Planned sales tax increase the o suzuki shares cross increase . Suzuki shares crash. Who is next . That is the big question. We are going to kick that around. We need to talk about the fed. The markets are paying attention to these guys. They dont have a vote. Why is the market listening . Matt this is really what is moving markets around the world. We saw asian markets down. The u. S. Cash trade was down on this. There is a political event in washington, d. C. Where all three of those nonvoting fed members are speaking. I think the reason the market is listening is because of shock. They are not only saying june, not only do we expect two rate increases but possibly three. Both lockhart and williams said two or three. That is pretty astounding since the market was only expecting one at the most. Interesting what is is, where do you go to for information on the fed . This is one of the things im looking at this morning. The functionk at on the terminal, the probability of the june rate hike has increased. If you take a look at the front end of the u. S. Curve, it has come up a little bit. Nobody really believes the u. S. Curve is a predictive indicator. The only person weve got right now is janet yellen, and that is the voice we need to hear from, isnt it . Matt yellen and fisher, her vice, have been silent. Those are the two, or really any Voting Member could really move the markets. The probability chart is a good place to look on the bloomberg. It is interesting to look at the spread. I wonder if that is predictive or if its more of a sign investors arent finding yield anywhere else, and so they are piling into u. S. 10years to store their cash. Guy that is the argument i would make. This is why the u. S. Curve is not such a great predictor. The predictor everyone talked about years ago was something people paid attention to. Said, its having an impact on global markets. We are seeing that in europe. Lets take a look at the bloomberg and show you the weei function. Its predicting we are going to have a soft open in europe. The ftse 100, down by 0. 5 . 0. 9 . X, down by it looks like we are going to see a soft opening in europe, and its rippling elsewhere, isnt it . Matt absolutely. Check out across Asset Classes. Movement, a lot of it driven by those fed speakers. Obviously, the oil markets are moving by themselves, but we are seeing the correlation break down between oil and stocks. Itthe beginning of the year, was a oneforone move. If oil was down, stocks were down. You can see the dollar getting contraction on the back of those fed speakers as people try to play into that possible divergence in central bank policy. Lets get to bloomberg first word news with tom mackenzie. Japans economy dodged a recession last quarter as gains in government and Consumer Spending compensated for a slide in business investment. Gdp expanded by an annualized 1. 7 in the three months at the end of march, exceeding all forecasts in the Bloomberg Survey of economists. The october to december quarter was revised to a 1. 7 contraction, worst in the previous estimate of a 1. 1 drop. Suzuki motor shares have plunged after the company said it used an improper method to test the fuel efficiency of its vehicles. It widens a scandal for the countrys Auto Industry that first originated with mitsubishi motors. Suzuki is scheduled to brief the 8 00 a. M. He issue at u. K. Time. Most inces rose the chinese cities in two years. That as gains in secondtier cities surpassed advances and larger in larger hubs. To 120umped almost 64 2 billion. Beijings third highestranking official says hong kong should participate in chinas development as part of the so called a belt and road project to build a network of roads, railways, ports, and pipelines across asia and europe. Zhang is in the territory and to leaders that hong kongs prosperity is important to china. Bernie sanders has won the democratic present primary in oregon. Meanwhile, Hillary Clinton claimed victory in kentucky. Oregonsump won republican primary, though he had effectively clinched the gop nomination. Former rivals ted cruz and john kasich remained on the ballot in the state. Global news 24 hours a day powered by our 2400 journalists around the world, and you can find more on bloomberg at top. Matt . Matt i feel the need, not only as a u. S. Citizen but an o hioan, to tell everyone it is kasich. Members sayreserve two rate increases may be warranted this year, as inflation picks up. That pushes back against expectations that the central bank will delay action. The key thing is that these are projections at a point in time. They are not promises. I dont know how many rate increases we will have. My assumption is two, possibly three are possible, but i dont know. It depends on how the economy evolves. I actually think 23 seems reasonable given where the economy is, given the job growth we are seeing, the inflation data we are seeing. Guy joining us now on state, steve jacob sent, cio should we listen to these guys . Not really. They did the same thing ahead of the december moving and disappointed all of us. To a large extent, what is going on now is the fact that , you haveis very high the dollar coming off a little bit after being down 4 . In thesaid rightly earlier segment, i think its about yellen. I think its about fisher, and i think they sit on the opposite side of the table. Fisher has been raring to go for a long time, and yellen is more defensive. What they are trying to say is that june is not really live, but it is live in the sense that i think july i dont think theyre going to move ahead of the brexit. The only probability we need to look at is the likelihood of no fed hike. After these comments, it moved from almost 50 for no hike at all in 2016 to only 25 . Clearly, the market has taken their words to heart, but at the same time, do you know at the bestperforming asset class is this year . Guy gold. Aeen fixed income in relatively 50 50 portfolio. 30 years, up 3 . The s p is flat. Guy i want to talk to about the bond market. I think the bond market has a few questions it wants to answer. Lets kick this around a little bit. Matt i just want to ask about the fed. I wonder with the view of the fed is outside of the u. S. I so rarely get to leave those borders. We saw a richard fisher, Robert Kaplans predecessor, continually do this throughout his tenure, but he had very he never dissented. Do you think that when williams and lockhart go out to do this kind of thing they do it in concert with yellen or at least with her approval and knowledge . Is this part of the game that they play . Steen if you ask them, they will claim to be dependent on their own minds, but i think the Communications Strategy is very close to yellen. She was responsible for that before becoming chairwoman. I dont think they have a plan. I think they are totally confused, and they will remain confused. The u. S. Economy is not Strong Enough to carry the hike, and if they do go ahead with the hike, the inevitable thing is that risky assets will have a terrible time for the balance of the year. A kid at refusing to go to dinner and the parents who keep telling them they have to go. Guy one final question, the bond market if we believe yellen and yellen is willing to let the economy run hot for a while, and if inflation starts to creep back in there are some signs it is starting at what point do bond market vigilantes go, you are eroding my capital. I need to be in front of the fed, not behind the fed. When fixed income no longer gives a positive return, that will be the line in the sand in terms of believing the fed. Until proven wrong, fading the fed has been the recipe throughout the last few years. To discuss with you, steen jakobson. Then dodged a recession and less court are thanks to spending. We are going to go to tokyo for closer look at the numbers next. Guy welcome back. 43 minutes past the hour. That is what london looks like this morning. A great guest coming up, as you can see. The market called lower in london. Lets get you a Bloomberg Business flash. Here is tom mackenzie. Tom burberry reports a second straight drop in annual earnings and announced plans to save 100 Million Pounds a year. Adjusted pretax profit fell 10 . Costompany also says saving goals will be achieved by 2019, adding that 2017 earnings are likely to be near the bottom of the range of estimates. The u. K. S demand for companies trenchcoats and other products slowed from new york to nanjing. Sab miller reports its fullyear earnings that missed analyst estimates. Adjusted pretax profits and did on march 31 and fell 16 . 4. 6 billionected dollars. That is as the brewer is due to be bought by ab inbev and was settled with charges related to operations and costs associated with the takeover. Group, chinas biggest maker of Home Appliances, is raise its stake in the german industrial robot maker kuka. The takeover offer will be subject to certain conditions. That is your Bloomberg Business flash. Thanks very much. Japan managed to sidestep an official recession in the last quarter with the economy growing 1. 7 . Annualized gains in government and Consumer Spending compensated for a slide in business investment. This comes following a revised 1. 7 drop, contraction, in the previous quarter. Usombergs tokyo chief joins now. Tell us more about what has been driving growth, and how much of this was boosted by the fact that it is a leap year . Yes, as you say, consumer and Government Spending were the main drivers for the strong headline figure. Economists have largely said that the headline figure masks the weakness that is still weak evident in the economy. The leap year affected play a huge role with an additional day year,ear compared to last allowing for more spending to be calculated into the data. Capital spending continued to fall, which shows Business Sentiment remains weak. Companies are reluctant to spend, which would be a concern for Prime Minister shinzo abe and Haruhiko Kuroda who are counting on this to kickstart the economy. Guy lets pick up on that point. ,s a result of these numbers does policy change at the boj . Does policy change for abe . Capex is not there. What are they going to do to get it there . Yes, so the debate is still on about whether Prime Minister shinzo abe will push ahead with the consumption tax hike plan later this year. Kkei reported this morning that he decided to postpone it, but the top government spokesman reiterated this morning at a News Conference that the government stance officially has not changed. Willlation is that abe make a decision on this after. He g7 summit next week for boj governor kuroda, the situation remains largely the same. He passed on a decision to ease policy further at his previous meeting, which was seen by economists as a gesture by the central bank to urge the government to do moronic part more on its part given the limited tools the central bank has in its arsenal. ,uy our tokyo bureau chief thank you much indeed. Lets get the view of steen jakobson. A potential surprise. What do we see delivered, if anything . Toen its hard for them deliver anything. Historically, it has been a weaker currency that has been the concern of the bank of japan. Monetary policy and foreignexchange policy in japan is a little rattled. What comes next . I think what comes next in japan is hugely important not only for japan but the whole economy. We have all tried not to do with japan did and have done exactly what japan has done, and so we need to monitor the situation in terms of stimulus in china and what happened in Monetary Policy. Toave no idea what they need do beyond this, because i dont see anything that can help them. Fiscal expansion will do something in the short term. Japan fundamentally needs to convert more people to speak english so they can get outside the country and do business. They need to activate participation in the labor force, and they need fundamental japan. I have been in japan. I think they need to pursue a strong yen policy. Guy for structural reform purposes. Steen if you have a political system that is inept and impossible to drive changes through, you have to bring them through external factors. The strongest external factor will be a strong to stable yen currency. My advice would be for them to pursue a policy of stronger yen, and through that, activate the Business Environment to do better in terms of innovation and getting fundamental changes. You are long the yen, right . Yourstandable from investment point of view you would want them to do that. [laughter] is it possible for them to pursue a strong yen policy without reversing course on Monetary Policy . Steen is it possible to maintain the yen as a strong currency . I dont think these two things are excluding each other. Matt they surely havent been. Remember, the u. S. Under rubin had a strong dollar policy. The only thing they ever did sell the dollar against the peso during the peso crisis. Youindicated business, arent going to get a free ride in terms of policy changes. That works towards easing the currencies pressure. You need fundamentally to change. They dont have the incentive structure. The political system continues to be overweight the rural areas and underweight the industrial areas. Anetary policy is at standstill, and that is why it is dangerous what we are observing with japan. Whatever they do next could be desperate, and that will be bad for the world. If they go along the lines of fundamentally addressing what is the real issue, i think the real risk at the end of the day is that abe is out of business by the end of the year. He is, as much as i am, at a loss about what to do with policy in japan. Germany, paying attention to that one. You very much. We are minutes away from the market open. Up next, we are going to take a look at potential corporate movers. Burberry is deftly worth checking up your the numbers dont look repeat or the cause and were the stock goes next, dont and sunnys bright here in berlin. The german capital, so far no protests at the brandenburg gate, though surely they will come. It is 7 55, just minutes away from the open. 7 55 in london, i should say. 8 55 in berlin. Stock initially , but it has global exposure. Hong kong hit burberry hard. You know the trenchcoats. It seems as though people are not buying them off the racks quite as quickly as they used to, profit sinking to the tune of 10 . They warn 2017 is going to be at the lower end. They are taking some big steps to try to cut costs to the tune of 100 million per year by 2019. They are looking to hand cash back to investors. The stock keeps on sinking. There is a concern about exposure to china. We are expecting burberry to maybe 2 her from 1433, or 3 . Chinan eye on kuka as buys into this robotics maker. Watch out for kuka. Guy four minutes from the market open. It looks like we are going to see a negative start. It looks like we are going to open down 6 10 of 1 . Keep an eye on burberry. As caroline was saying, up next. Was saying, the market open up next. Guy good morning and welcome. You are watching on the move. Im guy johnson and i am alongside matt miller. Matt has your morning brief. Matt thanks very much, guy. They do have a view. Why is the market paying attention to the feds William Lockhart and kaplan. Japan dodges a recession. Consumer and Government Spending bill helped lift a growth. Both help lift growth. Aftersuzuki shares crash the carmaker used an improper method to test the fuel levels. Who is next . We are Just Moments Away from the open, guy. Guy futures are pointing to a negative start in europe, reflecting that fed conversation matt was talking about. Lets show you what these numbers look like. Are pulling lower and starting to open up now. Unchanged,00 is were waiting for the ftse 100 to open. Lets get the details on what stocks we are watching with caroline hyde. Caroline lets dig in with the imap function on the bloomberg to show you what Industry Groups are on the move. Because it is a risk averse, risk off sentiment right now, guy. The reason, the United States. They are worried the sales tax might not be halted, as was hoped. The United States is talking the talk when it comes to two or even three rate hikes this year. What does this mean in terms of the Asset Classes . Does that still mean money going into equities . We still have the stoxx 600 up by. 4 . Materials are the worst performing, up by. 8 . We can see across the board, banks are falling by 0. 5 . Risk of person with money risk aversion with money moving out of equities. Moving on to the dollar. All of that talk about the prospect of rate hikes coming from dennis lockhart. Dallas Robert Kaplan of thing we could see this sooner than expected. This is driving the dollar higher. This is the world currency ranker on bloomberg. Every single currency is lower than the u. S. Dollar. There is still somewhat speculation about the future of south africa. The aussi dollar and the yen lead us lower as well. Lets get into the equity markets, though. Lets look at what is happening when it comes to your earnings. Hong kong, hurt burberry. Adjusted profit was down by 10 percentage points. They warned us this year they were going to look that much prettier, and it is down 1. 9 . They are handing cashback to the Investor Base with a buyback of 150 Million Pounds, and 100 Million Pounds per year to be saved. But still, they are not buying the turnaround and the exposure to china that this company has. They have one foot in hong kong, as the Chinese Traveler dials back. This is a german robotics company. They want to up their stake to 30 and by so doing, they value the company at 4. 6 billion euros, a 36 premium. Of ss, you saw the likes e, the utility home in the u. K. The four guidance looks a lot stronger, guy. With that, we send it back. Matt let me take it here because i am looking at suzuki headlines. Obviously, the stock is gotten crushed in asia. They are saying they have found no evidence of a few manipulation in their investigation, but they have found discrepancies between regulations and the actual tests that have been done. They do say weather conditions may have affected the testing and there is a fuel efficiency data in the range of the measurement of deviation. So, there is a will question about whether or not these fuel efficiency tests have been carried out correctly at suzuki. Have to point out, there has been a real question about these fuel efficiency tests across the industry, not just because of the volkswagen scandal, but for years. Ford has had problems because of the way it tested and that was years and years ago. We are going to continue to cover this story because it is one more red flag being raised among concerns about the trustworthiness of automakers. Now, from autos to banks. Almost one year after it shakeup, Deutsche Bank is facing fresh investor anger with shares down 50 since the meeting last year. The Shareholders Meeting tomorrow as revenue plunges and the need for new capital mounts. This takes place tomorrow and the Ceo John Cryan will have to face the pressure from disconcerted shareholders. They will certainly be connected. If you look at Deutsche Banks price to book ratio, you will see the stock compared with other Investment Bank peers, is massively undervalued. Oronly trading at. 3 i should say,. 3 of its book value. Every other one of the top 10 Investment Banks, not just in europe, but in the world, is trading at a much higher valuation. Sasksoll, the cio of bank. All of the things seem to be trading under book values. The two key drivers are the u. S. Dollar and the Banking Sectors performance relative to the performance. We are down in japan because of the negative Interest Rates in europe, and even int h the ua. Clearly, the ability of the banks to rate capital is deteriorating day by day. The outlook for banks is under huge challenges, technology being one and Regulatory Framework being another. And of course, it has taken them so long to clean up what they want to do in terms of the strategy. Deutsche bank is in their third strategy of the last three years. This is their third last ceos in the last five years. Guy they have a lot of ceos, to be fair. It is not just Deutsche Bank. Guy the average in europe is. 6. You can see thatin europe. So, clearly, the belief in the marketplace, in terms of the banks ability to negotiate this and in termsange, of the u. S. , the Regulatory Framework is getting tighter. The only Regulatory Framework that seems to be easing is the u. K. , which seems to be more hand in and, with the businesses trying to protect the business entity. It does become anticyclical relative to the business cycle. Guy there are some things the trade some banks that trade on higher intervals. You wonder whether actually the biggest question is whether or not that is trading on the right value, of whether or not Deutsche Bank is trading on the right value. There is a series of things happening. The climate is paralyzing at the moment and nobody knows what to do. I and sure that you see this in your business as well. Is the bigger question actually, can anybody in the Banking Sector make money . I think it is a great example of how we value banks to some extent. Ong because it is a model that is driven on asset management, which remains the most lucrative part of the business. Guy so, they are not transacting . They are not transacting. They still have an issue with the u. S. I still think there is more contraction and consolidation upcoming. The problem is, it is difficult to operate for bank cios and ceos. Their ability to raise capital and get a conversation with their major shareholders is very difficult. On top of that, to have to hire hundreds upon thousands of people to do regulatory work. I think the Banking Sector is under a huge attack. The most important thing we need with banks, in terms of economics, it is the only place that creates credit. Guy in the u. S. , they have a different model. No, it is also the only place. They are so small relative to the banks. The banks are the grid of facilitators through the multiplier. Is, without them, we dont get growth. Matt wait until the Central Banks start using Block Chain Technology to destroy the banking system. Im only kidding about that. Isiously, Deutsche Bank having a tough time with its investors right now, but it is so cheap to borrow money. Cant many of these banks just borrow money and keep investors happy through this downturn . The ecb tried to do this, but the investor does not like it anymore. They see, as i do, there is a much disruption within its industry. I dont think the Banking Sector in been up to its game terms of doing the right thing and communicating with the marketplace. You see the internal factors of banking deteriorating. And certainly, the Monetary Policy of the negative Interest Rate is a killer. A live in a country where we have had the most experience with negative Interest Rates, and all of the banks are having a difficult time resetting the business model. As i said last time on this show, they take money at zero, they lend it out at minus, and then they do not get to do any fun. Model is destroyed because of the system and that is a pity because we need the banks to facilitate between your deposit and the businesses that need the lending. Guy steen, thank you very much. Matt, i completely agree with the block chain thing. We are going to kick around some of the other political risks we need to talk about. Up next, it is a year of risks. Just how volatile markets be over the next six months . We discussed that story, next. Matt we have some breaking news on suzuki. We have been talking all morning about the japanese company. They have found discrepancies in the fuel efficiency testing. They do say now that they do not see any need to correct the fuel efficiency values. Industry ashe auto problem after problem, even before volkswagen was caught cheating on emissio testings last year. There have been problems with some of the biggest companies, for example, falling victory to numbers that did not make sense in real world areas. Suzuki is having a press conference right now. They did say this morning that they did not find any evidence of fuel manipulation in the internal investigation. They do not see any need to correct fuel efficiency values. That should be good news for investors. The problem is, so much trust has been lost between automakers and their investors that it looks like this stock, which has been pummeled in japanese trading overnight, will have trouble coming back. Now lets get to the bloomberg first world news with tom mackenzie. Tom japans economy dodged a recession last quarter with gains in government and Consumer Spending, compensated for spend. Ht investor exceeding all forecasts in a Bloomberg Survey. It was revised to a 1. 7 contraction wor than the previouss estimate of a 1. 1 drop. New home prices climbed in six device that is, compared to 62 in march. To 122 billion. Says china should participate to build pipeline across europe. The chairman is in the territory on a threeday visit and tells the audience that hong kongs prosperity is important to china. Prodemocracy protesters were kept well away from the venue. Bernie sanders has won the primary in oregon. Meanwhile, Hillary Clinton had a victory in kentucky. Donald trump won oregons primary, though he has effectively clinched the gop nomination as the only contender still in the race. Former rivals ted cruz and john kasich remain on the ballot. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Guy . Indeed,nk you very much tom mackenzie. As we get closer to the u. K. Referendum, exhaustion in germany could pose a bigger threat to the eu than a brexit. He says the overriding worry is that a vicious cycle could occur as a germany gets frustrated. Becomeschange it wants ever less likely to happen. Us, the ceo of saxo bank. Germany is looking around the rest of europe and going and this is johns view. They are going, what can we do. . They are getting so frustrated. U. K. s future is depending on the brexit future. Hand, europe and the brexit talks will determine what ever happens. If you look at europe, already two tier. Imagine the u. K. Remaining the same after the yes. Then, i could imagine hungary saying, the u. K. Got a special deal, we want a special deal. I think that is the critique john is putting forward. He is also saying that the social contract is broken. We had this agreement the everybody in europe is in the same baot. We move forward in unison. Now all of a sudden, everybody wants a separate deal. Not just the u. K. You also have hungary, slovakia,a n and plan turning te other and poland turning the other cheek as well. I think the policy reign is about to end as well. It is very difficult to see how very well will survive this. Sittingbeing the chancellor and already, the press is talking about, who is your most likely successor. I is never a good sign for the political process. I agree, germany is the biggest risk here. Matt one of the problems, steen. The germans think, every time there is a bail out to be done, they are the ones writing checks. And the nobody follows their prescriptions. In greece, nobody here in berlin thinks they will be able to pay their debts. Hashe same time, merkel not been able to put any of her austerity work to practice as they accept this huge flood of refugees, causing a lot problems here as well. And seems the bottom line problem is everybody wants a free lunch and nobody is willing to pay for anything. Is that a concern for all of europe, do you think . You also have to look at the german perspective. First of all, they never actually paid anything, the what has been guaranteed by the banks. But i think what is really at risk is the fact that the germans insist that austerity has been very negative. The infrastructure is a mess. Berlin, most of all, i guess. They have zero funding cuts, but no infrastructure. Germany is behind on infrastructure. Germany could do a better job and actually trading more positive environment domestically and then, putting that into the european narrative as well. I think you are right to some extent, that we have a narrative for the domestic policy is not been delivered and where the Foreign Policy is very easily becoming the scapegoat. I dont think the germans are necessarily right. Of course, i am half germanic. Certainly, in the case of greece, they have some work. Greece does not want to change and the is what we have to deal with. I agree that the christian anglosaxon way you have to pay for, you cannot get forgiveness like you can in the catholic church. The german has failed the sickly. Failed domestically. There is no black and white here. Guy just to wrap it up then. You think abe is gone by the end of the year . El i think both abe and merk good be gone by the end of the year. We need to renegotiate and create a nooew narrative. We are watching japan for what comes next in terms of Monetary Policy. We are also watching the political sphere. Ump, foratching tr example. Guy thank you very much for spending time with us this morning, steen jackobsen. Up next, th, suzuki motors speaks about fuel efficiency testing. We have more on that story when we come back. Matt welcome back to on the move. Suzuki motors plunging the most in 16 years after the company used a flawed method to test the fuel efficiency of its motors. The chairman has been speaking at a live press conference. For more, we bring in our resident auto expert. Chris says with me here in berlin. Suzuki is saying they do not need to correct their fuelefficient the values, but they found discrepancies in the testing methods. What is going on . Chris instead of using actual card data, because their testing facility is on a hill near the sea, it is affected by the weather. Matt the bottom line, this has disturbed the trust investors have for the Auto Industry. Chris it is just the latest incident of questionable data coming from the Auto Industry. It is another nail in the credibility coffin of the Auto Industry. When you are getting these revelations on a daily or weekly basis as an investor, you wonder what is coming next. Matt at some point, army going to get a capitulation . Are all the car makers going to come out and say, well cheated o we all cheated on these tests. Chris; well, basically the messages, we are not as bad as volkswagen. Every single automaker is in the bottl is in the but light right now. Is in the spotlight right now. Auto that is it for the segment. The First Quarter thought is the prize surge saw a surprise surge in the gold output. This had onimpact business. Show me top new artist. Ah, ha ha. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Guy welcome back. You are watching on the move. It is 8 30 in london. How are things shaping up on the equity front . Little bit firmed up. 600 is now in positive territory. Which stop the particular though, should we be watching . Lets find out what caroline hyde. Caroline i will show you one that is not firming. That is burberry, the luxury maker of trenchcoats. They are down almost 4 . The four year was painful, particularly painful in hong kong. They are seeing less travelers come from the mainland china. Overcash is being splashed there. Hong kong has seen another Straight Year of 20 the kleins. 20 declines. Indeed, this is a company trying to innovate and work their way out of this. They are saving 100 Million Pounds per year they say by 2019. Buying no investors are this. A wholesale grocery in the united kingdom. They are being upgraded by goldman sachs. They say they are in the premier league of growth and did bee dii dend yield. Watch that stock spike. Watch this stock rise to new highs. Kuka is up almost 30 . Why . Because the Chinese Company is looking to snap it up. They are raising their overall stake to become the number one stakeholder. This is none other than the midea group. They want in on this driven robotics company. They want a 30 stake. They are valuing the company at 4. 6 billion euros. Guy . Stuff, caroline. In russia, production of gold is up and output is rising a surprising 8 in the quarter. This follows productions the output would slow this year. Joining us now to get a take on this is polymetal ceo vitaly nesis. Gold is down a little bit today, but up big since the start of the year. Have you been surprised by what this has done . Absolutely. I absolutely expected the metal to trade sideways. This was a pleasant surprise for me. Guy is it sustainable . I would say shortterm, yes, as long as there is significant Political Uncertainty over the remainder of the year. I think gold will continue to shine. Matt i wonder what you think of the miners that have been doing so well compared to the underlying commodities. Have they caught up with of the rebound we have seen in commodities . Well, i probably would call that an overshoot of sorts, because a lot of the names have doubled and tripled since the start of the year. But this is typical at the start of a bull market. To bewould urge investors cautious with the names that have significantly outperformed the metals. Jonathan looking forward from here, what happens next . Russia is producing fairly aggressively at the moment. Is that something that is going to carry on . What is going on in terms of what you think output is going to look like . I think russia will see a very slight increase year over year in 2016. I think the First Quarter performance was an operation driven by was an aberration driven by a host of factors. Matt i wonder how great it is to be able to pay for you stuff in rubles and then sell your stuff in dollars. Continuing . That it is difficult to predict the dynamics, but certainly we are in a soft spot with prices going up. Costs have been largely stable in dollar terms. That tendency is expected to continue. Matt that has helped out, im sure. Your costs have come down and your profits are going up. Especially as gold has surged 20 in value. It is like a double whammy for you guys. Actually, the ruble has strengthened since the beginning of the year, but overall, the overall profitability is a very strong. Guy lets talk about sober a little bit lets talk about silver a little bit. It is the story nobody is talking about, but it has outperformed gold. The thing that is the correct price . Should it be outperforming gold . What do the fundamentals look like . Historically, silver is trade d in sync with gold. It is in line with historic results. Looking forward, i am more optimistic about silver because there are some very bright spots in terms of demand, most importantly in renewable energy. And from the point of view from supply, i would say that next year, the mine supply will lessen decrease of late. Increasingly. Guy but as you said, as golds starts to fade, so to o will silver. Matt i wonder about etfs and their affect on the market. A lot of people think they confuse pricing. How do you think they play into gold investing, since so many investors have piled in to them and they make us so much easier for the retail guys to get in. I would say that the creation of etfs have increased the volatility of gold and silver prices, but i would agree that the emergence of etfs have led to increased pricing. I would say we have more volatility since the First Quarter of this year, but fundamentally, they represent another instrument of investment demand, which is been driving gold prices for the last several decades. Guy how does the gold price story play into the mma angle . You wouldve thought this would drive consolidation and forth rce mines out of business. First and foremost, the valued dictations of the sellers are going up. Would have been quite active in the mma arena in the previous 12 months. We were able to benefit from the general depression of the market. Right now, the availability of the opportunities is drying up. Reporter guy you are in the room with guys at the moment. What is happening . They are saying, lets hold back. Maybe there will be a further rally. Optimism trickles back to the market much faster than it drains out of it. We have had a very good year for mma activity. When the sellers became desperate for any type of transaction, but now, that fear is gone. Potential sellers are maneuvering to extract more volume from the potential growth. I dont have firsthand experience of the global mma market. But that would be my general impression. Guy great to see you this morning. Up next, political turmoil in south africa. Relates to the gold story. This is after the finance minister was forced to deny claims of espionage. Matt is a bright and sunny day in berlin. You are looking at live pictures of the brandenburg gate. I want to take a look at the markets across the continent and into the u. K. We see Equities Trading down across the board. The stoxx euro 600 is little changed, but the ftse 100 has been hit the hardest. I want to focus in on one Industry Group here and that is the pharmaceuticals. They are doing best on the stoxx novartis. Y yesterday, we had a breaking news story that novartis was going to split up into two pieces. One will be just of the drug unit. The other will be the oncology unit. Novartis, splitting up to focus in on cancer drugs and an oncology unit. A lot of investors and people around the world are excited about what this could mean. Now, lets get to the Bloomberg Business flash with tom mackenzie. Roup,chinas biggest maker of Home Appliances is offering 115 euros per share for kuka. The completion of the takeover also will be subject to some conditions, in particular, a minimum acceptance condition of 30 . Bonus calls could decline for as much as 20 for some wall street workers this year. Fall withiny good every Financial Services firm. All within pay could f every Financial Services firm. Bank of america is being sued by a managing director, who says the company treats women in her Division Like secondclass citizens and pays them substantially less. Megan is seeking images for mental anguish and loss of dignity. The bank says it takes all allegations seriously and investigates them thoroughly. Nike has agreed to provide playing gear. They will pay 60 Million Pounds a season over at least a decade. Chelsea first has to get out of a 10 year deal with adidas. They paid about 40 Million Pounds to break the contract. Burberry reported a drop in earnings. Adjusted pretax profit fell 10 . The company also says costsaving gold will be achieved by 2019, adding the 2017 earnings are likely to be near the bottom of the range of estimates. As his demand for the u. K. Company trenchcoat slows. That is your Bloomberg Business flash. Guy thank you very much indeed. It is going to rent today. Trenchcoats will be a much more desirable item by the end of the day. Pravin gordhan denied accusations that he was involved in espionage. In a statement, he said those claims wer e malicious. What is going on surrounding Pravin Gordhan . We are days away from very critical ratings reviews. We have the finance minister embroiled in this scam. What is at stake here . Good morning, guy. We have the finance minister really embroiled in what seems t o be a political battle. He came out and broke his silence last night, denying any allegations that he was involved in the illegal gathering of intelligence and possibly, spying on taxpayers. He came out saying the rumors were malicious and he wanted to call on South Africans to protect the workers of the treasury. This seems to be an attack on the treasury. s reputation and authority are at stake. His reputation and authority are at stake. Companies are watching this closely. What we do know is s P Global Ratings is assessing the country. This is not going to bode well, especially as the Credit Ratings agencies have said this is a critical factor in their assessment. Guy lets talk about what this is doing to investor sentiment. There is a very interesting chart on the bloomberg today. The south African Banks are really being hit. This is the index. This is the bank. This is the ratio. Walk us through what is happening in terms of the investment story. This is definitely not going to bode well for investor sentiment. Government came up strongly after the former finance minister was fired in a surprise move by president zuma in december. That sent markets tumbling. Valuend lost half of its and that is a currency that has been hard hit right the Political Uncertainty. Will we do know is that investors want certainty, guy. They want to know the person running the treasury today will be running it next weekend possibly, even here. K having uncertainty around, whether the head of the treasury still has his job, is something that will not bode well in the minds of investors. Guy thank you. Up next, the markets catch on to the possibility of a hike next month by the fed. We hear what lockhart has to say on that story, next. Matt will come back to on the move. It is time for our battle of the charts. And guy, i brought a chart i am sure you have seen a lot recently, but i think it is important and it poses important questions. This is the spread between the 10s and twos. Anything below this red line is an inversion of the yield curve. I have shaded the u. S. Recessionss here in red. Before the u. S. Recession we have the yield curve flattening and then inverting. It is flattening right now and have come down to the lowest level we have seen since 2007. This begs the question, are there problems ahead for the u. S. Economy . Or does this mean Something Else . Is this because the u. S. Investors are scurrying for yield, and because of that, they go into u. S. 10 years . I think it poses important questions. Guy here is the thing, though. The front end of the curve is moving and that is the story right now. We are going to talk about the fed in a moment. The front end is driven. It is very important to make the distinctions. Lets talking little bit about my chart. This is the data. Data is improving in europe, folks. For people watching in the United States, you need to Pay Attention because you have not been watching what is happening in europe. The equity market is waiting, but look at the surprise index. The data in europe is getting better. As this widens out, maybe the u. S. Investors will Pay Attention. Got january, this trait taken off aggressively. Will it now be put back on again . The is the important question we have to Pay Attention to. Maybe post brexit and post political risk. Now, lets try and get a winner here today. Because yesterday we had a draw, which to be honest, isnt good. We like winners around here. Matt really . Because i feel like i won. Guy really . Mabye you did lets ask richard. You started off talking about a draw and then gave it to matt. Richard i am even more on the fence. I am a yield curve geek, so i have to give it to matt. Guy no your audience knokw your audience. Guy it is a hunt for yield . Guy so, do you really care about the yield curve anymore . Richard the jury is still out. Guy again, leaning on the fence. Richard if we were concerned about runaway inflation in the u. S. , 10 year yields would not be at 1. 77. I think we have had a bit of a repricing at the beginning of the year. We are now tinkering with that. The more interesting part with what is going on at the front end of the curve, it is more towards the end of the year. But june and junly, to my way of thinking, are still not in play. July, the odds will have to double by this time next month for it to be in play. Matt i want to take a moment and, guy. I want to point out a function on the bloomberg terminal that i think richard, you have used. A lot of people do not know about and investors will find this useful. This is ecsu. Youou type in ecsu go, get Economic Data bloomberg compiles. We use all of these Economic Indicators and then we stip out gdp, and then we shall have the surprises negative or positive. Here, you see the sectors, personal and household sectors have been doing well. The industrial sector has been doing poorly. You can look at the u. K. , the eu, or the u. S. I think, guy, to the credit of your chart, we are seeing positive surprises in the u. K. You are seeing positive surprises in the euro surprises as well. The u. K. Surprises look stronger. Richard first of all, i think you are right to highlight these surprises. Terms ofou know, in what we are seeing in europe, the data is improving, but we are still below zero. We need a little more i think strength and momentum in order to say things have turned around. Early days are looking better, but we need to get back above zero. Guy i think you are just being nice about my chart now. I will take the hit, matt. Matt there is always tomorrow, guy. Guy i just think there is a kind of beginners luck going on here. That we will talk about that. You are here in europe, ringing some of that u. S. Experience. That said, the pulse is up next. Jon ferro and i are on the radio. See you tomorrow. Francine a fed rate rise in june and that is not all, said lockhart and williams. They predict a two hike in 2016. Government and Consumer Spending moves growth in japan. Take a 10 ki shares hit after the Company Admits to fraud in efficiency testing. So, welcome to the pulse live here in