Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20170531

Welcome to bloomberg daybreak europe. Shock and awe, that being the times poll. For ofpared are markets the possibility that u. K. Conservatives could lose 20 seats in the general election and that labor could win 28 seats . Thats a majority, which many had suppose would be a straightforward victory for to me back for theresa may would no longer be in the cards. At 310ide and varied seats. The bloomberg town, cascading lower, down 10. 3 . This is the basket of currency. So the market is not prepared for a close election. The question for markets is this. This is too weak volatility youre looking at on the blueline. Rising quite aggressively. Extent, sterling is vulnerable to fresh attacks, so how does all of this translate into the risk radar . Take a look. Up, 51. 2 washeld the number. Seeing the china stock market just eking out again. Thats not pervasive across the rest of europe. Orders to withdraw copper, they had the highest level in three years. Lets have a look at the currencies. You heard ms. Bring art saying the soft inflation data could potentially warrant a rethink in terms of how she would look at the data. Dollar index is strongly slightly stronger this morning. But goldman saying the dollar will rise by 10 versus again and the euro. Dollaryen singh is a little more of a risk on risk in the market seen as a little more of a risk on risk in the market. Starting a Share Buyback up to a billion swiss francs on the first of june. They are starting the Share Buyback there. Those are the markets. Lets talk about one other piece of breaking news. Delta lloyd will execute the one piece of news is to execute the merger. Will give you little more on that news as we get it. Lets get the bloomberg first word with sophie. To recap in the u. K. , the pound slumped as anxiety surrounding the outcome of general election heightened after poll showed Theresa Mays Conservative Party may lose its majority. All ofg underperformed its g10 peers after a poll in the time showed the tories may lose 20 seats in the next month election while the main opposition later as labour party could gain 28. Saying inflation could cause her to reassess the path forward for Monetary Policy should it linger , even as the Global Economic outlook tritons and u. S. Growth is poised to rebound. Even so, i see some tension between signs that the economy the signs that the tentative progress weve seen on inflation may be slowing. If that tension between the progress of unemployment and the lack of progress on inflation persists, it may lead me to reassess the path of policy in the future, although it is premature to make that call today. Japans industrial output rebounded in april, hitting the highs level since 2008. Industrial production increased 4 for march where it fell 1. 9 as overseas demand continue to support the nations economic recovery. Former Trump White House National Security adviser Michael Flynn has agreed to turn over a limited number of documents sought by the Senate Intelligence committee for its investigation into russian interference in the 2016 election. According to a person with knowledge of negotiations with committee, he had agreed to initially produce documents the company subpoenaed from his two companies. Outlook isonomic looking worse because of uncertainty over tax and infrastructure policies, what europe is looking stronger. Thats according to black rock, saying u. S. Markets soared after , but itrumps election has not materialized. 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. Loomberg at top lets check in on the markets in asia where traders are curbing their enthusiasm. Stocks isin chinese fading and gains on the hang although stocks are set for the best round of since 2013. Exporters are dragging in tokyo along with Energy Stocks and the swinging intoi gains here. The asx 200 also one of the , perhaps because it found a temporary bottom just a few days ago. Lets check in on some movers and asia. One Auto Companies jumping to a new high. Airways is now up about 1. 6 in mumbai after fourthquarter profits tumbled 91 . Lastly, we are seeing base in reverse gains losses in the wake of a chinese manufacturing pmi data which to come in better than expected. Thats the line in white on the chart. Indicating the First Quarter momentum, but with a turn expected in the second half of this year, thats looking to drag on Industrial Metals which have been closely correlated to china emi and you can see that with the yellow line here. Thanks for the roundup there from hong kong. The worlds secondlargest economy has maintained some of momentum. Quarter manufacturing pmi remained up for a second consecutive moment. Month. Nonmanufacturing pmi was buoyed by an improved Global Outlook. Over the last few months, people are underestimating the role of internal the in stimulating growth in china. At the same time youre seeing imports, showing up this year and new export orders picking up a bit to help people. Manus stephen, good to see you this morning. These numbers give a little bit of sustenance to the market at what is it tell you about . Chinese reflation trend . They put a bit of a floor on the manufacturing downturn a little bit. Of course its been reflate in, but economists have been saying it has kind of hit the peak in the First Quarter. We saw that stability with the pmi, mostly estate owned enterprise, stabilizing as the same number of april. The forecast was for a mild dip down to 51. Its a bit of a positive surprise given that early in the caters for the chinese economy may show that growth mightve actually p e in the First Quarter. The National Bureau statistics is pmi shows both external and domestic demands improving, but the question is, how long can the floor hold up. We see that both input and output prices were negative today and that is a worrying sign because weve had chinese industrials with greater Pricing Powers. The Producer Price index has inflated sharply for the past eight months after four years of deflation. Output prices fell well below 50 for a second month in a row. After several months well above 50. It could translate down the road in the second half of the year to disinflation at the factory gates and that wont necessarily be good for industrial profits. The debtat will put overhang back on top of the agenda. Whats going to be on the agenda with Angela Merkel today . The spheres of influence keep changing, dont they . Stephen thats right. I believe hes on a 747 flying there now. He will also head to brussels after that for a quick european trip. He will meet with german chancellor Angela Merkel first. In light of Donald Trumps protectionist tone last week, he will likely be lobbying for china to have a greater voice within the g20 framework, their preferred framework. Germany has the g20 president s this year and li will surely bring along a lot of those pamphlets on that ambitious silk road initiative. Manus i want one of those pamphlets with the details. A great round up there, stephen. Thanks for joining us. Lets bring in our guest post for the next hour our guest host. What happens in china has an impact on all of us. Lets go inside the bloomberg. We look at pmi data, which is a relief. The space index shows me something i should be a little more worried about. Monitors 6000 places of industry in china. Is it all good news in terms of manufacturing numbers today . In asia havegues an activity index. Loss in thesear figures. There has been concern that china was slowing. They are seeing some encouraging signs coming back, but inflation is a very live topic. That will make the job of Central Banks globally more difficult to get inflation back toward target. What stephen was saying they set the input is in negative territory. Last year we were talking about deflation. Are, we have not capitulated again, but were worried about the propensity to reflate the globe. David absolutely. Obviously china was a major cause of deflation globally but we had very strong, servicebased inflation in europe and also in the u. S. Situation not just in terms of manufacturing but also services. This is an interesting reading. The other piece that Bloomberg Intelligence did this morning, the deceleration riskion, and fed hiking and the pboc going and lockstep. Deceleration dropping, but can the pboc really go lockstep with the fed further . David it maybe the case that they want to go in the opposite direction. We will have to see what happens. Trackd i think is more on , and my colleagues in the u. S. With a clear view that they will raise rates in june and again in september. Yellen will actually leave the fed in february of next air. World trade still remains pretty weak. T is still recovering we live in a world of small numbers. Its really we growth. Manus the one thing that makes me stand back about it is that the pboc may possibly travel in but thatnt direction, would take an extreme set of data to create that circumstance, wouldnt it . David it would, yes. Data, but China Remains very much a black box, they are trying to rebound the economy. Who knows . At the moment, the general story is one of reflation happening were globally but we will have to watch the space. Manus the Global Economy will continue to recover. That would bolster chinas manufacturing. You have taught to change and go with the news. David, stay with us. We get lessons every day on daybreak. David owens is the international chief economist over at jefferies. Inflation data for the eurozone as a whole. The primemp host minister vietnam today. And Rate Decision from brazil. Theresa Mays Conservative Party suffers a setback. The latest poll on the markets, are they prepared for such a close election . This is bloomberg. Manus its 1 19 in the afternoon in hong kong. Firmer data in the pmi this morning. Official, it held up for the second straight month in may. Lets get a business flash from sophie. Deutsche bank has agreed to pay 41 million to settle Federal Reserve allegations that its u. S. Operations fell to maintain adequate protections against money laundering. The fed said the price fell short of complying with the Bank Secrecy Act that requires lenders to help federal agencies prevent illegal transactions. The regulator imposed a ceaseanddesist order on the bank that requires it to address unsafe practices. The ireland has fired the starting gun for the initial Public Offering of allied irish banks, laying out a plan to sell to 5 of the nationalized lender. The government plans to sell the stake in a Share Offering in london and dublin with terms to be set in. According to previous government estimates, the cell may raise about 3 billion euros. Manchester united for premier League Season has taught the list of football wealthiest clubs. Wanted to 2013 that kpmg said value has risen to 3. 1 billion euros. Clubsurvey 32 leading with a combined value of almost 30 billion euros. 30 that comes from three teams. That is your Bloomberg Business flash. Manus i want to ask you which football shirt you30 that comes. The pound has slumped against sold its g10 peers. It may lose its majority via 16 seats. The poll showed the conservative government may lose 20 seats index we election. Jefferiess is the. Nternational european 2. 3 this month alone. Our copy thist morning would be this, markets are not prepared for such a close election, let alone a Hung Parliament. Ryu shocked by this poll . Im surprised with the general trend of the polls. Basically the working majority of theresa mays government would go on to maybe 15 or 17 currently. Recent polls suggest the outcome will be a lot closer. No one is prepared to battle it out what we know with opinion polls, theres a huge margin of error. The point here is, the more likely the starting in pound would trade lower, and were current labor governments often faced currency account linked to the opposition. I can see why sterling could trade lower. Manus one blog said you dont ond any great reason to get an smack sterling. Woodys had a report overnight saying sustained improvement in the global climate. What they tell us is that the brexit singled out for to slowdown this your next year, unlike any of the other g7 countries. Weve gone from the king of the road to the popper of g7. Maybe thats overstretching the argument, but it does show you in terms of concern for growth. David absolutely. The u. K. Get hold up very well but there were major policies by the bank of england. Ive just come back from the u. S. , i was there for a two weeks meeting with investors. Brexit in the u. K. Was not really on the agenda. There is huge confusion about what the ecb has been doing going over. They were not focused at all on the u. K. And what brexit meant. Thatcame back with a view you have the opinion polls coming out suggesting that its going to be will it close. When you look at markets, theresa may has used the by words of a strong and stable , 750 separate global treaties that need to be renegotiated around the world. They give you some context. 759 treaties with 160 89 eu countries. That is a heck of a lot of human kind. David it is, absolutely. As we go through this whole phase, theres going to be a lot of negotiation. We dont quite know where everything is going to fall. [indiscernible] they want to know more about what shes going to do with brexit. What is the game plan . Theres nothing really in the manifesto about what is going to happen in brexit. That doesnt help her cause in terms of getting a much higher working majority. Manus she was accused of being a blowhard. Do you think the tax will be a breaking point for her . David i dont think so. Manus david, stay with us. Whatever got for you next . Its a conundrum. Find out about the outlook for rates, weighing strong employment against softer prices. The great puzzle for the fed. This is bloomberg. Heres a live shot from tokyo. The dollaryen marginally higher , up 0. 8 . The markets are finding it hard to find a definitive direction. One lady who can help us determine the direction is here. One currency that has directionality today is sterling. It dropped as much as. 5 in the session after a showing the conservative Theresa May Party may miss winning a majority and face a Hung Parliament. Theres a big margin of error to this poll but were still seeing sterling reacting, snapping two days of gains. As the chart shows, were approaching a cliff edge with the april 21 low. Also the 10 Day Moving Average already below the 21 Day Moving Average. Sterling has been testing the 50 Day Moving Average. Perhaps some technical signals to watch for their on cable. The yuan heading for the strongest closing more than six months, extending a threeday advance. Some expectation that policymakers are supporting the currency. And quite a bit of focus on the risk appetitey, in asian equities not holding up so much. The msci asiapacific index a little weaker. Energy stocks the worstperforming sector as were seeing. Youre talking about the fed, looking at dollaryen and potential risk appetite. At the moment,ld 2. 20 2 . The last i checked we were up one basis point. The trend over the past few days is that its been falling toward the 200 Day Moving Average. The last time the 10 year yield hit that area, it proved to be the perfect support. Just that date and stay above the line. Its 6 32 a. M. In london. The top stories on todays edition, europes persisting inflation problem. The data may show a slowing from 1. 9 . Not so much a persisting story as it the cystic story. That is a further headache for the ecb and mario draghi foreshadowed in the comments about the need for sustained stimulus. Theresa may could end up with down fromawmakers, 330. Lets get to the story of focusing on chinese pmi which is held steady since may. Services activity accelerated from a six month low. Lets turn our attention to the u. S. We been hearing more about the concerns about inflation from one fed policymaker. The fed governors saying she may reassess her thinking on the future path of Monetary Policy if inflation continues to remain soft. Take a listen. I see some tension between signs the economy is in the neighborhood of full employment and signs of tentative progress weve seen on inflation may be slowing. If that tension between the progress on employment and the lack of progress on inflation persists, it may lead me to reassess the path of policy in the future, although it is premature to make that call today. Manus Caveat Emptor there. David owen is our guest host here. She could not to put any more cap yachts in their. It boils down to this. Questioning the validity ,f the momentum of inflation the seeds of doubt are getting firmly so in the minds of the fed. David i think thats true. The general view at the moment is that janet yellen will not be at the fed beyond that february. She will be going back to berkeley and everything for the feds at the moment will revolve around her departure. So basically they raise rates in june and again in september and shellshe steps down, start to shrink the Balance Sheet. Its more difficult to stop the mobilization then. Manus theyre all talking about Balance Sheet reduction. All the market really wants to know is that youre not going to go in other words, stopping the investment of a half billion dollars point blank. Theres a lovely piece on the daily profit that says remind us again why the fed is raising rates. This is a cracking index, the bloomberg market aggregate total return for bonds. 12 the bond market is quite laissezfaire in terms of two more hikes. David you have the global trend, in the eurozone. And also japan. Account is upt intoou have a recycling the u. S. Fixed income space. Eurozone investors are big buyers. Is widening out. Bond yields in the u. S. , if it wasnt for the current account surpluses, it would be a lot higher. Japan last year dumped u. S. Treasuries. Now its a process of buying back into the markets. Manus i heard some interesting comments, europe will grow faster than the United States of america this year, which is a big surprise. Going on to say the Second Quarter will be disappointing in terms of growth. Quarter will be more disappointing, brexit will be worse, thats almost a consensus. Going back to the concern about the u. S. , would you share that . Basically, european going to beobably falling shy of the u. S. We live in a world of very small numbers, as i was saying earlier. Around 2 andow the u. S. Slightly more than this. Were not living in a world where europe is going to boom. Coming from that end of the spectrum. David, stay with me on that thought. Speeches fromore the dallas fed president , Robert Kaplan will speak at the council of Foreign Relations at 1 00. David, you were just talking about europe and chancellor Angela Merkel will explain her overall position on europes relationship with the u. S. , and here is what you said. Our transatlantic relationship is of the utmost importance, and the statement i is dueat i said recently to the fact that in the face of the present circumstances, we have additional reasons for us to realize that we have to take our fate in our own hands in europe. Politicking, or a threat to global growth, david . David there is the sort of issue at the moment with germany and the eurozone, somewhat adrift from the u. S. And also the brexit and the u. K. China matters usually for and itsn particular, so much more open than u. S. Economics. A something positive comes out of these meetings. Lets talk about one spread thats beginning to heat up, the italy and germany spread. The stock market there had the biggest twoday drop since april. There really was a dumping of italian assets. How anxious are you about italy going to the polls in september . David we been warning investors in asia about the u. S. , that there was a real risk in the italian elections in september as opposed to february of next year. The radar with domestic investors in italy. Thats part of the process. You have the concern that just when the italians could go to the polls again potentially in september, that could be just off the ecb releasing their signs of whats going to happen in terms of Great Britain in 2018. Weve already seen the ecb on rate terms, slowing quite and it will tend to slow a lot faster next year. That takes a lot of support away from the italian market. Domestic investors are becoming more concerned about these things happening. Draghiin terms of mario s come does that shifter timeline over at jefferies in terms of the choreography of what you see coming from the ecb . It means the first raise will be at the earliest in year orr of next actually 2019. Will they start tapering . They have to do something more. Manus david, thank you so much. Joining us this morning. Coming up, a president under pressure. Public support for south africas president reaches an alltime low. We are live in johannesburg with the latest. This is bloomberg. Manus its 6 45 a. M. In the city of london. Sophie is standing by with the Bloomberg Business flash. Selfie Deutsche Bank has agreed settle 41 million to Federal Reserve allegations that it u. S. Operations failed to maintain adequate protections against money laundering. The fed said u. S. Operations fell short of complying with the banks secrecy act which requires federalto prevent transactions. The ceaseanddesist order layingto prevent out a plan to sell 25 of the nationalized lender. The government plans to sell the stake in a Share Offering in london and dublin with terms to be set in midjune. According to previous government estimates, the sale may raise about 3 billion euros. To vendee ceo is poised succeed the executive chairman of Telecom Italia. He could handoff the baton as the nextomorrow when Board Meeting is scheduled. That comes after eu regulators approve the plan to take control of Telecom Italia yesterday. That was your Bloomberg Business flash. Manus selfie, thank you very much. Sophie, thank you. Of has gone out of his comfort zone and travel to south america. Its a big step, a bold step just a pick up on what youre saying about brazil. This is interesting, were seeing a bit of turmoil in the political front across emerging markets, but i like to look at credit defaults as a more realtime measure of perceptional risk and how the market feels. To some of the fears, turkey and south africa. Ive highlighted this for you right there. You can see the spike right there and the line in white is turkish credit default swaps. The yellow line is the south african one. Baron nine that ultimately when you look at the other Asset Classes, youve seen the resilience of the total return of the brazilian realloc, down 2 this month. Stocks down almost 5 . Some oflly underscores the anxiety out there in the market. On friday you had movies lowering the outlook of brazils debt rating and some of the notes coming out from Deutsche Bank saying if youre looking to bank on emerging markets, look at turkey. That is offering a lot better return than south africa and brazil. Manus is for the land of the brave. Thank you very much. Lets talk about south africa. The president s public Approval Rating has reached an alltime low. Most of the members of the ruling after National Congress want him to resign according to an opinion poll that was eased two days after opposition has been on the rise. He made a number of changes since the end of march. Great to have you join our team. This poll, does it matter . Yes, it certainly does matter. Weve seen some of the results of the poll being displayed out and played out over the last weekend. We know the ruling african National Congress had a meeting within its highest decisionmaking body over the weekend and like you said, the second bid to oust zuma as the head of the party was put forward. The main question is how long can he survive before the party has to elect a new leader in december this year . Manus what can we look forward to over the next couple of weeks . More moments of crisis . What we do know is that there is currently a motion of noconfidence before parliament that may be debated against president zuma. Approachn parties at the highest court in the land to allow for secret talent during that motion of noconfidence. We did hear the evergreen National Congress say it has asked us lawmakers, which make up a majority of the National Assembly come to vote against. He motion of noconfidence we will have to see whether not he will survive other tends to have him at ousted as president of the party and possibly the leader of the country as well. Going forward ahead of the election of the new president in december. Manus thank you so much, joining us there from johannesburg on the latest on the polls on jacob zuma. Welcome to the show. The setup of the political theater of south africa. ,t looks as if on the surface zumas popularity might be in the toilet, but he seems to be able to survive. What does that do to the south african outlook for you . Resilient. Been very the currency has actually been very resilient. Looking ahead, the main change, that happened in brazil about 1218 months ago, we are seeing a change. Expectations of some change at the helm of the presidency will be good for assets as we move ahead. Manus when you get the shakedown and markets are these moments of market concern, 54 of voters want zuma to step down. Do you step into markets when you see these moments . African economy is favorable. It bottom last year. China is not doing too badly, no hard landing. To that extent you have to look at a broader perspective of south africa. Do you share that rats of vision that breadth of vision . The index itself is moving. Whether the sovereign bond index or local currency index, they will continue to give you returns. Weve seen Strong Performance of the local currency bonds versus all Asset Classes of the world in emerging markets. You have to play this as we move along. As you see on that chart, the big jump in brazil is the shocker that you have to try to investigate at some stage. So facing the discussions around possible involvement in a graft scandal, paying money to someone who is in prison. You say the next moment for brazil is when the Electoral Court will decide on the 2014 elections. You could end up next week with a complete cancellation of the 2014 president ial elections. Its a very fluid situation and as an investor, you have to approach these in a certain manner. The amazing thing, the country has continued to move on. The population has to consider their situation as well. Its a clear message, they want these leaders to leave. As you say,olicy, marches on. Part of that policy is an limitation up into reform in brazil. Would that be a seminal moment in terms of saying you need to a structural issue at play is solid. Logic tells us the likelihood the lowering through house has been reduced because of this whole issue. More ofs trying to get the mps then he needed and now the likelihood of hymns achieving that support, i think caution is the name of the game. Call ratescan hardly in the United States were negative in japan and the u. K. That is still a fundamental driver to you . Lets take a couple of points here. You have all this liquidity being provided by the Central Banks to develop markets. You have all of that going into emerging markets. The lastinfluence for six or seven years. The other thing we must take into account, and thats why this chart is so contained, the Political Risk in developed markets is also increased. This spread is showing the Political Risk spread in emerging markets versus developed markets. The underlying risk in developed markets has been increasing over the last couple of years. As you said, it is a fluid situation. I dont know whether you review it on a quarterly basis, but it is a fluid situation. Scenariofferent overall in the face of the marching fed. Absolutely. You didnt start the conversation by talking about emerging markets as a whole. You cannot throw all these countries into one pot anymore. The investments case is taking ande idiosyncratic risks underlining these as we move ahead. Predicated in terms of what happens with china. In a fluidm outlook situation, where you want the most exposure . Emerging markets as a whole. To cherry pick as we move along, but deftly emerging markets. Manus thank you so much for joining us this morning, simon. Coming up on the show, chinas getier has west, as we positive data out of the worlds secondlargest economy. Can it last . That is the question that markets are asking. We discussed that, next on bloomberg. Manus maintaining the momentum. Ling forecasts as premier looks west. Polls suggest the ruling anservative majority may miss majority of parliament. The fed government said governor says this could want a review of policy. Employmente lack of progress it may lead me to reassess the expected path of policy in the future. Manus it is daybreak europe, youre welcome. I am manus cranny. Equity markets have a couple of have the china data coming in this morning. A little bits longer than the market had anticipated. Not having what you call a very dominant effect. London is jumping with the rest of europe. London is up 1 8 of 1 . The one story that is pervasive in the british market is this that conservatives could lose as many as 20 seats. This is what you will what will drive the london market. Our risk radar and the sentiment is you had the chinese data coming in a little bit better for the second month than the market had anticipated. Straight month in a row inmate. The chinese shanghai composite into the lasting hour of trade. Copper is it on the back of that and as far as the lme, the drawn copper is the highest in nearly three years. That is underpinning the Copper Market as well. Lets have a look at some of the currency markets. , softer inflation data may warrant a rethink. The dollarhs says rising 10 versus the yen. Yields rising by 50 basis points. No real trepidation from Goldman Sachs in terms of the direction of u. S. Interest rates. Up 1 8 of 1 . This is the 31st so you will see monthend for a demand of the dollaryen weighing a little bit according to some traitors we have been speaking to. The context of what we have got is the declining sterling, chinese data to get our teeth into. Sophie kamaruddin is here with the first word news. Sophie sticking with the currency markets, anxiety surrender the outcome of the general election heightened after a poll showed the conservative party may lose its majority by 16 seeds. Sterling underperformed all of the g10 peers after a poll in the times showed the tories may lose 20 seats while the main Opposition Labor Party could get 28. In the u. S. , fed governor Lael Brainard has said soft inflation thed cause her to reassess policy should it linger. The Global Economic outlook brightens. I see some tension between signs that the economy is in the neighborhood of full employment and signs that the tentative progress on inflation may be slowing. If that tension between the progress on employment and the lack of progress on inflation persists, it may lead me to reassess the expected path of policy in the future. Although it is premature to make that call today. Sophie japans industrial output hit the highest level since 2008. Industrial production increased 4 from march when it fell 1. 9 . That is as overseas demand continued to support the nations economic recovery. Former Trump White House National Security has agreed to turn over a limited number of documents sought by the Intelligence Committee for his itservention i investigation. He has agreed to produce documents the committee subpoenaed from his two flynn intell, llc intel. Nn u. S. Markets soared after Donald Trumps election on bets that he would bring about procorporate tax reforms and Infrastructure Spending but that is not materializing. Is consistent to believe that whether there is a boy for the marketplace, we will grow in the twos Second Quarter. What i hear from business is it is not happening. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. It can find more stories on the at top. Lets check in on the markets in asia. Pmi data getting put to the test. The chinese stocks managing to eke out again after a fourday weekend. The hang seng is snapping a sevenday rally although hong kong stocks are set for the best run since 2013. Exporters are dragging in tokyo along with Energy Stocks. This is oil extending declines above 50 bucks a barrel. Higher towardally the end of the day. Is between swinging between gains and losses. I took a look at movers in asia starting with what is moving in hong kong. Surging to an april 1994 high sinking after zooming trade in the wake of a short seller report. Noble group is trading at a 2001 low as a commodity trader. With china in focus and want to show you this chart. Yuanboc strengthened the by the most since may 18 which is showing sending onshore rates to its highest since november. Speculation that they are intervening. The blue lineg up right here putting in on course for the strongest closed since february. Manus thank you. Sophie kamaruddin with the latest from hong kong. The worlds secondlargest economy has maintained its momentum. The China Official holding up. And it wasd at 51. 2 the nonmanufacturing pmi that we. Aw rise to 54. 5 the debate is the propensity for china to deliver reflation. How is the trend looking, roque and . Andt has been refleeting reflatrining. Most economists thought we would see a leak and we would see a tick down. Nationalot there bureau of statistics at this morning with the official pmi for manufacturing and nonmanufacturing they close better than expectations. That was a bit of a surprise so 51. 2, we were expecting 51. That is a good thing and the bureau of statistics showing that external and domestic demand keep improving. As a go back to that point about the reflation, the question is how long can you keep this up because if you drill into the indices input and output prices were negative in may. That is worrying because we had that greater Pricing Power from chinese industrials where as the four pluse it, after years of deflation, output prices fell well below 50 for a second consecutive month. If pricing confidence is waning within the pmi it could at thete to disinflation factory gate going forward. They have a fairly good may number four pmi. We will have to see how it goes forward. Nonmanufacturing steady as she goes, services, telecom, banking, especially construction a robust number of 54. 5. Keep on being the steady pillar of the economy. The premierve league traveling to germany today. What is the agenda . Influence and enduring the chinese story to Angela Merkel. That sucking sound you hear is the vacuum left by donald trump. Prime ministern and the chinese premier tried to fill that void on the european continent but trade will be at the forefront for this short visit. China may threaten an electric car quota that could hurt bmw, bmw mercedes requiring them to have up to 8 of their cars sold. It is a threat that would be in response to efforts to draft new rules to prevent china from dumping goods like metals and chemicals in europe. Well have to see what comes of those talks with Angela Merkel and in brussels. Manus cant wait to see the daily tweets. After Angela Merkel signed some agreements. Welcome and good to see you this morning. All is well in the world, china factory age holds up, Global Outlook can breathe a sigh of relief or can they . It is rather disconcerting. It does not inspire me on the reflation trade. Is where at 51. 2 which it was last month having come down in the baby is couple of months and people were expecting a reduction. I was expecting a bit of reduction. Expecting 51. 1, 51. 2. We had that big boost at the beginning of last year following fiscalback, that monetary push. That has come up a little bit with a little bit of tightening on the monetary side. You are showing that. Manus this is the dollar yuan hitting the average. Trying to sustain and give suc. Or to the growth level this is in the face of a rising fed. Is this the challenge for the dollar yuan . It is about chinese indicating that they will manipulate more than they have in the past. They want to manage the currency. They want to manage it upwards rather than downwards. President trump should be pretty happy with that is what they are doing. In terms of debt, debt in the chinese economy, we have seen total debt to gdp go up from 210 to 300 of gdp. That is in 10 years, a tencent increase. You cannot keep on raising debt ad infinitum at that sort of freight. At some point it needs to slow down and when it slows down the economy will growth will slow down. For sometimeon further. I do not think it is leading to a slowdown but at some point we have to be worried that debt is giving thats getting to a level where it has to stop growing. The market, that seeing prices in negative territory and that puts the debt story much more central in our thinking in terms of the challenge. Ofss there are a couple challenges. That is the issues of companies that are insolvent that are still going and how does that work its way through the system. That is one aspect. The aspect of the total magnitude of debt i do not think is something you need to worry about because it can carry on going up for some time. 300 in termsat of debt to gdp. Guest a developed economy can go to 350 easily. I suspect in an economy where china carries on growing they can manage it that to could go up to 400. These are scary numbers and it it does not mean it has to stop tomorrow. If anything look at what they are doing in terms of Infrastructure Spending and you an say even though you have number of concerns, the economy will carry on going. What they are trying to control is shadow banking. Shadow bankings product banking products failed. They have seen this tightening of rules on shadow banking and that is trying to get rid of the problem of specific risk for individual countries companies. Manus will the pboc have the ability to go lockstep with the fed if there are two more hikes from the Federal Reserve in 2017 . Guest if we are talking to quarter rate hikes and they should be able to manage that. I read on mlivng says the data and management will still deliver, no hard landing in china. You do not had thats have to have a hard landing in the near term. They will avoid it. The problem is that leads profitable growth. That is a real risk for china. You can grow but it might be profitable. Us. S staying with the pound in focus, theresa may husk theresa mays Political Party suffers a setback. This is bloomberg. Manus in berlin it has gone 8 19 a. M. , a beautiful summers day. Euro inflation data coming through. 1. 5 , medicating Mario Draghis few of the world in terms of staying full pedal to the metal. Deutsche bank has agreed to pay 41 million to settle Federal Reserve allegations that its u. S. Operations failed to maintain adequate protections against money laundering. The fed said they frankfurt banke based [indiscernible] imposed a cease and desist order on the bank. Ireland has fired the starting gun for the initial Public Offering of allied irish bank laying out a plan to sell 25 of the nationalized lender. The plans to sell a stake in london and dublin with terms cit i sets in june. The sale may raise 3 billion euros. According to people familiar with the matter, he could hand off the baton as soon as tomorrow when the next Board Meeting is scheduled. That comes after regulators approved the plan to take control of Telecom Italia yesterday. Manchester uniteds four premier League Season has not stopped the club. It has not won since 2013. The value has risen to 3. 1 billion euros. Pmg surveyed 32 clubs. That is your Bloomberg Business flash. Chelsea just making it in the top 12. Lets talk about the pound. Slumped against all its g10 peers. The conservative party may lose its majority. Conservative government may lose as many as 20 seats. The Opposition Labor Party could gain as many as 28. The pound falls, this is the bloomberg pound index. It has been a tough road. Week volatility is rising. This is a much controversial pole. Westpac would say the market is not prepared for any possible outcome. Oohpooing thisp poll. Onategists wrote it is based a unsafe policy. This is causing quite a stir. Guest we know it is much closer than people thought a month ago. It is looking as though conservative leaders are, that creates uncertainty and if you get people saying that could be a Hung Parliament, i would have thought we go straight to 120 if we do end up with a Hung Parliament back to the worst brexit type fears that we saw a few months ago. Manus just for a moment lets just challenge that. The worst possible scenario for possible the softest scenario, one has to deliver for a coalition in a Hung Parliament. Which it not lead us to the hardest of brexits. Guest it leads to uncertainty and how honors would we negotiate if you have a Hung Parliament where you cannot form a proper majority . Mp andsumably have the brokers in that parliament, i do not know. Once there is uncertainty that has to be negative for investment conditions that has to be negative. Manus one of the stories was the rise of the ftse 100 in terms of may, we are up 4. 75 . Cash. S the we go over here and change it. , are is one month, 4. 48 splendid outperformance relative to my european peers. Change that to three months and to begin to understand that it is a poetry performance. Wti. Is guest you commented on the wrong column. The column we should be looking at is the far right in constant currency. When you look at the ftse 100 has a reverse correlation with sterling. If sterling falls that has to go up because the majority of earnings come from outside the u. K. Irrespective of that you are still right. If you go back over six months you have euro stocks up and the ftse up. You have eurostoxx outperforming the ftse. And compared to the u. S. Over euro stocks are up. That is the flow of money. What we have looked at in terms of european earnings for the last four years has been nothing whereas you have had Earnings Growth in the u. S. And at last look at this years q1, you have Earnings Growth coming through in europe. We are looking at perhaps 15 growth. There is little bit of catchup in european terms. Moneys fed through to the flows into european equities. Manus is that the beginning of a more rest robust trend . This is a said surprise. He expected to be a surprise in terms of the European Growth and momentum relative to the u. S. Europeandates the investor story, doesnt it . Guest you have the Earnings Growth coming through and you have monetary conditions still ultraloose as mario draghi highlighted. You have a good position in europe with money being an official and yuri Earnings Growth. In the u. S. You have monetary tightening coming in earlier. The Earnings Growth story is a ittle bit older and the u. S. They have not needed to catch up with europe. Much, thank you so Jonathan Bell from stanhope capital. Sterling under pressure. Whatever you make of the polls it has rattled the sterling market. European market open is next. Heres your special man in the house from berlin. Welcome to bloomberg markets, the european open where we bring you the first trade of the day. I am matt miller in london. Guy johnson on assignment. Here is what we are watching for it out of the blue. Sterling slips after a poll suggests the ruling conservative already could lose its majority in parliament. Where are we with just over a week to go until the vote . Rate everything. Fed governor Lael Brainard said lingering soft inflation could warrant a review of the path of pol