spirit, i look forward to the debate that will be opened up by the Upcoming European Commission Reflection paper on deepening the economic and Monetary Union. Thank you for your attention. I am now available for questions. Thank you. Thank you, president draghi. For your very rich introductory statement, in particular. We appreciate it, the indepth analysis. I think our assessment pretty much in line. We start now with our question and answers. The first speaker thank you, president draghi, and welcome back to econ. It is encouraging to hear your , which arefintech chairpersons that recently went through the European Parliament. You outline the risks which we all welcomed. I have two questions, president draghi. The first question, is a brexit related question. To do with the question of banks relocating from the u. K. To the eurozone area, the ecb in cooperation with national leg your test regulators takes the regulators take the final you have a key role in that. Given remarks that have been about ayour colleague potential race to the bottom, regulatory race to the bottom when it comes to supervisors in the eurozone not creating a level Playing Field, what can the ecb do to make sure there is a level paying playing pitch as to which of the Member States of the eurozone some of these banks may move to, and what is the ecb doing . My second question is an irish specific question. As you know from our banking crisis, we have a bank, one of the banks in total ownership, 100 25irish bank, one of systemic we important banks under ecb operations. You are aware the Irish Government wanted to sell allied irish bank. I have two questions. Do you think that now is the time for a partial sale . And could you say to this committee, to the irish people from your view, what are the longterm benefits and term of a better banking, and stable banking environment for the irish people but also in terms of future stability for the Banking Systems in ireland . Thank you, indeed. the ecb isaghi preparing internally for possible implications from the with trawl process withdrawal process, and this also applies to supervisory aspects. For thes are preparing u. K. Withdrawal from the European Union and planning necessary steps. Theme in touch with all of in our following closely this process, but of course as you pointed out, it is not only up to us but also the National Authorities to follow this. Of course, we stand ready to support banks to reorganize their activities in the euro area. That theseimportant banks undertake all the necessary preparations in a timely manner. The first thing is to be timely. Either way, we will have a chance to discuss this perhaps in the context of different risksons, but many of the people view and the Brexit Process has to do with the way it will be managed. Inherently if it is wellmanaged, the risks will never materialize. The risks have certain actors, one of which is the banks. We got to ensure that all banks that operate in the euro area meet the standards of the european banking supervision. So it is important that neither the safety nor the soundness of our Banking System will be worse after the process. However, as you pointed out, there are actually risks of supervisory fragmentation and supervisory that we cannot interests. Banks might choose to set up brokerdeals or third country branches, both of which would not be supervised at the european level. Here, u. S. Legislators will need to act to ensure the similar risks are treated similarly and that regulatory is to be avoided. A very Important Role of the European Parliament in this process. Question, let me say it is entirely up to the Irish Government to determine the appropriate timing over the return of part of the governments taking iab to the market. It is quitely, desirable to transfer the risks of Equity Holdings in banks from the taxpayer to the private sector. I would like to note that the process of repairing the Balance Sheets of irish banks has advanced significantly since the crisis. Certainly progress is there, great progress is there. Thank you. Thank you, also, for raising the issue of brokerdeals and risks of the race to the bottom. We are of course aware to that dutch aware of that and we look forward to strong cooperation from all of the actors. To positively address this risk. I feel much better. [indiscernible] which would be a Community System but an intergovernmental one, or do you think it is in line with the spirit with the president ial force, one which would allow the e. U. To work itrectly and ensure that theects the balance between e. U. And member state level in terms of fiscal policy. Relates touestion from the exit policy current policy. You have a commitment to meet by the end of the year and we see different ideas, different assessments of how communication on this should be done and regarding what people do after the end of the year. Beginning to count wage developments, but again, last week what we heard was rather that as of june, some indicators , wage indicators would allow us to develop some idea about how we can exit from current Monetary Policy. Could you tell us a little bit more about that today . Pres. Draghi thank you. You, even though i at leastt say, because it is the first attempt to have a blueprint for further progress in the future. Tosuch, as you know it has concede us to different horizons, what to do in the short term as a longerterm. Purpose of thehe sm are part of something that is probably more for the longerterm, to the extent that they do require changes in the treaty. Let me say, it is way too early to Say Something precise in this manner in this matter. Just we will have to have further study. But what is important here is really, we do not have a piecemeal approach. What is important is we are able to collectively define a path that we want to follow, a path that will necessarily drive us that is morence and more based on Institution Building and less rules only as it is today. Important that we have an overall and compassing pass and not a overall, and compassing pass and not piecemeal. Path and notng piecemeal. Atre will be Monetary Policy the Council Meeting and they will have the new staff projections. What we have seen so far is that , as i said in my introductory statement, why a Growth Outlook is improving and will continue to improve, while the recovery is indeed solid because it is more and more based on consumption and not on exports, and it is broad because it is now across various countries and sectors. Say,hing that we always refer to as far as broadening of the recovery is an index we calculated about taking it, it is a dispersion index of the growth in value growth in value added by different countries. Broader is the recovery. Is that theoday value of this index today is at the same level as it had in 1997. Way, way before the crisis, which seems to say that basically many of the problems that we had with the crisis,ike financial fragmentation the problems with our Monetary Policy transmission, and the very uneven growth across different members of the eurozone, are now overcome, are behind us. At the same time, when we turn our eyes to inflation, we see , underlyingon is inflation is still subdued although headline inflation has gone up to 1. 9 . It was mostly due to changes in Energy Prices, and as the Energy Prices may decline we do expect headline inflation to decline as well. Underlying inflation excluding food and energy has actually been subdued, and one of the reasons is as i have said several times, the wages, wage , thoughs still subdued we start observing the beginning of some growth in various parts of the euro area and some growth in producers prices as well. Thinkstill very early to we will change the Monetary Policy stance. The projections that we had so far were predicated on us maintaining the extraordinary support, Monetary Policy accommodation that is in place. Thank you. Thank you. Mr. Draghi, when and under which conditions can the ecb, or will the ecb decide to allow greece to be part of qe . Can the bond market become part of the program . Between 2015greece and 2016 has spent 40 billion , so under which conditions can the central bank buy bondsmanage to from Greek Companies and greek banks, thus supporting development in greece and creating a growth in jobs . President , i would also like to put to you the following proposition on Monetary Policy in the eurozone. This is a proposal that i put the parliament on the seventh of may. Mr. Draghi, the european system of Central Banks, could it be more flexible . Could it be made more decentralized so the National Bank in each member of the eurozone could have its own Monetary Policy that would be better adapted to the economy of that country whilst also having tools nonmonetary available to it as well . And so that countries could work on the basis of their current Balance Sheet. What i mean is that the bank of greece, through using qe, could conceivably have a Monetary Policy that would be better for the needs of the greek economy, thus creating money. We are talking like 70 billion euros. 2 of the capital of the ecb is held by the bank of greece, so i think that would be one source of investment for us. Pres. Draghi the response to your first question is, what is needed is a positive conclusion of the negotiation. From this viewpoint, we certainly welcome the staff level agreement that was reached and we regret that a clearer definition of the debt measures was not reached in the last eurogroup. The necessaryave assessment of the other institutions, but also we will have to have debt sustainability that the ecb and governing council full independence will have to undertake. This will have to show that debt is sustainable in adverse scenarios, and we would also take that decision based on Risk Management considerations, as we have said repeatedly. So first, lets have an agreement, a full agreement. Lets find measures, debt measures that will make the debt sustainable for the time. On your second proposal as well, if we were to have 19 Central Banks with 19 different monetary policies, we will end up having 19 currencies. That is the basis of having one policy, one monetary and all our objectives are defined as objectives for the whole of the euro area, not objectives for the single country. When we talk, for example, about inflation, we talk about inflation for the euro area as a whole and not inflation for one country as opposed to another country. Thank you. Just a second. Clear. Osal was very i asked you a question about the bank of greece. Under qe, the bank of greece has spent 42 billion euros but the question is, under which conditions could the bank of greece also buy bonds from Greek Companies, and from greek banks within the framework of qe . If and when qe will be extended to greece, we will have the eligibility of and the Greek Companies Corporate Bond purchase program, provided they satisfy the Eligibility Criteria that has been set for the companies to be part of the program. Thank you. Thank you very much. Welcome again, president draghi, to the European Parliament. 2016 the European Central bank has chased more than 75 billion euros of bonds from private corporations and the rich corporate sector program. Afraid we are distorting Competition Among eurozone enterprises. Moreover, the lack of transparency makes it even worse. At least in germany we have a best practice of the bundesliga, publishing the names bank, publishing the names of the companies. It is not difficult to know which companies are being purchased. This is why together with so many pieces of this committee, we have asked the ecb for clarifications of this problem to our written questions that we sent you two weeks ago. So in our opinion, this lack of transparency at the Central Bank Level is harming the ecb and it is a pity, as the ecb has made Great Strides towards more transparency. The governing council or the publication of the target to balances that i myself have been defending four years in this house, has shown that the more itnsparency there is, becomes in front of the public. Is the ecb going to put up guidelines to ensure more transparency at the central bank . Evel in the csep thank you very much. Well you will get a written answer to your question, of course, as it was what a written question. Let me say a few things at this stage. We have six Natural National Central Banks that are a part of this program and they do publish holdingspcsp available for securities lending. Interested Market Participants can obtain necessary information by looking at the data published cbs and also on the ecbs website. Online data is a search that can be performed for each of these, and among other information, the search will return the bonds issue where and its residents. Each purchasing National Central bank has discretion to decide whether it will publish any additional information. Isinstion to the bonds on the website, so it is not in our hands. We are of the view that the information provided by the ncb is sufficient, and we see no reason to try to centralize the publication, which right now is completely in the hands of national Central Banks. You will get further responses in our written response. I have two minutes. President draghi, without enough transparency i think that we have the danger that Monetary Policy is misused by certain Central Banks to fit crony capitalism. The main important newspaper in spain published that there were rumors that only three Big Companies in spain had received more than 50 of all the purchases done in this stage. I think we should have this information concentrated at the ecb level, from all national Central Banks because if not, we are doing business as usual and it is difficult for us to justify this in front of our electorate. What is the market discipline in the sense that we are feeding companies that are not viable in the markets . Pres. Draghi let me assure you that the companies are being chosen on the basis of risk Eligibility Criteria. There isnt any intention to favor one company or another. And ofre guidelines course there are volumes that are being decided by the purchasing banks together with the ecb, but we are not going to disclose the guidelines or disclose the volumes because we simply foster activity by Market Participants nejra you have been listening to ecb president mario draghi speaking before the European Parliament, answering questions and taking remarks. He said the ecb is thoroughly convinced the euro area still need support and accommodative conditions, that some of the tail risks have receded but also the Downside Risks to growth are further diminishing. We heard more from him in the q and a where he said it is too early to expect a change in the Monetary Policy stance. Is our us from frankfurt ecb reporter. If you look at the euro, we are off by 1 10 of 1 . Overall is draghi trying to remain maintain the status quo . Yes, he is probably trying to manage expectations ahead of the policy meeting next week on june 8. It is probably unlikely that there will be a big announcement on what will be the ecb strategy for policy normalization, and draghi has been hammering on the message that the euro economy still needs a large amount of support to continue restoring inflation, because there are pressuresigns of Price Inflation in the euro area. Nejra it has been the inflation he has largely been focusing on, hasnt it . He expects headline inflation to drop with Energy Prices. Yes, this is probably expected because of the base effect of the Oil Price Decline last year. What the ecb is really interested in is that inflation is on a sustained path toward the ecb objective, just under 2 . Inflation will be more or less at this level without the support of ecb policy, and with wages growing in a subdued and slow way, the ecb still sees very little signs of this and it will continue buying assets at least until the end of this year. Nejra one other thing draghi stressed was that Downside Risks to the Growth Outlook are further diminishing, and this might be one of the communication signals the market is looking for when the ecb meets next week, isnt it . Yes, some policymakers have suggested the option that the ecb subscribe risks to the euro area economy as broadly balanced. Draghi and his closest advisers have been saying the risks are diminishing but are still on the downside because of the global environment. One of the key things for us to look for, to see if there is the first step toward the exit of the ecb. Nejra some up for us, we just heard from mario draghi, but what are some of the other positions between ecb policymakers . Everybody agrees that the economy is doing better and everybody agrees that very slowly, the policy must take the road toward the exit. I guess you could describe the debate within the governing council as those who want to go slow and those who want to go even slower, so it is a matter of how fast you start removing the support which has been key in restoring growth to the euro area. I would not dramatize it excessively. It is those who want to take it slowly and those who want to take it even more slowly and be more prudent. Nejra thank you so much. Just wrapping mario draghi, the ecb president , who had been talking before the European Parliament. We see a little bit of market reaction. , talked about the euro earlier but if we look at how we have seen some movement in the bond yield, the 10 year bund down 10 basis points. Italian yields still higher by six basis points, following comments by matteo renzi. The stock 60 not going anywhere. Lowerro has gone slightly while mario draghi has been speaking. More Bloomberg Markets next. This is bloomberg. Mark it is 10 00 a. M. In london in new york, 5 00 p. M. In london. I am mark artan him a welcome to markets. The top stories. Ecb president mario draghi speaking to European Parliament. The central bank is firmly convinced the euro area needs support. Giving herel strongest confirmation yet that the europe and donald trump are drifting apart. Airways shifts to recovery mode after a computer error led to a crisis over the weekend. Crisis putting the spotlight on chief executive alex cruz