The u. S. Yesterday. Record highs for the s p 500. Check it out. Dow jones down by 0. 7 . Nasdaq down by over 1 . The losses have not been restricted to the u. S. We have losses in asia and europe as well. Going back to levels we have not seen since may. This is your market open right now. Ftse 100 flat. Cac 40 down by three point down by 0. 3 . The ibex up about 0. 5 . The big one for me is not sterling. It is the euro. Eurodollar, 1. 3619. The Central Bank Governor says this one is not too strong. Not too strong. Talk to your french neighbors. Talk to your boss, marriott draghi. He might have something to say. The euro has stayed stubbornly high even after those measures unveiled by the ecb. What it is going to get this one to go from 1. 3620 to south of 1. 30. Everyone is looking at the other side of the trade. The u. S. Dollar. Janet yellen has called the tech higher in inflation data just noise. They have something to say about that. The indication on when we get the timing cycle begins with that first hike. That is going to be the focus tonight. It is indeed. We will get a full roundup. Chris has joined us. He is the cio great to have you with us. I showed images of brazilian fans. There are lots of analyst notes coming out in terms of the impact. The psyche of a world cup defeat. Do you think these kind of things play into the market psyche at all . I think china is probably more important than the world cup. Lets get to china. Producer prices, 28 straight month in a row we are down. We have xi jinping pushing along the agenda. What is the data saying to you . Slight improvement. I say slight because it is very narrow in terms of looking at the monetary data. , theroperty prices indicators that we look at show electricity prices continue to show lackluster economy. It is not very broad brush recovery. We are seeing some tentative signs. Tentative signs, is that enough to power the rest of the world . The rest of the world looks to inna as an export market and terms of its propensity to drive the commodities story. Are you are short of 7. 5 growth . Think that probably is the growth we look at for the second half of the year. It is a suspect number. We are still looking at the data but we are seeing some improvement in retail sales and electricity consumption. But it is very modest. On that basis, we should be flatlining for the second half of the year. Lets talk lets talk about some other things. We are seeing the least amount of shorted stocks in these markets. Stoxx 600, 2 percent, the u. K. 1 . Are we all just a little bit too complacent . I think valuations are a little stretched. We have had probably 70 of the moves we expected in markets this far in six months. 6 in the s p, that is a very big move. It is going to be probably a slower pace in the second half of the year. On the other hand we have strong data coming out of the u. S. In terms of Economic Activity at the retail level, we have very good unemployment data. There are strong undercurrents of momentum in the u. S. Is that going to shift . We are going to get the Federal Reserve minutes. Still, as you read through the information, it really is a dovish call from some of these fed members. Growthed acceleration of is up around 3 . We have janet yellen saying, low rates for a considerable length of time. Where are we with this debate . Depends on which fomc member you talk to. Of course. The complexion is changing. Contrast in signals is interesting. Some are much more hawkish and others very dovish. It is basically keeping the markets on their toes and not allowing the massive complacency over the rate picture. Goldman sachs moved their first rate rise forward by about three quarters a couple days ago. They have come more towards bullards stance. His view is that we are already there in terms of the stimulus we put into the economy. I think yellen is going to maintain this dovish stance and try to you have to remember, the recovery in the u. S. Is very narrow. It is among the wealthiest individuals whove benefited from a significant increase in asset prices. When you look at home prices below 1 million, they barely moved. What we are looking for is a more broadbased recovery. I speak to a number of people who run Small Businesses in the states. It is not as broadbased as the headlines figures make it out to be, is it . 90 of the population really havent benefited from qe. Qe has just inflated asset prices and made the wealthy very wealthy. Ok, chris, stay with me. We have a lot more to get through. Here is a look at what is coming up. We have brazil. They get the boot. The nation is kicked out of the world cup after losing 71 against germany. It is the biggest effete ever. Unveil his ceo will strategy to boost growth. That is as rivals put pressure on the airlines earnings. Another multibilliondollar bank fine. Why citigroup may reach a deal to settle allegations it misled investors. Details in the next hour. I am manus cranny in london and this is on the move. Brazil bites the dust. In case you have woken up and missed the global headlines, the world cup host country is out of the competition. A stunning 71 defeat by germany. Even i dont love football but i am in shock. Hans nichols is in germany. Relation sense of the in germany. [laughter] well, let me describe it this way. I am here at the loft on the training center. It feels like a giant dorm. University when a gentleman may have spent the night out of his room and would come back with a smug smile on his face . That is what this entire village feels like. Everyone is smug at the same time. There is a certain amount of forbearance because everyone says the real goal, victory in the final. It is pouring rain here. That didnt stop the fireworks. All night. You could barely sleep in berlin. I was in a small village. Fireworks all night long. It is a remarkable story. Everyone is focused on the real prize, to be the world cup champions. Manus. This is fairly unprecedented, isnt it . [laughter] well, we can go back in history and try to find a different differential. 1920 is the last time there has been a six goal differential. There is a certain amount of, this for brazil of comeuppance for brazil. People were just elated here. It is hard to say that everyone is back to work and everyone thinks the real goal is victory. No one is quite celebrating entirely just yet. Give me your call for tonight. Netherlandsargentina . You have to go with argentina. You have to have a european Southern Hemisphere split. You dont want everything just neighbors playing each other. You have to go for argentina. All right. We will see whether your call comes true in the morning. Hans nichols on the advent of the day. Nevermind markets. We are back now with chris godding. It was a stunner. A stunning, stunning victory. Lets get back to markets. There are some big themes. And in a, more shuffling of the deck chairs, abbvie over shyer. There is a lot of cash sloshing around. What is going to drive us in the second half . More m a or earnings . Where should i be focused as an investor . In the u. S. , it is going to be the taxi version issue. The tax in version issue. Obviously, essentially a tax in version driven strategy. Essentially highlighting the difference in tax rates between the u. S. Against a country like ireland. Why couldnt they move to changing rates . Everybody is talking about whether they get the legislation in place. How quickly could that be done . I dont think they do anything quickly in the u. S. From a legislative point of view. There is enormous resistance. In many ways it is the right policy because it enables companies enables the government to redistribute income. The companies definitely arent passing the savings on to the employees. Most assuredly not. Tell me about some of your top themes. Youve got energy and materials. Now you have the cost of the rate cash return, for example, in some of the resource stocks. Take me through your thinking. Those are quite related. Two things. One is the rate cycle. As the economic motion picks up, those late Cycle Industries do better. Prices tend to move up. There is no significant change in the supply side but there is material improvement in the demand side. You have improvement in oil prices. On the material side, similar from a cyclical point of view. Discipline, the Capital Spending discipline of those industries is leading to higher returns for investors and they are passing that capital back to investors or selling assets to other development companies. Key themes in those sectors. We also have companies brave enough to give us some picks. You have got some consumer cyclicals. There just tie into is a great deal of change going on in the aggregate industry group. Why them . A comparison would be Something Like the airline industry. The whole theory of consolidation leading to better pricing. That is leading to a better environment, along with the fact that we are in the late cycle. That is one of the key things behind it. Ok, we are going to leave it there. , you are actually going to stay with me i have just been told. We are going to move on and talk about banking. Citigroup may pay up to 7 billion to settle allegations that it misled investors. That is according to the new york times. The agreement could happen as soon as next week. It is part of the neverending trail. Beenhan ferro has following the story. No confirmation right now. The biggest headwind against this industry right now is not about rates. It is about litigation. It is about multibilliondollar fines. We could have an agreement as soon as next week. This isnt bnp paribas or Commerce Bank. This isnt about transactions with sanctioned countries. This isnt credit suisse. It is about a probe into Mortgage Bank bonds. This goes back to 2008. This is a legacy issue. Beginning or the end of the legacy issues . Every time we talk to analysts, they say this is the single biggest risk when looking into some of the numbers. We have dealt with some of these banks that are going through litigation issues. It feels like we are getting towards the endgame. That werehese banks going under probes by u. S. Regulators, we are starting to get a result. Whether it is switzerland, france, Commerce Bank said to be close to a deal. Sector, youn this have to have a pretty strong stomach to hold these banks and go through these headwinds. The other thing, all of the talk that u. S. Regulators went after european banks, this is a u. S. Bank and that is a pretty big fine. All right, lets see what the numbers come out with. One of the guiding issues on the whole banking story is, how much do you profit from your activities . Chris, you are still with me. It is hard in terms of american banks and european banks, this regulation and finding. Where do you stand on it . How do you look at the Banking Industries on both sides of the pond . Randomeems to be quite because these things come completely out of the blue. Investigations take a long time and suddenly there is a huge settlement that investors have to take account for. That is probably going to continue. Banks need to think about the reserves they have against litigation. With jpmorgan, they have a huge litigation reserve. And loany, banking growth is improving in the u. S. Over the last six months, it has grown around 10 . That is a very encouraging improvement. Story, the other side of it is quite strong. Loan growth strong, rising rates. Rising interest does that is that enough to trump litigation . What is the next big litigation that is going to drop . You guys talk. You have lunch. I dont know. It is what comes out from the woodwork. Two steps forward, one step back. That is the nature of the business. The risk premium you can apply to banks is going to continue to suffer as a result of that. People arent going to pay fair value for banks. Same story in europe . We have the asset quality review coming up. More importantly to the european economy is that contraction of the Balance Sheet has been a key risk to the economy this year in europe. Earnings have not improved because loan growth is stagnant. The ecb is shrinking its Balance Sheet. Those things are real issues that we hope draghi is going to continue to address. I dont think he is going to come up another speech in london to save europe and save the currency. Chris got in, thanks very much for coming in. After the break, we had to beijing for details on the annual u. S. China economic talks. What is on the agenda . How important is this before obama goes to china later in 2014 . Welcome back. Time now for well, we are going to go to china. Jack lew and john kerry are on the trail out there. It is the annual two day gathering. Henry saunders in joins us now for a little bit of an update. Why is this year so much more important . Good morning. This year, it is really a matter of getting over strategic mistrust between the two sides. There have been incidents leading up to these talks that have frayed u. S. China ties including Cyber Security territoryver maritime in southeast asia. The talks are very important to try and restore u. S. China ties to when president obama and xi met last year and declared they would have a new model of power relations. Tell me, what does it hope to achieve . Both have slightly different agendas. You have kerry on the political side and lew on the currency side. That is right. Big picture, on the strategic side, the u. S. Wants to convince china that the u. S. Does not want to contain chinas rise. And that it wants china to rise and follow international norms. On the economic side, the u. S. Really wants to open up china for u. S. Investment and further talks on this bilateral investment treaty that would put u. S. Investment in china and allow u. S. Companies to invest in china. There is these two things going on. , lets see what other news comes through. Henry sanderson in beijing. Lets take a look at equity markets. Jon ferro back with the top three stocks on the move. Equity markets are just trying to regain. You see paris up 0. 3 . London down. Volatility was up yesterday. Draghi speak later this evening. The Federal Reserve has the minutes. London, the biggest oneday drop in four months. The dax was the biggest oneday drop in 44 trading sessions. As it stands, london is the only equity market on the downside. Stay with us. Up next, we are going to talk more about that german victory over the host nation brazil. Follow me on twitter. I usually start at around 4 00 in the morning if i have had a very strong cup of coffee. Welcome back to on the move. I am manus cranny in london. Equity markets open for 30 minutes now. Regaine is trying to their composures as we wait for mario draghi to speak tonight in london. U. K. Stalks off by 0. 25 . Insurance stocks are having trouble here. The premiums that we pay to drive our cars our down. Think you can really compete with mario draghi, can you . The dax down by over 3 right now. Down the most since may of last year. It is not pretty. They have cut their 2014 forecast. The market reassesses the valuation. Deutsche bank, not all bad news for germany. You have got the bank stock up by over 1 . Have gone from overweight to neutral. 33 euros. We are at 25 right now. Shire, this is the one everybody is talking about. They want a home where they can get a lower tax rate. Seems to be the theme for most of these u. S. Companies. Acquisition because of tax reasons. Higher foris 48 shire than when they first approached the company. Will it take a hit . Seems to be. Ok, thanks. Those are three stocks. Time for some top headlines. Israel launched its largest offensive in the gaza strip in nearly two years. Assault out an aerial on more than 150 targets. 23 palestinians died. Hasrmy spokesman said hamas to pay for rocket attacks on israel. With federal prosecutors. Thatew york times reports the deal could be as much as 7 billion. Brazil, as if you hadnt heard, they are out of the world cup. To germany in front of the home crowd. It is the biggest loss ever in a knockout round of the tournament. Will be decided when argentina takes on the netherlands later today. While germany might be flying high this morning, the same cant be said about its nations biggest airline. Ceo will unveil his strategy in germany. International correspondent, hans nichols, is on the ground. Now that you have stopped talking about football, what has this ceo got to deliver today . To find the cruising altitude for lufthansa. They have pressure above. Had, qatar, emirates, there is a lot of pressure there. At the same time, you have easyjet and ryanair. German wings will do all the shorthaul flights that arent hub related. They will be doing a lot of intergermany flights. An problem is, they are at operating cost disadvantage. The ceo of german wings mentioned that at the frankfurt airport. They cannot compete with the likes of easyjet and ryanair. These are the challenges he faces. He also faces high labor costs. A few things left unsaid does have going for it, incredible reliability. Safety standards, one of the industry leaders. Those are very important for german consumers. Remember, just six weeks ago, they issued a warning. The stock went down 16 . That is the most since 9 11. We saw a profit warning from air france. It is a difficult time to be a european carrier. It obviously is. They have a huge amount of industrial relations issues. ,alk to me about a bright spot a subject close to my heart. Food. The catering business, it is a bright spot. They are going to be able to sell the business, arent they . When we think of german cuisine, we think of great catering. They have over 300 carriers globally that their Catering Division provides services to. It has annual earnings of about 160 million. Earlier this week, there was talk about an ipo in the range of a 1 billion valuation. The stock went up slightly on that. They still do efficiency and logistics very well. The question is, can they compete globally with the labor costs here and the pressure from those big carriers . That is what we are looking to hear. And whether they announce a lower cost airline, something to compete with easyjet. That. Will wait and see on i will let you go. You can try some of that german cuisine that you love. For more on lufthansa, i am over aty Philip Seymour the International Bureau of aviation. Great to have you with us. We were just talking about lufthansa. Iag next . R france, is do they have too much capacity . The capacity that is being put in by the Middle East Airlines with the huge a380s, there are some ironies. A380 finished in hamburg and sold to the middle east to compete against the german trench markets. There are some strange things going on there. Qatarssay likewise, ceo has said he wants more slots in europe. If he doesnt get more, he wont be taking delivery of his airbus is. Macro issues going on there. There are huge issues. Maybe i am asking too obvious a question. The middle east carriers dont have these legacy costs, unions, contracts and negotiations that come up time and time again. The that forever be purgatory of National Carriers in europe . Are we going to see change . An airlinereally ceo, there are so many costs outside of his or her control. I expect today what we will hear is that left on the will have to look lufthansa will have to look at costs of pilots who have been with some of those Legacy Airlines for 20, 25 years. They are earning half 1 million a year perhaps. They have to cut down some of those high costs. The lufthansa do, and tell me if this is right sa, can thean lufthan same thing be done there . Is it achievable . I think we are looking at a slightly different mindset. Awfulhad been through an recession. Perhaps the mindset was slightly different. Germans and the German Economy see themselves as, we are supporting europe. We deserve to get something out of this. We saw earlier this year, the pilots did go on strike. Very unusual for german pilots to take that action. They still have issues. Revenues are impacted by french air Traffic Controller strike. That is phenomenal. To getlways keen deal. With this overcapacity, are we going to see pressure on the Business Class fares and first class fares . Is this going to be rewarding for us . Not that i get to go on Business Travel for bloomberg. Well, i think the issue is it is not just the transatlantic. If you are a businessman in Northern Europe and you have to go to beijing or tokyo, hong kong, singapore, if you can get an emirates Business Class seat for 2000 pounds or 3000 pounds or euros last by going through dubai, abu dhabi or qatar, then you will probably do it. Be a three oray four hour difference in travel time. It potentially is a bargain. Is that where the ba part of iag is slightly more protected . This is the key hub with heathrow. They are filtered into america. Perhaps it is more protected. I think so. But of course then we have other issues. The holdings times to get into heathrow you can almost go to amsterdam and get a connecting flight. It is a bit of a nightmare coming into heathrow. What is top of the agenda . Unusual aboutt is this is probably the lack of massive orders. There are going to be a few. Whether we see anymore from the middle east, not so sure. Airbus tend to save their big orders for the paris air show. We are looking at some of the technology change. Perhaps a new engine on the eight 330. The a330. There is plenty of Technology News coming. We have to leave it there. It will be a challenge for lufthansa. Lets see what they and theyll. There. Ymour we are going to be back in just a couple of minutes. Stay with us. I am manus cranny and london. This is on the move. Justin king is leaving sainsburys. His exit is not going to be graceful. Here to tell us why is caroline hyde. Caroline, why is there so much controversy . I know he got paid a lot over the last 10 years. Is that the reason why there is rancor . I think it is about his last paycheck. This is a man who is going to be paid more than double of any of the other rival grocers. Morrisons. , justin king is set to take away 3. 9 million pounds. Lower add, that is 22 than last year. Edis is a man who has waivw his 1. 7 million severance payment. Head of aonly grocer to take home a bonus. Maybe he should. He saw a record pretax profit. Maybe this is for a man who should be taking home so much pay. There is slight concern because the intention and Investment Research consulting firm, one of the biggest advisory groups to shareholders in the u. K. , they are saying this is excessive. They are advising that shareholders vote down this paycheck. This is a man who has driven sainsburys arguably from a and has turnedne this business around, made it far more efficient and even giving back morale to the workforce. It is arguable as to whether he should be coming under so much duress. Many shareholders would be one thing retailerst talk about and not talk about this counters. What is the strategy . We have got a new kid on the block. Returning to the block. It is nano. Aftereft back in 2010 astro took over 193 stores. They are returning to this sacred ill that is the United Kingdom by sainsburys. They have been lured back. Sainsburys have formed a joint venturer saying, lets open 15 stores by the end of 2015. They are kicking off in the north of england, opening more discount chains to rival the likes of aldi that have started to eat into the market share of the big four. Sainsburys have seen like for like sales down for two straight quarters. If you cant beat them, join them. We spoke to one of the leading lights of the supermarket earlier about the return of netto. Have a listen. Now is a great time for customers in the u. K. All over the last four or five years. Customers want value for money. We can give value to money. We are very excited about this opportunity. We have teamed up with sainsburys. I think it is a fantastic partnership. Nobody knows discount as well as we do. Of course, justin king hands over the reigns of power to the commercial director. Today is his very last day as chief executive. Be wanting to hear this new strategy surrounding the discounters. The jury is still out if you are looking at analysts. Sanford bernstein saying this is a strategic masterstroke. They say this is a quaint right to compete. Dont reduce your prices in your own store. Set up a rival to cash in. And hsbc are completely mystified, they are saying this is the wrong tactic. You should make your own store is more compelling rather than setting up more competitors. He will have a chance to answer some of those criticisms. All want to hear where justin king is going to go. He hasnt given us an inkling. Will it be to take over formula one . That is the big question. His last day at the top of the Supermarket Chain that is sainsburys. Back to you. Caroline, thank you very much for that roundup. From high street supermarket, lets turn our attention to the bank of englands rate decision. This impacts everything they think about. Here to take a look ahead is kevin daly. Great to have you with me this morning. You have the doves and ball hawking your notes. , really strong call here. You reminded me of the last line in your inflation call. Take me through your calls for growth and inflation. The characterizing view in the u. K. The last 18 months have been that we are above consensus on growth, below consensus on inflation, reflecting a relatively optimistic view of potential output in the economy. We have now revise our growth forecast even further. Expect 3. 5 percent growth this year, 3 next year. Despite that, we expect inflation of 1. 5 this year, 1. 5 next year. Potentialweak inflation rates are at the moment, you have 3, 6 and nine months sequential rates running close to 1 , we think there is a risk. It might fall below 1 by yearend. You saw the news overnight from the brc about the latest prices. Just on reflection, i think these are the lowest readings since 2006. Talk me through what this means for equity markets and credit. That is what you reminded me of. This has a market impact. That combination of views that we have, below on growth, below on inflation, it is quite an unusual combination. I would say, we would argue it is the best combination for equities. Our equity strategists are they happy on the Trading Floor . They are. They believe european equities including the u. K. Are giving a pretty good value. It is more of a mixed bag for fixed income and Interest Rate prospects. And the currency. Whereas our review is, we are more dovish than the market, there are some fairly hawkish elements, particularly our growth view. A great combination for activities. A bit more of a mixed bag for fixed income and currency. You mentioned the currency twice. Is that the spoiler . The strength of sterling . Whenoncerned we should be we look at eurosterling . How big a spoiler is the currency . It certainly is important. While we are relatively optimistic on growth, we see key positives being the ongoing recuperation of the banking system, improvement in credit provision, the fact that uncertainty and risk continues to decline. The key negative is the rise of the currency. Traderrency is up on a basis almost 10 . That leads us to expect that while growth will remain strong mark carney. Is he deliberately injecting . Ome volatility he doesnt strike me as the kind of man that blindly makes statements. We are having a conversation here. It is good to be unsure of my footing. Is that what carney is doing . I dont think the communication on the speech was ideal. The one concern that they do have was in the lack of risk premium priced in at the front end. I think where markets misinterpreted the speech, they took it as a signal from carney in a sense, he was saying there are no promises but we expect to raise rates by the end of this year. As the minutes came out, i think Market Participants realized that wasnt the message they were trying to convey. The message was more, no promises about when rates could rise. We are concerned by the degree of risk. Whether intentionally or not, he introduced a fair degree of risk premium. He has given it to them in spades. We are going to have to leave it there. In a word, we see mortgage approval coming off highs. Is that a bit of a relief for the bank of england . Mortgage approvals, i think they will take with some relief. Manufacturing data, we tend to dismiss that. Wanted i didnt quite get it, did i . Great to have you with us. Kevin daly. Stay with us. We are back in a couple of minutes. Welcome back to on the move. I am nearly finished for the morning. Guy johnson is up next with olivia sterns. Olivia is not there. She was doing countdown. I havent seen her in this office. How are you going to cover the world cup . Famously. We are looking at that 71 defeat. Hans is at lufthansa. We have the angles covered there. Are you booking a flight now . You would have thought that next plane out would be fairly busy. We are going to be talking to one of germanys biggest beer makers. How do you prepare for a World Cup Final if you are one of germanys biggest beer makers . Ok, we look forward to that. Stay with us. That is it for me. See you tomorrow morning. Brazil gets the boot. Its world cup dream is over as germany crashes it, 71, the worst defeat ever for a host nation. Another bank, another fight. Citigroup could pay the u. S. 7 allegationsederal that it misled investors. And more rockets in israel as the country carries out air raids on gaza. We are live in tel aviv with the latest. Good morning. You are watching the pulse