Once again . A corruption conviction for brazilian president lula sentenced to a decade in prison. He can appeal. What does it mean for the Economic Reform Program in brazil . Matt we are less than an hour away from the start of european equities trading. Very interesting to watch today because for you see the futures futuresuro stocks 50 unchanged. That was the biggest gain since april 24 and globally, stocks have risen once again to an alltime high. Bulls are faring well in this market. Take a look at the bunds. Yesterday we had a big jump in bund yields. Still finishing higher on the day. Now we are just about even right now. Trading at 0. 582. Trades not as exciting, a reversal we have seen in the last couple of days. Yesterday and germany, not causing the kind of tantrum we saw with the french issue a few days back. Ftsi and the dax, entry intoand the the u. S. Markets. The austrian dollar well bid this morning by. 41 . Question if it is a derivative of the australian [inaudible] 114. 54. Trading at continuing to grind higher. That is one of the more interesting trades. A number of houses withdrawing their proeuro call. Lets get an update. Thank you. It started with a White Knuckle handshake and the rejection of the paris climate accord. Macron and donald trump will get a chance to reset their awkward relationship with the twoday visits to france. They will hold press conference at 5 00 u. K. Time. President trump is standing by his eldest son despite a males revealing that trump, junior was willing and eager to campaign for help with russia. He distanced himself in an interview with the christian broadcasting network. Ourf hillary had won, military would be decimated. Our energy would be much more expensive. Does nothat putin like about me. I wanted a strong military, he doesnt want to see that and i want fracking at Everything Else to get Energy Prices low and to create tremendous energy. Willtte theresa may unveil the draft law that will take the u. K. Out of the euro. Government divisions could see brexit talks failing. Plausible scenario. The point of which they clubs i do not know. Maybe a year down the track before something catastrophic occurs. Unless the British Government gets its act together this show is going to be farcical. Juliette brazils former president Lula Da Silva has been convicted of corruption and sentenced to nearly 10 years in prison. He was found guilty of grafton Money Laundering and his part in the sweeping scandal known as carwash. To doring a strong blow returning to power. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am juliette saly. This is bloomberg. Guy and matt. Lets talk about will we got yesterday, Central Banks taking center stage. Around of hawkish Central Banks teaches speeches. Yellen emphasized ongoing uncertainty around inflation. A bit of a puzzle. We will hear from the fed chair today at 2 30 p. M. Its a time u. K. Time. Are the dots wrong, is the market right once again . Mark for now. It looks as though they know what they are doing. Markets are extremely happy with what yellen had to say. Modest path she is talking about and she is throwing the Balance Sheet into the equation. They want to get that started before the consider the next rate hike which suits the markets. At the july meeting, they meet again in a couple of weeks time, they will announce some kind of timetable for when they are going to start moving the Balance Sheet down. That will not start for a few months. Markets have a lead time and continue to enjoy this goldilocks situation which it has been having. We do not have to worry about a rate hike for some time. If the market does not throw a fit over changes to the Balance Sheet we may have a rate hike before the end of the year but that is some way off. We are going to be talking about janet yellen all day long forother data shows demand goods, china is resilient. What is the read across from this data for investors . Asian currencies are doing well, equity markets in asia are doing well. Investment into china is back up even though it is expected to decline. China is firing away the way it is and these are not big numbers but the expert it is huge. This is a good sign for everybody in asia. Economies are so intertwined you cannot help but phil feel good about it. When youre thinking about what happened in the last toy thehours, how important is bank of canada . It seems to be on a roll. We saw the appreciation of currency and it is per pointing to further rate hikes. Everybody elses raising rates. Is pricing into hikes for the ecb next year. You can always take these things indifferent ways but investors seem to be looking at the bank of canada as a positive thing. If they can afford to raise Interest Rates than things must be good, this is the way the investors are reading it. The Australian Dollar has had a good day as well. If the way the investors choose to read it that you will have gradual rate hikes because the economies are strong that is good news for everybody. At some point in the future, high Interest Rates could be a deterrent but we are a long way from that scenario. Guy always good to get your views. Positioning for volatility when it comes to the treasury market. Mark cranfield joining us here. Smart analysis throughout the day at mliv. Matt you can also on your bloomberg watch the show using tv and the video stream. To can get a video stream for tv , i am scrolling back so you do not see me talking to you and me talking to you. On the right side of the screen you can see the functions that highlighted, i am sure you are familiar with that but there is more to learn from tv. You can use the blue link at the bottom to ask the guess the question and ask guy and myself questions, a part of the conversation, make it interactive. Rendezvous in paris. President s trump and macron get set for talks in france. We will preview that next. This is bloomberg. Matt welcome back to Bloomberg Markets, the european open. Here alongside guy johnson in london. Thats go to juliette saly. Juliette thank you. The top role at the pharmaceutical firm. Shares suggests were higher in late u. S. Trade. Paying 5. 5 billion to resolve the second is the investigations. The deal is the second biggest the federal Housing Finance agency has struck an settles claims that rbs sold 14 march bounce bonds to fannie and freddie. The bank was must deal with the investigation before it can return to the private sector. And allegations it sold cars with illicit commissions control for a decade. According to a german newspaper or which suggests why than one million cars could be affected. The maker of mercedesbenz luxury vehicles had been searched by Police Officers and prosecutors as part of a probe. That is your Bloomberg Business flash. Guy thank you. The u. S. President donald trump begins his trip to europe today area here arrives in paris shortly well where he will meet with president macron and attend the annual bastille Day Celebrations. This is the first time he faced the press since his sons meeting with the russian lawyer was disclosed. How does this one go down, do you think that there will be fireworks and how do you think the story will play out from mr. Macrons point of view, what does he need out of this meeting . He has invited the u. S. President. What happens now . They will be fireworks but of the regular sort. I do not see much of a risk and if you are going to invite donald trump to paris there is no better day than bastille day and the 100th anniversary of the u. S. Entering the first world war. It has all the makings of pomp and ceremony, celebrating the worlds oldest alliance. Trumpism popular in france, no question, but macron has done a good job of addressing this that it is about the u. S. Entry to the first world war. He adjusts disagrees with the u. S. But they are our oldest partners. There is no real protest planned. There are a few minor protests on the outskirts of paris. A pretty good way for macron to show himself on the international stage. Matt not risk free for donald trump. The global media seizes on any gaps he makes and he responds on twitter and it all escalates into a real issue. Is there anyway this trip is the russian by email scandal . The big test will be at the press conference. The american journalists will ask a question and trump has the easiest way to bet it away, he can say he is there to celebrate bastille day and do not drag domestic politics this way. Whether he is able to keep his cool and do that calmly that is the question. Guy the french president wrote a piece in original newspaper talking about the fact that germany is getting a lot of benefits from the problems with the eurozone. How will that set up his meeting with Angela Merkel and the Cabinet Meeting . He and merkel meet all the time. His views on germany are nothing new. Thatn has always said germany is my model in terms of. He Economic Reforms the verbalizing labor market, reforming him climate unemployment insurance. The germans have tradesibilities that imbalances run both ways. This is part of a backandforth between france and germany. If you look at comments from merkel there has been listening on the german side. They want to see the reforms in france. Who is wanting reform. Someone who the germans have not trusted. If they see movement in those countries that is the bet that macron has been making. At liveare looking pictures of heirs air force one. Big day for brexit. The British Government is publishing its repeal bill. Good morning. How big a battle do you expect with this legislation . The labour party is putting you on notice that it intends to fight and make significant changes. How on skates will emerge . Guest it is important that we ensure stability in the process. What we are doing is to ensure that we are able to replicate the rules and laws we have emanating from the eu into u. K. Law and those who try to derail this bill are increasing the risk of what they would call hard brexit. Were going to leave the European Union. If we are unable to put the laws in place that provides at stability we will still leave. We will not have the Legal Framework we want. Bill beingepeal published to prepare for brexit one year on after theresa may and you came into your new positions. Guest for the department we have been in existence for a year today. We started a year ago with myself, three civil servants, and one special advisor. We are a Major Department staff based in eight countries. Where responsible for the exporting u. K. Goods and inward investment and preparing the trade policy for the u. K. As we leave the eu and are able to ship a trade policy of our own shape eight trade policy of our own. Guy do have time to make this work . Yesterday we had another warning , do you feel that time pressure . Under timerly we are pressure to get a negotiation done but if we have to have some kind of bridging mechanism that allows us greater time to get it right then we look at that. We are leaving the eu but we want to do so in a way that causes minimal instability, that allows market continuity, and were going to do what we need to do to ensure that. Those who think we are not going to leave are deluding themselves. What we need to do is to work in a way that ensures as we leave that is stable and mutually reinforcing. Matt how will you do that . You cannot get brexit negotiated at a trade deal in the remaining year and a half you have. The trade to will not be done. Do you have to fall back on wto rules, are you counting on the eu to give you a link the transition, what are you doing to hold off the blow . Easiestshould be the Free Trade Agreement in the history of mankind. We are beginning from a position where we have zero tariffs already and we have 100 regulatory and legal equivalents. The only reason we would not get a very liberal open agreement is because politics got in the way of economics and prosperity. That would be a great pity and that would not the matt if politics got in the way that would be how things go in the real world. Can you expect politics to get in the way . We can expect politics but if it gets in the way of prosperity that would be a pity. An introduction of impediments that do not exist today would make europe less competitive area it will have some impact on the wider global economy. Continue weotiation have to understand we are not carrying these negotiations out in a political or economic vacuum and what we do will have implications beyond europe area if we have in mind the wellbeing and prosperity of our people and the economic wellbeing of the confident that would put us on the right track if we sought to look at this as a family squabble, we would be on the wrong track. There is talk of the need for an accelerated process to make sure we have the process is in place. Would you be accepting of the idea that maybe we need some sort of an extension when it comes to the customs side of the story, would you be prepared to accept extended membership of the Customs Union if we did not have the processes in place . Take theot going to negotiation on the airwaves but what we do need to ensure is we get stability and we are not introducing impediments to our own trading system that we do not need to. We want to see what we can do in reality with the systems we have as to ensure that we have much continuity and as little instability as possible. To wait aif we have few months to get full implementation, as the price for keeping stability i would be happy to do that. Guy thank you for your time. Liam fox. We are minutes away from the open. Six to be exact area do want to get some stocks to watch. Daimler ag is one of them in germany. After the paper came out with a report saying there was a warrant issued for the to search the car makers facilities because of allegedly using some cheap devices on one million Diesel Engines, two different engine very big deal for diesel today. Guy we will move from diesel to jet fuel. The president of the u. S. And the first lady departing air force one in paris. This the start of a twoday trip. We have meetings this afternoon between the two president s. We will have a press conference later on today. In advance of the fireworks and pageantry of the bastille a celebrations. And the chancellor of germany will be in paris later on today as well. Ongoing negotiations for the future of the European Union create fascinating what they have to say. What is in the baggage hold . Does the russia story remain with the president as he travels . The i thought you meant baggage hold of the beast. What you are looking at is the president s limousine made to look like a cadillac limousine. It is modeled on a g. M. Suburban , a chevy suburban. It is it has one big Diesel Engine under the hood. That is massive. Every to my look at it it is distracting. Is that offtopic . Guy we are looking at it right now and it is interesting to get back stories on the cubic capacity of the various president ial vehicles. Lets talk about where the markets are going as the president of the u. S. Touches down in europe. We have a European Equity story that is likely to show a little bit of promise. Europe traded strongly yesterday. This is bloomberg. Guy lets take a look at where we stand, what we are expecting in terms of futures. The story with futures is really what is happening with individual names. Jamie dimon is one of those you want to be watching out for. The bond market story remains fascinating, but at the moment, according to the fair value calculations, european equities are going to go sideways, very sideways. Absolutely dax, unchanged, in terms of where we are expecting the market ago. Im wondering if the jamie dimon story can change the mix a little bit. Matt im definitely focused on the downward story. Also the global picture for equities. Long equities have done quite well. I have a chart here of the msci all world index, including developed and emerging markets. Ocked globallys st and once again we hit a record high. Equities continue to touch new highs as ever the last few weeks bonds sell off. It is a very bullish picture of global markets, i should say. Guy absolutely. This morning though, not exactly an upward trajectory. The ftse 100, barely budging and the stoxx 600, up less than. 1 . No clear sense of direction being generated by european equities, but a solid day yesterday up nearly 2 , in certain cases. I think it can be excused for a flattish open. It seems the driving force has been what is coming out of the states. Here is manus cranny. Manus matt, the Global Equity market was put into context yesterday. July saw a 3 rally. The longest winning streak globally since may 25 on the stock markets. That phrase from janet yellen in terms of airing the possibility of a slightly more majestic process. This quest and inflation story. Financials are up 1 3 of 1 . Energies are flat at the moment. Rex tillerson, doing the groundwork down in the middle east. Our guest during daybreak, you areok, were unde underestimating an underpricing the risks to the oil markets in a region. There is and i start there is a nice chart on the bloomberg this morning. From dogs to darlings, talking about the miners. 100 is the 50 and the day moving averages in the mining stocks. We drew back a little bit on iron ore, but we are breaking out here and we need to close above 405 to take the market h igher. Gilts are just opening now at the bottom of your screen. A slightly better open in u. S. Treasuries. 127 is your yield on the u. K. Gilts. A 10 million trade. They need a virulent move by july 21 in u. S. Treasuries. That potential on the gilt market. Diamondll no price on at the moment. You have to bear that in mind in terms of the movement you see. The diamond is reasonably well bid. Just in terms of putting todays move in context. There is the move over the last couple days, a 2 move. Diamond has opened sharply to the downside. As you can see, on a threeday basis, we have just unwound the moves we have seen over the last three days. Yes, a significant gap lower. Lets take a quick look and see where we are sitting with d a daimler here. We are just coming up a little, but daimler is opening down by t2. 57 . A move to the downside, nevertheless. Matt to be fair, analysts from citi are out with a note that says the media appears to be drawn the wrong conclusions here. They are saying, this is not new news, which to a certain extent therue, and daimler has entire time steadfastly denied any wrongdoing here. This, we should just reiterate for viewers, the negative news come from the newspaper here in germany saying the prosecutors have gotten a warrant to raid the factory, looking for any evidence of cheat devices on up to one million Diesel Engine cars that daimlerchrysler has produced, but daimler has denied up to this point any wrongdoing. Guy just a couple other stocks to Pay Attention to. That is a beautiful old mercedes. Matt not new Diesel Engines. Guy absolutely not, but think about the history. The two main gauges in terms of percentage changes. Lets turn our attention to what is happening with the downside. Funnily enough, daimler is not the biggest loser this morning, but its arcfelor. Daimler is the second biggest loser, down by 2. 43 . Xd story, down by 1. 28 , matt. Matt lets talk about what really is the focus of investors today and that will be Federal Reserve chair Janet Yellens testimony. The language used to destroy recent softness in inflation, expresses deeper concerns over how persistent that weakness may prove. Joining us now to discuss this is Jonathan Bell, chief Investment Officer at stanhope capital. What do you think about i guess it is a little bit of a turnaround for janet yellen. Maybe back to the Way Investors are used to her speaking. How do you take the testimony . While, i think we have seen a couple of indications from her, and from Lael Brainard as well, in terms of looking at the direction of where we are going. The direction is that rates are likely to rise at some point, but it is softly. This indication that we might be close to the neutral rate means they could raise rates, but they will not raise the very rapidly. In practical terms, we have already had the indication of them starting quantitive tighten ing. That will probably happen in september. We have you see how the market reacts to that. We are probably looking at a rate rise in december. Guy you still make we are going to get one in december . The markets are definitely getting to price december out. It is touch and go. A couple weeks ago people thought there would be a rate rise in december and now were thinking it is less likely. What you have got is a december rate rise and then the fomc pritikin is another three rate rises next year. I suspect they will be pushed back. There are two scenarios facing us. The first is we carry on as we have been with growth at about 2 , with inflation under control, which inflation under control, in which case, we get these slow rate rises, probably slightly slower than the fomc dotplot charts critic. Charts predict. Sorry. Matt please, go on. Second risk . The second scenario is the risk which inflation picks up. That is really what concerns me. That we have got unemployment at these extraordinarily low levels, we have got minimum Wage Inflation. If that starts picking up, the story could change quite dramatically. Then, wed be looking at what point rate rises are actually faster than we are currently looking at. Matt what are the chances of that i mean, thats the 1 million question, why cant w ages keep up with other inflation . And in what looks like a tight labor market, what is the story there . Of,ts quite, sort difficult to look at what is happening with the labor market. Why we have got unemployment so low and no Wage Inflation. My central scenario is we carry on with the scenario we are in at the moment really dont get Wage Inflation and we carry on with this path, but i have got a significant risk and that they have to protect in my portfolios that at some point which inflation picks up. When that picks up, and need to be in inflation protecting assets. Guy the fed could raise rates all they like at the moment. Financial conditions in the u. S. Get easier and easier. They are hiking into an environment where monetary policy, in some ways, the transmission mechanism is not working, so theyve got a free pass. Why not deliver the rate rises while this persists, and still get protection for the done the road . What they do not want to do is subtly raise rates more quickly than people anticipated. The market sells off. Guy but the dots are in front of where the market is right now. They have just got to get the market catch up to where they are and you have a significantly greater mother tightening priced in. We have a lot of tightening coming with quantitative tightening. Quantitative tightening is equivalent to perhaps, half a percent rate rise, maybe 3 4 of one percent of a rate rise. Until they can see the impact of that, they dont want to raise too quickly. Their policies throughout has been dont rock the boat. Lets do this conservatively. The u. S. Is doing pretty well at the moment. Growth si go, but of women and inflation growth, unemployment, and inflation is good. Matt they dont want to burst any bubbles unnecessarily, but creating them is not a problem, jonathan. Policyly, the weaker also leads to unintended consequences. Yes. The good scenario here, if you want a positive scenario, it could be the unemployment is now so low, as demand continues to grow, the only way to me that demand with that which inflation is for businesses to invest more. Even start getting productivity increases, which allows for further real earnings rise. You could get to the point where productivity growth, which has been the real issue for the last growth comese through and we have an increase in people working, not an increase in productivity. You could say at this point its which is to productivity growth. That is the positive scenario that could really help markets significantly from here. Guy jonathan, stick around. Jonathan bell, cio at stanhope capital. Up next, the battle for brexit laws begins. Theresa may is set to unveil the repeal bill, which will take the u. K. Out of the eu, swapping the legislation to a u. K. Legislation. It will be unveiled later today, but with opposition from both sides, it looks like it will be political trench warfare from here until the autumn. That story next. This is bloomberg. Matt welcome back to Bloomberg Markets european open, and im matt miller. Alongside me is guy johnson. We have a pretty mixed picture with stocks, but we are at records along the individual indexes. Lets cross over to nejra cehic for your midcap movers. Reporter im looking at two gainers. Starting with backup international. Shares are rising, up almost 3 . They have risen as much as 3. 7 at the open. The pipeline is stable, trading in line france, including a 15 improvement for french foods. That is the ceo confirming the goal of 10 full year ebit gro wth. We also have the Second Quarter sales growth coming through, also the revenue number and a positive reaction here with the shares rising the most since april. I also wanted to draw your attention. It says metro here, but we are showing you the Consumer Electronics business, part of metro. Emerger between that and the catch and carry business. I know you will be speaking to the ceo of ceconomyemerger betwt and pieter haas later on. We were expecting a lot of volatility on the first day today, but i will give you more details one of bring you more stock movers later. Thatlooking forward to later on. Theresa may unveils the law that will take written out of the eu today, but it is likely to be a lengthy battle. Opposition parties are planning to unite against the bill. Divisions could see brexit talks failing, we wrere told. I expect that is a plausible scenario. The point at which they collapse, i dont know. I expect we are a year down the track before something catastrophic occurs. Unless the British Government gets its act together, this is going to be a debacle. Guy still with us, Jonathan Bell, cio of stanhope capital. So much noise around brexit. So much uncertainty surrounding brexit. Do i need to put it to one side and say, at some point they will put it to the side . There is plenty going on elsewhere. The bank of england needs to be looking at the data. How do i play the u. K. Right now . I think actually your view that you can set it aside and wait and see is probably the right solution. At the moment, trying to work out what is going to happen on a day to day basis is impossible. We dont know who was going to negotiate, where we will be at the end of the day, which party will be in power. There are so many unknowns between now and we potentially leave. I agree with vince cable. There is a chance that we dont actually leave. So, look at the economics of the u. K. And the economics at the moment are uncertainty in terms of Business Investment because of the political backdrop. It is not just brexit, but also what will happen between labour and conservative policies. Its Consumer Spending. We just had the savings ratio collapse. That supported Consumer Spending, but at some point, people will start saving again and Consumer Spending will be down. So, thats negative for Consumer Spending. A bit of hope on the export side with the weaker sterling. But brexit then creates uncertainties there. Youre then left with the fiscal position of government and perhaps, we have slightly less austerity and is slightly bigger budget deficit Going Forward than we would have had six weeks ago. All in all, matt less austerity. Yes, less austerity. We had a big reduction from almost 10 to around 2. 5 . I think that could start creeping up again. Matt what are the chances of no brexit . It seems increasingly impossible to negotiate a trade deal, even regardless of liam foxs suggestion it should be the easiest trade deal to negotiate in history. What are the chances of having no brexit, or at least such a long transition period that it never seems to come to pas s . I think there is quite a good chance of that. 2019 there is got to be some sort of interim soluif brexitin. That could continue for a number of years and you end up with something that is so close to not leaving that we are almost in, or almost out. The other alternative is that political upset between now and the time when were supposed to leave, and you did to the point where he actually does got to say, were not in the position to make that decision at the moment. And then of course, there is the potential we have another potential brexit referendum down the line. If you do, we could vote at that point to stay in. Guy jonathan, thank you very much indeed. We are not done with Jonathan Bell just yet. He will be joining us on bloomberg radio. Daybreak, live on london radio. Up next, we are joined by the ceo of the electronic listing company. Thats coming up, next. Matt welcome back to Bloomberg Markets european open. Germanys largest retail group metro has put into two daxlisted companies. Ceconomy is one and metro will trade separately today. Pieter haas, the ceo of new company, ceconomy, the Electronics Unit that owns the Popular Electronics brand. Peter, my first question really, though i saw the expedition on your website, why the split . Why was this necessary . Could you not pursue an independent strategy inside the metro brand . Today we feel it is a little bit like independence day. We cannot now fully concentrate on our own business, run around business and focus completely on just Consumer Electronics. We were always a little bit int he wi the windshade of metr. Matt what can you do differently now that you are independent . Is really a matter of focus and full independence means all Free Cash Flow we generate goes into our own business. It means also complete visibility for everybody interested in the company because we have full transparency in whatever we do. Those are the three minute messages. Guy every retailer i have talked to views amazon as the main threat to their business model. Do you view that in a similar light . Amazon is focusing on food, fashion, on prime. Consumer electronics was a beginning category for them. Yes, they are a competitor. Please see that we now have, with our multichannel platform, with the stores we have, an asset that helps us compete against everybody. Guy how do you get the germans to spend more money . This is a broad question, to be honest and it is one i make light of. Nevertheless, there is plenty of expectation that the german consumer has the potential to spend significantly more. Do you believe that, and how do you get it to happen . I do believe that and i think the main driver will not just the to sell products, but to sell solutions, offer consumers not just a product in a box, but mainly seldom services also. Mainly sell them services also. Matt can you cover the rest of europe, peter . How much do you expect to spend to do that . We are present in 15 countries. It is obvious that if you talk about the rest of europe, being the number one makes is the natural driver of competition. That is on the strategic agenda. Matt thank you, peter. Hopefully you can find a way to open your stores on sunday because that is the one day of the week i want to spend money and here in germany, everything is closed. Pieter haas, ceconomys ceo, trading for their first day on the dax as an independent coming. For the other side of the demerger we are joined by the ceo of the wholesale business. The other side of the company. Olaf koch joins as an 9 00 a. M. Guy of next, we look at a factor that will affect that business, the eurodollar. Fxt the head of research, sonja marten thinks. We are looking at janet yellen, one part of that pair. Mario draghi, the other half. Has the single currency risen too far too fast . That is next. This is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Matt an american in paris. Trump meets macron in paris today ahead of bastille day tomorrow. Will there be fireworks . Downward dollar, the greenback extends its slide in stocks and bonds rally after janet yellen signals the fed wont rush to hike rates. Is the market going to be right once again . Daimler faces allegations of emissions controls in around one million vehicles. The carmaker continues to deny any wrongdoing. Shares recover from losses at the open. Welcome to Bloomberg Markets, the european open in berlin aside guy johnson in london. Guy lets look at where we sit this morning. Very little sense of direction being generated to read there are individual names out there on the move. Daimler is one. I headline level, nothing to see here. Prettyays session, solid. In reality, we are holding on to those gains. To see the twoday chart what we are seeing from the european equities. Lets turn to the single currency, a factor in this. According to our to accuracy rankings, joining us, the head of ethics theh at these at market is pricing in two rate hikes in 2018 from the ecb. Are we getting a little ahead of ourselves in terms of our enthusiasm for the single currency . It is true the market has run ahead of the reality and ahead of fundamentals. The ecb has kept speculation simmering, trying to walk a fine line between suggesting they are theking about changing policy of recent years. At the same time, trying to keep the market from overheating, running too far ahead. That will be a difficult balance to keep with the ecb. The inflation rate is higher, but not so high as to put pressure on the ecb to move too fast to the exit. Market expectations right now might have run too far compared to where we stand fundamentally. Growthhat if we see wage in the u. S. . Real tangible wave wage growth you can security the data think your teeth into, with that turn it around . Has beenge growth elusive and a problem in the u. S. , that we see in the eurozone. We have some very low on them unemployment rates and yet wages havent risen like they have in the past. Of the silent reserve come all of the people who dont show up in the employment state but come back into the market as the economy improves and that has been a factor at keeping wages low or rage growth low. If that were to change, that would change the outlook for inflation. Might put pressure on the fed to move. Judging by what janet yellen said, the fed is more concerned about the lack of more aggressive inflation dynamics. Obviously, that is a concern for central bankers around the world. Lets get back to mario draghi, you mentioned the ecb. Risk of mario draghi getting maybe more hawkish than the markets expect, or is he stuck on the of mode . Is he accommodative for the rest of his life . Sonja certainly compared to janet yellen, mario draghi is sometimes good for a surprise. The comments he made a few weeks ago caught the markets by surprise. The ecb did attempt afterwards to rein in the market to do some damage control, but i am sure he didnt say what he said by accident. He is prepared or is preparing the market for a more restrictive course of action in the long run. But again, mario draghi is someone who is willing to surprise investors, to go out on a limb without necessarily having consulted of consulting fellow ecb members. The german curve is steepening up, the japanese curve is flattening. Makes you look at what is happening with the funding currency story and what impact it will havent the euro. Have into the euro. You expect the german curve to steepen further and what will the impact be . Sonja the yield has been rising quickly on the long end. That has moved a lot faster than people anticipated. The expectation that the ecb could move faster than previously priced in and it seems slightly overdone here, as well. There is a good chance we will see yield come down a little bit as markets take a more realistic view on what the fed the ecb is able to do. Betweenfine balance keeping expectations for a tighter policy alive, while at the same time, present preventing yield from blowing out. To avoid the taper tantrum in the u. S. To what extent has the rise in the euro got to do with what has happened in france with the arrival of mr. Macron . If mr. Macron fails to deliver, do we see that being priced out of the single currency by the end of the year . Sonja no, not necessarily. The euro doesnt benefit so much from the French Election results. I think it was more the realization that a worstcase scenario didnt materialize and Marine Le Pen didnt manage to get a foothold. That really draws the euro higher. In general, i would say the political situation in the eurozone remains fragile and we will have italy later to worry about. In general, the euro has pretty much gotten used to this sort of uncertainty and a certain amount of volatility. Unless the market prices in the realistic possibility of the eurozone breaking apart, which we dont believe is going to happen, the euro should manage to survive further additional Political Uncertainty quite whale quite well. Guy we should do this more often. Sonja marten, the head of Ethics Research at dz. Matt . Matt lets talk cars now. Daimler faces allegations it sold cars with illicit commissions controls for almost a decade. Diesels, of course. That is according to the german newspaper. It cites a warrant to search daimler facilities earlier this year suggests one million diesel cars could be affect did. Is cooperating with authorities and wont comment on the investigation as it is pending. For more, bloomberg juran German Bureau chief. How serious is this for daimler . This is frontpage news in germany. It is the lead article this morning. Serious allegations against daimler. We are talking about these one million vehicles and a question about whether this constitutes what everyone is talking about a deceit device. Everyone is it is a question that is hard to answer because it is a great area and has been for a long time. The allegation is that they did this for a decade. Daimler says they have done nothing wrong. What was this the device in a . Were not . In terms of the investigators looking into daimler, ultimately, we are going to have to see changes in regulations, as well. Matt one of the regulations we see having problems is nitric oxide levels. The device story could prove costly, as it has for volkswagen, but what about the longterm viability of Diesel Engines . Do people at daimler, bmw are concerned about no longer being able to sell these old cars . Chad we are seeing a shift. Diesel sales are still a huge part of sales in europe but are declining. And you talk to automakers, whether daimler or bmw or volkswagen, they are now talking about the world after diesel cars and talking about the move to electric vehicles. It was interesting last week, the comments from volvo where they said over the next decade, we are going to go all electric. The shift away from diesel is beginning and what will really speed that up is if you see the european government, in germany, taking away the incentive for diesel. One reason they are popular in europe is there are incentives in the marketplace that make them cheaper. In the u. S. , diesel sales are miniscule, a fraction of sales. Successful in so europe because of the incentives governments put in place. Guy how many diesels does daimler selling the United States . Hundreds. No interest in diesels in the u. S. Because it has a terrible image. With the vw was not in europe. It was in the United States. In terms of the impact this could have stateside, this will not have the same kind of foot does the vw story footprint as the vw story. Chad analysts are already saying this morning if daimler has to recall all of these vehicles, it is going to cost the maybe 500 million. It is not the billions and billions that volkswagen had to pay. We are looking at something that nearly does not have nearly the scope of the vw scandal. Daimler has already voluntarily recalled 250,000 vehicles in germany. That was an agreement they made with the transport ministry. Beis something that would worth watching, but it doesnt appear at this point to have anything like the level that of the vw scandal. Matt we have seen the shares recover from the dip at the open. Is tos new news, daimler nine it is not that much money. Chad thomas, thank you for your time. Appreciate your reporting on this. Hes German Bureau chief. Coming up, in the middle man in the middle. Meets donaldron trump today before hosting a joint Cabinet Meeting with chancellor merkel. It will be three of them. Can he bridge the growing transatlantic divide . We will discuss next. This is bloomberg. Welcome back. This is the open. It is 8 44 in london. 3 44 in new york. Lets stay in the americas. The former brazilian president has been sentenced to nine and a half years to prison on corruption charges. He is not going to jail, he has the right to appeal. He has hinted at a 2018 run. We dont know what will happen. Joining us from dubai, Justin Carrigan. Betin, it is turning out to quite the week in brazil. Lets talk about the side of the fence and what is happening there. He has the right to appeal, he can still run in 2018, the markets seem to be less likely and seemed to see it as less likely that his party will provide opposition to the reform program. Is that why we seeing a positive reaction to the news surrounding him . Justin that is exactly right. We saw all markets in brazil doing well yesterday. We saw the stock market rising, the royale real wiping out all of its declines from earlier in the year. We saw bonds also rising. ,he market taking this as if he seen as a representative of fiscal laxity, if he is out of the picture, that clears the way for other candidates who might continue on this socalled path, standing for labor reform, pension reform. That is way why we saw the mini rally yesterday. It happened when yellen was assets easing risk across the world with her testimony in the u. S. And we had the brazilian labor reform measures approved the day before. Brazil had a triple whammy. Guy the spotlight comes back to mr. Right now. You wouldnt expect it. Likely now asseem facing some sort of prosecution, some sort of impeachment further down the road, is your sense of that market positive for market negative . Because we are going to get that news, as well next. Justin it would be negative if the process goes on for so long. We were discussing this yesterday how the run calls in brazil to make this process as quick as possible. That may not be possible. Think him being pushed out would be market neutral. The Investment Community doesnt like the uncertainty surrounding, but as long as he is kicked out, the next president , the standing president , continues on the beorm path, then that would really what the Investment Community is looking for. Guy as you have been pointing out, not great news for the brazilian economy. You for your insight, Justin Carrigan out of dubai. Lets get a market check with nejra cehic with our top stock movers. Nejra i am starting withs economy see economy. You might be looking at this and thinking, metro down 67 , no. Gy, it hastually cec written a bit risen a bit, but metro had a merger. You have metro wholesale, now trading under the before be ticker. If you look at the market cap of those two combined, that has risen since the demerger. This is showing the drop compared to the combined company yesterday. This drop looking a little confusing, but you want to be kicker to see if there is any volatility over the next couple of days. How this new company is going to keep trading as it started today. Atspoke to the ceo earlier bloomberg, we will also be speaking to the metro wholesale ceo later in the program. That is one stock to keep an eye on. And i am looking at partners group, lifting its outlook. This is the private equity firm raising its forecast for new commitments this year after clients added 7. 9 billion in the first half, up 3. 5 in partner group. On the downside, astrazeneca. This is after a report the ceo plans to jump ship from the u. K. Drugmaker to take the top job at 20 million bonus, not bad if you get it. Inald trump has arrived paris as he begins his third visit to europe. He meets with Emmanuel Macron in paris today before attending the annual bastille Day Celebrations tomorrow. Merkeland chancellor will hold a joint Cabinet Meeting later today in the city two nations at the heart of the euro zone to strengthen ties. Joining us from berlin, right next to me is a senior policy fellow foreign relations. Joseph, thank you for your time today. What does trump get out of this . What does trump have to prove or accomplish in paris . Why did he even come . First, he came because macron invited him. I think it was a smart move of inviting the u. S. President to the grand parade on bastille day, which if you have seen that, is a very impressive show of the military capabilities of france. Macron is out there to impress trump, to tell him look, we have means. We have capabilities. You may get roars of applause in warsaw, but the power is here. This is where he wants trump, of course. He goes for the atmosphere, the celebration. The the demonstration of use of military power, which in his young presidency, he has come to appreciate as the least complicated issues for him. Josef, at the g20 in hamburg, massive demonstrations. Matt was there. Bombs being thrown, riot police, why are we not getting any of that when it comes to this trip the president is doing to france . Why are the friends just welcoming, sitting back, saying thank you for coming . Josef hamburg was very much about a radical leftwing, which is very much antiglobalization, antieverything that has to do with big power. Violence because trump was in town. It was a symbolic gesture. To paris is nothing of that symbol and symbolism. It is trump sitting in on the French National holiday. That is an entirely different story and france, by the way, you dont have that much of the leftwing radical movements like we have here in this country. Matt it really was a concentrated left extreme activity in hamburg. Almost violence for the sake of violence and didnt seem to be supported really by the majority of the country here. They were sort of protesting against globalization and capitalism. But is the g20 this new world order, one world government thing . Or is it more about miracle or macron more powerful, but dashcam the two of them lead the other nations . A shift atre seeing this point. When the g20 was created, it was to solve a crisis by working together. The g20 isacy of that it continues to address global problems, such as development in africa with the migration timebomb ticking there. If you look at how hamburg went and how the other players look at it, you see, to them it is mostly about great power. It is mostly about balancing great power in a word. It is not about global governance. Trump or the chinese president arent interested in this. Neither is putin. For the europeans, they need to acquire at least some power of themselves in order to keep their own agenda on the radar of great powers, and that is the task facing macron and merkel. Guy the two of them coming together and they seem to complement each other. Nevertheless, mr. Macron is pointing towards a push ports for the european integration. He is writing about it a great deal, speaking about it at the moment. His germany ready for that . His germany ready to take next step toward and you think europe is ready for treaty change . Josef the germans are ready for deeper integration. I dont think you will find a country that is more ready for deeper integration. But they hesitate to jump onto it wholeheartedly because they believe in order to do this, it would be good if Member States did their homework. This is a way Angela Merkel often expresses it. What germany wants is that macron actually delivers on his promise to start reforms in france without a european condition. Started in its own right. Does,en he does and if he he will see germany very supportive. Even on the topic that macron is raising these days about more investments in europe, i think the terms are ready to take money in hand. Wasntropean scheme available, in a Franco German scheme to launch an investigation. What they need to know is the french are actually moving on their Structural Reforms at home. Could sitt now, we and talk for an hour and probably would focus on macron and medical merkel, where the power is in european integration and we wouldnt talk about trump that much. There was a time when the u. S. President was most important name in world power. Has that changed . Has the isolation of the u. S. He theed the degraded importance of the u. S. On a global stage . Josef you could have some of that already with obama. Even though obama was a much more internationalist president , because for many in the u. S. , europe is a problem that is solved. That is not the burning issue for american Strategic Interests anymore. With trump, it has a different i mention because trump actually has taken america out of the game. And that is why you dont see that much of the u. S. Influence in europe. I think it is telling that there many francodso german meeting going on in the morning on the day of his arrival, because this is an established process that doesnt get derailed because the american president has arrived. Matt fascinating stuff. Really appreciate your time. Thank you for putting up with our production issues. Josef janning. Guy . Guy up next, bloomberg surveillance. You and i are going to radio. This is bloomberg. Mark janet yellen strikes a more cautious tone on inflation, hinting the recent slowdown might be more than just a blip. The odlla dollar dipped on her testimony. The Second Chance for a first impression. Patching things up in paris today with ammacron, following that handshake. The diplomacy continues for rex tillerson. This is bloomberg surveillance. Im mark barton