Welcome to bloomberg daybreak europe, our flagship morning show in london. Im manus cranny. Breaking news coming in across the bloomberg, this time in regards to you. It is on the path to try to take over huntsman, and we have an activist investor which in part is run by keith meister. Iny have taken a 5. 13 baked , if you wonder about activism, this is the personification of it again. Clarion has noted the investment from cortex, they say that they have had regular contact and they are open to dialogue along with all other investors. This is an acknowledgment in regards to that investment, that morph than 5 holding. They say they are and regulatory discussion. Happy fourth of july. If you are having a late summer, good morning. Have a look at this, have we finally capitulated on the dollar, or have we over arched . I am talking about the hedge funds. They have decided that it is finally time. Arenet short positions negative, this is the First Time Since may,m this 2016. The bloomberg dollar index sank last week to close out the longest month of losses in six years, fundamentally questioning the reflation trade. Can the minutes from the fomc reset the dollar agenda . The probability of a rate hike in december is at the highest in three months. It doesnt look like the probability of the fed moving is dissipating at the moment. How does all of this translate . How does the Missile Launches translate . How did the dollar translate . This is what we have. The msci asiapacific down. 3 . We were celebrating on the upside, topics down, nikkei down. The hang seng is really taking a smack. It was a good story on the back of manufacturing, but there is no doubt about it, geopolitical risk is rife into the g20. Aussie doller down. The rba leads the cash rate unchanged at 1. 5 . Wage growth remains low. However this is likely to continue, and there is nobody brave enough to take the first step. Everybody is talking about the shift in the central bank language, the nuance and intonation, but nobody has begun power to follow through. Nymex crudeil down. 5 , breaking the longest winning streak this year. Includingction itself libya and nigeria is on the up. U. S. Inventory data dropped by 2. 5 Million Barrels a day. We have rebounded from one of the biggest declines this year. It is geopolitics most likely sot drives the gold story thats the state of play on the markets. We will talk about what it means for currencies over the next hour. Lets get to the first word news with juliette saly. Mastece in the u. S. , a computer error caused confusion among traders as wall street closed early. The operator was conducting a test of its pricing data see that led to thirdparty providers showing wild moves in shares including google and microsoft that never occurred. Nasdaq says it is working with the providers to solve the issue. Chinese president xi jingping is in russia for talks with president putin. The Foreign Affairs adviser described relations as the best in history. Meanwhile, according to the chinese news agency, they oppose the u. S. Deployment of missiles in north korea and have agreed to settle the Korean Peninsula issue through dialogue. The u. S. Federal reserve chair janet yellen was hospitalized over the weekend for treatment of a Minor Infection. She has left hospital and is heading home. She was admitted on friday and released yesterday. Shes returning to washington and expects to resume her schedule is claimed this week. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Oil in late asian trade. We are seeing some pretty good upside coming through from asx 200, led by these Energy Players. We saw oil in the new york session rise for its eighth consecutive section. A lot of lenders have started to raise rates for interest only loans, despite the rba meeting the official cash rate on hold. The nikkei is losing some of its earlier gain, this as we see the yen rise on report that north korea has armed another missile. We are seeing movement into safe havens like the yen and gold. Having a look at the stocks, tech stocks have certainly been the losers in the region, and a wall street journal report says sony shares are better value than nintendo, which is down 4. 5 of the tokyo session. Petrochina has essential movement in the oil space. Australian Energy Players looking good, petrochina up by 3. 4 . Mentioned, the rba leaving rates on hold at 1. 5 , the 10th month in a row the 10th meeting in a row, i should say. Move,s why the rba wont a lot of analysts saying the are caught between a rock and a hard place. Thatwhite line is australian house price index, home prices have doubled since 2009 and at the same time you are being australian savings ratios fairly stagnant. Will the rba follow in the short to nearterm . A lot of analysts say it is hard to do when you are seeing the house price index continue to rise. Manus absolutely, that the conundrum, isnt it, from a global perspective. 10 sent is down over 5 . Tencent is down over 5 . N that internet giant in asia. Lets state of play on the asian markets. Andinternet mobile provider advertising ecommerce is technology in asia. Lets talk about the politics and the tensions. North korea has fired another ballistic missile, the 11th test this year. The launch comes at a time of renewed tensions between the u. S. And china, about kim jong uns regime. Peter, thank you for joining us. The 11th missile test since he came to power. Is this a significant warning shot ahead of g20 . How should we interpret this aggravation . First of all, the timing was very intriguing, obviously, because it is right on the eve of july 4, Independence Day in the u. S. , and a few days away from the g20 conference. This comes right after chinas delegation in new york at the United Nations basically said that things could get out of control, and there were dangerous consequences as a result of these tensions on the Korean Peninsula. Whats more significant is what we are expecting in about an hour. North korea is apparently going to make some announcement. This is very unusual. They never preannounce anything, but they said they will make a major announcement, and we suspect the missile test this morning is significant. Theres speculation that it ,ould have been an icbm, which if they take it further, could reach the continental u. S. , particularly the west coast. Depending on the announcement, that could have a significant turn on the tensions here in south korea. Manus interesting, perhaps markets are underestimating the ability of north korea. Lets talk about the responses. I am looking at donald trump and what he treated, perhaps china will put the heavy on north korea and and this nonsense. That is a tweet from him. Weve just had this one line coming across the bloomberg terminal, xi and putin opposed deployment in south korea. The chinese president xi jingping and Vladimir Putin agreed to settle the north korean issue via dialogue, two very different rhetorics coming, one from the west, one from the east. Yes. And again, this test today just makes everything so sticky, because as you know, whenever north korea tests missiles, theres further resolved by the u. S. And south korea to have this antimissile system. China flip side of that, and russia feel that this is a security risk, and therefore pushing it. This conflict is not going to go away. Itsng to dispute going to get worse, because of the test this morning. Manus peter, thank you so much. A live and breaking story. This missile test is the latest provocation to raise tensions between the u. S. And china, and in a phone call with President Trump yesterday, xi a negativerned of turn in relations between the countries. Of g10 fx at Merrill Lynch joins me. Help me make sense of this. Financial market stress. It is at the lowest point since 2014. When i look at the political stress in europe and the west, that is falling. When i look at china, north korea, around the australasian basin, that is rising. Are markets mispricing political risk, in terms of their sanguine nature of financial ease . It is actually true that this Political Uncertainty has increased for a number of reasons, but markets are not pricing anything. Is very low,lity equity markets are at an alltime high, risk assets are performing very well. You could say this is a positive, but if you think about it, if you are an investor, it is difficult to position for such risks. Y would take north korea take north korea as an example. It is a slowmoving accident. How do you trade it . When should you position for it . Things can go wrong today, in a year, in a few years. As an investor, you cannot miss the trend. You join the trend, you perform, but increasingly you are taking substantial risks. Manus how do you join that trend . We have a dollaryoung board, all yens together. Ill give yen this, it has delivered inrbatim terms of risk off momentum. Is that the vicarious trade that is underpriced in your opinion . Definitely. If we get some of this political risk, the yen would be the one to strengthen. Whats interesting is when you look at market this year, its the first time we are not in a typical environment. If you look at the rates market it is trading everywhere. , the yen is trading in a risk off environment. There are a lot of inconsistencies in the markets today. Manus there are huge inconsistencies. The latest story we have is, of course, the bank of japan. The reason i am focused on that is because abe had a bit of an upset. Stories fromg politicians talking about maybe its time to change. Unchanged,t rates but as far as japan is concerned, do you think they will be forced into some kind of less easy turn . Do you think eroded comes under pressure to keep his job into shift the yield target . We believe not. We believe the boj actually would be the exception. The market has been speculating, but the bank of japan has been very clear that until inflation if they to present, give up now, it would be a tremendous shot to the credibility. Mistake be another huge to do this now, so we believe this would be the exception compared to other banks. Manus we will talk more about the central bank and virgin says and who has the ability to move. He stays with us. Highlights for your day ahead. Chinas xi jingping will meet with russias Vladimir Putin in moscow. The redrow modi becomes the first indian Prime Minister to visit israel. And Justin Trudeau is down in dublin before flying to edinburgh. A celtic theme. Coming up, we look ahead to the fed minutes from the last months meeting. This is bloomberg. Manus risk off. Thats a shot of hong kongs river. The hang seng, this is your imap function on your bloomberg. Wn 1. 6 in financials. Look inll in nc a and see the biggest issues at play. The banks are down. 1. 34 . Ff there is this shakedown in terms of technology, banks. Juliette saly went through the numbers and she is back with the business flash. Juliette thank you. Santander has set a deal to the takeover failing banco popular. Its it plans a profit also said the price of its 7 billion euro capital raising, saying it will sell 1. 60 4 billion shares. Former barclays executives have told a london court they will plead not guilty to charges they conspired to commit fraud. Are the mostos senior you came banking executives to Face Criminal Charges since the financial crash. Its about fees they made available to qatar. The head of the Italian Banking Association has told bloomberg that the liquidation of lenders in progress to recap was a turning point for the financial sector. They also discussed consolidation amongst italys banks. Wed probably end up with less than 100 or the banks or banking groups active in italy. Progress in the consolidation of the sector is already in place. We cannot exclude additional consolidation, but i think that consolidation at a european level could be welcomed. Juliette and that is your Bloomberg Business flash. Manus thank you very much. Tomorrow, we are going to go ingo the first recent think on monetary policy, the minutes from the fed meeting. Plus we get a gauge of the strength of the u. S. Economy on friday, the allimportant jobs report. The analysts say the jobless rate will have held at a 16 year low. The question for markets is, as a translated to a wage hike . Is that a fair point . The market needs some validation on wages . It doesnt have it yet. It is the thorn in the Global Central Bank story, but it is a needle in Janet Yellens side. Thats another positive for the u. S. Economy. Were at full employment, but wages are not rising. Higher athave been this phase of the cycle. This is why i think the market does not expect that the fed will hike as fast as the dot plot is suggesting. Manus we will pull it up in a moment but look at this, the probability of a rate hike is actually the highest in three months, 42 since september. They do another hike this year . And talk to me about the divorce how do you bring those things closer together . We expect one more hike this year and we expect three next year. The market expects a total of about 30 basis points by the end of 2018. Not even a full hike this year, and no hikes next year. There is a divergence between the market and what the fed is telling us as we go into next year. I think the main reason the market believes that even though the Global Markets are doing it will not be hiking. That is not what the fed has been doing. I think they are trying to normalize policies. Manus they want something in the tank for when there are bad times around the corner. Twoyear notes were the highest since 2009. So square that away for me in terms of the dollar charge we used at the start of the show. Since back intion march, 2016, it looks like they have thrown in the towel. Do you believe in being short the dollar given that there is a divorce between the dots and the market . Point i wouldthis start considering long dollar trades, which i think have gone too far. Positioning definitely at this stage is a at historically low levels from th dolla. The dollar is still overvalued but this is because sterling, yen, and euro are historically very weak for Different Reasons but when you look at the differentials, particularly if it goes at the rate the dot plot suggests, the dollar should be stronger. Manus where is the biggest return . Is it long dollar i will talk about the ecb in a moment, but it has more room to move than the bank of japan so where do you want to be long dollar . I would go for profits from e. M. Trade. Concernits really a and it is very vulnerable to any risk off market move. Long dollaryen because of diverging monetary policies. We believe the boj will stick to the current framework and i believe they will be more than markets expect. Manus frontrunning the schedule, we like that. The head of g10 fx at Merrill Lynch. Theres a new french enlightenment. President Emmanuel Macron aims to revise frances creativity and leadership on the global stage. We bring you the very latest from the heart of europe. We are live in paris. Matt 1 30 a. M. In new york. Manus you might be out till rating the fourth of july area july. Index 9 ,erg dollar that is the state of play. Happy fourth of july. How are those markets looking . U. S. Markets are closed. Japan, hong kong, korea higher. Here the breakdown of Industry Groups them a a top i. T. And tech stocks leading. Energy stocks gaining. Gain in financials but not enough to miss the overall benchmark. Lift the overall benchmark. The aussie dollar is being watched closely falling now, erasing earlier gains after the rba left its benchmark rate unchanged area that would was not the surprise. Turns a hawkish term that was expected in the markets. Perhaps following the Global Central Banks. We did get a statement similar to last time. We are at 70. 06. We have seen it rise to a fiveweek high versus the kiwi and this is the aussie dollar spot heading toward a resistance level dating back two years. We are off by. 61 . Same been seeing the safe haven trades live some steam, part of that was on a stronger dollar, the dollar jumping the most in two weeks but higher bond yields hurting gold somewhat. We are seeing a revival today. It can see the end of the chart. Fired area test ballistic missile. Dropping in yesterdays session. Oil banks having a turnaround, halting its gains after its longest winning streak am a almost an 11 gain in the past four sessions. We have data showing opec production in june climbed to its highest level this year. We have the u. S. Inventory data. At 46 dollars a barrel. Manus this is what is on the front cover. It is Philip Hammond and this is about the tone, the internation in terms of the brexit negotiations, the cover story and an amicable divorce. Wants a shared solution for its divorce from the eu, chancellor Philip Hammond has been helping Business Leaders make the case for us was transitional arrangement. He said that the country must keep spending under control. Move in the u. K. To look again at Public Sector pay in terms of the political losses from the tories and the more recent tragic incident in the west of london. The nextdoor is about sweden. Is yvonneditch the today, that is a question today. 65 in a survey say that will be the case. Chancing a scrapping the chance of a rate cut. The central bank is expected to keep the rate on hold at minus 0. 5 . , the 11thocuses in camele test since kim jong to power. Donald trump has twittered that they might put a heavy move on north korea and end this nonsense once and for all. South koreas of the missile flew 578 miles. Jinping and mr. Putin saying they would like a discussion for the solution. The president meant well Emmanuel Macron had a major speech. Tocalled on proletarians revive the nations creativity. Macron also remarked that frances role in reviving ambition in the eu. It is up to france to take initiative and i want to do it. In the months to come, thanks to the close relationship i have established in particular with the german chancellor, before the end of the year, everywhere in europe, we will launch democratic conventions to reform europe with its core political project, its first ambition to unite people. Paris. Lets cross to good to see you this morning. What were the highlights of macrons speech, were you in mind . Whatine at least that is macron try to do. The goal was not to give monday of reforms and to make big announcements but to say that his vision, his intellectual and philosophical view for france. He gathered his 900 mps in versailles to tell them he was going to cut their numbers by ready to and he was use a referendum to do so if needed. He said he wanted to introduce some representation in parliament to give a large a louder voice to smaller parties including the far right. He said he would lift the state of emergency that france has been living in since the wave of terrorist attacks in 2015 by the end of this year. Manus we just saw the pictures of macron addressing Congress Area spectacular elementary building. Forit put it in context us how special and address like this is and why he chose to do this now area now. Is special. The former president holland only did it after the attacks in paris in november 2015. This is very special. Macron once again to show that he will he has this image of a powerful president. The french press has reacted. He was always already nicknamed jupiter. Now the press as you can see on this newspaper is calling him the sun king. You see many people in theailles, the first active presidency. Manus lets stay with europe and talk about the central bank. Holocene makers took a more hawkish tone. And the reserve bank of australia left it rates unchanged. Unchanged,ves rates we wait for the day for the central bank the ecb seems to be better positioned to catch up with the fed versus the rest of them. Is that an overly hawkish take . The ecb will have to in the program next to because of technical constraints. Theyre not willing to relax the limit. There is a expiration date. Falling, we expect inflation to fall further next year. Incentive is to stretch qe as much as possible so we do believe that it will stretch the end of 2018. They can keep policy rates low for as long as it takes. There likely to bring they rates back 20 in 2019. Only afterrease inflation is the target of 2 . Banks areral different case. There can playing catchup with the ecb but now there is less incentive area they are moving toward the exit. The data does not justify the policy stance. We do not expect a hawkish turn but the language is sounding more balanced. The currencies are offering, they are coming out as the winners. As speculation was scaled. Im thinking the end, the swedish coda krone. That is the biggest opportunity, would you want to be long sek in this decision or in the near marketsanos how the reacted, they are not buying the response. Higher in markets where the data has a much better than the central bank will justify. There is some merit to it. Positioning might be a concern. Kiwi we like where the market has been short. This is the next step in this hawkish turn. We like it. Leading the majors a little bit. Thanos this is where position of positioning is less entrenched. Manus taking everything back, if i look at the euro, manufacturing data came out yesterday. Strong, if you look at the euro area as a whole, the velocity behind the euro is very strong. Positioning is very strong in terms of the euro. Momentum fortrong the euro. Haveer you suggest we may done the near turn damage. We were down 10 tips this morning. You have a slightly contrary and view. If all the world is long the euro youre not. Thanos at this point i would be short. I do not expect that they can decouple for so long. When you look at data have been surprising. For these to be we are expecting a march lower much lower exit. Major policyct any reforms. This debate is going to be difficult. The experience with the euro so far is they respond to the crisis. Manus the chart i have got for you here live tv is never kind to you. Where is anna edwards when you need her . This is the budn move. I want to tie back to your thoughts. Move. Is is the bund do think the market has riced itself to the extreme in terms of the hawkish tone question mark this goes back to the first question. Has the market over arched itself in terms of the upside or the damage the ecb could do . Thanos it is not a clear picture. Yields might be a better indicator on with the market expect where the ecb. The market might be how long policy rates would remain low. The ecb introduced qe, the selloff would be the trade if the ecb must too fast. Given that we expect a slow exit we will still be long that the fact that it is not selling off as much, the market expects an exit they do not expect a mistake. Long if you want to be the euro and long the euro against the dollar, wheres the stuffing off point . Whenever the euro approaches 115 you hear some comments from the ecb sources, they try to talk the euro down. This is what happened last week. That is why we are we have seen the eurodollar so it is safer to be short the euro on these levels. Stays Thanos Vamvakidis with the daybreak team. Bloomberg 10 tv. You do get it has video streaming, everything, the charts, the functions, everything you see on the screen, you can click on it. You can ask the guest of question. At the bottom of the screen you have an editor on watch. Responds to demands for reform. The u. S. And kuwait result step up efforts to resolve the crisis. This is bloomberg. Manus welcome back. It has gone 6 48 a. M. In london. If you are in boston, tune in tonight. We have alix steel, carol massar, and matt miller, they will cohost the boston pops fireworks spectacular. It will be live and it is from bostons historic esplanade. Lash t a business flash. Centeno has aco month to take over franco popular is daniel banko ol. Ular espani sell shares at 45 euros each. Executives have told a london or that they will we not guilty to charges they conspired to commit fraud over a fundraising with qatar. Roger dinkins and to others on this Senior Executives to face charges. The case relates to fees and lands barclays has made available to qatar in a deal that raised 12 the and pounds. 12 billion pounds. Apple is working on a feature that will let you unlock the iphone using your face. The company is testing and improve Security System that allows you to login, authenticate payments, and launch applications by scanning your face. It is powered you 3d sensor and apple is also testing eye scanning. That is your Bloomberg Business flash. Qatar has delivered its response to 13 demands made by the saudi led company. After it has had it august winning streak, oil has cooled it gains as opec reduction climb the highest level this year. Great to see this morning. There is likely to be another extension. What has been the feedback so far from the key political players, the americas kuwait is the good broker in this deal. If there is a deal to be done. , youf that is why mentioned the key point, there is unlikely to be another extension, we understand that the letter in terms of the formal response has been handed over to kuwait. We did pick up some additional feedback from the Saudi Foreign minister, he was speaking with the German Foreign minister in a press conference. They will read through the letter and they will prepare an answer. The interesting shift in town is important to underscore here. The first time there seem to be a bit more of a reconciliatory stance. We see we need qatar as a neighbor, as a friendly country and also pointing out that progress has been made but it is not enough as it stands. They will prepare that response. We did also get a bit of a reaction from turkey. They are saying that they believe dialogue can work it out. In terms of what is happening with asset classes, we will show you this chart. You can see there has been a lot of selling throughout the month of june but look at what Foreign Investors have been doing ahead of the deadline. They have been buying on the dip month that is where the money is going at the moment. They see a lot of upside potential or see this as an opportunity. Manus always looking for the opportunity. Trying to rebalances market is a bit like the holy grail for opec. In terms of doing that, since november of last year, who is the culprit in terms of this pump if production question mark we are seeing stories this morning, we have libya, nigeria, they are saying they have the exemptions. Who is the culprit when it comes to the bump in production . Chief those are the culprits, Equatorial Guinea helped raise the overall level as well. Important underscore that nonopec nigeria and libya to the tune of 130,000 barrels a day in additional supply that has come on board just from those two. Also bear in mind some ,nteresting notes coming out there will be revisions that were going to see in may and june 4 u. S. Reduction. This is are saying, turning point when it comes to u. S. Production. When it comes to u. S. Rigs they are calling ask you dollars a barrel for the second half of 2017. We told you at the start show, activism and stocks, you saw with nestle in terms of their reaction. There is clarions reaction. They said we are fully engaged with all shareholders and we are into medication with activist investors. Client scherzer undervalued, this is where what the activists are saying area this is cortex and 40 north. Has excellent opportunities to unlock value for activists. The middle of trying to do a deal to get their hands on huntsman. Personification, we saw unilever come under attack want nestle, under attack, and nestle stumped up with a bigger share buyback. Whether that has to do with activism or a review by the new ceo. We will keep an eye on clarion at the start of the trading day. This is in the chemical business which has been heavy activity in terms of m a. G10s reset and get back to fx strategy and Global Ethics strategy with Thanos Vamvakidis, the head of g10 fx. We talked about the oil market and their is a breaking trend. Opec is getting fighting harder to hold the reins. Outside of that, you have taken of you in terms of oil so tie the two together for me. Foros we had Downside Risk oil. This was primarily driven by a positive supply shot. Producers are becoming more efficient. There have been some challenges for knitting production between nonopec members but looking forward, we believe that more ballast which also suggests most of the downside we see and commodities is behind us. Looking into the longterm we believe the trend will be lower. China is on a downward growth path. Emerging markets are becoming more energy efficient. Manus you have made two key points. The shorts are getting a little bit squeezed. Will canada all caps on last moment with all caps a lastminute in terms of doing a rate hike and changing rates this summer . Thanos they do have a housing mobile which is difficult to address with monetary policy. You do not want policy to be to lose but you cannot tighten too fast. The fed is tightening so this makes their job easier. They will take advantage of this and hike rates this summer. Manus thank you very much. Manus tensions rise. North korea test fires the 11th the listed missile for japan and meet in moscow days before the g20. Hammond says britain must hold their nerve and keep public spending under control. Opec production on the rise. Oil breaks its longest winning streak this year. Countdown delivers its official response to saudi led blockade. You are welcome. It is bloomberg daybreak flagship warning show. Setting you up for your trading day. Lets get into some of the numbers. Sainsbury delivered firstquarter numbers. What have we got . Risequarter retail sales by 2 excluding fuel. The market has penciled in 1. 9 . This is the first time that sainsburys will not break out to separate line items. Comparable retail sales up 2 excluding fuel. Those are the bumper headline numbers, prices are rising every to me go into a shop, youll notice this. Prices are rising and to that extent it is helping bolster the topline numbers. There was a heat wave in this country and that has pushed sales along. Retail sales up 2. 7 , excluding fuel. Like for like sales 2. 3 . The Grocery Sales were up 3 . That is one of the lines there. The ceo saying we delivered a Strong Performance driven by strategy offering customers quality and general merchandise and clothing. Groceries, we recognize that we offer a leading, nation of , trying to value skim through the report. Grocery sales up 3 and the outperformed the market in general merchandise and clothing. Bullish read coming through from sainsburys inflation helping the numbers. What is going on in market, geopolitics is front and center as north korea launches its 11th vicinityrea into the near japan. This is the consequence we have seen a rise in the hang seng taking the asian market lower. There was a drop in the Asian Session by 1 at around 5 30 a. M. This morning. It is the fourth of july if you are up late. Happy fourth of july in the united states. Pops,hosting boston geomet miller. Lets have a look at the risk radar. This is where the manifestation is, we had good data in the u. S. , that was taking equities higher, we have this north korean missile. That change the direction for the msci in asia. Left rates unchanged and they bemoaned the fact that wage growth remains low. Well have we heard that before . Is there a central bank that needs to be right there script . The aussie dollar down. 61 . John edwards saying get ready to rates rise eight times 3. 5 . I with of to see if that could happen. That will say we have a barnstorming normalization on our hands. We have been speaking to our middle east anchor. The longest winning streak is off the table. You are seeing libya and nigeria boost its production. 3 of 1 . Perhaps a move to havens like assets. Japan and australia, no rate change for the aussies, Global Equities have taken a little bit of a blow but the s p asx 200 is up 1. 62 bucking the global trend in terms of the markets. Topix down. Markets are down. This is a moment of reprieve for the bond markets, German Government bunds up four pips. And i cant gets very president ial. In terms of yield that gives you a yield of. 48 on German Government bund yields. Juliette saly has your first word news. Good day. Saidtte south korea has it is investigate whether a projectile testfired by the north earlier was its first icbm Missile Launch. Pyongyang has carried out 11 test launches and claims it is close to a rocket that could deliver a Nuclear Weapon to north america. The latest move raises tensions in the region ahead of the g20 summit in germany. Meetinge g20 leaders where the World Leaders will gather together, i would like to strongly appeal for unity in the approach of the international trinity guarding this north korea issue. Also, with president xi and putin, i would like to urge them to take more constructive measures toward this issue. Juliette erroneous prices in trades. As some nasdaq the prices were distributed by Third Party Data providers after wall street closed early for the wall street holiday. Issue was caused by data providers as it was conducting a regular test of its pricing fee. That led some providers including bloomberg lp, the parent of Bloomberg News to show exaggerated moves in shares including apple and microsoft that never occurred. Nasdaq is working with their providers to resolve the issue. Chinese president she jinping is in russia. Relations between the two countries as the best in history. Moscow and beijing oppose the department of missiles and north korea and agreed to settle the issue through dialogue. Oil has halted gains after the lines longest winning streak. Members of the cartel boosted their output by 260,000 barrels a day. Half of the increase came from libya and nigeria which are exempt from making cuts under the deal agreed between opec and its allies. U. S. Federal reserve chair janet yellen was hospitalized over the weekend in london. For treatment of a Minor Infection but she has left and is heading home. She was admitted on friday and released yesterday from the king edward the seventh hospital. She expect to resume her schedule as planned this week. 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 number at cap go. Top. The main thing that has been happening in asian market, the big plunge in the hang seng index, hong kong stocks dropping down 1. 6 . It could be because we have reached through the 21,500 point level that people were saying were a litmus test. Is u. K. At the nikkei racing gains, strengthening on the report of a missile area austria is doing well, the front runner in the region. In terms of stocks we have been watching, tencent was one of the major ones we watched in the last hour. It has fallen as much as 5 , the most since for breach when he 16 but recovered following that downturn and the hang seng index. And tech stocks being sold off. Westpac banking showing you the move, the rba keeping the cash rate on hold but a lot of the lenders have started to raise interest only rates. Perhaps a suggestion that they see tightening in the coming months area did in terms of why the rba did not move, have a look at this chart. This white line here is the house price index in australia being fueled by the gains in sydney, melbourne, and brisbane. Dwindle is beginning to and the yellow line is wages growth, very stagnant,. We did see the aussie fall during the following the rate decision. The index so hot today. Manus thank you. I broke the sainsburys story for you. At 2. 3 excluding fuel. The grocery said it is astinuing to manage pressure inflation squeezes the consumer. Addressed leaders yesterday saying they might they have to make the case after brexit. Thank you for coming in. A couple of Different Things to do with. Lets take hammond first of all. This is about messaging. You have got this discussion about Public Sector pay caps being very much high on the agenda. Exchequerllor of the holding their nerve in regards to public spending. What are the ramifications of the shift, whatever the menaced manifestation of it . Ins is a localized shift fiscal outlook in the global stage. Guest there has been a lot of Public Sector and tightening, a lot of control being put in place but at the same time, you have had equity markets and companies do very well in the u. K. And i think it is a thecate balance in terms of chancellors perspective ensuring that growth is still supported and wellmaintained. While also allowing sudden easing from a fiscal stance perspective. The market would take it, maybe an initial reaction of some spike in yield or some replacement from a yield curve perspective. Shortterm reasonably positive based on the currency move and the ability of companies to sell goods and services outside but domestically, when youre looking at years three through five that is when it starts to get really tight and gets worrying. Manus i am talking about the equity exposures of 250, 350, the brexit barometer is something we are keeping an eye on. Brexit barometer is moving aggressively. We are almost back where we were, we are back when where we were when we voted for brexit. Cost lances, sterling consequences, sterling people are saying it is overvalued. Only the mad would he invested. Are those overly aggressive in terms of the call . When it is difficult to work out on the medium to longterm the positive and metals of why you would want to buy sterling. I would agree and the play that we are trying to get our clients and investors to understand is the shortterm equity markets could still push out reasonable good numbers especially from an earnings per spec of based on export activity. Manus perhaps it is too st ressed to say. Nonu. K. ,you are a nonsterling investor and your hedging currency it could reduce the earnings potential from the asset class. Markets arequity barnstorming, we had a bit of a raffle and technology. The rates market is resetting itself, u. S. Government bond yields are rising, bunds are rising. There is a definite shift in the ucurves. What is going on there . One is risk on and the other is risk off which is the bond market. How do you want to be positioned, you sign sound moderately bullish, is that extrapolating too far, are you fully engaged or risk on on . Mark wayne or risk wayne there is a tension with having a will respond position. The geopolitical environment antinues to pop up and become worry for investors but interesting especially in the last six to eight weeks, we have seen a significant risk case we one had around europe based results, that gives us some comfort around globalizing risk around the world versus having it more concentrated where we were in 2016. Manus and when you drive into work and you see another Missile Launch from north korea, the u. S. Response, the chinese response, and the russian portfolioas a manager, a global cio, and you news,eing this level of does it invoke a change in you in any way because you say i am almost fully reluctant to say i am fully locked and loaded. Lastne of the lasts as we have been working on his to globalize risk around the world. Focusing was in u. S. And china around growth and hard landing potential. Withinfocusing on Risk Portfolios to capture some of that return eventual potential. Manus we will explore both of those things. Next, rocky relations. Tensions rising between the u. S. And china and north korea. Firing yet another missile. This is bloomberg. Manus happy fourth of july. This is your day of national vacation. This is the empire state building, nice shot of new york. Welcome back. It is daybreak, it has gone 7 19 a. M. In london and 2 19 a. M. In new york. Withn will pop tonight fireworks, it 00 p. M. Eastern and guess who is going to be there to host the show . Alix steel, carol massar, and matt miller cohosting the boston pops fireworks. Live from bostons historic esplanade for you esplanade. Juliette saly is standing by. Juliette thank you. Banco santander has a month to espanol and banco it expects to report a profit of its. 2 billion euros. The price of its 7 billion euro capital raising, selling shares at 485 euros each. Executives had told a london court that they will plead not guilty to charges they conspired to commit fraud over a 2008 hundred with qatar. Fundraiser with qatar. To loansrelates barclays made available to qatar the in a deal that raised 12 billion pounds. The only liquidation of to lenders and progress to recapitalize monte paschi was a turning point for the countrys financial sector. Also discussing consolidation. By the end of this year my we probably end up with less than 140 banks or banking groups active in italy. And the consolidation of the sector is already in place. Exclude additional consolidation. Consolidation at the european level could he welcome. He welcome. Juliette that is your Bloomberg Business flash. Our guest is still with the daybreak team, cracking story on the bloomberg. This is what they are saying and volatility and goldman say they have looked at the data. Takes, they last for about two years. We are not that far into lowvolume. What does it take in your mind to change the perspective on volatility question mark they say it takes a war or a recession. Wayne we have looked at a number of different conditions. To 1941 and looked at various different markets around the world. What is interesting is fuel in a bull market and you have a shock, you get a natural immediate reaction. Marketed eight days, the lost 4. 5 but within 45 days you were back to where you started and the preceding one to two years you had a very Strong Equity Market Reaction as well at 10 to 20 growth. What we are seeing is you can and itis sense of worry is climbing a wall of worry. You can have a recessional risk, more of a significant event. If you are a longterm investor you need to hold your nerf. It could be the worst time to sell. Manus there is no alternative. Tell us that. We were funded, it talking during the break and we were talking about high yields. Talk me through the shift in your perspective on high yields. It has shifted and it has consequences for your equity portfolio as well. Wayne if we go back 12 to 18 months we have been underweight investmentgrade credit and we felt that by taking risk within markets we are better paid to take that risk in high yields. We had significant over weights in global highyield markets. We have used the wrist position in the market risk position to fund globalization of our equity portfolio. We have maintained risk but we are moving out of the bond market. We are moving into the equity market. We are reasonably comfortable with the risk profile we have taken, we are able to get from that shift and out of fixed income into equities. Shift out ofhat highyield fixed income, i wanted to twist across into core. Ield, thehe bund y benchmark for everything we look at. Youn what you just said would also concur in terms of exiting core bonds as well as the yields. I want to focus in on treasuries. 45, consensuss, or. 6 for the end of the year. Exit coreconcur and positions . A muchwe are seeing higher level of coordination from a central bank mrs. Spective about this person [inaudible] in the market will not wait for Central Banks to raise rates with the reprice. It is fair to say that you should be very cautious in perhaps underweight in core markets. The caveat especially in u. S. Treasuries, u. S. Investors are externally worried about the reprice in u. S. Treasuries. Asia treasuries love u. S. Treasuries. It is the lens you are applying in terms of home currency but the yield environment that you are in at the moment as well. Manus that is what puts a cap on treasuries and a psychological grip. Is that the natural break point on treasuries . Wayne treasuries become extremely attractive for a range of investors when you get to certain yield points. A u. S. Ure talking about dollar, u. S. Investor perspective, there is a sense they should retrace higher. The attractive flow mechanism in terms of global governments works. Equities, then Euro Currency had was run in done. , fully invested, do you believe in the great european recovering recovery . Wayne i think macron is the game changer. Theave to break from glassful versus the glass halfempty. So being very realistic. The last two years we have had so many reasons why europe would not grow, would not run and it has disproved that. We are modestly positive. Country,ur top germany, france, spain. Wayne all of them. Manus that is it from the daybreak team. Man on talk to this bloomberg. Guy good morning, welcome. Cash is about to open in europe, we will bring you the first trade of the equity session. I am guy johnson. Reais quitting after north korea fires its longest missile yet. How will they respond at the g 20 summit . Keeping calm down under. The rba sticks to its neutral stance. Is
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