Priorities. Manus welcome to bloomberg daybreak europe. China has fined fords joint venture for antitrust violations. This marks the latest action against a u. S. Company. Tensions escalate. Ours get straight to james, beijing Deputy Bureau chief. Here we are. This is not so much about the size of the monetary fine, but the principle of it. What does it say to you . we seen a number of actions recently veiled threats against u. S. Companies , anfedex is undergoing it investigation for rerouting packages. How links this is. An isolated case, but when it comes after these warnings the Chinese Government has put out, this list of ,ompanies that are unreliable the idea that these are all part of a concerted effort to push back on the u. S. Because of huawei but also more broadly in the trade war. Nejra good to see you. What is the effect going to be on the trade dispute if that is the case and more broadly, chinau. S. Relations . James the big problem now is the result a lot of uncertainty for Foreign Investment companies in china. We dont know whether this is part of a Broad Campaign against american companies. I dont think they know, either. Go to aine if you factory in china or are investing, you would be concerned. Americant just affect companies, but european or japanese and south Korean Companies invested here if china decides because of what the u. S. Is doing, they if you are a foreign investing company, there is uncertainty and that affects your Investment Decision and more broadly, this doesnt bode well for any presumption to go well with the u. S. China iss. Decides taking retaliatory step, they could feel justified in doing Something Else and you could have titfortat. You have seen fingerpointing about who is responsible for the breakdown in negotiations so all these actions by both sides if a help reach Resolution Resolution is possible in the trade war and will also hurt the chinese economy more generally as Companies Pull back on investment. Manus as you say, nitpicking. U. S. Orompanies in the indeed, investing and building more labs so if you cant agree on an agreement, building factory there. James mayger in beijing. Lets talk about these markets because it has been splendid for the s p. Is what you really see. We saw the biggest oneday rally since january. The banks lit up like a torch paper over 3 . Ratchetingrica, citi higher. Andates were to be cut this is the point if rates were to be cut, banks are set to party like it is 1995. The fed will act as appropriate to maintain expansion but when . That is the question market has. Lets look at the dollar because the dollar index is the longest losing streak, down five days in a row. The longest losing streak since august of last year. The collapse in yield, is that a reason to check out of Hotel California . The risk is the most bearish. Tell thesays rate cuts dollar know because other Central Banks will have to do the same. Oil is lower, inventories are rising. What will opec plus due to stop it . Nejra did powell nail the communication this time . As the question this morning. He opens the door but never says rate cut. If the 10 year was getting overbought by some technical indicators since 1998. Today we are down again on yields across the curve. 2. 11, 2. 07 earlier this week. Global Central Banks looking at weing the Global Economy but jumped to a onemonth high on the new zealand dollars and global equities, getting a bid. European futures higher and green for emergingmarket equities. Lets check on the markets in asia with Juliette Saly in singapore. Good day. Juliette a lot of green on the screen here, albeit a lot of markets in asia are closed today to mark the end of ramadan, including in singapore and india, indonesia, the philippines. Lets look at open markets and you see jay powells commentary lift the nikkei and begin on the 108 handle, japanese bond getting bid. The nikkei group 2 in late buying. Buying in china and hong kong, and the kospi ending the session. 2 . Won despite the fact that south korea posted its first current account deficit since april. Bad data out of china, the Manufacturing Services pmi coming in work weaker than expected for me. For individual stocks we are watching, chinese drugmakers are under pressure. We could see bulk buying from the government. On aast time this happened drug prices fell by an average of 52 in china. Provider, the payment after pay is up 6 on news it signed International Agreements including big brands like levis in the u. S. I want to end on hello kitty because mattel has signed an agreement with japan to push out its toys in latin america, australia, and new zealand from 2020. The financial details of the deal have not been discussed by mattel. Manus you lave a big open field for me. Hello kitty and another host of toys. I dont know where to go with that so ill park it. The Federal Reserve is a much safer territory for me. Chairman Jerome Powell signals openness to cutting Interest Rates if necessary. Keeping a close eye on the fallout from trade disputes between the u. S. And its largest trading partners. Know how theseot issues will be resolved. We are monitoring the implications of these developments for the u. S. Economic outlook and as always, we will act as appropriate to sustain expansion with a strong labor market and inflation near our metric 2 objective. Nejra treasury yields climbed from multiyear lows following powells comments. Rallies with the s p rising over 2 . Joining us, the head of multiasset funds at legal. Great to have you with us. Did powell get this communication right . If anything, he got a stronger reaction than he really wanted or expected. Hell most emboldens trump to accelerate the tariffs, knowing he will get a Fast Reaction from the fed. Definitely, they wanted to underpin the fact they would be late to the party. If they needed to cut, they would. Do you want to boost markets, it is only 5 off the highs after the rally so probably not as much you got more a then bargained for. Part of that was the reference in the clip to the symmetric inflation target. That semester symmetric target, you are targeting more in the good times to allow for an undershoot in the bad times and that gives about 75 basis points forward expectations and the target and almost an excuse to cut because he can highlight on one of two measures, he is away from target. Wordinged like specific. Manus the chicago fed conference, you mentioned a couple of things. This is the fed funds rate and the inflation expectation. There was a note overnight that said the Trading Market is simulating realtime average inflation and inflation targeting and forecast inflation targeting. Market is aggressively pricing excessive cuts and that is stabilizing the fiveyear fiveyour forwards. Is this live and real forecast targeting and average inflation targeting at play . Expectingink hold a better if this forward inflation targeting was at play is that would push bythe feds inflation target 25 basis points. On the fiveyear fiveyear come were nearly a levels at levels of december. Markets are not buying into the credibility the fed will target this 25 basis points higher and powells comments yesterday were explicitly a reference to the fact of a symmetric target, dont think we will start stop when we hit the target. It needs to be symmetric and that means and overshoot in the times. Nejra you werent neutral equities on the 21st of may. What would be an attractive entry point . John probably 5 to 10 lower with negative sentiment. When we were looking at the sentiment of the spread, they were showing negative. Not extreme but if you got another 5 to 10 drop, you get extreme levels that tend to be a contrarian indicator because we do have the belief in the powell put. The is perhaps difficult on entrylevel now is powell has come in so early it will be harder to get to the level. The powell put would need to be proven to be ineffective or they do end up slow or you get a rapid escalation before we can get for the drop. We would be looking for that further level of fall coupled by negative sentiment. To break that down more, i started the show with the s p 500 and it was the banks that got gassed yesterday. I love what wells fargo said. Partying like 1995. Twitch Industry Group do you want to be more exposed to if we are in a new cycle . Would it be the banks . The banks partly got the relief rally because they are a cyclical sector and there is concern of a slowdown. How much support with they get from the fed in a situation they got slowing in the u. S. Economy that is probably coming. If you what was a surprise yesterday was how bad the font proxies did. If we entered a lower Interest Rate environment, you would expect bond proxies to do well in that environment. I think with so much excessive positioning in them as mentioned on the 10 year that they struggled a bit to the news that the fed was prepared to go early. What howled in yesterday was awered the central case by move early. He arguably reduced the tail of it going horribly wrong and it favored stocks rather than bond proxies but if you get lower for longer, that tends to be positive for things like infrastructure, utility. Manus lovely encapsulation. Detail tail risk of it going wrong aggressively. We have much more to get through. John roe, head of multiasset funds from Legal General investment. Lets get your first word news. Theresa may has spoken of substantial risks between the u. K. And u. S. Since President Trump took office. She says london and washington are at odds over issues like china, iran, and climate change. The president was asked about the possibility of Jeremy Corbyn becoming Prime Minister and if he would do a trade deal with the leftwing leader. I certainly would. I think it is a long shot when you say that. I dont think it will happen. President says he hopes the country can reach a deal to escape u. S. Tariffs. He believes they can find a way to stop the 5 duties being imposed before next weeks deadline. This as the president says he will probably bring in levies on mexican products as planned. Democratic president ial candidate Elizabeth Warren has called for actively managing the dollar to bolster u. S. Jobs and growth. This would break from longstanding currency policy agreement among the worlds major economies. She says the move would help promote exports and domestic manufacturing. From president ry trumps view that the that the dollar has her u. S. Exports. Global news 24 hours a day, onair and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. In hongnnabelle drulers kong, thank you. Newsmakers ontop bloomberg tv that you do not want to miss. The chairman, the chief of the ftc the dallas and chicago. This is bloomberg. Nejra this is bloomberg daybreak europe. Im nejra cehic in london. Manus i am manus cranny in dubai. Lets get your first word Business Needs with news with annabelle drulers. The u. S. Economy is on solid footing, except for one thing. Leveraged loans, according to the bank of america chief executive. His bank has dominated the sector for a decade. Things that generally sold solid but leveraged loans could be a stumbling block. It will be ugly for those economies. They have to be restructured and the usual carnage that goes on. , havesue that is there the terms gone too favorable to the borrower . Renaults board has postponed a decision on chryslers merger. It is extending discussions for another day after distance to the deal. The Draft Agreement reportedly takes into account the french state. Terms ofortunity in jobs in corporate governance. The board will meet later today. Venezuela has reportedly defaulted on in agreement with Deutsche Bank. It has prompted the lender to take control of the present precious metal use as collateral. Bloomberg has learned a deal in 2016 and settled early due to missed interest payments. That is your Bloomberg Business flash. Nejra Annabelle Droulers in hong kong. The European Commission is scheduled to publish its support on italys finances today amid a dispute between brussels and rome over the countrys debt. Matteo southey me has stressed salvini has stressed it is in the interest of all states. Conti has threatened to resign if the populist coalition doesnt stop squabbling. Its go to maria tadeo in brussels for the latest. What are we expecting to hear from the European Commission . The recommendation of the start of a Disciplinary Procedure . Of a Disciplinary Procedure . Maria the European Commission will likely say they do not anticipate the debt to gdp ratio will decline. If anything, it will increase and that is a breach and that could turn into a financial penalty. It is worth noting and is important that this is a long process and could take weeks to months and the italians would try to avoid this. It is likely this will have to be agreed by european area finance minister. It doesnt mean italy will eventually be fined or get fined today. Manus this isnt the first time really we are discussing a fine . I have this bubbling in my mind a couple of times. Why is it different this time . That tension play out at the end of last year and there was speculation there could be a fine. Two things have changed and that is the timing of it. European elections have happened and it was clear the European Commission did not want to get into a confrontation before the european elections. The balancing power in the Italian Government has really shifted. He did very well in the italian election and wants a fiscal shock. He needs to bring down taxes and at this point, he has no incentive to backtrack on that. The timing of this but also that salvini is at the forefront of the coalition in italy. Manus politics to the fore. Maria tadeo tracking the italian story in brussels. John roe is the head of multiasset funds in huawe Legal General investment. You said there is opportunity. Is the fine baking . If i look at the spread baked in . If i look at the spread, do i get more bullish because i have an ecb which is going to come to the rescue if not tomorrow, over the next couple of months . John i dont think the fine matters that much. Weve got about four different measures they can take. They could require italy to deposit money with the ecb which would be noninterestbearing. Interest rates are negative and the italians would get paid because they can borrow below zero and deposit at zero. You could have a position where the way there penalized is by being paid money. I dont think the fine is a big issue. The bigger issue is the fact you cant get through the measures you want. The Prime Minister is firmly in the camp they need to comply with rules. Salvini is frustrated that past transgressions of germany and and ongot away with it the back of it coming to get an escalation which brings down the government, lead to a new election and the new election is what brings a rightwing government. That would take out a lot of the problems because at the moment, you have the rightwing and what is believed to be somewhat that they dont put themselves on the spectrum. If you get rid of that, longer have the spending increases as the same time as the tax cuts. That might be more manageable for the economy overall. Nejra in terms of your strategy, you are short germany and retain your position in italy . John thats right. If you allow for the negative Interest Rate that you pay for buying the future, you are effectively picking up nearly 3 of kerry on the carry and you need 45 basis points widening to not make money. We find that very attractive. If it does escalate, it will lead to a fall in the government and if it does, we will get a but toxiceable coalition. Ra john john roe , head ofhn roe multiasset funds at Legal General investment stays with us. We will get more into the german story and the ecb as the program continues. The question on mliv, our markets under pricing a hard brexit . Team. Out to the mliv mexicos peso stumbles as Donald Trumps says the tariff threat is not a bluff. We will get the latest next on bloomberg. Manus it is bloomberg daybreak europe payor europe. We have been talking about the btp spread and the fine from the eu. Italy commits to 3. 5 billion euros worth of savings. Lets see how the markets pick up on that theme as we get the markets up and running later. We are one day away from the European Central bank. The markets are in focus. We will get to that any moment. Annabelle droulers is your first word news from hong kong has your first word news from hong kong. Annabelle jay powell has signaled openness to cut Interest Rates if necessary. Thattors have increased the fed will loosen policy this year amid ongoing trade tensions. Powell pledged to keep an eye on the fallout from the disputes between the u. S. And its large and trading partners largest trading partners. We do not know how these issues will be resolved. We are closely monitoring the implications of these developments for the u. S. Economic outlook and as always, we will act as appropria