Anna a very warm welcome to bloomberg daybreak europe, our flagship morning show from the city of london. I am anna edwards. Manus i am manus cranny. We have breaking news from one of the big banks in europe. Underlying profit comes in at ¥650 650 million euros. If you want to see a buffer of capital, these guys have got it aplenty. The underlying cost to income ratio, this is going to be good news for the market. It comes in at 60. 2 . This was one of the concerns at the end of the year. Their cost income ratio was rising. It came up to 65. 9 last year, the year before. Underlying profit, 650 million euros. They have a buffer of capital. Cost operating expenses, to income ratio, looks as if it is coming a little bit more under control. We will have the conversation chairman at amro 6 20. They join us in 15 minutes. The let us talk about state of risk. Volatility is rising again, but do not go nuts about it just yet. This is certainly reflecting in the way we were talking about the lack of reaction in the markets yesterday. We are overnight in the Asian Session seeing Market Participants really engage with what is going on in washington. Manus the point about it is that yesterday, we have a slight discount. There is a couple of lovely lines on mliv. How quickly are we going to translate from rhetoric and the demand for subpoenas and hearings, hopefully will we moved to actuality . Has the disconnect between the politics of washington transcended itself into the market . The s ps down and we are down another. 5 . The phrases of impeachment are now being used. We used it in the headlines. This will be the big discussion about what exactly happened, who wrote what. The vix is up. Anna and delay. Mitch mcconnell talking to bloomberg. The republicans around trump want to get on with the legislative agenda, so we are waiting to see clues into how much they are still behind him with that in mind. Let us put out the risk radar. Manus, you have been talking about where we are in europe futures, and they point down by. 5 . The msci asiapacific is down by. 3 . We have dollaryen as well to show money. Classic safe haven play. The yen is on the rise. The dollar is down, but not just today. There is an ongoing debate. How much is this about weaker data out of the u. S. . Manus we will put that point to alan higgins as well. We have a nice monitor as to how much discussion there is on impeachment. Money going into gold, you have a double booster gold. The softer dollar down. The classic haven trade, bullion up for a fifth straight day. Money also flowing into 10 year government bonds, so you are seeing that shift. , treasury that classic haven treasury, that classic haven. That would be by november. Upon the ability of a rate hike drops from 96 in june to 80 . Anna we are back to whether this all means delay in white house. That seems to be the key market concern. Bloomberg first word news. Here is juliette saly. Juliette thank you. Chinas government has increased access to its bond market hong kong. It opens another part of Foreign Investors as beijing seeks to stem cap outflows and win inclusion in bond indexes. Chinese on short notes rose to 120 billion in march. The u. K. Government has offloaded its last remaining shares in Lloyds Banking group according to people familiar with the matter. The treasury sold the remainder of its original investment, less than. 25 in the bank yesterday. It brings britains biggest Mortgage Lender back into full a decadewnership after after it was bailed out in the depth of the financial crisis. A growing. , still, number of Unoccupied Properties in london is providing a headache for landlords removed into modern offices by companies has caused the Overall Office atancy rate to climb to 5. 8 the end of the first quarter. According to data, that is the biggest increase since 2009. Management hedge fund suffered 1 billion in outflows in april as investors continue to pull money, according to a basederg news calculation on the letters to investors. The letters show assets managed by Brendan Howards fund dropped to a . 7 billion at the end of april. Global news 24 hours a day, powered by more than 2600 journalists and analysts in 120 countries. You can find more stories on the bloomberg at top. Everything in asia has been about the trump comey news. He has seen riskoff right across the board. The nikkei is down by. 6 . Australias asx 200 in late trade down. You have seen a switch out of the csi 300 as well after four sessions of gains, down by. 3 percent. The flight from safety to gold has boosted a lot of the gold producers. Almostst mining up by 4 , leading the charge in the gold producers. This is an adjusting one. A chinese beauty app was included in msci global indexes. It was a surprise. It is being dumped with no real reason for a Tencent Holdings are watching this as it comes through with earnings at 8 00 p. M. Hong kong time tonight, up. Have a look at this chart we have. G btv 8637. You are seeing this. It is twitter. The white line is way both weibos market cap. This is after it came through with very Solid Earnings in the u. S. Overnight. We are awaiting tencent and alibaba the day after. China tech perhaps overtaking san francisco. And and manage. Story,now to our top james comey asked to drop an investigation into the former security adviser, michael flynn, according to a person who was given a copy of the memo that comey wrote following his conversation with trump. Anna this introduces the possibility that the president may have obstructed justice, which is an impeachable offense. The white house denied the offense. Joining us now is jodie snyder with the latest on the twists and turns in the white house. Jodie, good to have you on the program. What has been the reaction in washington and congress, given this break late in the day in u. S. Time . Jodie first of all, the white house has denied this. There was not a News Conference or really anything but a statement been eyeing it. On capitol hill, we started to hear from with and democrats. The democrats are using the words you just used as a possibility, obstruction of justice, and saying they want to see a full investigation, and they want to see a special leadingent investigator that process. Republicans we have seen having more mixed reaction. Some have said they want to see an investigation. Who leads the Oversight Committee in the house of representatives says he wants all the memos between trump and soon. By may 24, very although it is unclear what kind of investigation would move forward from that. Some republicans are actually supporting the president and saying that they also think that he was right to try and support mr. Flynn. So, we are seeing early reaction all over the map, but clearly, there are being calls for investigation. Jodie,hem on manus the one risk comes from one of the leaders on capitol hill, Mitch Mcconnell. He says we want to see less drama. If you want to get on with the process of tax thats, of actually tax cuts, of actually executing policy, is o getting tired of this drama capitol hill getting tired of this drama . Jodie i think so. For him to come out and say that is pretty remarkable. I think they want to get on with tax reform and the kind of things they would like to see out of the white house. They have a republican in the ho white house. They would have an agenda to their liking. Instead, they are dealing with talk of investigations, obstruction of justice. They kind of want to move on. The question is whether that is really possible given all we have seen in the past week. Anna jodie, thank you very much. Bloomberg newss jodie snyder. Joining us now in the studio here in london, alan higgins. 7. 8 billion pounds of assets. Very good morning to you. We started the program talking about risk aversion. We are seeing classic with diversion, a trade overnight in the Asian Session, and talking about why this matters to markets. That is because it could distract, delay the other items on a legislative agenda. How much does that matter to you . Alan potentially, it does matter because you are quite right. It is interesting hearing some of the terminology overnight. People close to trump are hearing the word layoff which is lighter and sounds like trump, as opposed to stop. What is priced into u. S. Equities is this idea of Lower Corporation tax along the road, and in particular, some repatriation that goes a long that. The u. S. Corporation tax is very high, 75 . The average s p 500 company about 25 percent, because there are lots of exceptions. The idea that the holy grail of a corporation tax, that is what the markets are looking for. No surprise to see risk off, and hard to get through now. Manus that is essentially the leverage that Mitch Mcconnell was going to use. Anna found this along with our producer, which is a search of the web of the use of the word impeachment. Trump and impeachment. It literally runs off the scale. My data was going back to 2009. This is allencompassing. It includes a over radio sources. You have a great quote in terms of what impeachment did the last time around. Anna this comes from months want to shortcut worth of conversation we are t and to have, wha impeachment might mean. If i told you the president are going to be impeached and the markets would continue to power higher for a few years, you might think i was batty, but that is what happened when bill clinton was impeached in 1998. We have not got to an impeachment situation yet. Even if we did, that doesnt necessarily mean that the market trade collapses. Alan quite. Out one,down to come there is going back to tax. There is embedded in the u. S. Equity market, we believe, that i hope factor, a realistic hope factor boom. Is a Global Economic exactly. We are seeing that in corporate earnings. There is a positive story behind the market performance. We are due a riskoff period. Ina earnings are holding up the stock market was willing up, but some of the data surprises were coming in on the negative side now. In the u. S. ,lan you are quite right, anna in the u. S. In particular. The socalled hard data has been weak. Today, we had industrial production, which is a good indicator, and that was strong, to be fair. You are quite right. It is all being surveyed, sentiment. The pmis, Consumer Confidence. Manus let us talk about the dollar. Yesterday, we focused on the dollar at the start of the show and talk about politics just eeking out into the dollar traded. It has become much more prevalent this morning. Are we closing the gap between washington and new york in terms of the impact on the dollar . Because of failure to deliver on the basis that we thought we were going to get from washington has got dollar impact. Lower dollars rio . You . Wer dollar for alan yeah. When trump came out, make america great. Especially the midwest, great. Weaker dollar. It has to be a weaker dollar. Overnight, you mentioned dollaryen. Dollaryen always retreat a bit so the yen goes up a bit in this environment. Look at the euro. There was too much emphasis in our view on Interest Rate differentials, that old, you know, Interest Rates are going up in the u. S. , the dollar must arise. No, there are other factors to currencies, as you know, otherwise the swiss franc would be the lowest currency, many times. We are positive on sterling. That is a separate discussion. That is a rocky road. We are positive on the euro. Anna we will talk about both of those in the program. Alan higgins stays with us on the program. We have a host of big an exclusive interviews for you today. We were talking to the International Transport association and the bank of finlands board member. Anna coming up, we get a look into the health of the banking in be with the ceo of amro. Anb this is bloomberg. Anna it is just gone 6 15 in london. Juliette saly standing by with a business flash. Juliette. You. Tte manus, thank sorry aramco plans to sign deals with at least tenuous companies when President Trump according to two people familiar with the matter, they include halliburton. Aramco and for halliburton declined to comment. Ge did not immediately return phone and messages seeking comment. Apple plans to announce an itste to his lap laptop development. According to people familiar with the matter, they are planning three new laptops and a move that could help offset new competition from microsoft as well as the cunning ipad sales. Apple declined to comment. That is your Bloomberg Business flash. Anna, manus. Anna thank you very much, juliette saly. An amro has reported profit. Joining us now, kate. Talk me if you could through your strategy with regard to capital at the moment. We are looking at the cet one ratio. It is high relative to others in the sector. Any prospect of returning more of that to shareholders . Kees thank you very much. The Capital Position is indeed high, but that includes a buffer because there are quite a lot of discussions in the committees is still going on, which is not clear what the end result will be. There might be copper mines. Thatially for dutch banks, is relevant. That is the reason why we keep the high capital ratios at the moment and we shall comfortable with that. Manus you are comfortable with it. You mentioned obviously also for basel 4. You have an enviable buffer of capital, and it should be reasonable that you go for a higher payout. Can we expect something more . . Are we any closer to basel 4 . I think we have always communicated that from ipo, november onwards. Importantgages, it is what the result of basel will be. We have now a 50 pay out, and a decision to change that. We really need the result of basel. Anna let me ask you about shareholders. That is the holding the dutch government has in your business. Update is if you can, kees, on the process of selling shares in your company. When is the government going to start that . Kees yeah, that is a decision of the government, not ours. Downhey still have to sell 70 . They sold 30 , but it is completely up to them, so not up to us when they take a decision on that. Anna are the conversations ongoing between the government and potential investors as to when is the right time and how this should be done further . Kees the government always informs themselves by various partners about the market situation, and they need also a declaration of no objection from regulators, so those processes are always on. Europe is in full steam recovery mode. The euro is steaming ahead. Give us your perspective on the european recovery. How would you describe the recovery mode . Kees well, i would say that i have seenlso the figures yesterday. Germany, spain, and also the netherlands. Andr progress on economy, the dutch economy also, especially on the housing market. We see in our portfolio, we provided two times as much mortgages as much in the netherlands that a year ago. Than a year ago. I think that is a clear, strong signal that Consumer Confidence increased. Investors spent less money. There are less defaults. Our books show new loans, 44 up compared to one year ago. Manus you mentioned obviously your home economy. We just had the election. I was there for that. You obviously past through that moment of populism. Passed through that moment of populism. Was there relief in doing business after the election . Has it clear the decks . Of the a perspective dutch economy postelection. Kees i think that is the case. There was a lot of uncertainty postbrexit, and the elections around the world, so we were we were well, sometimes worried about what the outcome might be here. There was relief here, but also by the way, of course, in france. We feel happy now here in the netherlands, and that also comes back in Consumer Confidence. That definitely makes a difference. Anna thank you very much for your time this morning. We appreciate it. The ceo joining us on the line from amsterdam. Alan higgins still with us in the studio. A quick thought from you on the Banking Sector. You were looking at this Tier One Capital ratio. We heard from the ceo the reasons for that, why they need to hang onto that cash and not return it. Are you invested in the Banking Sector . Which part . Alan we are, both financial credit and equity. The reluctance to pay the dividend is great for financial credit. That is tier one ratios, and bonds which were in the spotlight a year ago now. Those have basically been bet on the solvency of banks. Still a good investment. In a skinny yield environment, still an attractive place to invest. Er ofso have a small slithev diversified financial equity. They were a customer of the management industry, under a general fund that owns banks worldwide. The emphasis is a bit more on the solvency because profitability, i mean, that is an impressive result from abn amro and ing in the netherlands. It can be a struggle in certain countries, whereas the solvency it can be a struggle in certain countries, where is the solvencies are not. Manus this is about pushing capital, which has been well raised. Deutsches, unicredits. The liquidity of the market Getting Better . Alan i think those are very important because those are frankly problem children in their own way, and certainly, this time last year, Deutsche Bank was the real poster child for an issue. The fact that they raised equity, it is almost a transfer from equity holders to bondholders, making the bonds super safe. Good news. We had unicredit results last week, didnt we, which shows profitability as well. It is quite an unusual situation for us. Our bias is still more towards debt. Anna alan higgins. Amidst brexit uncertainty and a looming election. The resilience of the u. K. Economy. The employment number might not budge much, but the focus my beyond the wages number with inflation going higher than estimated yesterday. That is a key focus in the u. K. This is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. The shlike a bald penguin. How do i look . [ laughing ] show me the Billboard Music awards. Show me top artist. Show me the top hot 100 artist. They give awards for being hot and 100 years old . Well take 2 [ laughing ] xfinity x1 gives you exclusive access to the best of the Billboard Music awards just by using your voice. The Billboard Music awards. Sunday, may 21st eight seven central only on abc. Tokyo,a live shot from its 2 30 in the afternoon. Is sixday where the dollar dropping, second day for the yen rising. Classic risk off as the Political Risk rises in the United States of america. A little bit of breaking news. The lets talk about French Building the lossesions narrowed, firstquarter operating loss, 84 million also narrowing from a loss of 227 million. I wrote down my notes going back to firstquarter profit, the answer to that would be no. The benefit from the big project taking place in paris, the big infrastructure plants in a french capital and the suburbs following years of a slump in the construction business. Players, in the mobile phone market. Thats a pretty cutthroat market. Quarter one net loss coming in at 38 million euros, narrowing on construction and wireless demand. Manus lets dig a little deeper into the markets. 500 hitght see the s p a fresh record yesterday but caution is raining today, were seeing declines across the asian equity space, u. S. Futures pointing lower as Political Risk in the u. S. Is front and center. Looking at the nikkei and the cost be, money moving into havens come up again up for a second day, gold up for a fifth day. The dollar very much getting punished. Interestingly, if we look at dollaryen, the clout has shifted lower, suggesting that until the spot falls below 111. 41, the bull trend remains in place. Some of the best forecasters see no reprieve for the dollar. Westpac advising clients to sell the dollar against the basket comprising the euro, yen, and loony. Its not just political turmoil, we also have weaker economic data, both those elements somewhat punishing for u. S. Assets. Curve,falling across the the 10 year yield the lowest in two weeks. Attract the 10 year treasury yield against the bloomberg. The u. S. Economic surprise index has been falling. I talked about the dollar versus other currencies. ,ake a look at the euro Political Risk is being priced into the u. S. And out of europe. Surge, still above 111. The highest since the u. S. Election and this is where it is versus the Market Forecast for the year in. A new edition of daybreak is available on your bloomberg and on your mobile. Lets look at timeout some of the top stories that it made it into todays edition. President trumps controversy, according to a memo from former fbi director james comey, donald trump ask him to shut down the probe into michael flynn. Market reaction to the news, u. S. Equity futures are lower this morning. Treasury yields also tumbled. The yen and gold. U. K. We get a reading on unemployment and wage growth later this morning. Intensifying the squeeze on household purchasing power. Manus inflation data shows u. K. Prices are hitting at threeyear high. Joining us with more is christine, who is in town for a couple of months. This comes down to the pound, and a whole host of issues. In terms of the day, what will be the key takeaway from today . Were getting squeezed more by inflation, i think. You are right. What investors will be looking for today would be assigned that wages are keeping up with inflation and whether its a sustainable trend and not just a oneoff type of situation. Its really what investors are looking for and what it is key for todays data. Manus we also have the basic wages for three months. Of it,e reality this is what is coming home the reality of brexit. That will make it harder for the economy, isnt it . Absolutely. Consumers are the backbone of the u. K. Economy. When youre consumers are being squeezed and having a hard time, its hard to see what would be the key driver of the economy, especially for such a tomorrow to us time as brexit. Anna you said tantalizingly before the break that you like the pound right now. How does this situation add up to a pound positive view for you . Theres a lot of pessimism in the pound. There have been short positions in the pound. Its only in the last couple of years that weve seen wages outpace inflation. It has been the norm in recent times since the financial crisis to have negative wage growth in real terms. Were going back to the norm. In terms of the pound, theres and aactors, shorting, big example, they sold the cheese grater building for one point 15 billion 1. 15 billion. It was valued at 900 postbrexit. The one thing that struck us this morning is the brexit barometer. Brexit barometer hit a sixmonth low and this is what the politicians, someone say this is what theresa may has hedged a Political Risk. A bunch of different things, youve got employment, inflation, wrote, and uncertainty. So this is critically important for the marketplace. Absolutely. Brexit is such a big thing, not just of politics but also to markets. Moodhanges surrounding the and the deal that the u. K. Could possibly get out of brexit negotiations would be important to investing decisions. It seems that theyve said it cannot happen behind closed doors, there has to be a lot of transparency. Certainly thats the emphasis they are. For you in the market, the importance of a transitional deal is key for you. Does the election have a airing on that . Its all about the transitional deal. Theobability that game serious about some punishment for the u. K. From the european angle and from theresa mays angle, doing what the british people wanted. How do you do that, you write a check. Tie r the number is to tied it over for a couple of years. We will live with that and then tried to get a longerterm deal. Much thank you very christine. Alan he stays us for a little bit more discussion. One member saying the central bank is unfazed longterm. Anna speaking at a meeting of the ecb Bond Market Contact Group in frankfurt, he says financial conditions remain highlys of order of the economic recovery. Lets bring allen he gets back into this is all in the mix as he try to work out when we will see a change in tone and changing conversation for the ecb. Expectations around what we hear from the European Central bank . For us, its more on the tapering side. Basically less buying of government bonds. If you look at the whole term structure of rates, its in contrast with the relatively bullion european economy. We start with tapering because the rate move would be huge and im very cautious about a rate to. We believe the brexit rate cut will also disappear. So gradually Central Banks are tightening, including the ecb, but probably later in the year. Will be interesting to see when the bank of england can make a move. Lets stick with europe for a moment. Euro,l conquering resembling the torch mark juggernaut. The Deutsche Mark juggernaut. The forecast, how optimistic are for. Because the market is of the highs forecast. Is the positioning really there . I agree with you, i think , itral positioning indicates where of the most crowded trades until recently was long dollar. The narrative was, u. S. Rates are going higher and the u. S. Economy is booming, you got to be with the dollar. That is breaking down for two reasons. As you mentioned earlier, what donald trump said, make america rate, that means a weaker dollar, and the rest of the world is performing well, including the eurozone. Saying were seeing 10 year bond yields go below zero. Its the type of move that doesnt worry them. Where do those kind of rates go . We would be cautious of the euro rate structure definitively. U. S. ,look at the threemonth libor is about 1. 1 . Its got to be associated with the 10 year yield of around 1 as a start. May stayyields slightly negative. Just generally position in european equities is where we are. We are long the euro. Manus think weve managed to squeeze a lot out of him. Anna allen, thank you very much. We have more with allen higgins, stay with us on the program. You can also watch on the tv and follow along with all the charts and functions that we use. You can influence the conversation by click on the ask a guest a question on the bottom of your screen. Manus coming up, repairing relations. President plans makeup talks over syria. This is bloomberg. London,ts 6 47 a. M. In 1 47 a. M. In new york. Toitical turmoil begins memo,in terms of the suggesting that President Trump as the former fbi director to lay out something futures are lower. The risk or the discussion around impeachment sparks a rise in the market. President trump will visit according to two people familiar with the matter, they include halliburton and schlumberger. Ge and schlumberger did not immediately return emailed messages seeking comment. At anplans to announce apt developer conference next month. The company is planning three new laptops in a move that could help offset new competition from microsoft as well as declining ipad sales. Apple declined to comment. Henderson Land Development is to pay a record 3 billion u. S. Dollars for the first commercial land to be sold by hong kongs government in the Central District since 1996. Its currently used as a carpark and their Strong Demand for office space in the key area of the city. This stone is rejoining twitter sixers after he left. He will focus on Company Culture and is not replacing another executive are filling a vacancy. Ceo jackvited back by dorsey who had also stepped away for years. Twitter shares jumped on the news. That is your Bloomberg Business flash. You very much. Controversy continues to swirl around the white house. President donald trump hosted turkish president erdogan for what he called along and hard discussion that took place yesterday. Sought to repair relations with erdogan who was alarmed about the u. S. Plan to arm kurdish fighters in syria. Meeting . Out of this good morning, it was the first facetoface meeting between turkish president erdogan and his u. S. Counterpart, donald trump. Dominating the talks as you said, syria. Said that relations with the u. S. Were important, but he said washington should not kurdish syrians in the fight against the islamic state. A few weeks ago russians and revealed washington ,some and the pkk has been seeking autonomy in the country for decades. Turkey is a key nato ally and President Trump sought to reassure turkey that it would fight with them against terrorism. Overall it seems like a positive meeting between the two leaders, but will anything result regarding the ypg . Maybe not. Manus this comes ahead of the to saudi arabia and israel. How does the u. S. Turkey relationship play into those alliances . A key nato ally and its very important for the u. S. To stay on board with turkey. Firstill be trumps foreign visit abroad and his first nation will be saudi arabia, where he hopes to reach out to the muslim world. Dominating talks will be combating terrorism and hes also looking to secure some bigmoney deal and mutual investments between the u. S. And the saudis. Israel ando visit the vatican and attend the brussels nato leaders meeting and the g7. He will be away for a total of nine days, amid political turmoil at home. To saudiing that visit arabia, we understand that aramco is planning 10 energy deals so the Energy Markets during that visit, oil prices down on wti. Allen higgins is still with us. Oil, weve had these commitments from both the saudis and the russians that thatwill cut more and started to raise questions about if its as easy in the future to stick to these pledges as it has been in the past. We get a sense that it gets harder and harder to stick to these pledges. Its always a challenge with these agreements coin with these agreements, going back to quite earlier days. With oil, using hedging. Many of the companies having had a scare from a year are 18 months ago, depressing the price. I was looking on bloomberg to remind myself of china oil demand, you have an index on that. That remains robust. For us its kind of a boring story. There is enough demand in china and india in particular for oil to remain at these kind of levels. The idea that maybe the Global Economy is so weak that oil will go to 20 or 30. So steady as she goes, it probably does need some degree of discipline. Risks deal fatigue in terms of maintaining the curve and thats essentially what this is saying, that the last cut did not lasted 2009. Risk, but its important for the saudi and the russian economy. Is very important to hold these levels and maybe well see a little more discipline from the saudi side. Anna and on the demand story in merging emerging markets, tell us more about your emergingmarket view at the moment. Make an important point that even though are seeing risk off in the overnight session the getting into fold and out of equities, the classic risk of trade, its not a classic risk off day because of what were seeing in the emerging markets. The mexican peso currencies like that are holding up reasonably well. You have the lira a little bit under pressure, this is the one day moving against the dollar. The peso is just a shade higher against the dollar. So it is holding. , theresthat tell us not a lot of money in em fx. And the u. S. Government policy, going back to make america great, what does that . Need what does that mean . Of thehave the backing u. S. President behind that strategy. From a bondit perspective . Look at theu probability of a rate hike in the u. S. , here we are, we have a new political environment that were dealing with. You brought this to our attention, why do you want to look at libor . One is the longerterm perspective of where weve come from. The just the 2000 find it 2009 financial crisis, pricing , this is another way of typically pricing in the rate hike to come. Even though its falling a bit, its a risk off day. It still looks nailed on for a rate hike. Thank you so much for spending the hour with us. Up next, the state of u. K. Real estate. This is bloomberg. Manus fresh turmoil engulfs the white house. President trump is it to ask director, a drop the investigation into michael flynn. The white house denies the event. Anna caution raise. Growing concerns over trump way and on investors appetite for risk. Manus brexit squeeze. U. K. On implemented it comes after inflation rose at the fastest level in years. Youre welcome to bloomberg daybreak europe, it is our flagship morning show in the city of london. Anna a warm welcome. It has gone 7 00 a. M. In london. Lets go straight to numbers, underlying profit coming in at 390 million pounds. The underlying eps is ahead of the estimate at 76. 7 pence. The underline eps beating estimates. We are getting other numbers mother share at three pence per share. And 915 pence per share. Lots to talk about in terms of the brexit conversation, what it means, the demand for real estate and the office space and in the retail space. We will talk about that and have that conversation with the ceo, chris grigg. Government exit lloyds after selling the state. Ultimately the government would profit on half a billion pounds. Is the longestserving ceo. They put in 23. 3 billion pounds. Owe 70 . L he turned bullish on lloyd. He believes that the first time he turned bullish on banks. Atwill have a conversation 815 8 15 a. M. Et time. Anna it is important to look at this risk off atmosphere we have an asian markets. The news around donald trump and their ports around what he said to call me in regard to michael flynn, all that breaking late in the day in the u. S. It is factoring its way into the asian trading session. , wall streetrkets focusing on what is happening in washington. Turningtical turmoil is to grip investors because they wonder how much delay this creates for the trump agenda. Manus the distance between clamors and calls for subpoena and investigation, what is the timeline between the clamor and calls in the event and the eventuality . The asian equity markets down by a quarter of 1 . Money going into dollaryen, this is the classic moment. You have general dollar weakness going on the sixth day in a row. You have a rally in yen, it has put on one and 1 8 percent. You have seen that kind of move and money going into the gold market. Anna lets show you where we have the other classic risk. Treasuries moving as you would expect. Lets have a look at the closing of the markets in japan industrial you. Bank stocks coming under pressure in the australian market. Offasx down and the topix 5. 501 . The momentum carries through into the german , up 21. Nt bonds also money going into french government bonds, this is a classic risk off day. Gold is bid committee the yen is bid and bonds are bid. Lets get a bloomberg first word news with juliette saly. Juliette u. S. President donald tomp asked the fbi director drop and in boston an investigation into michael flynn. Introduces the possibility that the president may have obstructed justice, an impeachable offense. The white house has denied the version of events described in comeys memo. He was alleging the president did something. I do not want to read a memo. I want to hear from him. And the u. K. , the liberal democrats will pledge to offer britains final vote on brexit. That is as tim baron unveils the manifesto. The party is looking to resurrect its political fortunes by appealing to the 40 of in the eu. To stay the European Union is refusing to allow the upcoming brexit talks to take place in secret despite appeals to keep the decision controversy private. Negotiating documents public every step of the way. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Japan and australia closing out what has been a very risk off sentiment across asia today or risk on, i should say. Gold onion very high, the nikkei closing lower by. 51 . The asx 200 down over 1 despite s p reaffirming its aaa Credit Rating for australia. You have seen a switch out of the csi 300 which has been getting a lot of buoyancy over the last four sessions. There was speculation about perhaps the National Team getting into that market as we head to some it in beijing. It is lower. Were watching gold on the rise, a lot of gold producers and australia looking very strong. Ew crest by 5 on the close this is an interesting story. It is a beauty app that a lot of people use in asia. It was included in the msci mscil index but overnight, dumped it without giving nation. We have seen the stock fall sharply in hong kong and tencent, we are awaiting its earnings, expected to post a 45 increase in revenue. It will come through with its numbers at 8 p. M. Hong kong time. And have a look at this chart. This white line here is that hitting a record in the states. 17. 3 billion, that is 3 billion more than that of twitter. You are seeing the story about china tech starting to over tech overcome or compete strongly with san francisco. Anna and the manus. Anna thank you very much. And reporting underline eps that beat estimates. Chris griggs ceo, joins us. Topical,it now very looming on the horizon, you say that looking for the picture is mixed, you see more inflation and income pressure from brexit. How do you see brexit impacting on your business . Chris we have the retail part of the business and that is around the u. K. And as we said already this morning, we do expect consumers to be under pressure, higher inflation and probably wages being squeezed. We can expect that to have an effect on retailers and there are big question is. We have continued to do good is this with retailers. We have let more space to more retailers on better turns terms than we did last year. That is probably not something people were expecting. At, forif you look example, what our results of shown over the last year you have seen continued demand for london does buildings in london. We sold the building and a very the price and that reflects longterm attraction of this city and this country to investors and at the same time, if you have the right sort of real estate, people still want to [inaudible] the other thing is the Bloomberg Team has run the numbers. Your leverage is relatively low. Have done a big deal, you just sold out. The current market prices, where are you most interested in terms of making acquisitions . What do you want to do next year, you are in a good position. What is the plan . Things thatf the excites us today is we have set ourselves up so we have a lot of opportunities within the portfolio or close to the portfolio. Were buying relatively small inces of land or buildings london and the rest of the country. We have Real Development opportunities which we already own and that is a good position to be in. Manus do you still have a big hunger for buying in london, given the conversation we have just seen . In around theoved corner. You have all the older office space, this is what we are talking about. Get ridtting harder to of older space. Everyone wants new space. Does that make it difficult . Chris it makes angst generally good. We have a lot of lease space, we have continued to deliver new buildings. Wereast couple buildings already 80 left let. More broadly, we found is if we got good quality buildings, we can reposition them and so for an example, were close to agreeing with someone in our west end the states whereby we will be refurbishing an existing building, putting, increasing its size by nearly one third. It will be very modern going forward. Are it sounds as if things performing better than expected with regards to brexit. We do not know the full impact on the city of london. Sticking with the conversation around commercial property, are you heading to frank for it or other basis . Reduced ourve exposure to banks. More to do with the fact that we saw longerterm trends around automation. For example in the next year or so our exposure world drop to 6 . That feels a good position. We have shifted our exposure to the west end away from the city. Tohave much more exposure Creative Industries to advertising and the like and that helps. Many of those businesses have continued to vote in favor of london. Manus running away from the banks, get over to the west end. Covered day in, day out the machinations of deleveraging and capital controls, who are the buyers, who are you competing against for properties in the u. K. . Chris generally speaking, we have been developers of buildings and every time we saw a good example is a building we sold to a Hong Kong Company whose money came from mainland mainland china. Youll see changes in policy or regulations. That will ebb and flow but netnet we have seen continued demand for London Real Estate and that has surprised a bunch of people. Side, there retail are all kinds of structural shifts going on. You have made comments on what we will see on inflation and wages and brexit. Around online retailers, how much that will take a chunk out of the high Street Retail story. What measures are there to encourage people to go out shopping and produce that footfall . Chris it is important to have a sense of what people want to come to. It is a whole raft of things. People come more often if they like the connection with the local community. That is something we work very hard at. It is about highquality everywhere you go. Us, weat example for have more click and collect by about 50 than the average in the u. K. It is efficient for the retailers and efficient for people and typically, when they get there to pick up something, you will find people spend more money. Anna never. Manus we have a exit parameter. The lowest in six months, your brexit parameter, give us your brexit parameter as the ceo of a pretty big company. Chris it is hard to call. We are going to have to live with that uncertainty for some time. We have been, we think it will be quite important to be the best of everything you are trying to do. There will be continued polarization. If you have real estate, people want to buy, if you have real estate people will want to operate in you will be in ok shape. If you have something that is averaging will struggle. Us. thank you for joining next, controversy continues. We look at the white house. This is bloomberg. Anna welcome back. Bloomberg they break europe. Futures arees, dow weaker. Turmoil at the white house firmly on investors radar overnight in the Asian Session. Lets get back to that u. S. Political story. Twin controversies continue to engulf donald trump. Reports that the president asked fired director jim to drop the investigation into former National Security advisor michael flynn. Manus this comes as the white house continues to deal with the fallout of the president s sharing of highly classified information with top russian diplomats. First, to comeys memorandum. He reported that donald trump robe ofm to end his mike flynn and any possible links to collusion with russia. The conversation happened one day after trump fired flynn trade a person with a copy of the memo described it contents. The way has reputed white house refuted the memo saying donald trump has never asked mr. Comey or anyone else to end any investigation. Not a truthful or accurate portrayal. Members of congress have been calling for more transparency. One has republicans said he will issue a subpoena for the memo but senator Lindsey Graham zusi wants to hear it from the source. If mr. Comey was alleging the president did something inappropriate, he can tell us about it. I do not want to read a memo. I want to hear from him. Fellow democrats say the memo is proof of objection obstruction of justice. An impeachable offense. The white house is doing damage control over Donald Trumps sharing of classified intelligence to russias foreign minister and its investor last week. The white house said it is not an issue of trump schelling sharing intelligence but more about a leak in the white house. Twitter saying as president and my to share with russia which i have the absolute right to do. Legal experts say he does have has broad authority. H. R. Mcmasters said the sharing. As wholly appropriate the New York Times is reporting that israel is the source. Abc news is reporting that the disclosure has endangered a spy placed inside isis by israel. The president will be in israel monday, may 22. Domestically as old this evolves, trumps own Party Members are calling for calm. Mitch mcconnell said this in a bloomberg tv exclusive. We could do with a little less drama from the white house on a lot of things. So that we can focus on our agenda which is deregulation, tax reform, and repealing and replacing obamacare. The john mccain said reports are deeply disturbing and Bob Corker Bob Corker said the white house is in a deep spiral. Seemed we have seen the risk of atmosphere. We are joined by the head of fixed income john stoppard. This always adds up to questions round delay for the rest of the trump agenda. John i think so. Preoccupied and defending himself and if it goes a lot further, any hope of his legislative agenda coming to the fore is going to be reduced. Arguably, a lot of the initial enthusiasm has faded already. If you look at a lot of the postelection trades, higher bond dollar, elements of equities at performing, they faded. Most of the rally we have seen and equities in recent months have had more to do with growth, surprising to the upside than a has had about donald trump. At the margin it is a negative and in the shortterm, people are tying to understand it. Markets tend to shoot first and ask questions later and you get an initial kneejerk reaction. Lets talk about the probability of the june hike. 90 10 days ago. We are dropping below 80 . There is a bit of skittishness about the rest of the year. How do you perceive how the these politics, to what extent the bond traders are unnerved in terms of what they thought was assured last week . John i am not sure that economics will drive the fed. If it has economic consequences than maybe. It seems to us as though the fed is committed to two more rate hikes and then Balance Sheet reduction this year. It will take a lot to take them off course. We had somewhat weaker data in the u. S. In the last month or so. That going to persist . We will have to wait and see. Our senses there were some seasonal effects, some weather affects. If you look at the atlanta gdp, that was focused on growth being weak in key one. Transitory the word to describe what is going on with the data. As long as they view it as transitory weakness. I think they will raise rates in june. Anna you do not think there is enough trump effect priced into what the fed was trying to do. Fed offs not throw the course. Not really. The have not dealt much in in terms of fiscal easing into their forecast. They tend to wait in c. Wait and see. That isal members, true, they may have given a little bit to that but they are not putting a huge weight on fiscal easing and arguably that would mean if we do end up getting significant easing, the dot plots and fed policy is likely to be somewhat higher. Ucurve in is the the u. S. You were saying we do not see a recession and the curve remains reasonably relaxed. Have i missed something in terms of about the propensity for a recession to come down the track in the u. S. . John it is about timing. Manus we have had this growth for six or seven years. Diebold ageansions or for some other reason and our view is there is no magic length of time. It is not like a human lifespan. It does not last forever but we are looking for signs of old age and there are some. You are seeing some signs of stress in parts of the Consumer Lending markets, auto loans have received a lot of attention. Student loans have been a problem for a while. Credit card billing fancies have picked up although arguably from low levels. There are some signs of lending stress. If you look at broader lending patterns, banks are still easing lending conditions. Lots of things suggest it is not the next six or 12 months. Some point beyond that. Anna you called on treasuries and where do yields though from here, yields are down to down. John it is the classic environment for yields to rally further and the dollar to selloff. You have data disappointing, inflation disappointing, and that you have got risk events. It can definitely go low. We need a catalyst for things to go higher. Maybe some fiscal policy. Manus time has run against us as he joins us from investec. The biggest view of the day is lloyds. The market open is next. Guy welcome to bloomberg markets. This is the european open. The first trade of the cash session coming up shortly. I am guy johnson in london. Matt miller over in berlin. What are we watching . President trump is said to ask the fbi director to shut down a probe of michael flynn. As the market stating to Pay Attention . Mailing out lloyds. U. K. Government has sold this last year mining shares. What challenges lie ahead for ai