>> warm welcome to "daybreak: europe," i ran says the door to negotiation is firmly closed. diplomacy is closed. what will it mean for the oil market? we are still at 8% over the past number of sessions, this is five-day momentum. are we hitting a plateau? in terms of geopolitics. the next thing for the market to look at is opec plus. they will need to extend the deal until late 2020. issue calleder demand. the real fundamental -- let's have a look at some of the other risk markets this morning as we look at the dollar. the longest losing streak is september 2017. blackrock is neutral on the dollar, jerome powell speaks today. what will he have to say, adding to last week's shift from patients? this is as trump calls the fed a stubborn child and its refusal to move. keep an eye on gold, the bulls are backing control of the market. , and wetanley top pick are also seeing a shortage in the physical supply-side which gives sucker to the bullish story. >> good morning. the markets can't get away from speculation around the fed or geopolitical risk as we look ahead to the g20. are we going to see a fourth week of gains? we are on the backslide today, the s&p 500 declining two days in a row. we could see a third day of decline, and a little bit of a holding pattern with a negative bias. the 10 year yield back below 2% for the first time since 2016, and there we are on the 199 handle. the other side of that dollar trade, look at the euro. 1.14, andne above above the 200 day moving average. it wasn't the data that did it, it seemed to be the fed rate cuts, speculation around and narrowing of the rate differentials. how long can that last if the data and the euro zone doesn't support it? let's check in on the markets in asia. juliette saly has more. looking a little risk off today. good to see you. >> it is, and that has really happened in the last couple hours. we had some ok gains coming through in early asian trade. there's been a lot of money going in, gold, treasuries, the yen. .6%, inei down by about both hong kong and china. the csi than 2% drop on 300 after the lunch break. worth noting that the kiwi dollar has been rallying. trade data coming through at of new zealand in the kiwi is up for a seventh session against the greenback, making it the best performing currency today. but in terms of equities, it is risk off. every sector on the msci asia-pacific index is in the red. just a slight tick up in those mining players, kicking the material sector underwater. let's have a look at stocks in detail, gold miners in australia are one bright spots, one hitting a record high since 1989. what is dragging on the hong kong and china markets? a lot of the big banks are are takingay, they about 54 points off the hang seng. we are also watching the sun as the shareholder meeting gets underway. the ceo is saying their focus is getting back onto profit, also talking about the fact that they want the yen to beat the bottom, gradually raising it. they will also cancel retirement payment and stock options. guidance isend going to be -- lovely round up from singapore. are and chinese officials discussing arrangements for a highly anticipated meeting between presidents trump and xi in osaka. trump has said that beijing must agree to concessions from earlier, but china's commerce minister says the aim of the osaka meeting will be to "compromise on both sides." how will it all play out? let's bring in the cio of global fixed income here at franklin templeton. good to see you. the bar as i see it is set fairly low to any level of concrete success at this g20. what are you looking for as an outcome? one.at's a tough there is no doubt that trade has been really roiling the market, that people saw the effects of the first round of tariffs, and they have had a pretty significant impact on the amount of chinese exports to the u.s. it has clearly had an impact on some other asian countries that are looking to adjust their supply chain. you are right. if you have a negative outcome, feed the view that the fed is more likely to cut aggressively. it is something of a reprieve or compromise for risk assets. i would agree that the odds of finding anything medium or long-term is unlikely. i think this confrontation with china looks like it is going to persist, it will have different facets, but it doesn't strike me as something that we will emerge from over the next few weeks. asi had to bet, unfortunately many of us have to do, i would bet that you don't get significant positive surprise. >> great to have you on the show today. i understand that in this environment of uncertainty you are actually long euro. i was talking about how we hit a and we've goneh about some key technical levels. why would you be putting positions on euro long? is it because of what you just said about the expectation of the fed cutting in the interest rate differential narrowing? >> i think that's part of it. this as been describing a risk off environment but the reality is we have had this disconnect in different markets. in a traditional risk off environment the dollar would be strengthening, and for the past few weeks we've had this real disconnect between what the equity markets have been doing and what the fixed income markets have been doing. dollar -- there's this argument that the dollar is being driven by yield differentials rather than the geopolitical fear. do you take that argument as the only one? why is it not believing in the classic fear haven status? >> i think right now the base case is still -- it would be moving preemptively and to extend the expansion. we are not in an environment where it is total risk off. it would ideally keep the expansion going longer and risk includingld do ok, emerging markets and other currencies. still our base case but from thats if we move scenario to more aggressive global slowdown, we are looking at more aggressive rate cuts and a much more difficult trajectory for risk assets in oil prices. think, the challenge, i that policymakers and markets are trying to navigate, which is why markets are giving different signals. >> ok. if i've understood correctly, you still have conviction on euro long, because for the moment we still see some risk assets doing well. let's talk about and ask at that is not risk asset, which is gold. at this point, with the run-up we've seen in gold, would you be wanting to buy that tactically, given that you have said it's not all risk on or risk off? or is it something you would want to add meaningfully to a portfolio? i don't buy gold in my thatolios, but i do think gold has a role to play in portfolios as a currency or as a hedge against risk off environments. when you think about all the uncertainty that we had today coming from politics or coming from the markets, you would want to have that insurance. i think gold does have a role to play and we are doing a fairly well. >> there was a lovely line yesterday which was calling gold barbaric. have a look at this. this is gold versus -- golden correlation to negative high-yielding that. you have that explosion in negative high-yielding debt -- you can draw lines together on anything but we have drawn it with negative yielding debt together. do you think that is an alpha for gold? this explosion in negative yielding debt? my got reaction would be no. negative yielding debt and in general monetary policies -- i think the drivers for gold are not just driven by the interest differential. we have had periods a very low interest rates were gold was heading south. i don't think that's the only driver. i am much more of the view that, as a safe haven and a supply-demand equation, and now geopolitical tensions, gold is playing that part. but i don't think it is linked only to interest rate differentials. >> he stays with us for the hour. thank you. let's get the first word news with annabelle drool her in hong kong. >> thanks. the cost of insuring middle east oil shipments is soaring as tensions mounting a region that accounts for a third of seabourn petroleum. it can now cost upwards of $500,000. earlier this year the same insurance would have cost less than 1/10 of that. urges caution about cutting interest rates. he says easing policy could add to market imbalances which could be "painful" to manage. he says his base case is economic growth, in the downside risk has increased. is aiming to seal a nonfinancial agreement with the imf that expires this month. it will help the economy remain an attractive market for foreign investors, exclusively to the finance minister, who told us his timeline for the deal. >> we hoped before but let's -- we are in discussions and hopefully by october. and to a bloomberg scoop. president trump has privately think about ending a long-standing defense treaty with japan. we are told he thinks the deal treats the u.s. unfairly, and it formed the basis of the relationship between the powers after world war ii. officials say pulling out of the treaty is highly unlikely. global news, 24 hours a day, on air and at @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> thanks so much. coming up on the show, the trump administration slaps sanctions on the supreme leader of iran, further raising the pressure on the islamic republic. iran says the move means the diplomatic powers closed forever. we are live in toronto. this is bloomberg. ♪ ♪ this is "bloomberg daybreak: europe." >> let's get a check of the markets. offdly, we are seeing risk right across the screen in terms of asian equities, gold is still on the tear, well above 14,000 on the six year high. the yen is also rising to its strongest since january. you have the geopolitical risk i had at the g20, and still contemplating the fed. >> and what is happening with the dollar? is the dollar knocked off its perch? 1%,x crude down by nearly three days of gains. the question is geopolitics plateauing the oil price? you have 10 year government bond yields with a little bit of a move, the lowest level since november, 2016. 100% probability of a fed cut next month. the question is what else is to come? a warning shot from morgan stanley this morning, they are talking about the concern of the data in the u.s., trumping anything you see from the fed. let's get to the question of the day. it is back to gold. is there something bigger going on or is it a short-term blip? join the debate. citigroup says one of the topics -- join the conversation. let's get your bloomberg business flash. annabelle is in hong kong. >> thanks. seekingal is reportedly -- they are set to inherit and take over anadarko. wants half of their stake in the company, 45% traded publicly. at&t has named the first woman to lead the company. she has more than 30 years of business and media experience. she will become one of the highest ranking female executives in hollywood. qualcomm faces another eu fight a year after having to pay more than $1 billion. it could be the last u.s. technology firm to get a large antitrust penalty from the competition commissioner, whose term ends later this year. and that's your bloomberg business flash. >> annabelle, thank you. u.s. sanctions against iran's supreme leader mean the diplomatic path with washington is closed forever, according to a semiofficial iranian news agency, after the trump administration slaps sanctions on to ron, further raising pressure on the atlantic republic. >> washington is also promising action against the foreign minister. the iran ambassador hit back. >> the u.s. decision today to impose more sanctions against iran is yet another indication of continued u.s. subsidies against the u.s. and their leaders, and that the u.s. has no respect for international law and order, as well as the overwhelming majority of the international community. to ease tensions in the broader persian gulf region the u.s. wants to stop its military , as well as the economic war and terrorism. uslet's bring in -- joining live from tehran. says the new sanctions mean diplomatic paths are closed forever. a very strong rebuttal from the iranians on the sanctioning of the ayatollah. >> yes. this obviously came out quite late last night into ron, and the reaction so far from the iranians has been quite strong. a combination of sanctions from the u.s. and itnians and most recently has been mentioned that we have heard of a spokesman say that what this means is the permanent closure of any diplomatic line between the u.s. and iran. i think that reaction may have who seese predictable them talks as disingenuous and they can't be taken seriously or credibly by iran, as they are coming hand-in-hand with more sanctions. whether these sanctions are going to have any tangible effect on iran's economy i think that is doubtful. particularly the sanctions on the supreme leader, any practical impact will be very small and symbolic. the wider impact more isnificantly on geopolitics going to be -- is going to come from the sanctions on the foreign embassy. >> thank you so much. joining us on the line from tehran. at frank and templeton is with us. this is something you watch closely for your portfolio but it is very hard to predict where we go next on the geopolitical risk. would one way to trade this be crude volatility? >> that's probably one of the more difficult things to think about right now, because prior to the events of the past couple weeks it looks like the fundamentals were leaning toward turnaround demand and whether or not opec plus was going to step up and be able to extend the cuts to keep inventories from building too much and a supplier glut to form in the market. shorts are starting to get business in the market and the market was beginning to fall. but when these geopolitical tensions arose the market kind of bounced back. now we are in that situation where people are quite fearful to be short oil, given these tensions. that without this geopolitical tension the path of least persistence what have been lightly lower oil prices and that is still the thing i am most worried about because if we move into an environment where the fed is cutting and local growth is weakening, given the tensions, cuts are going to be more challenging to extend. there's now a more realistic downside scenario, for someone who invested so much in the gcc. it prevents a medium-term challenge. >> you mentioned the challenge of extending the cuts. notnzie came out to say only do you need an extension but it needs to be well into 2020. do you think we are going into an opec plus meeting in vienna with that kind of openness to that level of cuts? i don't get this sense there is open-ended this. now they have a successful compliance regime with good cooperation and there is a serious intent to balance the oil market and support prices. having said that, there are other factors coming into play, and i would agree that most likely the expectation is other cuts are extended. if that wasn't to materialize i think that would put some pressure. thats one of those things you have positive and negative drivers. is thatlenge obviously the positive drivers are short-term. they won't be our base case as we move into a prolonged escalation. the medium-term outlooks are more uncertain. the downside risks are materializing. that is a cause of concern policymakerse gcc are trying to engineer or trying to move forward with a very ambitious structural reform agenda. while they are keeping their fiscal accounts and balance. i think that if you were to add the pressure of low oil prices, you could end up compromising the fiscal agenda and structural reform ambitions. that would be one of my key worries going forward. >> stay with us, we have more to get to. plenty of global concerns to keep us busy. coming up on bloomberg, we will be speaking to the hsbc ceo, john flint, exclusively. it is one of the range of top interviews we have stacked up for you in the house of bloomberg. this is bloomberg. ♪ ♪ this is "bloomberg daybreak: europe." expect.s what to a host of newsmakers are in london all day for bloomberg's emerging policy forum. the hsbc ceo will speak exclusively to us this morning. stay tuned for full coverage. we will speak at the italian banking association in italy -- watch out for comments on potential stimulus measures in the euro area. >> this afternoon, jared kushner will speak in bahrain to persuade middle east nations to pick up the $50 billion for his plan for peace in the region. at 5:30 p.m. u.k. time, the fed is in focus. kathleen hays will have a conversation with the federal reserve bank president, james bullard. the top corporate story of the day, shareholders voted in favor of a new board and director of committees. tensions asto ease the companies path forward in its two decade old line has been had friction. we have been tracking the friction, good to see you. this is a step forward, governance is being dealt with, and they are talking about the event. >> certainly. investors have some things to be cheered about. they are moving forward, the government changes were approved and nissan is moving ahead with this. there were some good noises made about the future of the alliance with renal. there are still a lot of problems to work through, a lot of questions went unanswered and there is still a lot of problems ahead. >> thank you so much. let's check in on the markets around the world, joining us from mumbai, and here in london. great to have you both with us. what exactly are you focusing on in the indian market today? we see a fair amount of risk off across asia. yeah, good morning. it is dropping off on the indian markets. screen,an see on your the numbers show the story. it's a flat start and has remained flat. howybody is talking about he is starting off in india, so all eyes are on the trade front and the u.s., that's the geopolitical aspect of markets and the only thing that is moving is the currency. the indian rupee strengthened and that is having an impact on the sector. begin the markets are trading flat in the session today. >> thank you very much. annmarie hordern, you are in london, you are looking at risk off for metals and gold is shining like a star. but it's all trade-alicious. >> we will get to golden a minute. let's start macro across asian equities. it is risk off. hong kong and china leading, both down more than 1%. we are seeing money move into safe havens, up more than 3% this morning, and we really thought they would get a leg higher with the highlight of tensions in the gulf which means diplomatic class closed forever. day of lossesxth for the index, and look at the 10 year yield. percent, andow two in commodities wti touched off around .8%, snapping three days of gains. last week was its best since 2016. let's look at what's shining. all that glitters is gold today. announce.above $1400 and this is on rising uncertainty. this has been happening over the last six months we have seen gold really get a boost, especially the past few weeks. saying goldey even is the top commodity given the uncertainty in the macroeconomic environment. it just adds to the appeal. >> thank you both so much. let's get the first word news in hong kong. >> thanks. president donald trump has imposed sanctions on iran's supreme leader, saying it would deny him access to financial resources. trump claims he is ultimately responsible for the "hostile conduct" of the regime. means says this action diplomatic paths are closed forever. the cost of insuring middle east oil shipments is soaring as tensions mounted in the region for a third of all seabourn petroleum. premium for a tanker of oil in the gulf could cost upwards of $500,000. earlier this year it would have cost less than 1/10 of that. the u.s. is playing down expectations for the meetings of presidents trump and xi. officials insist the u.s. is not prepared to compromise on demands of economic reform. the leaders have said to me on the sidelines of the g20 summit in japan. the talks will most likely take place on saturday. an appeal against president trump as tariffs failed to earn a hearing at the supreme court. the president had used the national security -- for more than $4 billion and duties, but an industry group argues that it violated the constitution. trump imposed the 25% steel tariffs in march last year. global news, 24 hours a day, on air and at @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. you verylle, thank much. a nonfinancial agreement with the imf to replace the three-year loan deal that expires this month. it is hoped it will remain an attractive market for foreign investments. the egyptian finance ministers spoke exclusively to my cohost, yousef gamal el-din, an in london. egypt decided on the program and presented it to the imf and to start discussions about it. essentially we agreed to elements of the program. what are the options? that, we set up a framework for components of the in lookingd we are at that. >> do you have a timeframe of how long this new program might last? three years, five years? exact timing has not been decided. but it could be two years plus or minus. >> and within this new program, what is going to be the policy priority in the reform program? think thept i structural reform will be the most important element. this is number one. >> the egyptian finance ministers speaking to yousef gamal el-din in london. breaking news coming through from the dutch telecoms and i.t. company kpn. the ceo is resigning effective september 30. the resignation, we are learning, is for family reasons, unrelated to the network outage. royal kpn is in the process of identifying a ceo successor. they also say the company is in good shape and well on track to deliver on the strategy. let's get back to emerging markets. they represent the dominant share of the world economy and population yet receive marginal investment from global asset managers and businesses. the indices have a value of $14 trillion, while frontier markets only make up $324 billion. dani burger is here to tell us why investors should be paying emerging and frontier markets more attention. >> here are the numbers. frontier markets are relatively minuscule compared to developed and emerging markets. foreign participation also tends to be much lower in these markets, and there is a decent amount of tighter restrictions. even so, now might be just the time for investing in frontier markets, because they tend to be havens during periods of searching volatility. for the past two years, the less developed nations have definitely swung, and that is partially because the nations within the index are far less correlated with each other. but frontier has underperformed their emerging counterpart in the past calendar years. see, there are still a lot of idiosyncratic factors driving these return. there's not one thing we can name but the economic shift is driven by the trade war and volatility in the oil market. up, we do have a number of interviews with top newsmakers and executives from around the world. it's all part of our emerging and frontier forum, which includes the renaissance chairman and indonesia's finance minister. >> thank you very much. dani burger, setting the agenda on emerging markets. in's talk about the concerns terms of fed rate cuts. robert kaplan says a possible rate cut could add to economic and market imbalances. but he also sees downside risks increasing. this comes as investors are convinced a rate cut in july will come, with some looking for half a percentage point drop. all the memories of a shock from the fed. our next guest remembers these. interest fedmber meeting moves. talk to me about your markets. you talk about significant downside risks. let's have a look. aggressively.s why do you think that is the scenario we will have this time around? talk me through your chart. that chart shows you what could happen to risk assets if we move into a global slowdown scenario and the fed has to cut aggressively. that is why i think many traders are concerned. casemay not be the base yet because the economic fundamentals of many equity markets would argue that we are not in a dire situation. data has been mixed. more current data leading indicators are all pointing south, but you wouldn't characterize companies are the markets as being overvalued today. this basically highlights the delicate balancing act the fed has. on the one hand, the market wants them to cut to prolong the expansion. but the fear is if the fed is behind the curve the global slowdown will be exacerbated by trade, political uncertainty, and fed policy. we could move from an expansion and a more benign environment into one where risk assets really suffer. that is why it's a tough balancing act and the job is not easy. integrategreat shot point and he comes back to what we were talking about earlier in terms of how the dollar reacts. it depends whether the market takes the cut from the fed as preemptive, or one that is signaling something more sinister, or leads to a global slowdown. if you look at fixed income globally, some of these bets are already being put on -- you will get a fed rate cutting cycle in the global slowdown in the sense that the consensus seems to be we will get curve steepening in the u.s. but flattening elsewhere, for example in europe. is it too early to be putting those bets on, given that the fed has not done anything yet? >> no, it's never too early. i think it's also important to highlight where we were six months ago. one has to be cautious about the consensus and focus attention on what's going to happen over the next few months. regardless of the motivations of how we got here or what the main philosophical discussions are around inflation or growth, the reality is the market has priced in a cut for july and that is what the fed has to deal with. if they don't cut, it is going to be taken on as if the fed is resisting that call and is maybe bullish on the economic data, which will be in stark contrast to the market is pricing in. researchant to cuts, suggests if you are going to cut preemptively, you are better off going strong. but again, as manus was alluding to, there are some speakers talking about the risks to that aggressive cutting. that is the challenge and as we go into july, depending on what happens with the g20 and other risk asset, we are probably looking at a no cut or 50 basis point cut. not0 basis points is consensus -- there's a growing number of people. we look at this on a convenient basis, if we look at that spread, they have blown out 80 basis points, hardly a radical transformational move. since november, and this is becoming a very crowded trade. they are all jumping into this trade -- what needs to happen for that bread to continue to steepen? >> you need to start pricing in a more severe downturn, more than three rate cuts. >> more than three rate cuts this year? >> it doesn't have to be this year but over the next 12 days or months. you have to have a view that once the fed cuts it will continue cutting because presumably the data now supports it. between june and july you are not going to have a large number of data points. monthse next six to 12 if the data deteriorates then the market will price in more than three cuts in the curve could steepen further. >> thank you so much. the cio of fixed income at franklin templeton, great to have you with us. coming up, risk comes off the table, but that could change on friday. the expectations for the big meeting at rock bottom. we will discuss that next. this is bloomberg. ♪ ♪ >> that's an event you don't want to miss. live, onere, we are the fourth of july at 8:00 p.m. eastern time. they didn't ask me to go. >> [laughter] this is "bloomberg daybreak: europe." we have our own fireworks. hard not to smile about boston fireworks. let's turn to the trade talks. u.s. and chinese officials discussing arrangements for the highly anticipated meeting between presidents trump andxo at the g20 in osaka. trump says they must agree to concessions but the commerce minister says the aim of the meeting would be "compromised" on both sides. joining us now is the global head of ultrahigh networks and ubs. great to have you with us on set. you've seen a 20% chance of the u.s.-china deal at the g20. how are you advising investors to protect against downside risk in their portfolio? >> investors have already started to protect themselves and we have a couple large block trades where investors reallocated their assets and allocation toward precious metals. so while there is some relief in is markets the bottom line in q2 and q3 earnings slowed and people are starting to protect themselves. there is some consensus among my clients that there could be a 5% to 10% correction. >> i would be interested to know i'm looking at the note from yesterday. overweight cash to help manage the risk and to protect ourselves from a break down in u.s.-china g20 summit. we want a slightly longer duration of treasury. this is almost sacrilege for a wealth manager to up the cash but you see from your chinese clients and u.s. clients and european clients -- give us a hint in terms of what they are doing. >> it depends on where you are as an investor. if you are long and public markets then you have to hedge yourself. if you -- we have many of them in the private markets because many have said goodbye to public markets after financial crises. you keep running your company, as keep trading trunks liquid securities and building up your positions in the private space. it's about location. >> we were talking earlier about the king to the fed, and the way people are positioning suggest that they suggest cutting from the fed but also a global slowdown that translates into steepening of the u.s. curve and flattening elsewhere. >> is this what your clients think will also be the impact beyond what the fed does from july onward? --our clients are not clear it will be a strong one to preempt a recession. some are even less sanguine and say there will be a severe recession. let's be realistic. the bottom line is if you cut you do for a reason, and the reason is mainly that there may be some weakening and slowing down. steepening,ct is a and what we expect is a tightening. >> no consensus yet. buildingat seems to be on the conversation we just finished. there's a lovely piece in your report where you talk about how back in 2006 there were only 16 chinese billionaires. that number has ratcheted higher. the concentration of this wealth in china has not shifted from public market to private equity. what is the transition in the chinese billionaire story? >> it has indeed shifted and you can see there's a lot of self wealth. hidden wealth that is not public so you don't need to find it. identifyingent of what this wealth indicator is is to look at the number of unicorns in china. we had about 58 or 57 in 2018, which is hardly less than the number of unicorns in the united states. if you look at what happened there valuations go up. there has been an acceleration of wealth in this sector rather than the slowing down. what you don't see is a lot of ipo's, because of geopolitics. to get you into the hot seat in the studio. enjoy your day. the global head of ultrahigh net worth over at ubs. it is spacex day, big bang spacex day, coming up. elon musk is set to launch what is referred to the most launch ever on a military mission with a massive rocket. ♪ hey! i'm bill slowsky jr., i live on my own now! i've got xfinity, because i like to live life in the fast lane. unlike my parents. you rambling about xfinity again? you're so cute when you get excited... anyways... i've got their app right here, i can troubleshoot. i can schedule a time for them to call me back, it's great! you have our number programmed in? ya i don't even know your phone anymore... excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. bloomberg's european headquarters in the city of london. i am nejra cehic. anna: i am manus cranny live from dubai. this is "bloomberg daybreak: "urope: the supreme leader, the path to gold glitters as the path through armors is open. of --hing rides on a path out of osaka. said hes robert kaplan is concerned about rate cuts that could fuel imbalances. the dollar index is on its longest moving streak in over 1.5 years. before his speech from jay powell. spacex is big ring is built by elon musk and becomes the big difficult launch ever. it happens in half an hour and we will have full coverage. nejra: it has gone 7:00 a.m. in london, under an hour from the start of cash equity trading. judging by the futures, we are on track for a third day of declines. ftse 100 futures down, and u.s. futures, we could see a third day of the red in the u.s. as well. we could the and a holding pattern ahead of the g20. will we get a fourth week of aheadfor global equities of the g20? when it comes to europe, one thing to factor in an eurozone equities is the euro went above 114. we are dipping below it but we were above key technicals. it is to do with debts around those interest rate differentials on fed rate cuts. which takes us to the bond markets. anna: absolutely. the consensus is building on u.s. treasuries. steepeners are the way to go. a drop again in yields at the lowest level in a number of years. robert kaplan is saying he is concerned a rate cut may fuel imbalances. our last guest from franklin templeton from his view was the -- this is one or the other. up button market, buttons this morning. they seem to be -- seems to be a reprieve and bond markets. steepeners are the way to go. it is basis points on monday. that is the whitest since 2017. consensus is building in the bond market toward further steepeners. perhaps flatter -- flat nurse. -- flatteners. juliette: we are seeing a negative bias in asian markets. that money moving into the yen has weighed on the nikkei which is closing down by about .4 of 1% in tokyo. we have seen quite a bit of weakness coming through from hong kong and chinese banking stocks. a lot of the big names trading ex dividend. 1% inng seng down over late trade. csi 300 off by one point 2%. there has been money going into the gold miners and austria but the asx 200 has closed fairly flat. a flat move coming through in the indian market. when we look at those currencies, i mentioned the money going into the end being driven by the comments we had coming through after iran said the diplomatic path is closed. the yen up by .25 of 1% against the dollar. the kiwi is the best performing currency rising for a seventh says -- session. rank of new zealand say the central bank will not cut till august. we had trade data coming out of new zealand and the surplus beating estimates. weaker against the dollar but it has been surging and we are looking for a 30.50 handle. aht has been holding against six-year highs. can -- ourcials are discussing arrangements. -- thes is -- has said commerce minister said the meeting would be optimized on both sides. joining us now is the cio for credit at aviva investors. we also have tina martin adams onset. our chief equities strategist. we are asking the question on mliv, is the gold rally the start of something big or a short whip? on yourreach out to us bloomberg. welcome. many ways to assess the risk, gold is one of them but let's talk about the equity market. we had weeks of gains. we have been softer for the past couple of days but when you look is when things get interesting. defensive stocks have been outperforming. it is a bubble in the defensive in the u.s.. >> it is something we have asked yourselves a lot over the last several years because when you look at the premium for defensive sectors in the s&p 500, it is tremendous and has been for most of the last several years. which tells us the underpinning of the equity market is rate sensitive to suggest as long as rates are low, stocks can continue to rise as long as rates are low, you have this rotation into equities. seeking yields which is bizarre when you think about the long-term outlook and you think of growth as the primary reasons for investment. is slow growth and something of an impediment to investing and keeps investors on the defensive. they're looking for yield and some of it is found in the u.s. equity market resulting in this premium. the risk is if there is above all, it only pops if rate start to rise rapidly and that creates a flood out of the equity market. out --bably need a pair a policy or at this point. anna: good morning. more aggressive slowdown in the economy and the fed behind the curve and that can pop the stocks as well. we welcome you to the show and carry the theme forward. gina talks about a reach for yield. this is the negative yielding bond spectrum but it is also the gold laid on top of it as well. as you look at this spectrum of negative yielding debt and this reach into gold, do you think the two are correlated? my last guest corrected me and said no. yields,you find is low gold tends to do well. there is another couple of factors in there. leading to the gold price we are seeing. around physical shortages in the gold market which may be contributing to that. and geopolitical tensions, we will talk about a few of them today. we have more overnight with what we see in iran and that country it's to the psyche that says invest in gold is a safe haven. when you put them all together that results in the gold price. nejra: on the geopolitical tensions you mentioned, we are looking ahead to the g20. what sort of credit trade would you be putting on around the trade story? >> when you look at credit and how it reacts, it tends to be viewed as something that does well. bonds do well my there is a flight to quality. what we know about the geopolitical tensions of trades an impacts is it has on growth. that can help flow through to the equity market. also for credit. what it means is you have this reach for yield. as essentially people think in thehat are we doing slow growth environment? central banks come together and they reduce policy rates. people say we need the yield. geopolitics enhance that. because there is a concern that these rates will stay low for longer. anna: could we take that forward into the triple b, double be space and put this into the gbc library. this reach for yield that is the theme of what we are talking about, triple b versus double be bonds. the spread is the narrowest sense 2007 and there is a warning from guggenheim. they say that triple b ratings still risk being downgraded. is this too squeezed the spread for does it go further, does it go lower? when rates are low globally, this continues. there is a hunt for yield. we have talked about negative yield and debt. there is a concern about the size of the triple be market. if you look at what has happened the last 12 months, there has been more upgrades and downgrades. the default move has more -- been more positive than negative. people are feeling fairly bullish. the recent default numbers coming through, especially in europe, it is low. we are low -- below the long-term trend and that is giving people confidence to go into the high-yield market. when there are little yields around globally, that is encouraged and people look at european high-yield and say three and -- 3.5% is not a lot. that is not surprising. people want to reach for that yield and say 3.5% is enough in this environment. these when we get all risks and people think there are rates lower for longer, they reach for that yield and when it comes to equities, how much potential is there for another leg higher in equities. with what we find is respect to the s&p 500, the market is pricing for one cut from the fed. most of the movement has been an evaluation multiple. there has not been any change in earnings. it has been about the fed, the prospect of the fed reducing rates and that elevates the multiple. as long as we are still on track for at least one fed cut, that will remain the case. it becomes a question of what happens when the gk -- g20 comes in. we have any resolution that makes people feel better about the growth outlook month creates some positive that elevates the outlook for stocks on a growth perspective, the big question post g20. it happens after the g20 we start thinking about the upcoming earning season. it is not just a few weeks away. reporting season starts and expectations are low. you could be set up for the situation where growth starts to look better and that would power rotation and a different market. manus: we could reset expectations quickly. it can turn on a dime. thank you. gina martin adams, our chief equity strategist stays with us for the next part of the show. the u.s. national security adviser john bolton is set to hold a pass conference in inusalem -- press conference jerusalem. we are waiting for him to come to the podium following talks with the russian and israeli counterparts. we will cover that as soon as he hits the podium. it is all about big rockets. into spacextakes us 's latest launch. the launch takes place imminently. with from -- speak that in a whole. -- dana? three falcon nine strap together. this is a nighttime launch, it will happen at 2:30 a.m. florida time and it will light up the night sky and the customer is the u.s. air force, which is a important customer for the company. manus: it certainly is. this is one of the most powerful rocket launchers by a factor of two us what they are saying. what is in the payload and how valuable is this launch to spacex? dana: it is a challenging launch for a number of reasons. the payload is 24 different , goingtes that are being to deploy after the launch and they are going to attempt to recover all three boosters. what we will watch imminently is the rocket will launch and then you will see the two side boosters come back and land on land and the centre court a tends to land on the drone ship in the atlantic ocean. , therey is the payload is 24 satellites that have been deployed but they are going to try to recover all three stages. what could it mean for elon musk if it is successful? dana: spacex had always thought -- font to handle launches for the u.s. military. the u.s. military has a lot of satellites, it is a big customer. the national security issues are a big part of the launch market and historically, united launch alliance which is a joint venture between boeing and blockade has had a lock on those launches. spacex is competing for the launches and if this goes well, the air force will be happy and this could bode well for spacex for years to come. they will take for more launches going forward. it is important for the u.s. air force. spacex is designed for reuse. manus: let's see where this goes and the value of spacex is increasing more and more. thank you. to jerusalem now, we have the u.s. national security advisor john bolton holding a press conference. he has had talks with his israeli and russian counterparts. benjamin netanyahu currently speaking. let's take a listen. disturbing curbing iranian regional clout. >> with both leaders and both countries. as i have said many times, israel's relations with the u.s. has reached new heights under president trump's leadership. israel is grateful that our friendship with russia has gotten stronger, stronger than ever in recent years. i had an opportunity to meet past two of you these days including just now and the last few minutes. to discuss the important bilateral issues but especially the challenge of how to bring security and stability in our immediate region. based on our discussions, i believe there is a wider basis for cooperation between the three of us than many believe. this summit represents a real opportunity to help advance that stability in our region and particularly in syria. israel hasyou know, acted hundreds of times to prevent iran from in trenching itself materially in syria while it actively and works for our destruction. we have acted hundreds of times to prevent iran from delivering increasingly sophisticated weaponry to hezbollah or to form a second front in the north the golan heights. israel will continue to prevent iran from using neighboring territory as platforms to attack us and israel will respond forcefully to any such attacks. i want to thank the russian the president for working closely with israel on a mechanism of the confliction that helps ensure as we defend russians, we do not put forces in harms way. i want to think the u.s. and president trump for unequivocally backing israel's right to defend itself. now, all three of us would like to see a peaceful, stable, and syria. that is a common goal. we have a common objective, to achieve that larger goal and that is that no foreign forces that arrive in syria after 2011 remain there. we think there are ways to achieve this common goal which will create a more stable middle east or more stable middle east in this part of that region. outcome that i have just described, the departure of all foreign forces from syria will enter syria , will be good for russia, israel, the u.s., and good for syria. discussingward to concrete ways to achieve this goal, which is critical for successfully implementing un security council resolution 2254. israel hopes this summit will help bring us closer to achieving our shared goal of peace and prosperity and go together in this region. again, i want to welcome both of you, john and nikolai and your delegations to jerusalem and thank you. thank you very much. [applause] was benjamin netanyahu, the leader of israel talking about the need for wider cooperation. john bolton on the platform set to speak. israel has acted hundreds of times to defend themselves. that is the start of john bolton's speech. among the national security advisers of russia, israel command the u.s. to discuss the security concerns in challenges in the middle east and around the world. it is an honor to be here in israel's capital, jerusalem. to participate in these discussions. it is a tribute to your leadership and recognition of the central role that israel in securingt play international peace and security. through your strong relationships with both president putin and president trump, there is a substantially greater prospect for coordination of our respective policies in order to achieve a secure and lasting peace throughout the region. this meeting could not be more timely. we convene in a critical moment in the middle east as the radical regime of iran and its terror surrogates engage in more rounds of violence -- while it provocations abroad while its economy caucuses and corruption at the highest levels runs respite home. the middle east, we see a rehn as the source of blue dress and russian, supporting has blood in lebanon, aiding the assad regime in syria, arming and equipping shia militia groups in iraq, weaponizing the cooties in yemen, supporting terrorist activities and afghanistan and threatening global oil supplies around the region. as we speak, american diplomatic representatives are surging across the middle east seeking a path to peace. in response, iran silence have been deafening. which alsoocations include threats to end attacks upon american personnel and arets in the middle east, the external manifestations of the central threat that iran poses. namely, its continued pursuit of deliverable nuclear weapons. there is no evidence that iran has made the strategic decision to renounce nuclear weapons and ton realistic discussions demonstrate that decision. in just a few days, perhaps by the end of the week, iran has threatened to exceed key limits imposed by the inadequate 2015 iran nuclear deal exposing once again the fatal deficiencies of that failed agreement. as i indicated on sunday, president trump yesterday impose significant new sanctions on iran's supreme leader, and other top leadership individuals and entities. at the same time, the president has held the door open to real negotiations to completely and verifiably eliminate iran's nuclear weapons program and its pursuit of ballistic missile livery systems, its support for international terrorism, and its underlying behavior worldwide. all of -- all that iran needs to do to walk -- is to walk through that open door. president trump looks forward to meeting with president putin at the upcoming g20 summit in oh soccer, japan where many of these same issues will be discussed. through ourat bilateral and trilateral discussions here in jerusalem, we can help lay the foundation for the oh soccer summit. i welcome the opportunity to strengthen even further the deep cooperation between the u.s. and inael and to engage strategic discussions with russia and israel together. delighted to be in israel once again and look forward to our continuing conversation. thank you. [applause] john bolton speaking in jerusalem talking about [indiscernible] moment in the middle east. let's continue our conversation about markets. robert kaplan is concerned about a rate cut could fuel imbalances. can i take this to you first of all? record after record in the u.s., kaplan's warning about balances -- imbalances and yet we hear calls from the likes of ubs saying stack up more cash. what do you get the sense of in terms of position into this rally? is the market long or have we been caught slightly winded? gina: take yourself back to where we were eight weeks ago. after reaching new highs and all this and we crashed in may on the notion that the g20 -- trade were deteriorating between the u.s. and china. we recovered in june. it has been this roller coaster ride of trying to test these new p kaiser and the equity market. there are two things that are driving stocks. growth in the u.s. is quite stable. that is resulting in rotation into the u.s. stocks is the only stability. a place to hide and global equity markets and then the fed reversedirst -- has course. they -- it seems the leading indicators start to deteriorate but not necessarily plummet. they are still stable. as a result of that as well as the trade relationships between the u.s. and china starting to deteriorate, the fed has had to reverse course. the surge is not a big risk on surge. it is a result as low risk tolerance around the world and yields continue to fall. tot is creating this inflow u.s. stocks. it is not that we are over position for this strong growth environment. is on the liquidity table and growth cuts around the world. we showed a chart earlier rate cuttingsaid cycles, you saw the e.m. spreads widening out. you -- e.m. will perform well as well. into theows are emerging-market. into theat continuing medium-term depending on where the yields go. we see that capital has been global. thing that is changing slightly is the fundamentals are improving. growth is ok. we are not in recession. fine and's of of these emerging markets, there are differences between a lot of the different nations, even companies you can invest in. we are comfortable to see some capital flows. they will return to the scene and will encourage more flow. e.m. will benefit from it. spacexyou're watching setting ready for its mission, probably the most difficult ever. it is called the falcon heavy rocket. that will go into space. we will wait to see where the launch brings. let's bring it back to equity markets. we are -- what level does the dollar play? the dollar, some are proffering is dead.king dollar five or six days in a row. how does the dollar play into your equity strategy if at all? does make a difference for global allocation and allocation of the u.s. equity market. s&p 500 or 0% the correlated. this is not making a profound influence on the equity market. and to thength -- equity market relative to the rest of the world. it correlates closely with u.s. stocks are performing stocks and emerging markets underperforming relative to global stocks. you do see the dollar turnover which is early to call it the death of the dollar when we have been in this cycle since 2011. if you see the dollar turnover -- otherd see developed markets. securities and global markets relative to the u.s. dollar strength has clearly impeded earnings growth prospects for the multinational companies or groups within the index. turns south and breakthrough key levels, you will see the multinational earnings streams start to improve. it is not just about the dollar. this is about slower global growth and slower growth outside the u.s. than within. probably an improvement in prospects in other parts of the world. thate dollar does we can removes an impediment to growth that has been there for quite some time. we saw small caps deteriorating. the may signal before market selloff. position inu credit, would you look to be defensive? are defensive and the reason is valuations. growth -- the fed, the central banks are not able to navigate their way around that. you want to be in defensive stocks. you look at the valuations from a credit perspective. defensive.he we do take some of the cyclical risks. we tend to take them in the front end. great to have you with us. we are staying on these pictures of the imminent spacex lunch. there he goes. -- there it goes. we have been waiting for that all morning. let's get to. -- get to you. >> it is looking pretty straightforward. we don't see the most significant stress on the launch . 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