For hikes in 2017 may be latest to protect the economy from overheating. Electioning french will be typical for europe, permanent risk. That is according to the italian finance minister. Lesson have half or less than half an hour. Very slight gain this morning. Euro stocks 50 futures of. 5 . 05 bond yields. T bonds, are selling off very slight move but it looks like it could be a risk. Lets walk everybody overnight. Focus on foreignexchange rights now. The dollar being bid this morning. Something to Pay Attention to as well. A better day yesterday against the euro than the dollar. Starting to reverse a little bit. We will see how trade plays out over the next couple of hours. Juliette thank you. Brexit may offering a deal. The eu is challenging her attempt to tie a freetrade deal. Some coverage hands of the great repeal bill intending to adopt eu rules in british law. Donald trump will be briefed today on various ways to implement conference attack us tax code. Possible options by a group of officials. One of the proposal that will be presented is the border adjusted tax. Revived travel ban inst six muscle mazes muslim nations remains locked. Commendatory intentions. The central bank should be compared to raise rates a total of four times in 2017 to guard against overheating the u. S. Economy. , callingto bloomberg for a hike every other meeting. For in one year would be much less than what we did with the last we were coming with the recession. It is twice as fast. Relative to that this is much more gradual. Global news, 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Pulled thea may trigger on brexit yesterday. Theusively speaking to letsinister and not underestimate the different points of views and the fact that europe would probably take not an easy stance. Sometime it will have to be devoted to transition measures needed to allow for the new arrangement to work. Otherwise a risk of destruction that cannot be estimated. The different views across European Countries, negotiations proceed and leadership will be able to commission. You are bored speak. A must he the u. K. Needs to pay . We heard different figures. The fact that become down to an agreement which is as peaceful and forwardlooking as possible. We will then ask ourselves what will be europe after brexit is completed . Will it stay together, these proper, or the weekend . Answer the demands coming from european citizens, increasingly calling for distribution guy lets kick this around a little bit. Matt a key point that everybody was talking about. Brexit position is the 27 that are left stronger and more unified. Donald tusk said that in his statement. A show of strength and to do it in a fair way so that the European Union and the u. K. Can continue to Work Together very closely. The ball is back in brussels is court. The remaining eus court. Startedk has now because of the way that come down works. Defense on the table is a first bargaining chip. He seemed to achieve to some of the people i spoke with at the council. The reaction in the u. K. To the bill, they do not see it as a they see it as a bill for Services Already rendered. You putse it is like if a dinner club you have to pay the food you ate. That is what they want from prison and it is interesting that the u. K. Miskicking back. More coverage coming up on brexit. We will talk to pimco later on. The u. S. President donald trump will meet with terry cohen later today. How will they go about shaping trumps plan to overhaul tax . 50er triggering article theresa may is set to adopt eu rules in british law. The latest on the repeal bill. This is bloomberg. Matt 19 minutes until the beginning of cash trade. It is looking a little bit like a risk on day today. Futures are very little changed. Lets get to the Bloomberg Business flash with juliette. Juliette thank you. H m reported firstquarter earnings that beat estimates. Store openings helped offset higher purchasing path. Retailer says it will it is a new brand with the outlet opening in london this fall and samsung has unveiled its new flagship smartphone. The galaxy essays. A tendency to new features like encrypted facial recognition. Deeply sorry and profoundly sorry for his investment. In a letter to investors, a huge mistake. The investment Pershing Square capital 4 billion in losses. That is your Bloomberg Business flash. Crude cap a second straight day of gains in more than a month after u. S. Gasoline stockpiles fell more than estimated to wti reached more than 50 a barrel. Mark cudmore. Mark market is about to resume the trade. I would point out most commodities remain below the february peak. Despite the sharp rebound it is 5 lower at seven or 8 lower in eci. Reflation trade is still in trouble as a result. Guy time to sell. Walk us through wide. Why. That everybody fall into the rebels. Thereks very solid but are if you think that it happened in the last couple of weeks and they are fundamentally significant. Trumps significance has been undermined. The expectations with the size, stimulus, and speed theyve been delivered have been set back. Not a Public Survey data in the west. To quick, withng the way that commodities are trading as well they may be slightly hasty. To be fair, you have been vocal about your opinion that trump is going to derail the rally for quite some time. The s p is of more than 10 since november 8 and it has not really rolled over. What you think this time investors will lose faith . I do not think that trump will derail it as wall. It at all. All the data is it Global Growth will pick up. I think the answer valuation put on u. S. Equities as a result of the belief in trumps stimulus was misguided. This idea that u. S. Equities were going to outperform and roar ahead is not. That is proven to be the case. From structurally bearish equities. Global liquidity is too good. It will be healthy for the market, and i do think the cannot continue. I think that is the bit about the trade that has been misguided. Three the key think they have made money on is the fix. The vix continues to remain in the sideways track to incredibly low levels. When we look for clues that things will happen . The vix is a measure of worry. Is broken as a model. In terms of castrating, so much of the immediate risk hedging is done through them and people no longer object is much through the banks. When equities to blow up, the next will reflect that because both of the places so much. I dont think the vix is that. We switch back and forth so quickly and so shortterm it is hurt hard to know where the risk is. The hard data is slightly disappointed. Stimulus has not come through as quickly as they expect and commodities are showing the exceptional demand is not as high as it was. The u. S. Economy is not doing as well as hoped. Great stuff as ever. The macro strategist must smart analysis throughout the day. Today trump will meet with the head of the National Economic council. Talking about tax and the overhaul options. Three people familiar with the meeting. One of the proposals will be a order adjusted tax. The executive is editor for Global Business for bloomberg news. A big, i a ceo, i run business, what am i looking for in this meeting . It depends on what industry. If youre a big retailer, walmart, best buy, you are relying on important for supply chain you are pretty worried. This will put a 20 import levy on your goods. You will have to pass that on somehow. You are worried if youre a big retailer. High. Good to see it. Shortly there are companies in favor of this. There must be some companies that would win out with a order adjusted tax. Those of the big net exporters. Companies that are retailers but not as reliant on imported goods. Home depot is a good example. Walmart, companies that sell a lot of affordable products and they want to keep that going. Heard we are going to get movement on the Health Care Story. There is concern and we just heard from mark hubble the idea that reflation trade is broken. He trump administrations ability to generate policy Going Forward is in a tough place. How does the text story and the Health Care Story fit together . Saidul ryan had basically in order to lay in the Playing Field for tax reform we have got to get the Health Reform right. Sequencing is important. They campaigned on repealing obamacare and replacing it. Measures thatlude would have allowed you to be deficit neutral when you start looking at tax reform policy. Going back to the table and try it would bethrough, hugely surprising that you can make this work so quickly having moderates and democrats opposed and conservatives post. How they are going to get this on the table will be interesting to watch. A lot of questions Going Forward. Obama put the health off, one of the concern for companies was uncertainty. Companies worried about uncertainty now as well . It took over eight year to get obamacare through. That aard to imagine month or two into the new administration you will push through these reforms. A lot of things are hanging and balance. Countries are trying to get ahead in certain ways. Is selling bonds so they can take advantage of a higher tax rate and use that as a deduction in anticipation of tax reform down the road. These are preemptive things that are really dependent on uncertain outcome. Visibility. A lot of matt our executive editor for Global Business talking to us about the trunk tax reform trump tax reform. It is in the bag for h m thanks to a beach in the first quarter. That company and some of the other movers in todays trading. This is bloomberg. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries matt come back to a little bit of rain. Overcast but it is early. Lets get look at some of the stocks. H m. Ing of picking up, coming up with firstquarter earnings that beat analyst estimates. The retailers getting ready to open a new brand in london. Soon you will be able to go to our cat h m is a big hit with the kids. Down 13 . The stock coming from a low point and maybe this earnings beat and new brand will help boost it. Talk a little bit about what is happening in terms of the way the market goes. A lot of stocks out of london. Can put a lot of names up on the screen for you. There are 17 stocks on the stoxx 600. That is a fact you needed to Pay Attention to. Stocks may be on the downside. It could be a confusing picture when it comes to the individual names is morning. The next group i want to talk about is what is going on. A little earlier on, up by. 1. 3 . One the market expected to open up around. 1 . This is bloomberg. Guy lets talk about the european open this morning. We think it will be mildly positive. One thing i want to mention if there are 17 stocks going on the stoxx 600 this morning. A bulk of those come out of london. That is a damping factor when you think about what is happening with these markets. At the moment we think we are caught up. 1 . Is how we think this market will open up. What have you got . Chart, im looking at a think manus was looking at it as well. It shows we are seeing or have seen a month where euro stocks represented by euro stocks 50 is up at the same time as the euro is. Strategists are turning overweight on these european shares with this move in the euro as well. The correlation you can see, positive for the First Time Since last october. Guy lets talk of of the market open. It positive story, lets see how we go. London not exactly delivering from the getgo. 74. It to open aing touch to the outside. The ftse likely to see a flat start to european equities. Manus we are down for the fourth day in a row. A lot of shanghai down by. 9 . Sincee is losing streak the longest losing streak since january 2016. Two of the major banks, china construction, Agricultural Bank of china. Nonperforming loans. You have it germany, will talk about this in a wild. Cpi is going to there at the bottom of your screen. This is europe. Energy has had a bit of a bounce. Bp or shell on your bloomberg. The veracity of dividends. Majors sustained there sustain their Oil Dividends . We play some of the sound that as the italian banking problems are bank wished think west vanquished. The correlation between the euro and the euro stocks 50. If you goo f, conditions financial at a reprieve. European conditions also a little bit better and the momentum is moving on the offside. Fives and tens have risen by hundred basis points. What is that mean . In fiven, expectations and 10 years rested by 1 in the past year. That is an aggressive move. That is what the gilt market is wrestling with in london. Im off to digital video. Come and join me there. This incredible negative story through the gilt markets right now. Through at coming 2. 1. Down from 3 . What is happening with the market this morning, up by 3. 37 aiken shipping factors we heard before the break. Think the real adjusting story is. Look at the effect this morning into the european markets. Defeat. All these coming through, a whole bunch in here. The effect this morning is the european market. Something that is worth paying attention to. Adding a little bit of a break thursday morning into the performance of these markets. Broadly i think that is what is happening. Isis a factor, theresa may article 50 ran into opposition. The eu is challenging her attempt to try to tie a freetrade deal into the Security Cooperation story. Today she is set to publish plans for her great repeal bill. Intended to adopt eu rules into british law. You are a big brexit fan. You think this is great news. It was business as usual. What would have surprised me is if there is any change in the time triggering article 50. Some number has to be agreed. It makes sense. It is going to be based on what u. K. Wants to be a part of. Governmentide which it has to be a part of. Eventually thats a will be paid when there is a trade deal. We should not forget. Theres a lot of posturing in the media going on but we will see how it progresses. My feeling is people have to move away from positions to their interests. Clearly, it is in both sides interests to have a working relationship for both sides. Always maintained that pragmatism will prevail. You saw the comments overnight. There is a far more conciliatory tone that some people would say. Do you think it was a step too far for theresa may to twice reference defense and intelligence corporations that if weaken a veiled threat the negotiations not the way she wants . I do not think so. If you compare her speech house, a to lancaster much toned down version. The u. K. Has to realize that the confident as a terrible history of how things happen. The u. K. Does have to respect that. That. K. Have to respect for others it is a big political project. Difference and that is precisely why the u. K. Is leaving. You have to find out what it has to offer. That is what theresa may has done. I think she is doing a great job. I think the u. K. Made all the right moves here today. How are you going to invest over the next few years . Are you going to take a view and stick to it . Surely there is going to be a lot of noise as each day someone speaks in brussels, london, do you think there will be a lot of volatility politically that will affect your portfolio . Think it should. In sense of timeline, we are seeing this agreement has to be in place in two years. Take a closero look at what is happening. Feeling thereg will be some sort of a transition. It should not be more than three years on. The same deal and working as it is now. The next two or five days is more important. What is the outline of the format of the negotiations that is going to happen. We get that over the next couple weeks. Guy a lot of people out there take a very bearish view as to how this will affect sentiment in britain. You can see that not in the any not only in the flow data, and the sec data. The market is sensationally short of the pound in a way it financialen since the crisis. You can see it on the screen here. Is the market wrong . The market has a shortterm view. You have a shortterm view. The market will always look at that. But the market, politics. But at what is happening in the french election. You dont have the socialists. The change in europe is phenomenal. That is exactly what theresa may is realizing. Her policy is not just about exits. Is about what led to brexit with the long term thing that policymakers are looking at, and i think lets do a oneweek sterling trade. You have to get away from the shortterm is a ism. From a positioning point of view, that is true. What is your sense . Being asrket wrong on short as it is . I would not expect the pound to bounce but i do not see it sustained in the downside. What is the news in terms of what is happening . What is in place . Long are you going to keep this . The second thing is that the u. K. Is not sitting on their hands. They see what is coming and they are preparing for it. A huge amount of work done by the government and government spending. Clearly you have to have views on the other side. Matt still to come, the case. Or for hikes the are meant for a sticker a steeper rate hike. Why investors may want to be under weighing the pound. He joins us at it 30 bst. Bst. 8 30 guy nearly 40 minutes into the equity session. This is what we are trading at threats now. We are not going anywhere in a hurry. I will point out there are lots of exdividends in the market. Maybe that is not as disingenuous as the real level of sentiment on the policy side. A lot of movers this morning. I wanted to talk with morrisonss gaining 3 now. America,uy at bank of Merrill Lynch underperformed so it seems to be moving mainly on that. Postale the Belgian Service dropping the most since down 4. 6 . Contrary to the legal principle of cost plus reasonable profits. Going to oppose the price increase denial by the belgian regulator and says terrorists will remain unchanged in 2017. This reaction is still feeding into the session today. We saw the stock gain more than 2 so that is moderating slightly but still higher. This is after it said it adjusted operating profits is ahead of management views. It also sees revenue ahead of last year. Eric rosengren says the central bank should be prepared timesse rates a total of4 to guard against overheating the u. S. Economy. Much less than the last. Weime we were lazing were raising at every meeting. This is much more gradual even if we did it every other meeting. Cio at hospice capital. What do you think about the fed looking was hawkish. The last few members that have spoken doubt. Would say that if you do not see a tax reform this year i dont see how you will get three. When i wrote my december newsletter us and we will get at least three. That was predicated on reforms and policies the Trump Organization was going to bring. Thats will all be backloaded in my mind. The big caveat that you have to have something that is heaven before for the fed to get really worried. Isnt it overly optimistic to assume a reform can come out of the government . We have not seen anything like that since 1986. Without that there is no reason to feel that there is going to be running way in that respect. There is no reason. Your point about tax reform. What happened with health care falling clearly out about what they want to do. The white house goes on its own agenda and own plan. They should carry on on their own and carry on with brexit policy. Congress out between and white house is a good thing. Maybe they talk about the Health Care Bill again. Not a big crisis at this time lets talk about where we are in terms of positioning. This the range. The u. S. 10 year. We are at the bottom end of the range at the moment for you expect yields to rise with mark you think we will break out that range . Where do you expect things to go . If you look at the data. We will get the q4 gdp. European growth is looking better. See that it is going to rise. 2. 5 again. Many 2. 4. I will goes to 20 . You may have a few more things coming up because even the best is coming up in april. If you cannot agree on a tax reform, youre not going to sustained this. That is what is happening. All the way back to november. Mannish will stay with us on the european open. Be crude cycle, could oil setting up for a sustained rally after yesterdays bounce . The technicals argue for it. Still more to come. This is bloomberg. Matt welcome back. Matt miller in berlin. Guy johnson alongside me in london. He wants to get out to hong kong for the business flash. In the wake of brexit, most of london has chosen brussels for the eu insurance. The Company Announced pretax profit of 2. 1 billion pounds for the fiscal year. Unchanged from the previous. We will speak to john nelson at 10 past 9 00. That paceed earnings analysts estimates, higher purchasing costs. It will introduce a new storebrand with the first applet opening in a london this fall and since on has unveiled its new flagship smartphone. The galaxy represents the biggest prospect for a turnaround after the debacle last year was showed a tendency to catch fire and exploded. Samsung is telling the safety of the phones battery. Thank you very much indeed. Oil rallied nearly 50 a pound yesterday telling another inventory in a drop in gasoline stocks. Trend upe of trend. You can see these here. You get to these lows. They are higher and higher and higher. We going to pop . Do you expect that . I believe that defense probability is higher in the first round. That will be seen as a faulty move in the markets. A nice rally going into it. You could easily have a twomonth rally. French election and it crude, you see a line . How you feel risk on, risk off . There is experience. If youre looking for me this point of view you could see a rally. Whatever get worried about, one downside scenario. Suddenly they realize there losing market share and need to do something about it. You cannot just get your market share by doing the same thing. More,y start producing you will see a big dip in oil. If they were to take the view, they would have it Different Oil price. Carry on with this sentiment. The problem i see is there is too much supply and demand is rising quickly not to enough. Of these play. What weve seen, it is fair to see that you are not going to see breaking up of the range anytime soon over 55. That is what we have seen. I dont see how that is going to change without any major. Guy up next we are joined by mike any. We will get his take on brexit as well. This is bloomberg. Careful joe, theyve got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Something for everyone is awesome. Find your awesome with the Xfinity Stream app. More to stream to every screen. Thank you so much for that down home welcome. Show me female vocalist of the year. Thank you so much. Thank you so much acms, i appreciate it. Show me acm best moments. I could never have wished for, asked for and dreamt of anything more than this. Catch your favorite moments from the acm awards and an exclusive encore performance by Kelsea Ballerini following the show on xfinity x1. The acm awards. Live on sunday, april 2nd 8 7 central on cbs. Matt the u. K. Prime minister runs into immediate opposition from leaders in her bid to try to read trade to security. A steeper rate cap. Eric rosengren argues that for hikes this year may be needed to protect the economy from overheating is a nonvoter but he is not alone. The upcoming french elections will be pivotal for europe. A le pen victory adding permanent Political Risk area good morning and welcome to bloomberg markets. Im in berlin alongside guy johnson at the European Headquarters in london. Guy 30 minutes into the trading day forecast for equities. We are going nowhere in a hurry. Struggling toies flatline. No sense of direction. I would argue maybe there is another factor, mechanical. There are 70 dividend stocks in the market. They are dominating them. You p. M. All of these are going this morning. As a result of which, a big factor. That is the biggest index weights of the stocks and hundred 600. That is a big downside element to what is going on in these markets right now. Maybe that flatlining positioning actually is a little understating the sentiment here in europe this morning. Lets talk what the big main event yesterday in such detail. Brexit plus one. Setting the stage for two years of negotiations that will ultimately lead to the britain break up with the European Union. Your the highlights from a historic day. The United Kingdoms imminent representatives to the eu handed a letter to the president of the European Council on my behalf confirming the governments decision to invoke article 50 of the treaty of the European Union. We will remain determined and united during the difficult negotiations ahead area we will never accept for example that behind opec the u. K. Is starting trade negotiations but other countries before the withdrawal. My Firm Expectations will want to initiate in sequence, the divorce, then the future status. Member of. Is a full theEuropean Union with all rights and obligations. There is going to be some uncertainty in the marketplace for another 3, 4, 5 years. When this country leaves the European Union we will have control of our budgets and will decide how the money is spent. A catastrophe for her. Especially for the United Kingdom. As far as im concerned, no deal is a bad deal. The hard brexit as been chosen by the british side. I think it is a mistake for the United Kingdom and certainly bad for the global economy. That is simply acceptable. Ask now is not the time to be talking about theres no reason to percent that this is a happy day. May on today of all days we should be coming together as a United Kingdom. The best deal for britain. Views being put some forcefully. If inside, different perspectives. One thing we can say is that the market view at the moment is that you need to be short the pound. You can see it in the data. Manager of pimco joins us now. Good morning. Is the market right to be short sterling . I think this too high a risk on sterling. Sterling is that the bellwether of the brexit negotiation. We have seen that. You saw the first move down about in the end of june last year. We have kicked around relatively stable levels since then. There is still risk. If you get a doubt outcome, i can weaken the i think we can sort it out. Moment, if you look at where the markets are priced, if you look across the main markets and i think the pound and the gilt market both price in a i thinkly hard is it to the pound potentially can rally. I think the issue at the moment is there is no indication that negotiations are going to be smooth. We have a big gap between where the two sides are. It does not look like there is interest in closing that you gap. There twoway risk on the starting. If you want a bad brexit has a sterling can still give you that. Guy explain your death trade. Matt explain your guilt trade. The bank of england will not be able to raise rates given the inflation and sluggish growth outlook. If you look at the risk profile gilt market. The gilt market price is in unchanged rate until 2018 or beginning of 2019. Fed thes that the bank of england has obviously taken a vault political heat in the last year or so. Rates are very low. Great enthusiasm to go to the euro or negative, so i think that is that the economy slows down. The scope policy will take the slack fiscal policy will take the slack. If you look at that from a bond investor perspective, the market is a sickly priced around changed rates. If there is a need to stimulate the economy you probably get that through a higher on the supply. Obviously rates can come up for them. U. K. 10 year break even 3. 1 1 where does that go . I think intermediate brake even at 3. 10. You could conceivably see tim holden there. Most inflation rates are below central rate targets. The uks not in that condition but we are going to get an inflation and balls. When you got a better risk reward, u. K. Rates versus u. S. Rates in nominals and inflation. Rice for to fed this year. Two next year. The gilt spread at a 20 year wide. Economically performing very similar. We have the brexit uncertainty in the u. K. To me it looks at the u. K. Rates market surprise for a hard exit and Global Growth, maybe that spread is too wide. Guy i have that spread. 1. 25 at the moment. What do you think that should be . If you look at where longterm Interest Rates should be in the u. K. Versus u. S. , 75 would be much more fair than 125 to theres plenty of room for that to tighten. The bond market is supposed to give you election and a 10year gilts of 1. 15 is tough to see. Rally if more room to markets have a trickier ride over the next year or two. If brexit negotiations go bad, do you see that tightening . In the first instance i would expect you see u. K. Government bond outperform. The government is not without policy. The negotiating style at the moment is at no point have you seen the government raise the issue of the weakness of sterling. He is perfectly happening to see happy to see it go down. Government supports the economy so i expect what you would see would be the term going up on the bond market. Ensuring rates stay relatively low. The bad brexit, bond markets in general. Matt great to get your views this morning. Managing director and Portfolio Manager at pimco europe trip if youre a bloomberg customer you can watch the show on your terminal using tv as a command. As one of the video stream which you click into here for tv and therefore radio. All of our charts and functions that reusing simultaneously as we use them. Then youve a question can iv it to us, our producers it to is an eight year. We have your questions and your part of the conversation. A fantastic function on the bloomberg to watch this function. We are turning the conversation to the political outlook in europe as italys finance minister says le pen and the palace would be a permanent risk to europe. Stay with us. This is bloomberg. Guy this field and. Lets talk stock stories. Reporter i was hoping to start with a gain with a. M. H m. Firstquarter earnings beat estimates. Store openings help offset purchasing costs. H m did warn in a january that the strong dollar inflation would add to purchasing costs in the first quarter. About 80 of its products from asia, closing prices are connected to the dollar. Weakness, that is what it has been saying. H m would introduce a new storebrand with the first outlet opening in london this fall. The Second Quarter markdown may be higher than last year. Perhaps the reaction turning more from the firstquarter earnings to the outlook going into the Second Quarter. An increase in the fullyear dividend. On a 172018aid network. 100 Million Pounds lower. Perhaps we are seeing the stock moving on that rather than the dividend. Down 2 right now. Late yesterday after the close, we have s p rating its outlook for the sweetest bank to stable from negative. The rating affirms this stock is trading exdividend. Guy thank you very much indeed. The details on what is happening with those markets. Heres the bloomberg first word news with julia starling. Present donald trump will be briefed on various governments of tax code changes. According to people fully with the matter trump will be presented with possible options including gary cohn. One of the proposals is the border adjusted tax. In the United States trumps revised travel ban against six mostly muslim nations remains locked area of why he judged the cold pointing to the Campaign Rhetoric as signs of discriminatory intention. From facing a Lengthy Court battle to enforce policy. According to a new bloomberg survey, site China Central rein onping it tight shortterm funding to cut leverage. Policymakers are walking a fine line between driving rates higher and preventing a cash crunch. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. Manus thanks very much. The upcoming french president ial a key momentl be for the Financial Stability for the euro region and could add permanent Political Risk according to italys finance chief. If there is a stronger support on political levels, of course. It is not just about winning elections. It is about using the political mandate to change europe for better and to go on with integration. This has been the Success Story for 60 years. 27 countries agreeing to sign on basic installs. What happens at my new friend wins in france . Works that would be generating negative in the political man. Not just in italy but in other countries. Europeptation to leave is widespread in a number of countries. With that hurt definitely yields or the spread between italian . Would that hurt a lot of Financial Institutions . Markets are beginning to price aggressively Political Risk. The victory of Marine Le Pen and france would be a permanent risk to europe. Matt mike amy manager director at pimco europe. Do you think there is too much risk priced in of a le pen win considering her apparent inability to win this election in the second round . 1520 basis points off the white house levels of the spread. Think they have a big risk anyone a le pen win. Dynamics, itt the does not see much he has much momentum. In the second round in particular, that 20 wedge does not seem to be moving. I think the markets are right to price in a loss in the second round. Clearly there is a risk that she wins. In the last year or so you would not want to ruled out entirely. I think the markets are rights to have a risk in there. Not a big one. Terms of the spread of the bunds, would you consider to sell that . How do you had your positions around this . Talk to me about how you deal with the market. Are there opportunities elsewhere. Italy 180 over. Have elections the next 12 months alongside the germans. The issue we have with europe, whether it be france or italy, is you have events in europe over the next 12 months. Number of which have your expectation. You get the disruptive outcome probability looks probably relatively high. Places like the u. S. Where rates are backed up already. If you have to stay within in somewe are cautious of the peripheral names because we think there is risk of volatility. We probably prefer to buy outside of europe if we have to stay in europe. We tend to stay in the core a little bit. None of these socalled bad outcomes will be central expectations. Inflation,about were starting to see data a little bit. We see in spain you can see the ,ata on my screen this morning 2. 4 down to has the market over is estimated the inflationary effort in europe question mark is there a base effect for the market that it has not priced in question in . Priced wobe had a bit of a ble, with the ecb was thinking about withdrawing stimulus earlier. We look through the rise in the headline, probably peaking around about here. The issue we have with europe is the fact you get any traction here on wages, places like germany. We think the ecb and the markets are right to focus and we cannot really see it going up anytime soon. We think it is probably going to stay there. What we look at and what we think the ecb would be looking at as well. How do you see it taper down to 60 billion this month . Will that continue into a real taper that even mario to rocky even used to use that term . There was one of the interesting points. You see no rise in core inflation. Produced the purchases and our suspicion is they will follow through on what they said they will do which is to continue with the program until the end of the year. There is a bit of a discriminate going on between the northern u. S. Countries European Countries and say why have we stopped this why have we got the super easy military that might policy money policy . If the ecb is tapering with there is no indication core inflation is going up, it begs the question as to whether inflation will ever get back to target and stay there. You needed to get nominal growth of and that is how you get nominal growth to come through. Otherwise they are not going to be Going Forward to appearance of economic weakness. Get back to politics. You mentioned the german elections. It will have enough like that is the risk especially considering the results with Angela Merkel winning and performing majority in the state. 40 . Merkelt be a problem if loses considering the continuity we areepresents . Works pretty sanguine about the outcome because the two options are continuity and we know how to deal with that one. And weenerally regarded agree with this. It is proeuropean. You german election is politically interesting but we doubt that will be the move. The once we are most focused on over the next 1218 months is andfrench in the shortterm the political in italy which will be coming into play as we move into next year. Guy thank for stunning time with us is morning. Lets turn our attention further south. Three officials in south africas ruling party have told jacob zuma that they oppose his plan to fire the price the finance minister according to a person with knowledge of the matter. That is what we are hearing with bloomberg. In meeting up later on as well. To see today . Ect lets talk about the central bank. The economists surveyed by europe expect rates to be remaining on hold. This is even before monday this week. Recalling the finance minister from his roadshow which started speculation that he indeed might be taken out of Cabinet Reshuffle indeed. Not a lot expected with regards but the tone of the message will certainly be a different one as opposed to what they would have looks like a week ago purely because of the political happenings that have hurt inflation expectations. When is the last time they lowered rates . Lowering of rates has certainly been more than four years. A hiking of rates have happened a year ago. 200 basis points, the central rating us by 200 basis points since 2014. Before that it has been quite a while since they have been able to lower rates. Inflation itself has remained above the target range area we have a worry for them. Guy thank you very much indeed. Lets talk about what comes next. Matt and i are going to the bloomberg digital radio. The brexit plans run into immediate operation. They cannot begin until britain has left the eu. Say therward, the feds central bank should be prepared for the hike. For in one year would be much less than the last period of the recession. We were raising it every single meeting. Twice as fast. Relative to that this is much more gradual even if we did it every other meeting