Bloombergs european and quarters in london. First we have to get to the markets. This is your board. Downsidelittle bit of pressure on these european stocks, down some 0. 4 . Exchanges in austria, germany, denmark, norway, are closed for a bank holiday. This is a picture for the asiapacific index. We had some earnings that came in a little light of forecasts. Overall, the rebounded. , japanesew japan falling, Commodity Prices rallying, with crude at 40 . 85. Lets get to the bloomberg first word news with nejra cehic. Nejra norways 850 billion wealth fund will seek to join a classaction suit in germany against volkswagen following the emissions cheating scandal. Vw andd owns 1. 64 in said it is acting to safeguard its holding in the carmaker. May delayaway increase untile later in the year according to pimcos head of Portfolio Management for emerging asia. That comes as britains biggest s news lobby group cut its forecast for the u. K. Economy, saying the Eu Referendum has put a cloud of uncertainty over the outlook. It now sees gdp rising 2 this year. The pulse speaks to anna leach in half an hour. Mark carney has defended the bank of england against critics furious at his warnings of the dangers posed i brexit. He said leaving the eu could trigger a recession. The eu governor spoke to the bbcs andrew ma. Before taking a judgment as a committee, we are putting out billions of pounds of liquidity, getting banks to raise capital as we did a few years ago against these types of risks, if we going to alter the path of Interest Rates or other instruments of Monetary Policy because of certain things, we have a duty to explain that to the british people and parliament. Nejra a sudden plunge in Hong Kong Listed chinese stocks had traders scrambling to find a trader for the bump that coincided with futures volumes. The hang seng index tumbled from 1. 5 n of 1 to a loss of in about two minutes. Stocks including singtel brewery and petro china fell sharply. The same shares in shanghai didnt replicate the move. Global news 24 hours a day powered by 2400 journalists in more than 150 news bureaus around the world. Francine thank you so much. Chinas retail sales, industrial production, and fixed asset investment. Lets head to beijing and tom orlik. Tom, treat to have you on the program. A trio of mrs. What does this tell us about the health of that country . Well, the data over the weekend was disappointing, francine. On industrial output and other indicators you mentioned. It wasnt disastrous. Chinas overall gdp was around 7. 1 year on year. A slight slowdown, not a complete collapse. I think what that underlines is that chinas recovery is going to be faltering, is going to be week, and that underlines the importance for the government of continuing to provide stimulus support for the economy. Francine chinas biggest ride healing at, didi, they are said to be considering a u. S. Ipo. Talk us through the details of that. Dede might belike trying to escape the traffic jam of the mainland chinese ipo process and go to market in the United States as early as they can to raise the funds they need for the next stage of expansion. Theink one thing which excitement around this story underlines, contrasting that with the concern about the growth data that we saw over the weekend, is that this is now a twospeed economy. So much as an is him about the industrial sector, so much optimism about this technologydriven consumer economy. Is, do theestion consumer driven firms, like didi, do they have escape for the city, or are they going to be dragged down by the weakness in steel and heavy industry and exports . Thank you francine thank you so much for all of that analysis. If you have twitter, go check out toms twitter account. He puts some great stuff out there. Our next guest has concerns about china. Lets welcome Michael Metcalfe, global head of microstrategy at street street global markets. I made a special chart for you. Basically, what this shows us is the s p 500 valuation tool that the fed uses. We call it the fed model. There may be some leg up for a lot of these s p 500 indices and stocks. In blue, you have the s p 500 index yield. In white, you have the 10year government yield. This is the spread. Recently, what it tells us is that it is still less expensive 2007 to time during earn a lot of these stocks. When you look at this, does it tell you that earnings are going to go up for the index is going to go up, or that it is very difficult to price risk a cousin centralbank action . Thisel it tells me that is a least ugly scenario. As much as we might be concerned about the valuation of u. S. At these, the reality is perhaps the risks for bonds are even higher. There is a building inflation picture in the u. S. As your elitein suggested, the brexit, andng about perhaps the political station in the u. S. , but the thing they are all saying is that Interest Rate markets are not well prepared enough for higher rates. We have inflation data this week which could have an upside stride. Thatnk what it gets to is the equities in absolute terms, earnings growth, we are in an earnings recession. Francine but this is the new normal. This is secular stagnation. Michael i think that is the issue. At what point will those risks to bonds become binding once again . Francine what will be the catalyst for Something Like that . Michael heres an interesting observation on todays news. If we had had that chinese data in january, lets remember the report at that point, every bit of bad news was incidentally, the markets were very systemic. Markets,markets, u. S. Were down across the board and it was all about dramatic global slowdown. Francine what changed . Michael expectations have changed. Investors became overly defensive at the start of the year. Now, we know china is slowing. Wencine from january 15, had three or four Central Banks cutting, a lot more qe, and the pboc saying, we have this one. Michael slowdown, though expectations, policy response. One of the new themes that seems to have emerged is this idea that centralbank policies become ineffective. Boj is the headline for that. Francine is it ineffective . Michael this would almost suggest not. The fact that we have negative views out of china today and you dont have the contagion is perhaps suggesting that it is beginning to catch centralbank policy. The tail risks now are actually much lower than they were at the start of the year. Francine so this is because we have a better understanding of what is going on with china. We think the pboc and authorities can manage. Michael i think the debt is still terrifying. I think the concern about hard landing in china is not going to go away. Fact thatrtterm, the expectations have been so low and we are getting policy adjustments is removing some of that concern. Francine Michael Metcalfe, global head of macro strategy at state street. We will talk brexit and other risks out there as well. Stay with the pulse. Sluggish growth, no inflation, and the stock market heading lower. Japans economy heads sideways. Leaders 300 business write a letter in favor of brexit, we ask that you ks biggest is news lobby group. Oil producers have had their Credit Ratings cut. We will ask what the future holds for the middle east in a world of low oil prices. Lets get straight to the Bloomberg Business flash with nejra cehic. Nejra phillips is seeking to from the Million Euros ipo of its lighting unit. The company is planning to sell 37. 5 million shares. That values the unit at as much as 3. 3 8 billion euros. This could come as early as may 27. Philips shares are lower in todays train. Konecranes plans to acquire a lifting business from terex for about 1. 3 billion. The finlandbased company will pay cash and 19. 6 million in materials terexs handling and poor solutions business. The u. S. Crane maker abandoned talks with chinese zoomilon to buy the rest of the company. Telecom italia has reduced its target to 1. 6 billion euros. Italys largest phone company is cuts will be split between operating cost and capital spending. New ceo aims to improve profitability and the former stateowned carrier. Shares are trading higher. That is the Bloomberg Business flash. Francine thank you so much. Never before has the bank of japan done so much to achieve so little. That is the online the headline on a story on the bloomberg this morning. Stocks are little changed from 18 months ago and exports are declining. This is our chart of the hour this shows the trouble that mr. Kuroda is phasing. The lj has succeeded in pushing down bond yields. You can see when you look at the sovereigns that, well, that and may,tween november you can see that is when governor kuroda decided to go negative. Corporate bond yields havent followed. With me today, Michael Metcalfe. Thank you so much for sticking around. We were talking about the effects of Central Banks and the fact that at some point, it may come to an end. Probablylook at boj, the most experimental governor, and the fact that negative rates may have backfired because there are more negative side effects, what is your first reaction, that i lean on it wont work . Think it is too early to say that. At each stage in on the nymex, the one thing policymakers have been doing is beating market expectations. I think the surprise following the january move is that markets have a revolution and a very dramatic strength in the yen in particular and that knocked through into the stock market. While theyve had the desired impact on jgbs, elsewhere, they havent been able to generate inflation. We track a lot of online prices in japan and they are worse than official statistics. They need to do more. The other complication now is this perception that they are unable to do anything about the currency. Francine and the currency directly feeds into inflation. If yen is higher than impact earnings, companies cant pay higher wages. Michael given that rates are zero to negative, the currency evers theythe main l have to generate imported inflation and help exporters. It is key. I think it was unfortunate in terms of timing that that boj move came in january when the market was at its height of risk aversion. Risk appetites have recovered quite significantly. The real puzzle now is, why hasnt the yen resumed its trend of weakness . In part, that is because we dont know what the bank of japans next move is going to be. It is assumed that the boj is constrained by some negative lower bound or this consensus about not weakening your currency. Francine so yen isnt working. Yen is strengthening. I can show you five charts to show you how the corona thing has backfired. If he goes further into negative territory, do people automatically assume this will hurt the banks more . Does he need to just intervene directly . Michael obviously, when kuroda is in charge of currency policy, that was a very intervention period. Hes now in charge of the central bank, so it is different. He certainly has a track record of intervening when hes been a policy maker. I think the complication is this International Consensus about not evaluating your currency. I think a lot older and on where onthink a lot will depend where we think fair value for the yen is. Francine is there nothing he can do to weaken the yen . Michael they could. The one interesting thing, this is something being proposed, would be that japan admits what it is doing and says they are monetizing the debt. That is absolutely the last option, i suppose, but in terms of what could you do . That would be an extremely aggressive step. Going back to your question on the valuation of the yen, we know that many different investors are overweight the yen. Cheap, butquite nowhere near as much as it was. That is based on matching the online prices that we collect. 102. Is at on perhaps the japanese could argue that it is not as much devaluation as it was. Francine thank you so much for now, Michael Metcalfe. Up next, norways wealth fund sues over diesel gate. Vw fund takes action against. We have the story live from berlin, next. Francine norways 850 billion wealth fund plans to join a classaction suit in germany against volkswagen. Or more, we are joined by bloombergs matt miller. Irst of all, welcome to europe im not sure berlin can handle you yet. Talk to us about vw and the Norwegian Fund. Matt im glad to be here in berlin. Because i cover cars so much, it is great to come over here and cover some of the best carmakers in the world. Volkswagen has had massive problems. This new lawsuit from the Norwegian Sovereign Wealth Fund lawsuitsre than 600 that volkswagen faces from this Diesel Scandal. Shortage of legal action. The interesting thing i think is that the Norwegian Fund is suing the company because it didnt tell the norwegian wealth fund, which is a very substantial older. They have a 1. 7 percent stake in volkswagens general shares. They have had a much bigger stake in shares in the past. They are angry that volkswagen didnt notify the major shareholders before the u. S. Issued its concerns about volkswagen cheating on the scandal. If you look at the bloomberg terminal and type in the volkswagen equity or any equity hds, you get a picture of the holders. Porsche is the biggest holder in volkswagen. State of lower saxony also a massive holder. Qatar owns a stake. Other sovereign wealth funds very active. The Norwegian Sovereign Wealth Fund here, the fourthlargest shareholder in the general shares, 1. 6 . You can click on the graph there at the end, and it will pull up a view of what the wealth fund has held overtime. They jacked up their holdings at the beginning of 2015, maybe not decision,nvestment because that Diesel Scandal hit and the end of the year. They still have gotten hit very hard from this scandal. They hope to recoup some of that money. Francine too early to say how much this could cost vw. We have no idea when they will be tried, if there are any awards. Matt it is very early in the litigation process according to our Bloomberg Intelligence analysts, but we know the company has set aside more than 18 billion to help cover the cost of the legal ramifications, the recalls. There has been talk for a couple months about a 10 billion settlement with the department of justice in the u. S. And theyve got to deal with governments all over the world. Its going to be very expensive. It looks like not quite as expensive as the highest estimates were. We were hearing figures as high as 70 billion. Looks like volkswagen will be able to get in for a lot cheaper than that and still survive. Francine matt, thank you so much. Lets bring in Michael Metcalfe from state street global markets. Is there any read across into your world . Is it a story of Lower Oil Prices putting so much pressure on wealth funds that they need to start acting like common shareholders . Michael i think the one thing i would say on oil prices is that while weve talked about Market Conditions changing and markets becoming less systemic, it is not clear to me that markets have broken that link to oil. It impacts equities. Microstories like this suit. But also the big macro stories like inflation as well. That is important right now. Oil looks on a far more solid footing and it did. Francine Michael Metcalfe stays with us. We talked brexit next. The pulse francine welcome to the lets get to the first word news with nejra. Fund, owns 1. 64 in vw and says it is acting to safeguard its holding in the carmaker. Telecom italia has almost tripled its target. The largest phone company in italy says the cuts will be split equally between costs and spending. The new ceo aims to improve profitability. Shares are trading higher this morning. A plunge by chinese stocks in hong kong had traders scrambling to find a trigger. The Enterprises Index tumbled from a gain of 1 to a loss of 1. 5 before rebounding. Stocks including a brewery and petro china fell sharply. Global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. Thecine lets talk about referendum. Carney critics angry at his warnings about the risk of brexit. If we are taking a judgment as a committee and we are changing policy because of it, we are putting out billions of pounds of liquidity facilities, getting banks to raise capital against these types of risk, if we are going to alter the Interest Rates because of certain things, we have a duty to explain that to the british people and the british parliament. Francine from the opposing side, those backing brexit worn is being undermined by u. K. Membership. The consideration of british industry has said the referendum has put a dark cloud of uncertainty over the outlook. Metcalf. E, michael thank you for coming in. When you were putting this research together, what struck you the most . Will the uncertainty be lifted . One of the biggest drivers of is that Investment Intentions have started to tick down. We expect that to feed through into a lower profile. Isthe forecast, it on of the eu francine how difficult is it to model . Had similar things from president obama, and then mark carney. How difficult is it to see what the future looks like post brexit . Have said it is difficult to unpick precisely where the u. K. Could end up post brexit. There have been a variety of studies looking at that. The most details tend to be in the same direction, regardless, there are different types of trade negotiations you could go down. You end up with a significant negative shock. Through investor flows is impressive. You cant model the potential outcomes. It is difficult to. The Way Investors react is fascinating. Capital flows have been stronger than normal. The only place we have seen change in behavior is on the investors aree head turning. Francine volatility has increased quite a bit. It is very heavily skewed. Investors are trying to protect them. It is the same thing. Francine is it almost impossible to make the argument that the u. K. Becomes very competitive, more competitive than it is now. It is difficult to find a new negotiated position whereby the u. K. Has a better set up with the eu than we do now. It is every other possible outcome is worse. That is the biggest impact on the economic outlook. Francine in my reading it right . There are some regulations. Estimate,y as people we could drop them, but you lose the Market Access and that is crucial to competitiveness. It whywhy hasnt hasnt played up in pound and not so much in gilt . You have the comments from. Arney what is the trade in gilt . Perhaps there is a one yet what is curious is investors have increased their of it their allocations. That is the surprise. Francine investments in the period have not necessarily gone down in your survey. How is this explained . A variety ofing indicators. There is a significant amount of disquiet. Ar latest survey showed resilient investment house. When we picked it, there were weatherrelated factors. Out, you are probably a little weaker than you otherwise would be. That is the point. It is about where we would otherwise be and that is factored into all business conversations we have. It is a big factor on their agenda. Francine are they taking it seriously . Said brexites have would probably be a disaster. Others say it would make us more competitive. Overall, do you think they are thinking about brexit being a possibility . It is being taken seriously. To it is a talked big concern of theirs. T is a big issue in his one everyone is taking significant preparations for, taking steps to inform from a neutral position. Francine is there a concern this is systemic . There is a sense from world impact that this will their country. I have been surprised at how much the fed governments have mentioned it. Back to this is going the question about the eurozone and europe being a viable entity. There are risks to the u. K. , clearly. It is pervasive. It is about the political potential knock on effect into europe. That is the element of it. Francine do your members have contingency plans . For the most part, it is difficult to plan for. And are taking precaution they are thinking about the issues as much as possible and doing as much as they can to. Nform their workforce it is an unusual event that the u. K. Should be voting on such a significant issue. Why these Global Leaders are concerned about the systemic issues and the impact on the sustainability of the eurozone. Francine thank you for joining us. Up next, a big leap after the platinum producer said it was cash positive for the first half of the year. We will hear from the companys ceo. Francine markets flat, gaining a touch in europe. I speak and they have a reversal. Lets head to the bloomberg with nejra. The stoxx 600 off by 5 10 of a percent. Some markets are closed, germany and switzerland. We are seeing a broad selloff on the stoxx 600. The only groups gaining today and gasodity producers companies. If we look at oil, we have seen wti and brent gained today. Goldman sachs is saying the market moved into a deficit earlier than expected. We are seeing oil climb. Oil producers are taking advantage of the rebound to lock in protection against another slump. That is the impression we are getting. Oil has been rising alongside that line. China being a focus, we have that retail sale data out on friday. The dollar hit a sixweek high. Today, we have seen some Dollar Strength and yen the weakness. The dollar up 1 10 of a percent against the yen. This trade is in focus as we get dataed minutes and gdp from japan on wednesday. Falling with the fed, this is something you want to keep an eye on. The yield curve has been flattening in the u. S. The gap between two and 10 year yields is narrowed to its narrowest since 2007 on a closing basis. Is this about investors moving further out along the curve, not just in the u. S. , but globally . Either way, important to keep an i am us. Francine thank you. Middle Eastern Energy producers have had their ratings lowered. Is because of a collapse in oil prices. Brent crude is lower. We wanted to assess the impact in public finances and the reaction of this. Saudi arabia and bahrain are more vulnerable. Double digit assistance in the next couple of years and a substantial increase in those sanctuaries. Francine movies is downgrading the region. Sometimes they say the rating agencies are backwards looking. Is this before after we had the deputy crown prince laying out his vision for saudi . In line with what other ratings agencies have done. Some of the elements have to do with the forwardlooking prospects of these countries. They have decided there are some risks and uncertainties with regards to. These are economies that have 110, 100 14 a barrel of oil. The economies have had strong to gdp ratioebt and the growth levels in oil prices have buoyed their economies. The region is in revision and looking at where to next and the rating bases, you have the view there is concern about their direction. Francine what other nations have been put on negative watch . Abu dhabi, qatar, kuwait have been put on negative watch. To pump thearted brakes. They have slowed some spending. When it comes to nations like they have a dhabi, balancing act. They want slow growth and be conservative, but they have internal demands to maintain certain levels of growth. Theyre going to look for how they maintain both of those, slow spending and a high level of growth. This is an opportune time. It is a fairly low Interest Rate level and this time and it is time to make those sales. Francine thank you for the update. Lets continue the conversation on oil with will kennedy. When you look at the price of oil, 48 as we speak, it is creeping higher. What are the chances of reaching 50 . Nigeria, we have had a flair for violence in the delta. Africas Largest Oil Producer is producing a 20 year low. Backis bringing the market into balance quicker than people were expecting. Goldman suspects demand and supply was balanced in may. That probably means 50 is within sight. Francine lets talk about commodities in platinum. The companyndon, said it was cash positive for the first time in the year. We are focusing on the things we can control and we are continuing to cut our costs. We want to make sure we position this business in the best possible position. It is important we increase the program asg scheduled. What we have done now, we have closed two of the shops already. We have two more shops to close. This is wellsure placed. Do you think the low is behind us . There is an upward trend. We are seeing a good trend. We continue to do what we can control to benefit more. What is your longterm cost target . Delivered,r when we. 015, a unit cost of 10,400 we promised we would keep the cards keep the costs flat for 10 years. After we remove is at 10,390. His we expect to maintain that cost line for the next three years. We know there will be pressures of increases. We expect our productivity efforts, removing the bad cuts will help remain that target. Francine when you look at platinum, you have tesla saying i am going to ramp up production, how do you the two . There seems to become as city capacityseems to be taken out of the market. People expected to rally and 20 . Other carmakers grow, it represents a huge challenge for the industry. Next, a bank holiday. Francine lets get to the Bloomberg Business flash. Phillips trying to raise money from the ipo of its lighting unit. As thes the unit listing could come as early as may 27. Phillips shares are lower today. The finlandbased company wellpaying hundred 20 million in cash and 19. 6 million in shares for Material Handling and Port Solutions business. That is after they abandon a merger to pursue talks with chinese mergers. Francine we will talk about boj, fed, and brexit and china. Francine the slowdown cycle, chinese data misses estimates. The ecb will continue to support the economy. Ratio flirts with its highest rate. Still far from its highs. Certain uncertainty, carney defenses worrying about a brexit. This is bloomberg surveillance. We start a new word