What will macron deliver on brexit . Really enominated derivatives from london postbrexit, but can chicago come out the winner . Interesting question, guy, one we will talk about today. I will put that to Wolfgang Schaeuble a little later this afternoon. Stocks,f, a look at futures, gains across the board after drops yesterday. Then a look at ones. Investors selling off the german debt. Only to a lowlevel. The zero. 253 is what we are looking at. At theump in the yield beginning of the session this morning, about a half hour ago. Now, that yield has come down to almost unchanged. On your screen, it is showing as unchanged because it only goes two decimal places. 0. 253 in the german bund trade right now as investors look to get more risk in their portfolios this morning. Guy matt always taking the extra step. Lets talk about the gmm and walk you around the world. Energy stocks have done well in asia overnight. You are seeing this tech story fading and little. Intow a big selloff friday monday, beginning to fade into tuesday. He saw how badly hit european markets were yesterday. This morning, the dollar is off, the kiwi is up a little higher. Singapore dollar trading a little higher, the pound trading a little higher against the dollar. Plenty of going on in british politics, the fed. The first, lets get a first word news update. U. K. Prime minister theresa may is due to meet the Northern Ireland democratic unionists in order to prop up her own minority government. She told conservative mps she takes full responsibility for the disastrous election result which cost a parliamentary majority. She signaled she is willing to rethink her approach to brexit. Euro denominated derivatives may be forced to relocate from london to the eu after brexit. A person with knowledge also said under the proposal to be rolled out today, the systemically important for the eu Financial System could be required to accept direct oversight by eu authorities. In the u. S. , the Trump Administration has laid out its plan for overhauling bank rules. The changes urged federal agencies to rewrite regulations that bankers have complained about since the passage of the dodd frank act. They include adjusting stress test, loosening some trading rules and powers of the watchdog. Planning to is scale back efforts to open trade with cuba. The president s advisers are preparing options including new limits on American Travel to the island and restricting partnership between u. S. Companies and those with ties to the cuban military. Is expected before he visits miami on friday. Mike rogers met behind closed doors last night with the Senate Intelligence committee. Senators want him to answer questions about possible interference by donald trump in the fbi investigation into russias role in the investigation. Ist came as Jeff Sessions expected to appear publicly today before a panel to explain his role in the firing of james comey and contacts he and associates of trump had with russian officials. Tone has struck a defiant in the second week with no sign of diplomatic resolutions. The foreign minister has expressed his Government Wash frustration at not receiving demands from the saudi alliance. The finance minister and central bank said they can defend the currency and economy while the head of Qatar Airways accused the u. S. Exasperated intention. The Golden State Warriors have defeated the cavaliers to win the nba championship. , who joined the warriors in a controversial move last summer, was named the series m. V. P. After leading the californiabased team to a 4 41 game victory. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more , this iscountries bloomberg. Guy thank you. Bought herself a stay of execution by apologizing to conservative mps for the debacle, promising she will get them out of this mess. Today, she meets Northern Irelands democratic unions to secure the votes she needs to prop up her of minority government. Anna edwards is outside the horses houses of parliament. Lets start with the upa. What can we expect from this . Anna good morning to you. As we have been saying, the du p it was a prebrexit party during the referendum last year. At the same time it has been campaigning to keep open the border between the north and the republic of ireland. That is going to be crucial and a way of doing that might he staying in the customs union, which has many wondering if the party will soften its stance, but that would be a big change in policy compared to what the conservative party have been going for. To tom with the university of liverpool and he suggested this was an important matter. One of the things threatening the good friday agreement. That gives you an idea of the scale of challenges faced by trying to bring these parties together and get the kind of brexit they want to see. Corporation tax, could that be a focus . By europeanlow standards and Northern Ireland wants to compete with that. Could they be allowed . Or flowd be investment into money into belfast and beyond, could that be at stake . P wasought that the du drinking at a free bar. They hold all the cards. Heads toresa may another meeting with the french president. What are her objectives for that meeting . Mark anna optically, it could look more different. Macron buoyed by his success in the election and now with the Assembly Votes underway, he has been lifted by all of that. Majorityay losing her in these complex conversation to get a collaborative deal with another partner. Just to get through the policies she wants to see. There will be talk about frexit, but the u. K. Administration seems keen to move the conversation on. Technology companies, both Company Countries have the threat of terrorism in common. In france, the attacks in paris and nice, left 200 people dead. Leaders see these two try to take on the internet giants and make them do more to bring down, take down extreme content that in their view, inspires terrorist acts. Passing legislation about encrypted messages as the gs g7 has talked about an industry led forum. Companies like facebook, google, and twitter should be listening carefully to the messaging coming out of paris. I understand they will be going to a foot all match later on. England versus france. Wonder what the result will be . Maybe the headline writers will be watching that closely. Matt im sure they will. Anna edwards in westminster. A lot of goingson following theresa mays schedule. Derivatives may be forced to relocate to the eu after brexit, at least that is what one person with knowledge tells us. The eu proposal will be rolled out today. Joining us from brussels is alexander weber. Which problem is the European Commission here trying movelve by suggesting that into the eu . Alexander at the moment, the majority of euro dominated thevatives is done by London Stock Exchange. The European Central banks already tried to move euro clearing to the euro area in 2011. A legal battle with the u. K. Which the u. K. One in 2015. Then brexit happened, after the u. K. Leaves the eu, it will take place out of the eu. It is a special situation that this will take place outside of the eu. It is not exactly surprising the commission tried to solve the issue. We understand that they are mostly trying to more directly supervise the business in london , but also they would keep the shift to inside the eu what does this actually mean in reality for companies that have to work with . This costs, etc. Roll me through the details on the ground. Meansder definitely this more complexity for u. K. Based firms. Not only will he have to engage with u. K. Authorities and u. S. Authorities, but also with eu authorities. Means isly, what this finally we have something concrete to talk about. The elephant in the room in brussels for some time. We have seen predictions of job losses in the u. K. And what this means for customers in terms of cost, that has been all over the map. It is good we have this proposal we can talk about. Going forward, it still means uncertainty because this goes through the whole process of legislation here in brussels. Through parliament, the council, and what this means concretely, we will see once the commission unveils its full proposal in the afternoon. You about thesk bundesbank board member suggesting chicago would be a good place to do you clearing postbrexit. How does that come into the conversation . Alexander the idea behind this clearing houses in the u. S. Are already allowed to serve eu customers. This is kind of a response to a call that said we have to move this business to inside the eu to beef up paris or frankfurt. Just to point out the market isnt quite as predictable as some think it is. Clearing usually takes place where you have the biggest pool of liquidity. Uring such matters customer such as banks get the most cost there. It is conceivable the business would move to the eu. If you make it harder for u. K. Firms to clearly zero direct euro derivatives but the u. S. Already have programs licensed to serve eu programs. At this point, it is hard to predict how this will pan out. Guy we will watch with interest. This is big business. Alexander weber, bloomberg reporter for the eu Financial Regulation beat. Up next, we are all waiting for the fed. The central bank is expected to raise rates. It is important. We will bring you an exclusive interview. It is with Wolfgang Schaeuble. That is at midday u. K. Time. That is all coming up. This is bloomberg. Guy welcome back. Lets get a business bloomberg flash with juliette saly. Three former currency traders in britain accused by u. S. Proxy curators of conspiring to manipulate markets have reached an agreement to surrender to american officials. Berkeley nd barclays employees have agreed to be arraigned in a manhattan court. The Irish Government is to sell ofres in Allied Irish Banks between 390 and 490 euros each. A marketd give aib capitalization of 13. 3 billion euros in londons largest ipo this year. The final offer price will be announced around june 23 with shares starting unconditional trading on the irish and London Stock Exchange four days later. Has cleared aic second major antitrust hurdle in their effort to create the worlds secondbiggest Oil Field Services provider. Theas won approval from Justice Department to combine oil and gas business with baker hughes. This comes two weeks after similar decisions by european regulators and hours after ge deals architect will step down as ceo. The ceo of Christian Dior has told bloomberg he is optimistic about the new french president. Was speaking exclusively to rachel chang in shanghai. French market is important. And this new president will be a positive for the economy. In france. Reforms and working rules and things like that. Juliette that is your Bloomberg Business flash. Guy and met . Matt thank you. Todays day one of the feds june meeting and the market is expecting a height. For as high 90s decision, signaling the market thinks it will happen. But what will we learn about the rate path . Cudmore, we go to mark from our mliv team in singapore. A seems an increase is foregone conclusion but there are Big Questions left. Not just about the path, but how the Balance Sheet will be unwound. Mark absolutely. This is a potential for a dovish hike. A real shock if they dont raise rates tomorrow. It will be crazy for the fed not to take the opportunity when the market has given them this free pass. It wont be a shock to the market. You will expect they will be mourning the fact that inflation is not running away. There is a sign of slowdown in growth. Nothing major, they expect to be transitory, with no major inflation pressures, they will warn the Downside Risks i think we will start having a maybe the fed doesnt think there will be three more hikes. Guy financial conditions in the u. S. Are getting easier. From an economy point of view, this is a nonevent. Think that is true but financial conditions a lot of times they are influenced by financial assets. It is deceptive. But you are right, there are 25 basis points changed, it doesnt make any difference in controlling inflation. Low notflip side, generating. Thee are forces in inflation picture. One is commodities, the other is to elegy. Guy the other is technology. Guy do you think the selloff is over . Theas interesting to see philadelphia index staying above the trendline last night. Mark it made a good recovery and the fact it closed the above the trendline is important. What happens in tech stocks is important to focus on, but you need to put it in the context of the moves we have seen. Most socks are doing well. They have had two days of correction, but they did rally off the lows. We need them to selloff a lot more than this for it to generate a broader panic and a worry about the u. S. Stock market rally. It could be a bit of rotation. We have heard of fund closing, it could be overall, but traders will keep an eye on it still. Matt mark, thank you. Our mliv market strategist. Macro strategist. We are minutes away from the open. Up next, a look at the movers in todays trading. Individual stocks include which could be relocating to the eu after brexit. This is bloomberg. The open is eight minutes away. Matt we are minutes from the open. Lets get to your stocks to watch. Deutsche borse is one you will want to keep an eye on, as well as lsk. Those stocks very interesting because of the eu plan to move into the euivatives postbrexit. ,nteresting for Deutsche Borse that would give them extra business if you consider business coming to them. Chief is saying this would be bad for customers that would boost their collateral requirements by as much as 20 , meaning clearing would be more costly. However, it seems a lot of clients disagree. There is an open question as to how good or bad it would be for the market. Nonetheless, you will want to watch Deutsche Borse stock to see it as well. It has this year. Coming up, the market open. Four minutes and 18 seconds to go. Gains forinting to european stocks after drops in the cash trade yesterday. This is bloomberg. Guy one minute to go until cash opens. Lets take a look at where we sit in terms of the fair value calculations. You can see it on the wb ice cream. A marginal pop. Stronger overnight, tech fade o n. Europe looks like it will come back more strongly, but not by much. We were off yesterday, down 1 for the continent in london, but nevertheless, looks like we will see a more positive start. Matt . Matt i am looking at tech stocks, specifically European Tech stocks. This is the percent change we see on the stocks 600 the stoxx 600. We had the biggest drop yesterday we have had all year. The question is, is this part of the gains we see today . Bounce . Dead cat guy going to watch that with interest. Were watching gilt as well with a great deal of interest, ftse 100 expected on the upside. 7518 is where we are trading. London continuing to climb. We will work our way through the market open as we get the numbers. Plenty of other things to be talking about. Manus we have had this reprieve in the tech space, and an interesting conversation on daybreak about what might come from theresa may. Commits, they probably will make a very strong that fellow. Of course, the proof is in the political voting pudding. Industrials are up, and as europe looks stronger, politically more robust, where do you want to put your money on a relative basis . The ubs chief Investment Officer making the point, relatively underweight in the u. K. For what is a good news story. But technology, buyer beware. Do you want to pay up for protection . See it is climbing eigher, the question is th money worth being spent . A temporary moment in terms of the trajectory. Do you want to spend money on volatility . Relatively speaking, im going to update this life. This was the drop yesterday, down over 1 in terms of european stock market. On air, a data, live big blip up. Sense, you can see the shape. This one i love. This is hedging. Its so easy for me to remember, three is the magic number. Hugeyouve got here, a ,evel of interest in shorting Short Interest on the three Biggest Exchange rate funds. It holds together about 6. 1 billion in assets. Its all climbed since hitting their lows in march. Theyre all on the way up. Is that something which is much more foreboding than a shakedown in capital . In apple . Radio, we will get more stock advice. Guy thank you very much. Interesting to see whats happening with china. You can see that data on the bloomberg. Lets take a look at whats happening with the markets. Gainer,ter is the lead edf, luxottica trading higher. I want to turn our attention to the downside. Merlin is a company that operates in areas such as the london eye. It does big tourist events, themepark type stuff. What it is saying is it has seen an effect from terrorism, and that is a cause for concern. It is warning that the terror impact is having an effect on its business. You can see this in a number of its biggest sites. That is something to Pay Attention to, because its a conversation we need to have more broadly about Consumer Confidence and spending and whether or not there is an effect that will come through for what we have seen thus far into those hard data numbers. We will keep a close eye on it, but it is an effect coming through to the real economy. Speaking of which, theresa may cried mea culpa. She has been ordered a stay of execution by apologizing for the election debacle, promising she will get them out of this mess. Anna edwards is outside the u. K. Houses of parliament. Horses . Called the is the rebellion over, or is it just old . Just on hold . Anna she seems to have called things in the shortterm. She seems to have changed the mood of the meeting by the fact that she said this is her responsibility i will get us out,. This is to the rankandfile members of the conservative party. The meeting took place over 75 minutes behind closed doors. She left to cheers and applause, so something managing to secure the support, at least in the shortterm, of those backbench mps, and that ties in with what we were hearing from front bench mps in the last 24 hours, backing her, saying this is not the right time for leadership challenges. She did talk about brexit yesterday as well, say that there was room for rethinking on brexit, to try to seek some kind of national consensus, give such a thing exists on an issue we voted 4850 to. That leaves us into the conversation shes having today. Later today she will talk to emmanuel macron, perhaps about the terrorism threat in europe, and surely they have some joint action to launch on that front, but the brexit conversation will be front and center. But before she does that, she will be meeting with the dnc from Northern Ireland. Some of their social policies are considered pretty controversial, the gay marriage, abortion front. But that is not likely to feature in any kind of supply arrangement or deal that the parties do today. This will be a broad arrangement that agrees the 10 members of parliament will vote for the government on crucial, controversial pieces of legislation, big set pieces like the queens speech, which is due to be delivered on monday, and might be delayed, but that means the date that has been the diary for some time things like the budget. That is where the conversation will be, around brexit, around investment in Northern Ireland. We spoke to a professor earlier on today, and he said that the dnp will be drinking at a politically free bar, such as the strength of the hands they have today. Guy anna, thank you. Anna edwards in westminster. The queens speech should be interesting. The Senior Investment managemer at aberdeen, manager at aberdeen, how on earth do i price whats going on in westminster into the gilt market . I was hoping you would answer that question for me. Its incredibly difficult. This election was a really big shock, despite the fact that we had seen polls narrowing, which suggested we could see a hung parliament, i was quite dismissive of those. Its very difficult to work out where to go no. Go now. One of the most difficult issues is trying to sift through the noise and get the signal from the electorate, in terms of what it is they told the political establishment. That would hopefully help us to ascertain where to go for the political actors. Labour didnt really have a vision for brexit. They werent specific about what they would be prepared to forgo to get access. Conservatives have given a little more of a vision in terms of what they would like to see, and we havent yet set down with the europeans to see whats feasible. Given the voting percentages and the different views on brexit, i dont see where the Common Ground is, really, between the electorate, the opposition, and the government, and therefore i cant really analyze where this is likely to go. Guy lets look at things we can figure out. One of the messages that did come out of this election was that the austerity story we have dealt with since the financial crisis is probably in wind down load mode, and one could assume that government darling is higher than it had been previously. You can also assume the Political Uncertainty means the bank of england is on hold for quite some time. Lets deal with the first issue. Is issuance going to go up, and what does that mean . What kind of scale of issuance change are we talking about . She was talking about the fact that the austerity story is over. Id like to think thats the case. I think thats one of the most damaging political stakes that has been made by the tories in the last year, to not realize that so much of the good work has been done on the fiscal adjustment, so give a little back. We havent seen much. When push came to shove, Philip Hammond was cautious with the budget. I still hear he would like to continue in that vein, and he would like more say in policy rather than less as a result of this election. Its not clear that we would get a more economically supported fiscal policy going forward. Were that to be the case, we would see additional supply. What we have seen recently is that its not necessarily going to lead to bond yields going even higher. It depends on what they do with the money, how it is spent. Economists will interpret it as a growth in pulse, and if its not particularly large, maybe the market can perform ok. Claim completely unchanged on gilt. Mediumterm, there is no justification for their 1 yield. But in the short term, because of the sheer shock around the economic picture, it wouldnt surprise me if it performed ok in the shortterm. Matt how you feel about the pound at 1. 26, euro at 1. 12, does this have to be the zero sum game picture of these two currencies in the relationship . Im not sure id call it a zero sum game, but theres definitely a connection we saw when euro fell in the aftermath of the exit poll, that the euro is dragged along. There is no question that economic futures are connected, is not intertwined. Sterling at one point we six, to 1. 26, a lot of the reason the euro was pushing up toward 1. 12 was about Market Expectations on the hawkish ecb, and what we saw was the retreating back into their foxhole, but we havent seen much of that come out of the euro. If you look at rate differentials, we expect the euro to be much lower, and i would argue that there is a lot of position shifting going on, theres a lot of people short euro, starting to feel more comfortable about the growth story and that position is driving it higher. I am still happy to set short, because i think the risks are in my favor. Sterling at think is a more difficult call. It what it surprised me to see pressure on sterling to weaken, but the mediumterm valuation story suggests the absence of damaging economic picture. I think thats the most important picture that dictates how the economy will perform. Matt all right. You will stay with us. The Senior Investment manager at aberdeen. We have a lot more to go through today. The fed is also front and center here, even as u. S. Inflation weakens. The central bank is expected to raise rates tomorrow. We will get a view on treasuries. Plus, we will bring you an exclusive interview later on today with the german finance minister, Wolfgang Schaeuble. So much to talk to him about, from brexit to greece to france to the ecb. A lot to learn from Wolfgang Schaeuble. This is bloomberg. Guy 16 minutes into the cash session. This is the picture we find ourselves with. A negative session yesterday, today we are finding our feet. 75. 28. 0, 7,528. It seems like the tech selloff is beginning to fade. We will see whether it carries on into the United States later on. Interesting to see whats happening with this scheme in terms of where people are positioned when it comes to the ratio. Be the point in time in which things start to turn around. The fed is the big event and we start with what will tomorrow deliver. Matt a survey, guy, by the new york fed shows Inflation Expectations are all close to a record low in may. The median responded saw prices increasing 2. 47 in three years, down from 2. 91 in april. That is just above the lowest level ever recorded in the survey, so not a very old survey. It shows you the lowest in four years. This as the feds twoday meeting kicks off. We will get the result tomorrow. The Senior Investment manager at Aberdeen Asset management is still with us. The fed faces, in a sense, the same conundrum that all the Central Banks face, in that they want to normalize policy, because the feds are well on their way, but it is difficult when Inflation Expectations just continue to disappoint. Why cant inflation hold up anywhere in the world . As a good question. Im sure the fed would love an answer. I dont know the answer, but what i know is i dont know the answer, and to one of the things ive observed and have been quite vocal about is how little we understand about inflation. The route ofwn explaining why inflation is terrible in the first case, but it is one of the things they look at. We just dont understand it well enough for the fed to feel confident in setting a particular part of policy. Core pce at 1. 5 looks pretty consistent with a mandate, which states they want full employment and stable prices. To percent as a target was only introduced in 2012. The ecb has gone down the same route recently, whereby it is buting a target in there, the economic literature that backs up the 2 inflation target theres as much literature suggesting to target 3 , 1 . There isnt a correct number. Did really is just about ensuring that prices dont run away and feed off each other to create the hyperinflationary conditions that we know are incredibly damaging. I dont know why it is that inflation is not behaving as we expect. I think there are a lot of structural reasons, technological reasons, supply shocks are probably involved. 4. 3 ,see unemployment at i see the broader measure of unemployment falling as well. I see headline jobs flowing. That tells me we are quite late cycle, and the feds policy is incredibly easy relative to that. Matt if the fed is talking about reducing its down sheet we dont know the way they will do it but you have to assume it will be a shallow path it is going to change the market dynamic. How concerned are you as far as treasuries go that we will see too much in the market and not enough of the buyer that we previously had . I think its a real danger. Its a real, incredibly difficult policy for the fed to truly calibrate, and i think they have been relatively honest about that, with a few speeches from the Federal Reserve governors sounding a little bit too sanguine for my liking, suggesting that there hasnt been much of a shock yet, and they feel confident that there wont be. I think thats a little early to make that statement. But i definitely think there is the chance of having some disruption to the bond market. Thate big question for me, defection in itself is not something to be avoided. Does that lead to disruption in the economy . Does it lead to an over tightening of financial conditions . And again, that is not something i would anticipate. When u. S. 10 year yields are at 2. 2 , i think theres quite a lot of room for them to rise before any damage is done. The u. S. 10 year is not the most sensitive part of the Treasury Curve for the u. S. Economy. So yes, i could foresee destruction, but i am not expecting it to be damaging. Matt all right. You will stay with us. Still to come, we continue our conversation with james athey. There is still a lot to talk about. Plus, as i told you before, we will bring an exclusive interview with Wolfgang Schaeuble at midday u. K. Time. I may be able to get a question. There is so much else to talk about. We have to talk about whats going on brexit, with friends, with greece, with the german finance minister. Guy welcome back. 24 minutes into the session. Lets carry on the conversation with james athey. The debate we were having, on their and in the break, is this issue of inflation and whether or not it is leading central bankers down the wrong path. Draghi is whether making a mistake on the downside. Inflation is going nowhere; lets put that debate to one side. What does it mean in terms of the reaction function for Central Banks . How does a deal with it . All of the soft data, survey data is pointing me in a strong direction, yet ive got this inflation number going nowhere. How delay price those contradictions into the bond market . Is quite difficult. To your point, consistency would be appreciated making a mistake by looking at inflation and reacting to that. If the fed were to slow the they wouldkes, be narrowly focusing on inflation. Saying, fed is we think the q1 slowdown is something we dont need to worry about, we think the data is all right. Yellen is looking at the labor market. We ecb specifically cant ignore the fact that there are concerns above and beyond the traditional mandate. There are political concerns, markets are much more sensitive to what the ecb is doing because you have a credit story within europe. This is a Monetary Union without a fiscal union. You have different perceived credit qualities and there is a spread between the bonds. And my being paid the correct price if i am getting bunds . I think it is fair to say that bunds at 25 basis points when you see 2 inflation, that doesnt look right. S,ere is a premium in the bund that italy isnt right at 200. Guy al matt there is an operation, a Police Operation underway at the Munich Railway station, according to german police. One person has been injured after a shooting. Just a put that headline on your radar. We will come back and continue to cover markets. This is bloomberg. Matt tech reboot. The selloff fades in asian trading as investors turned their attention to the fed. With a hike priced in, will yellen deliver details of the Balance Sheet unwind . And lacronge. The u. K. s theresa may faces the french after a chaotic election result. What message will macron deliver . And there may force the relocation of euro denominated derivatives from london postbrexit, but could actually go to the u. S. Rather than coming to the eu . Welcome to bloomberg markets, the european open. Berlin, miller in alongside guy johnson in london. Guy lets take a look at how the trading day is unfolding. Much,y bid, but not by recovering the losses we made yesterday. Interesting stock stories out there, and we will deal with the details through the day. Berlin is very interesting, the themepark operator talking about a link between its numbers and whats happening with terrorism. That is aligned you could draw into the Consumer Confidence story, something we will have to watch carefully. Matt yeah. Another thing we will watch carefully is bloombergs germany g20 day. Its a conference we are having here in the german capital all day long. The finance minister wolfgang shoretel is Wolfgang Schaeuble is set to give an address, and you can watch it on your bloomberg terminal on life go. On bloomberg television, we will bring you an exclusive interview with him at 1 00 p. M. Berlin time. I will be doing that interview and will be able to ask him questions about brexit now that he faces this new Political Landscape. Obviously he faces a new Political Landscape post last years u. S. Vote, and i will also ask him about greece as the market prepares for some kind of solution, and about the ecb and rates. How much longer will germans stomach negative rates . I dont want to give all my questions away, but it is going to be very interesting suffice it to say. I also want to point out the spreads, the periphery spreads as highlighted here. You can check it out on your own bloomberg. Interesting, it looks like italy, germany, peripheral spreads in like, spain and purple, looks like they have been recovering a little bit, especially if you bring it out to a fiveyear view. Wow. It looks so much better than it did five years ago. That really, it is still elevated. Max it out, the market is still concerned. Just not as much as they were before. I want to bring james athey back to this conversation, Senior Investment manager at aberdeen. Why this recovery so far year to date, but also historically . Is it because we have dealt with are we starting to deal with the Bank Problems in spain, and the market is hopeful for a solution in italy as well, . I think probably a little two biggest say the influences on spreads this year has been expectations around ecb policy and Political Risk premium. What we saw was that italy, post france election, where we had a risk on trade as people expect great things from macron and the structural adjustments he can make, and also about the broader european relationship, and hopefully working more closely together. That leads to a recovery in spreads with a number of shorts. It also coincided with expectations of the italian election moving back into 2018, when we saw a recent widening from italian politicians, that maybe an election could be held this year, unfortunately it hasnt gone the right way. It seems we are still in a bit of a limbo, so i think the ecb being dovish, the lack of an obvious trigger for Political Risk off in the nearterm, and the summer people dont like to be short in the summer, it tends to be low volatility and people want to ensure they are not shedding performance. Those three factors for the talent spreads have a decent performance, certainly looking for opportunities to go the other way. Guy so when does that happen . This is bunds, you can see the tightening. You can also see fivestar not doing well in local elections, which is another political factor. I guess theres a duration nevertheless, we are at 176 whats the right price . Id be looking to go the other way. The summer months tend to not have a lot of supply. Which isoften supply, that exacerbating factor in terms of the italian spread. They have a lot of debt that needs rolling over, and when everybody is happy there are a lot of customers that turn up to participate. When sentiment goes the other way, and there are lots of rings italy,s for that in when you just have this bang bang bang, that tends to be what really helps to push spreads wider. Happen, is not going to maybe we have a few months where italy can perform ok. Shorted on first got this chart going back to the earlier in the year. That would certainly be a level where there is too much good news. Clearly, you seem just as concerned as the market is too complacent in terms of the Bank Situation. How else can you play that . The Bank Situation is very difficult. Some of the bigger banks have done a lot of it and we know about the npl story, we know about hundreds of billions of euros with the skeletons in the closet, but in terms of the impact on italian country spreads, i think there is less impact coming from the banking story at the moment. I think europe has pulled together quite well in terms of putting together a structured to deal with these problems. Whichms of something helps markets in the shortterm, i am not looking at the banking sector. This is more about the biggest story that will push italian spreads wider, the level at which they have been trading, driven by the fact that the ecb has been buying a lot of bombs. Not just the capital, but more so, because they can to buy a lot of germany, they have been overweighting purchases into italy. Ecb inevitably start to heads to the exit, that is bad for spreads. Guy lets lean in on that argument. Mr. Macron did very well in the national assembly. He has a mandate, and this was one of his primary drivers, to drive europe in a more positive direction. Therefore i can assume germany will underwrite it. Hes still very keen on integration, and integration at some point has to mean some sort of mutually assured bond market. Does but itially think we are a long way away from true eurobonds. With regard to the macron story, one message we are seeing is that in order for germany and france to work closely, in order for macron to be seen as credible, the germans are still going to require that pound of flesh. He is going to have to make a lot of structural form in france. 50 billion euros is the number we are talking about cutting for the public sector. That is likely to be disruptive for france, and it means that is italy wants to be seen as a credible member of the world, it has to get the Structural Reforms done. Which means that yes, macron has a positive vision for the euro, but it is in conflict with what italy is able and willing to achieve domestically, and that still means you have this situation whereby it can stick. There has been a lot of stick and not a lot of caret, and that process pushes italy further toward skepticism. Guy great to see you. James athey. If you are a tv customer, you can watch our Program Using the tv function. This is the landing page to end up with, click on this its worthwhile, and you also have on the righthand side this fantastic story down here, which allows us to pull out the great charts. Then you can also ask the question. Our guest will be Wolfgang Schaeuble, so you can get involved in a conversation. Matt true. I invite any bloomberg terminal users to talk to me directly if you want to get a question to the german finance minister. Up next, theresa may due to travel to paris later with her core election performance in strong contrast to that is emmanuel macron. Will her weekend hand meet eighth weaken d and mean a softer brexit . This is bloomberg. Matt welcome back, im matt miller in berlin alongside guy johnson in london. I want to get you the first word news, and for that we go to sebastian salek. Firmsian in the u. K. , that clear euro denominated derivatives may be forced to relocate from london after brexit. A person with knowledge of the matter said under the proposal to be rolled out today, firms seen as systemically important could be required to accept direct oversight from eu authorities. In the u. S. , the Trump Administration has laid out its highly anticipated plan for overhauling bank rules. The changes rewrite scores of regulations the banks have complained about since the passage of the dodd frank act, including annual Bank Stress Test and paring back the powers of the watchdog that polices consumer finance. And the European Unions chief brexit negotiator has said the forwardks moving without a deal if they waste more time before talks. Er an interview, michel barni said we have a negotiated, we havent progressed, highlighting the three months that has elapsed since britain notify the eu of its intention to leave the bloc. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. Bloomberg. Guy thank you very much. Most u. K. Business leaders acknowledge the political chaos unleashed by the election, which left a damaged Prime Minister trying to forge a minority government, but some think it could lead to softer terms when it comes to the exit from the European Union. Prime minister may and the french president will get to size each other up ahead of the brexit negotiations in paris. They will be attending a football game, english versus french. I would love to be a fly on the wall in that meeting. You have the ability to spend both sides of the channel. As you look at it from the french side, how different is the political story in the u. K. , how will it change things, and if you look at it from the other direction where are we this Tuesday Morning when it comes to the story . The situation clearly looks and when it comes to the negotiations on brexit, i dont think it changes the picture that much to the extent that the stunning point was that the u. K. Was week in negotiating positions because it was the one asking and therefore the ones giving the conditions would be the european side. What is making it worse is because of the political mess the whole negotiating tactics have to be totally put in the open. Everyone already knows that when you want to negotiate, more so over two years, you dont put everything on the table in the first place. Think this whole situation is making the negotiating stance of the u. K. Weaker. Thats all there is to it. That the u. K. Will work more rapidly towards a more balanced agreement as opposed to starting from a very tough position and getting into something guy do you think u. K. Assets are worth more or less . If we are going for a softer stance, do i price a better story into the u. K. , the worst . I think i price not such a weak story. The key adjustment variable was the sterling, because the point was, with so much risk of a hard thatt, there was the risk a lot of investment would not happen and if anything money with flow out. If thats the case the u. K. Has a problem of trading balance. Deficitou fund your when you try to balance your currency . In that situation it becomes more reasonable and then the currency doesnt have to adjust. We were quite bearish on the sterling, and in a per verse way we might be less bearish. Matt are you more bullish on euro . I want to show you a chart here that bloomberg users can click on. See bullish wagers on the euro here in green as risen to the highest we have seen since 2011. Why is there so much optimism on the euro . Why is there so much optimism on the European Union . Two things. First, you have to take this situation all the way back from november last year. That was basically when the dollar started to do strongly based on the expectation that it created. Then everything changed at the beginning of this year because the wholee time proposition lost a lot of credibility and the european Political Risks started to move away. Right now we are in full momentum that the euro has gone and theor 6 this year dollar index has come down about as much. At the is level you get a lot of players coming to the rescue of but i would think the upside is not nearly as strong as it was six months ago. Euro ise upside of the not as strong we still have a long way to go until we get back to where we were on the euro a few years ago. I just through the euro in here you can see we have done very well in 2017 but we still have a long way to go until we get back to the level we were at three years ago. What events are the most concerning for you in europe . What events do you think could pull down the currency the most . Think anything is going to pull down the currency, i just think that we have traveled quite a bit since the beginning of this year, and at these levels, i would not be as bullish as i was six months ago. But i agree that, fundamentally, you have a position in the u. S. Say, not veryould fundamental. You had these expectations which, frankly, we never really shared, these expectations that the u. S. Would be able to grow increase itsg to trade deficit. That was a trump promise, and its not working, and its not going to work, and the dollar is weakening. Every time you have seen in the past 20 years, the u. S. Growth spreading to the rest of the world, the balance of growth benefiting more the rest of the world in the u. S. , every time you have that, the trade deficit worsening, the dollar weakening. We are in that situation right now so i think the euro should continue to strengthen against the dollar. We have seen a bit of that in the past six months, and i wouldnt be as bullish on the euro, but i think the trend remains very much in favor of the euro. Deliver monsieur macron serious structural reform in france . He has the parliamentary vote behind him. Everything is going really well. Now we get to the tricky bit. Can he deliver . He has been very much underestimated so far, which i think partly the reason why he has succeeded. Have aning to overwhelming majority in the parliament, so from the Parliamentary Support side, theres no question that he can pass any law he wants. With the question, will the unions let him do it . The unions themselves have parties the other collapsed and the unions have very much weakened their positions historically. And also he has this momentum going for him and is being very good at explaining speed. Guy so we can expect surprises . He does it quickly, catches everyone on the hot . It should be a good surprise. If you ask is lawmakers to work during the summer he is going to try as pass as much as he can and he knows that in the best of cases the momentum wont be the same for six months ago. He needs to go fast to pass the most important part of the expect a lot coming in a few months, before the momentum wanes and the unions have some power. Guy i want to go to nejra, nejra cehic. Nejra i want to start with one of the biggest movers on the company0 this is a that saw quite a few challenges postbrexit in terms of the stock and profit, leaving the ceo to step down. Analyses a turn to sustainable Profit Growth and that seems to be what is moving it. It says it is on track to conclude in the second half with year to date trading performance in line with forecast. It has risen as much as 15. 3 , the most since 2002, and hit its highest since october, 2016. I am also looking at petrofac, witht a training contract the contract valued at over 25 million usd. I am looking at one of the biggest decliners also providing the biggest drag on the ftse 100. Eye and ithe london also has attractions in berlin, it hasl, and munich been talking about the recent terror attacks in the u k, saying it has seen a deterioration since that softer Domestic Trade and that it was broadly in line with views but is cautious on trends in overseas tourism. Drop in iscould already 3 down. Matt the managing director is still with us i want to ask you, i am going to speed with Wolfgang Schauble later, ask him how much longer he thinks the germans will be able to stomach negative rates. Do you think a shift coming in ecb policy . Nothing untilot the september election in germany. I think the change is not going to come so much from the ecb he has been pretty good at creating expectations that are it disappointed by reality think he has learned from the temper tantrum in the u. S. Antiwont make the same mistake. I wouldnt expect too many surprises. I think the Key Development will come from the german political scene. Him, for the time being, to remain very much on his historical position, because elections are coming, and this is not the time to publicly weaken the stance of germany. Once the elections are behind us, then we will see whether macron will start to deliver on reforms, whether he has put france back on the credibility track, and then have a new government in germany. Guy you are going to carry on in the conversation. Bloomberg surveillance up next. This is bloomberg. Francine mays mea culpa. The u. K. Prime minister takes full responsibility for the election disaster. She meets with the d. U. P. To prop up heard minority government. And the trillion dollar question. Fedshe timing of the great unwinding make or break the bond market . Bloomberg surveillance