On wednesday. Will the markets appreciate the clarity the triggering little bring . And Oil Producers pledged to consider extending output cuts. We will get details from kuwait city. Iron ore continues to tumble. A lot of thend other Asset Classes will be front and center this morning after the meeting in rome of european leaders and the election in germany over the weekend. As far as european futures, it looks like they are still concerned about what happened in the u. S. On friday. We had futures down across the board, but it will be interesting to see what happens with fixed income assets this morning throughout europe. Guy last month, we have gone twothree, twosix. Lets walk in whats happening with the gmm screen. First up, we are going to do the other one, the japanese nikkei, which has been moving sharply to the downside but this kind of explains it. The bloomberg dollar index down by. 5 , the japanese yen rising sharply, translating into a weaker nikkei. Lets move on to the other column we were showing you and give you a heads up there. Gold,rst one is continuing to do reasonably well in this environment. The other one, and we will talk about this later, is the continuation of the weakness in the iron ore futures. You can see that very strongly in asian trade overnight. Lets get the bloomberg first word news update with juliette saly. Juliette guy, thank you. The u. K. s Prime Minister will follow her initiation of the Brexit Process this week by setting out how she plans to bring thousands of European Union regulations under british control. Theresa may is due to send a letter to the eu on wednesday, announcing the start of departure negotiations. The following day, her government will publish detailed plans for the repeal bill. Portugals economy minister said that it should not weigh on the rest of the bloc. The next two years or the next five years, we have to focus on having good results on negotiations. But we also have to focus on moving forward. The onlynnot expect channel to be brexit. Juliette in germany, Angela Merkels election victory has delivered a reality check in this years contest for the chancellery. Energized by the candidacy of martin schulz, the scd headed into the talent with a pull balance. Instead it posted its biggest wind in four years, taking 40. 7 of the vote. Meanwhile, Marine Le Pen has tried to reassure voters about her ability to achieve a smooth exit from the euro as a rival Emmanuel Macron inches ahead in the polls. Front candidate said leaving the single currency needs to be done carefully. She added that reinstating border controls and keeping factory jobs in france would be her priorities if she wins power. In south korea, prosecutors are seeking a war and for the arrest of the ousted president. She was questioned at length last week about the influence scandal that forced her from office. She is accused of pressuring businesses to donate millions of dollars to a confidante in return for government favors. The scandal has embroiled big names, including the de facto samsung heir apparent. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. Im juliette saly. This is bloomberg. Guy . Guy thank you, juliette. Morning, with what is happening in the fixedincome story. The dollar on the move, slumping to a fourmonth low. U. S. Equity futures and European Equity futures extending declines with skepticism of Donald Trumps ability to implement an economic agenda after last weeks failed health care deal. Meanwhile, a former atlanta fed president says the failed u. S. Health care bill means any fiscal boom will take longer to materialize. Ofi think fridays outcome the health care nonvote, the health care situation, suggests that maybe reality is that things will take more time and they will be a little bit more it will be more difficult to get to the fiscal impact that surge ofed in the optimism just after the election. Guy for more, lets bring in mark from singapore. Mark, lets take a look at whats happening stateside now. The average investor has an interesting view. How will the marginal investor view u. S. Equities at the moment . Think it is hard to see any marginal investor deciding to put yo you cash into the u. S. Stock market. Its not that the failure of the Health Care Bill is so dramatic, but it does make it harder to put through fiscal stimulus and pushes back the schedule. At the margin this is definitely a negative blow, and it undermines Trump Administration. Fresh investor saying this is the weaker want to buy into stocks. The trader is more likely to be selling, and that means there is probably more downside to come in the weeks ahead. Matt mark, how much does windowdressing effects stocks monthend, quarterend . Is it as important as the Health Care Bill . Well, its quite a confusing one this time. Suggest thatuld there could be equity buying and bond selling in the u. S. But on the quarter and basis, it is the other way around. Theres a bit of an argument about which is more relevant. However, this time around, the average stock investor who has gone long in 2017 on a volume 321. 9,ed average as 2 which is below where we closed on friday. Offside. T level, its before quarterend, they will want to lock in profit, and i think we will see things this week as there is more downside pressure. Its another marginal negative. Guy mark, i pulled this out earlier on, the trend line. Does that mean we balance . Bounce . At the moment i think we are breaking through that level. Important, close is and i should note that earlier this month there was some technicals on the futures and they didnt seem to be as relevant as the cash market. However the cash market did break last week. I think the technicals are weighing up for a negative picture. That doesnt mean we need to crash today or tomorrow, this is just saying that technical people are going to be selling, fundamental people will be selling, people on the margin will be selling. All these different categories are selling. Not suddenly, not viciously, but this week will be a tough week, and for equities to rally they will be fighting a lot of headwind. Guy mark cudmore, thank you very much. Mark talkingfor about how you can get out of passive investors. That has always been something of a conundrum. Maybe the month and story technicals provide interesting analysis. Mliv go. What have we got for the rest of the show . A whole host of exclusive interviews. We have plenty to think about today. Wednesday we speak to derek rosengren. Friday jim bollard,. Interesting conversations. As oilive in kuwait city producers consider an extension to output cuts. Later, marching toward brexit. Theresa may is set to trigger article 50 wednesday. We will talk about the road ahead and what it could mean for investors. Those conversations coming up. This is bloomberg. The market open is 20 minutes away. Matt good morning. Welcome to Bloomberg Markets. Im matt miller in frankfurt, alongside guy johnson in london. It could be a shaky open this morning for european equities after big drops in asia overnight, and in the u. S. On friday. The right now we want to get the Bloomberg Business flash, and for that we go to hong kong with juliette saly. Juliette matt, thank you. Is reportedlyce taking steps that could lead to a Capital Increase of a billion euros. According to an italian newspaper, switzerlands largest insurer could consider issuing new shares that could not exceed 20 of current capitalization. The banks relations chief says there are no plans to gain capital. Uber has suspended its self driving car program after one of its Autonomous Vehicles was involved in a high impact crash in arizona. Police say the other car failed to yield to the self driving volvo, and the company is not responsible for the accident. No one was hurt in the crash and uber says it is causing autonomisous tests until it completes an investigation. The u. K. Government says facebook should open up encryption of whatsapp to the security services. British newspapers say the man who killed four people in Parliament Last week used the service shortly before his attack. The home secretary told the bbc it is completely unacceptable that messages cant be opened. She called internet executives to a meeting this week. That is your Bloomberg Business flash. Guy . Guy thank you, indeed. I want to show you something very quickly. We are running up to the cash open, and we arty have the european bond markets and will get fairly decent legs lower on the bund yields. Quite a decent move down. Breaking lower this morning, a similar story around europe. Matt yeah. It will be interesting to see the peripheral spread here. After merkels victory, that should underlying the stability underline the stability that the eurozone has, the commitment to eurozone funding. It will be interesting to see if we get italy and spain and portugal dropping may be more than bunds. Guy you can do this on the wv screen, you can go to the spread and set it up. A decent move this morning. Italy is slightly coming up in terms of the spread. Not a massive move. It does seem to be a more broad move. Thats the spread screen. Lets talk about what happening with opec. Independent Oil Producers and are considering extending curbs on outputs, with more time to drain the global oil glut. Kuwait was the first to call for extended oil cuts. What we are looking for is a fiveyear average, and that 285ds right now at around above the fiveyear average. Once the inventory starts going down, hopefully we will go toward the fiveyear average of which we hope to gauge around the and of the third quarter. Guy Bloomberg Markets middle east anchor yousef gamal eldin joins us from kuwait city. What do we know about how long the cuts could be extended for . we are hearing different voices, about compliance and conformity. February,pec as of saudi arabia going beyond the call of duty, russia at 64 . A lot of applause, as it were, on the basis that that is going to improve even further down the line. The Energy Minister said it could go on for four to six months, but opec is not taking a formal position on any of this. They are saying wait until we see the data, because as it stands it is too early to call. But they are seeing the realities out there in terms of the oil market, saying look, you have lower seasonal demand, raising nonopec support clouding the efforts of disagreement. Give us a little bit more time and the results will show. Matt you are getting from ministers a lot of comment on and otherests, oman opec ministers looking for an extension. What is russia saying about this . Yousef i mention that the russian compliance earlier on was at 64 , but they are looking to beef that up, with structural regions behind getting the company on board. The russians maintain similar lines. Off the record they wouldnt say whether they supported an extension, but in general they are saying this is going in the right direction. Theres a consensus that this is going to take hold and take place. There is what Alexander Novak had to say, the russian Energy Minister, on whats happening at the moment. [speaking russian] at the moment, among corporates, we see Oil Companies conforming with the obligations. It looks like all the Companies Want to show compliance and i dont want to stand out. Yousef we also heard from energy aspect. They are saying if the deal is extended, you are looking at prices north of 60 per barrel. The question is what if it doesnt happen . Guy, matt . Matt yousef gamal eldin, there from kuwait city. Guy, i dont there is some interesting action. We were talking about it in the fixed income market, and you are seeing a tight knot. Guy was interesting is he would have thought this would go in a different direction. Maybe it is the le pen comments. This is the friendsgerman the francegermany. You might expect this to tighten up sorry, to widen up, but we are seeing it tighten up. A fairly big move in european bond markets with what we are seeing in the states, unsurprising given what happened friday. European stocks, matt, are called a decent chunk lower. Coming up, we will take a look at what is happening with some of these stocks to watch. Zurich is one we will be watching fairly carefully. We will also watch what happens with the miners on the back of this move and iron ore. The open is 10 minutes away. This is bloomberg. Matt welcome back to the European Market open. Im matt miller alongside guy johnson. Just a few minutes away from the cash open now in equities. We want to get it is stocks you should keep your eye on this morning in the european trade. Is a wreck insurance group, switzerlands largest insurer, is definitely one of them after reports saying it will raise as much as a billion euros in capital. We have to stress, this is according to a paper. The banks investor relation chief says there are no plans, but it will send ripples through the market and will hit their stock. Guy yeah. We have to watch the miners fairly closely. This is the gmm function. Iron ore is down 4. 39 . You also have copper down 1. 6 . What you have got as well is gold rising. What you may see is some sort of divergence today between the Industrial Metals and the Precious Metals in terms of their overall performance. Some of this is fundamental, some of it is dollar related. Whats interesting let me take you to what happened in australia. This was the closer play out in australia. You saw billiton and rio and fortescue, the three main losers. You can see the very clear. This is where the weight was this morning. The miners down in australia, that doesnt always translate, but i am highlighting for you what happens in the metal sector and what we have seen in australia. I want to paint the picture of what could happen in the commodities space. Its going to be interesting to see how this one works its way through. European futures are pretty negative right now. Matt absolutely. Miners, as size of the how much they tend to move, especially the ftse. The basic Materials Group is a huge part of the stoxx 600, but especially affecting the london market, because you have the biggest ones all traded there. Often so miners, goes the rest of the market. The counterweight would be the financials, but it will be interesting to see how they do on concern about the trump Health Care Bill. Does that set the scene for a weaker Trump Administration, or is it on related . The failure of trumps passage of that Health Care Bill, with the other things he wants to push through the Financial Investors had been so positive about this far. Guy yeah, and i think you are seeing that story played out over the last few trading sessions. The other counterweight to the metals story in london, we will see what happens with the pound. What we are pricing in london is a revenue stream that is largely denominated in dollars, so you have to price that back in. The pound is maybe a counterweight. Nevertheless, you get the fair value calculation, it looks like that the stoxx is going to open down, ftse down, cac down, dax outperforming a little bit. Italy looks like it will be down 1 this morning. That will be an interesting story to watch. Lets show you whats been happening with the bond markets. I want to go back to what is happening with the bund trade. Yields coming down, prices are rising. You have seen a decent move lower this morning in the european fixedincome space. We are watching very carefully. We have seen this on u. S. Treasuries, where we are now, but at the moment it looks like european equities are softer into the getgo. Guy the cash open is one minute away. Lets talk about where we expected to go. We are thinking its a softer opening, down by. 5 . Weve already seen a fairly big move lower in european yields, which would then translate into what we are seeing in the equity market as well. The other thing to Pay Attention to is the miners. You have seen a big selloff on iron ore overnight, but on the upside, its all a given. Matt thats right. We focus on iron ore, on copper, on the price of oil, which has also been slipping. 47, unable tond break for 48. I think its interesting to look at gold, up more than 1 . It has had a great run, at its highest level since at least a month, i think february is the last time we saw it this high. The concern about the Health Care Bill is pushing higher. Guy absolutely. Lets take a look at the market open. Lets see where we are starting out. We ended up with selloff in the oil stocks this morning, and we are expecting the markets to drive reasonably to drop reasonably sharply. Ftse open, cac open, down by. 2 . Ase 100 trading down, similar story for the attache c. These are the kinds of numbers we anticipated. Italy could be soft, switzerland opening, could be interesting. Lets get the details and find out whats happening with manus cranny. Manus today. Shangha good day. Shanghai composite has closed down a couple points, with comments coming through from the pboc governor, talking about the quid pro quo in the relationship that they expect, that the chinese expect. They want to liberalize their banking insurance and securities markets, but they want to be treated, they want investors to be treated fairly overseas. That was the message coming through from the pboc. How do you position yourself . Europe is opening lower do you take advantage of that . Morning, europe will outperform. This is the eurozone versus u. S. Equities. You can see that rising for europe over u. S. Equities. The deflation is flagging. Euro is cheap by every metric, and this tallies up with what bank of america was saying. You some money flowing out of u. S. Equities, the largest blowout in 38 weeks. U. N. That were mentioning the bond market, on futures and europeans, up by 48 points. You are seeing this momentum higher in terms of futures. The merkel victory, what political message that sends to markets ininto the terms of propensity for continuity. Yields are consequently lower. Have a look at gilt. Yield,elds the real 1. 16 on the headline, that i s the implied yield. When we talk about real yield in the u. K. , its at the lowest level since 2012. Appeal,that reduce the really, of gilt in International Investors view . Guy. Guy lets go to the mov screen. Thank you. Lets show you whats going on, because its an interesting set up. Miners definitely weaker. A big one,tory is glencore off, affected by the cyclone cutting a couple coal mines out, cyclone debbie affecting the australian market. Then you have the bank of America Merrill lynch downgrade, down by 3. 64 . Bhp down in oz. Anglo American Trading down by 3 , rio tinto softer. Miners and the banks moving us. Hsbc, lloyds, santander, bnp paribas to the downside. Commodities in financials. Lets look at the gainers. To your point you are making before the break, look at where randgold resources. Is tradin rand gold is. Ferrari up as well. Matt yeah. We dont see many gainers on the stocks 50. Stoxx 50. Part, European Markets are down. See thisresting to carry all the way from friday afternoon in the u. S. , the failure of the Trump Administration to pass that Health Care Bill, the failure of republicans to pass their health care overhaul, is concerning to a lot of investors, because they think it means that the Trump Administration will have problems passing tax reforms, deregulation infrastructure spending. Thats cast a paul over equity markets worldwide. Guy it certainly has. Still down at a fourmonth low, equity futures now pricing in further gains for the losses from what we saw friday, this around the trump skepticism trade that seems to be coming in post Health Care Story in the united states. Lets ask our guest to joins us on set, the only question we need to ask any of our guests. He joins us wheres the dollar going . Going lower at the moment. Has been for the last few months. If you look at the different indicators, whether it is Interest Rate differentials, the real yield, everything to me indicates that it may carry on softening from here. Matt freddie, what is your take on the Health Care Bill . Is that really a bad omen for future stimulus projects in the u. S. . To a degree, the obvious read through which the markets are pricing in is that its a marginal negative, and that seems reasonable to me. I think you need to read into the second order of effects. If you are donald trump and his team, the most willing in the past few decades to drive through strong tax reform, you are no real incentivized to make sure the next deal you do does work. You are probably more willing to compromise. This may mean you have to adopt something more fiscally conservative, but it probably means that this terms of the past deal you proposed will be more comfortable to the republicans and democrats alike. Potentially there is a counter to the fact that it will be less likely to get through, purely because of political instability. An optimistic spin on this, because it makes the republicans, trump, forces them to be more pragmatic in their next legislative attempt . Does that mean you see that as a buying opportunity . To integrate. To a degree. The Trump Administration has a lot of willingness to drive something through in tax reform. We dont know what the plan is, and i knows the content, dont think we knew what we were buying other than an administration with a willingness to do tax reform. We still have that willingness, if anything else. I do see counters to the immediate negatives on the margin. Guy do we get a border tax . If we get a border tax the expectation is the dollar goes up. I would agree with that conclusion from pure economic theory. I have no insight as to whether we get one or not. I hope we dont, i think its quite regressive, and there are other ways to solve the problem. Guy the dollar goes straight up at that point. , it does exactly. Financial conditions tighten hugely, and there a lot of uncertainty about moving jobs around. There will be a break and economic productivity gains. I can see the dollar going up immediately on the pure economic front. Loweredions have to be to try to meet the uncertainty that comes through. Guy short commodities question s . Rk probably still. The way the dollar is priced looks tohe it me like there could be a 20 down and commodities. I dont know. The main industrial commodity seems to be moving down, that 10 20 range and i think that is where it will settle down again. Matt freddie, prior to founding latitude, you were at odea , rothchild, goldman, picking winners and losers. Does the possibility of a trump border tax or a hard brexit, which may be negatives in the big picture, make your job easier picking winners and losers . It doesnt, actually. What we like to do is buy Business Models that have better than average chances of success over the next three to five years. What you look at is the risks of those Business Models. That is what one tries to assess when one does fundamental analysis on companies. That difficulty is one can price risk, but not uncertainty. With uncertainty around brexit negotiations and how they will play out, whether the Trump Administration will get in or not, and whether a border adjustment taxes coming through in u. S. Retailers, where we have longterm positions, if they border adjustment tax comes through, the on come will automatically go to zero the income will automatically go to zero. Thats a huge amount of uncertainty. We believe there will be offsets and that its unlikely there will be a border adjustment tax. But that level of uncertainty makes our job of holding our nerve in companies we believe in more difficult. Guy the adjustments are critical and harder to divine. Freddie will stay with us. What have we got . A busy show. Rome,t, the treaty of unity in the face of brexit. And former atlanta fed president Dennis Lockhart tells us how he sees the u. S. Federal reserve raising rates this year. I will give you a clue its not more than two. This is bloomberg. Matt welcome back. Im matt miller in frankfurt, alongside guy johnson in london. A down day for stocks 13 minutes of the session. We are down across the board on the ftse, cac, dax, losses of almost 1 on concern about the Trump Administrations ability to push through more stimulus measures after the dramatic failure of the Health Care Bill, and as the quarter comes to an end, only a few trading days left in the session. It doesnt look good for equities today. No, andw, and its its the way you would expect it to be in terms of the layout, where money is rotating from and to. Broadly rotating out of equities. We have seen a big move in commodities unsurprising,. Basic resources is the biggest loser. The big players are getting knocked about. A capital rates in the Insurance Market story weighing as well. Construction and materials weighing. The basic resources and the banks are where the real weight is, and that is where the pain is coming through in terms of where money is rotating out. The market is probably off, underperformance off by. 9 , basic resources and banks down in terms of the way they are softening up. A big move in the bond market. Lets talk about the political backdrop. One fact we havent talked about yet, european leaders gathering in rome to celebrate 60 years since the treaty of rome laying the foundations for the bloc days before the u. K. Begins its european divorce. Eu leaders pledging to remain united. Europe is a political entity that will either be united or will not be at all. Only a united europe can be a sovereign europe in relation to the rest of the world, and only a sovereign europe guarantees independence for its nations, guarantees freedom for its citizens. Discussing,ave been the u. K. Plans to trigger article 50 wednesday. Theresa may send a letter to the European Union, leaders in brussels announcing the start of departure negotiations. Freddie lait joins us. The market described uncertainty. They like certainty. We are starting to get certainty now around brexit. How does that change things . I think you could possibly it woulding surprise a lot of people in the market but people have been shorting the pound into all these different negotiations. Markets like risk because they can price risk. They dislike uncertainty because you cant price it. Im not suggesting that post article 50 we have a huge amount of certainty, that we are one step closer toward where we are going to get. It was interesting to see the europeans coming out and suggesting an open negotiation, playing all positions on the table. That would give more certainty to the markets. When you are combining that with large short positions in sterling the surprise move would be a rally. Guy lets talk about that. What we have is the latest cftc data. What we have seen is this incredible short position, which now looks like it is just beginning to soften up. Nevertheless, the market is incredibly short sterling. From a positioning point of view, do we have to bounce . Someone is going to buy it back. There is a natural buyer of sterling. If what we said earlier is true in the dollar seems to be softening, i believe a lot of International Investment managers will run long dollar positions. Its a natural position to run. In the shortterm perhaps that will come back to bite them. Matt a shortterm move, possibly, but do you really think the longterm implications of a hard brexit, the loss of revenue, the loss of gdp growth, the loss of employment has been priced into the pound . Its quite hard to tell what has been priced into the pound, but i see where you are coming from. The difficulties we have priced in the negatives. Power,nald trump got to we were willing to price it in. Theave ignored an longerterm negative implications. Sterling. S true with you mentioned the revenue loss, which we will have, the we will have new Revenue Sources and will be open to business with new people. With everyone of these things theres a balancing offset, and it is still uncertain. Im not sure whats priced into the pound, but i dont think many of those potential positives are. Matt what do you expect from negotiations . Ope is likely to play got to take a hard line stance on negotiating any trade agreements with others before it accepts the eu. It is not legally allowed to. How much hardball is youre going to play here . Well, my read of the press over the weekend ahead of the announcement to come on wednesday was a bit more favorable than that. There was an interview with john claude juncker, who was resigned. Was indicated that perhaps, in the mediumterm, they will have to be softer on their ever closer union, and everyone is going to have to move through is practically as possible to solve the brexit problem. They came out and said they want to have an open negotiation, where everyone lays out key objectives, the british and the europeans, and we try and negotiate in a friendly way as possible. That doesnt suit our particular position at the moment, which is one of complete secrecy, but for the deal itself, that is probably a great positive. I saw a couple glimmers of hope that the rhetoric around them treating us to keep the others in the bloc in the future wont come through. Matt talk guy lets talk about how we position ourselves. Youre expecting more certainty on sterling. Lets talk about how that feeds into the equity market. Your today currency adjusted, in ftse 100 is up by 1. 92 pounds. We are getting a difference in the currency trade. Lets say your dollar trade, your commodity trade, your stronger sterling trade and my short the ftse and longer pound . It doesnt sound good for ftse, does it . Guy commodities down, pound up pound up could help the financial sector, which would be the offsetting benefit, but key ones are the oil and gas and mining stocks. They are still paying dividends, predominantly bought for their dividends security, but are not covering it for free cash flow. That while you still have more capital going into those sectors and more people drilling and mining, absent the opec deals, i feel that you are going to have more profits, fewer profits over greater levels of capital, lower returns for the next few years, and i think the sector can continue. Guy i probably should have done that in euros. Freddie, great stuff. Why the former atlanta sent president believes there could be two more rate increases this year. Dennis lockhart next. This is bloomberg. Matt welcome back to the European Market open. I netnet miller in frankfurt. A lot of whats going on in markets this morning has to do with issues in the u. S. Over the last week and over the weekend. One of those is how the fed is going to move, in the Federal Reserve has room for two more rate hikes this year, according to former atlanta fed president Dennis Lockhart. The u. S. Vonne man that rate pass is on track and the economy seems reasonably close to full employment, and likely to gather pace. I dont see the fed behind the curve. I think the satisfaction that the numbers are still below 2 been moving in the right direction, thats the key thought at the moment. Matt freddie lait is still with us, founder and cio of latitude investment management. Does two rate hikes left this year, does that disappoint you . Were you expecting more . Know, thats in line n no, thats in line with expectations. The nose . We will who knows . We will have to wait and see. I feel like something will come along that tempers the enthusiasm for three. Guy and we just keep going with that. Is that more manageable . They will certainly try. To biggest shock of the Quantitative Easing Program and now the rate hike seems to be ordinary and working. Thats the greatest surprise, that it hasnt caused some great unraveling. These past few hikes were done slowly. I think the biggest thing to watch is that in the past cycles , a 4 cumulative ride in u. S. Interest rates precipitated a recession. This has only been 1. 5 over the next year and a half, but if you consider that as having come from an imaginary atlanta said you may beof 2. 5 , looking at quite a steep cycle rise by the middle of next year. Matt does that kill this bull market . They could. I think it really could. It has in the past. It depends on the efficacy with which we think we have managed to measure the effect of negative Interest Rate for quantitative easing, which is not a trivial thing to measure. Ide asing in that is a gu to where we are going in the next couple years, i would argue. But in the meantime, the first hundred basis points of rate rises, normally you see a bull market ensuing. From latitudeait, investment management. I could show you the charts, 125. 75 at the moment. Moment. 5 at the next, german politics. This is bloomberg. Falters. Trump trade will the president be able to enact his agenda. The dollar in u. S. Equity futures faltered the yen and gold game. U. K. Prime minister visiting scotland today. Ahead of triggering article 50 on wednesday. Will the markets appreciate the clarity that will bring. And Oil Producers pledge to consider pursuing output cuts. Iron or continuous to tumble. Welcome to Bloomberg Markets the european open. I am matt miller in frankfurt alongside guy johnson in london, our european headquarters. Guy markets are softer going into todays trading session. Why are these markets trading down . We are down just shy of 1 . Ubs,tis, lloyds, hsbc, Royal Dutch Shell take names with big drops. They are all underperforming the market this morning and that is why you are seeing them at the softness you are seeing this morning. And the politics story is an interesting part of the story. European politics or not to be ignored. Matt absolutely. After a victory for the free worlds continuity candidate, Angela MerkelChristian Democratic Union chalked up its itgest win in 13 years but is still almost six months until Germanys National election takes place in september. Our reporter from berlin joins us. How important was this win for Angela Merkel . Win was fairly important in the sense that it made a really good start to this election year. She has been under fire within her own party. She can calm the people down who were eager early on to start the election campaign. Fading off of a fear within her own party. Guy a couple of quick questions on that. First one, what could deny her now a fourth term and can wait and can we read anything about the politics in berlin . Is martinn challenge short can still take a leap. This election has shown a new spd is the top of the not enough. But surely, this is the first election where she has a serious challenger. That thetion has shown center in germany is still very strong and that the std cannot cannot just the spd a new face,ting they also have to put out a new message. Matt that brings up the question of the differences between these two candidates. People outside germany do not see a massive difference between the policies of spd and the policies of Angela Merkel and the ecb you and the cbu. Scholz are not that different. They are probed europe and pro immigrants and they are both realists. And pragmatists. Expect a change as see with expect to trump in america or Marine Le Pen in france. Clearly scholz is trying to rewire the agenda and wants to introduce more socialist policies but you will not expect a radical change in europe with scholz should he be a elected. Guy thank you very much indeed. Joining as out of berlin. Looking forward to the elections at the end of the year. She brings up the issue of france. Marine le pen says leaving the the final result because she wants to wait for the final results from the german election. She was trying to reassure investors that her plans to pull france out of the eu will not bring chaos. How do you price french risk into a portfolio . It is very difficult. It is nice to see the odds of a Marine Le Pen victory are falling. The uncertainty of her taking thatut of the euro is too difficult to price the downside or the moves that will happen. One way is to stay clear. Guy the data is quite good at the moment. How do i balance the better data. Was arman pmi last week really strong number. How dwight built European Growth how do il risk build European Growth and Political Risk . It is probably capable of supporting an economic recovery. You have to say that its isency that its latency suppressed. And then we do get to potentially Marine Le Pen losing cronmake rent and mak winning. Euro where do you see the in that case at the end of the year . Freddie i feel that given what is going on with the dollar is much more important and sterling in particular. Europe the trade rate in between those two constituents matter more. The weaker euro against sterling but a stronger euro against the dollar. Wrap there going to story around the commodities. If you are a bloomberg customer, show usingch this the tv function. You can also catch us on the radio. You can catch up with the charts that matt and i are using and you can also let us know what you think. Tv. , consensus. S finding Common Ground on extending their cats. There cuts. This is bloomberg. Matt good morning. Markets, theberg european open. 40 minutes into the session. 0. 7 5 . Own a down day for equities. Let us get to the first word news. Juliette saly. The uks Prime Minister will follow her initiation of the Brexit Process this week by setting out how she europeanbring regulations under british control. She is due to send a letter to the eu on wednesday announcing the start of the departure negotiations. She will Plan Detailed she will issue detailed plans. The negotiations must not be allowed to weigh on the rest of the block. Russian Opposition Leader has appeared in a moscow court after detention at a protest yesterday. According to an Associated Press journalist, the anticorruption campaigner was arrested while walking to a nearby subway station. Detained nearly 700 protesters and mid rallies that appeared to be the largest since 2012. The south korea prosecutors are seeking against the president. At length. Stioned she is accused of pressuring businesses to donate millions of dollars to a, a dot return for government favors. The scandal has embroiled some big names including a defector jay y. Lee. Global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. This is bloomberg. And opec members independent Oil Producers are considering extending kurds on output curbs on output cuts. Saying that all inventories have grown more than expected. Is aat we are looking for fiveyear average of inventories 285that stands right now at above the fiveyear average. Once the inventories start going down, hopefully we will go towards the fiveyear average of which we hope to reach around the end of the third quarter. Guy commodities the subject of the day. Let us talk about what has been happening with iron or overnight. Futures continue to be in retreat. Tumbling steel prices. Part andoing on is inventory story and a dollar story. In some ways, the beginning of the chart is totally illogical. You have inventory and futures. Inventory rising and futures rising. Futuresy rising falling. That seems more logical. Let us bring in the managing editor to talk about this. Our managing editor of commodities. Alexanderus bring in to give us exactly what this group is here on iron or. Down the price here . What is behind the freefall we are seeing . There is little doubt that the iron or market got ahead of itself. What we are seeing now is reality catching up with prices. We solve this extraordinary runup in prices through last year and the beginning of this year. Out, on a wave of optimism of chinese demand. And record stockpiles at chinese ports. What is happening now is that the chinese are tightening curves curbs on property. Stock prices continue to rise. Coming fromoduction the biggest suppliers like australia and brazil which is adding to the bearish headwinds in the market and reality is catching up. What i am hearing is a different view of all of this from the big mining groups. What are we getting from one extreme to another in terms of saying whod rio are have big exposure in this . Alexander i dont think anyone will be particularly surprised by the pullback we are seeing. And the miners themselves seem pretty sanguine about it. The ceo of the hp he was expecting a move to lower prices as the impact of chinese stimulus wears off. They have been predicting weaker prices in iron or. Not everyone is that bearish however. Tinto said he was longerterm positive about the outlook of iron or as structural reform in china will be positive for demand. These miners, have significant margins when it comes to iron ore. They have been cutting costs and they have big cushions. I dont inc. This pullback will hold that much fear for them. Is the outlook for the broader commodities outlook ick commodities outlook . Alexander the steam from commodities has been released a bit. Oil is engaged in a tugofwar between opec and shale and that will continue to play out. The industrial commodities fundamentally the industrial commodities, fundamentally chinese demand has been shrinking. From that fundamental point of view, this is positive for the commodities complex. Guy thank you very much. Alexander joining us on the commodity story. Let us talk about commodities and e. M. You have been fairly downbeat about the commodity story but many people are very upbeat about e. M. I bring you this chart which is indonesian bonds which everyone was fixated on and they continue to accelerate to the upside. Talk me through how i on one hand can be positive about e. M. And on the other hand, negative about commodities. Freddie this is one of those examples in the market where people use longterm analysis to look at implications across markets. What you have missed if you say that is that in the last 68 months the divergence has never been as wide. That is what is closing. You are seeing this strong aversion. That the commodity market can do better. At the same time as the emerging market currencies can do well also. Of the forgotten area world post2011 when the commodity boom ended. I think it makes sense. Fed policyuch does contribute to your outlook . Freddie hugely in as much as it affects the dollar. If the outlook strengthens and they manage to drive the dollar back higher again, that would draw capital away from the emerging markets and that chart in particular that guy just showed on indonesian bond closed perhaps could reverse. I dont see that happening. Donald trump, protectionism and trade. E. M. That back into freddie it is one of those uncertainties. It is like trying to price Marine Le Pen in. I am content to have a small amount of exposure and hope that you are hedged against it though in reality you will not be. You cannot price the risk of trade war on emerging markets at the moment. Mentioned earlier that the ok is going to find other partners. If e. M. Has difficulty pricing into the u. S. , what they find another buyer for their goods . We have spoken a lot about the commonwealth in particular that all areas across the emerging market and the world will be open to u. K. Negotiations. That could be a great source of new trade negotiations. E. M. As if itbout is a big basket. It is not. That i the key areas think are more attractive at the moment are latin american risks and indian. China i find still very difficult although a lot of the companies have better reporting standards and russia is very risky. Indonesia, 10 or so countries over there are investable. They have good growth, strong economies and reasonable governments. One has to do a lot of primary research. why do you find russia why do you find russia risky . Developing strong friendships with u. S. President s . Freddie you are right and from that perspective there is probably a decent amount of shortterm upside with russia. Mikey analysis comes from oil prices. Analysis comes from oil prices. A quick look at some of the markets this morning. A selloff. The financials are getting beaten out. We are seeing some of the mining stocks coming under pressure. Some of the bigger names, health sketchy. S, a little a fairly dismal start to the final week of the month here in london. That picture makes it look worse than it is to be brutally honest but it made some of what is happening. The ftse 100 down a full percent. This is bloomberg. Welcome back to the European Market open. Youre looking at a live shot of religion. I am sure it is a gorgeous day there that i am not there, i am in frankfurt. Im about to interview the banking supervisor of the ecb. That will be an exclusive interview. We have a lot of exclusive and exciting interviews to talk about but the equity market is dimming my outlook for this start of the week. We are down more than 1 on the ftse and the dac and the cac is on was there. Equity markets are rather wish are rather bullish. Guy a leg lower. Are trading at session lows on european equities. At the moment, let me run you around this green. I have this setup of index points. We have novartis, hsbc. Some of the banks. Really eclectic mix oil stocks. Banking names. Industrials. Roche on the pharma side. Novartis with the biggest downside dragged with hsbc. Breaking it out the other way. That if theed to me market is losing come the losers are on the left. 2. 5 . Ld up the dollar is down and gold is going up. One of the more interesting trade. We could come back. Let us get a quick look at where Index Futures are. Down another 0. 6 . The u. S. Open looks like it will be soft also. Matt there are so many negatives out there. The dramatic failure to pass the Health Care Bill by the Trump Administration. That will not help start the week. The commodity drop raising questions about the global economy. You know investors like to buy the dips in this bull rally. Morning. Have a busy we are looking forward to the interviews. I am joining the radio team. Before i do that, i am going to talk to tim clark, the president of emirates airlines. Start of ther the laptop ban. That will be a playing out later this morning. This is bloomberg. Francine health scare. Trump lashes out at republicans after suffering defeat in the house. Dollar skepticism grips markets. Will the treasury bull market into extra time . Prime minister may heads to scotland or marriage counseling the for serving the e. U. With divorce papers. And the worlds major Oil Producers consider extending output reductions to boost prices. We are in kuwait with the latest. This is bloomberg surveillance. Coming up, we speak to emirates president tim