We have the Semiconductor Equipment index up on upgrades from the street. Upertheless, the s p is only 1 10 of 1 . The 10 year yield at 2. 03 . I know we are going to be sticking with markets. A lot to talk about today because we are smack bang in the middle of a earnings season, but there is the whole backdrop of the Central Banks and their moves as well. Forill speak to mervyn king a very interesting conversation in the last half of this hour. Theres fed talk, European Central bank later this week. It is happening on all fronts right now. Guy lets get a take on that. Alberto gallo joins us now from algebris to give us his take this morning. What are we going to bid from what are we going to get from the ecb this week . Are they going to deliver, or talk about delivering this week . Alberto they are going to talk about it, and potentially a rate cut which may come in september, and then an extension of duration of qe. Buying longer dated bonds and more of each single bond, moving from a 33 maximum to 50 . The real question is at some point, the ecb will have to restart bond purchases, asset purchases, potentially including more types of assets. They are running out of government bonds in core europe. We know that some of these measures have worked not so well. ,utting deposit rates in europe where banks are lending and lend at a floating rate, means banks make less money on their core business and therefore lend less, so you have a reduction in the lending volume by cutting interest rates. On the bit like putting accelerator and pulling the handbrake at the same time. The ecb has been calling a lot for fiscal stimulus. We still dont see signs of fiscal stimulus. In the meantime, the keep doing the same stuff, which doesnt really work well. The hope is that they change the qe program to make it a little more focused on the real economy. Guy ok. In that scenario, you talked about the fact that they are , butng out of bunds to buy nevertheless, in the scenario youve just painted, lets try to get some ideas of where the market goes. Bips on the 40 german tenyear. Go . Low does the bund how negative do we get in europe . Alberto there is a physical limit beyond which people are encouraged to store banknotes underground. Depending in each currency on different sized banknotes, but 1 or 75 basis points, even if you pay for insurance, it is better to dig a hole in the ground and store banknotes in ewald rather than giving them in ewald rather than giving ash in a vault in a vault rather than giving them to the central bank. It becomes deflationary as people and companies are encouraged to store rather than give them to Central Banks. We are not there yet, and they could do more. I dont think bunds are attractive here. We prefer periphery and semicore bonds. Greece has done really well with a new government, just winning elections this month. Italy has a fragile political situation, but the market is underweight given fears of tail risks in italy. These are areas with positive yield, and obviously theres the whole spectrum of things that the central bank does not by or does not buy yet, which is Corporate Bonds, bank bonds, and emerging markets, which still offer positive real yields. We are invested in many things which have fundamental value. We dont just what to chase what the central bank will buy. Vonnie before we get to press you on those a little bit, tell us what you think we might hear from the ecb on any kind of change to its mandate. Therto we think that mandate has been confirmed by the European Court of justice, so they have given the ecb power to buy assets. However, the ecb has been exploring a symmetric tilt to the inflation mandate, so symmetrically above or below 2 , so tolerating a higher inflation rate. Having said that, if you are withng a fiat on a highway a speed limit of 130, and you move the speed limit to 200, the car is not going to go any faster unless you change the engine. So the ecb needs to change the way it stimulates the economy. Qe can work, but you need to make it more linked to the real economy or the banking system. For example, one of the things they could do is extending the csbp, the Corporate Bond asset purchase program, to bank bonds, for example. Helping banks lower their funding costs and creating most of the jobs. Or they could do more project finance, but then you do need fiscal policy, and fiscal policy is still way behind in the euro zone. Algebrisrto gallo, portfolio manager, will be sticking with us. Latee we are seeing Justice John Paul stevens, who died at the age of 99, lying in repose at the great hall of the Supreme Court. Many of the justices will pay their respects or attend the funeral tomorrow. Some are not there given that it is summer, and the court is out of session. Once again, Justice John Paul stevens, a moderate to write justice moderate to right justice, dying at the age of 99 last week following a stroke. President trump and the first lady paying their respects in the hall of the spring court right now. Of the Supreme Court right now. Vonnie live from new york, im vonnie quinn. Guy from london, im guy johnson. This is the european close on bloomberg markets. Lets get an update on what we need to know. Heres the bloomberg first word news with courtney donohoe. Courtney tehran says it has arrested 17 people accused of being part of a cia trained spy would network trained spy network. A number have been sentenced to death. This comes days after iran seized a british tanker in the strait of hormuz. President trump taking aim at the Federal Reserve again. On twitter today, the resident called the fed misguided, and said it should move to cut interest rates. In puerto rico, hundreds of thousands of people will take to to protest thein governor, under fire after a leak of obscenity filled online chats he had with allies. Plus, federal corruption charges have been leveled against is an instruction. India has launched its second Unmanned Mission to the moon, trying to become the first country to land on the south pole of earths closest neighbor. The indian spacecraft is do to reach the moon in 48 days. The lunar rover will operate for at least two weeks on the surface, looking for signs of water and helium. 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. Im courtney donohoe. This is bloomberg. Vonnie thank you. Lets get a check now on Global Markets. For that, we go to abigail doolittle. Abigail very small moves for the Global Markets at this point. The s p 500 in the u. S. Up slightly. The stoxx 600 down slightly. We have a bit of a bear gain for crude oil, up about half of 1 . The 10 year yield, interestingly, down two basis points. This is telling us some investors are seeking safety. Bonds rally in on all of this. Lets take a look at an intraday chart of the dollar to the kiwi dollar two the Canadian Dollar. The Canadian Dollar is a darling in the currency market. A lot of the positioning is ultra long, so cibc is saying to short the loonie. ,hat is helping out the s p 500 tech up 1 , begin boosted by apple, up 1. 8 . Morgan stanley raised their price target to 237 before reporting earnings next week. We have micron higher, up 3 , after an upgrade to buy at goldman sachs. We have micro soft building on last weeks strengths after reporting a strong fiscal quarter. A lot of the strength theyve had through the volatility over the last year has helped them achieve something no other company has achieved. This chart goes back five years. In yellow, we are looking at apple. In white, microsoft. In orange, amazon. In pink, google. All of these companies were closer to 500 billion in market cap. Last year we had apple about that 1 trillion mark, but now microsoft is the only one above that 1 trillion mark. It will be interesting to see if the others can join that club. Guy looking forward to the tech earnings season. That will because and 80. Thank you very much indeed that will be fascinating. Thank you very much indeed. ,ets get back to Alberto Gallo algebris u. K. Where do you see things going over the next couple of months . Is there any reason to belong u. K. Assets . A slowmotion deterioration we are seeing. That this potential weekend, some headlines from the European Union almost lending a a coppersignaling mines. However, for conservative politicians in the u. K. , there is a certain difficulty to open up because the hardliner brexit ors and the hard brexit party already to capture votes if there is some show of weakness, so there is so they are basically stuck between a rock and a hard place. They need to show that they are probrexit and want to deliver within a certain timeline, but too much brinkmanship could lead to a very bad economic outcome. , we are at happened the three Year Anniversary now, we talked about an 8 gdp loss in opportunity. We are talking about a lower growth rate in the u. K. With higher inflation, so it is a sort of inflationary environment. You could say weve been worrying about this for three years, nothing happened. But you are starting to see some weakness in the real economy. Theres u. K. Companies, per securely u. K. Companies, particularly consumer aligned, that are defaulting. Of needs which may not be bluechip, but they are struggling. Guy is that brexit related or Global Economy related . The Global Economy is slowing down. As a result of which, you are getting some of this effect flowing through. How much of this is due to the brexit effect, and how much is down to a slowing Global Economy . There are places struggling in france and germany and spain. Alberto that is true, but we are seeing a particular cluster of u. K. Companies, which normally in good times would receive interest from stressed or distressed investors. Because of uncertainty from brexit, it is much harder to refinance. Youve seen Real Investment from carmakers and pharmaceutical companies being put on hold or leaving. This comes down to the growth model of the u. K. , which was based on a stable jurisdiction, less red than in other countries in europe, and imports of goods, tof talent and export services. This Business Model has been challenged. If real risk in our view is you even have a soft brexit, but not with a great benefit to the economy, or of course if you have a hard, the real risk is getting to new elections with a lot more extremists on both sides of the political spectrum. The left wing promising spending, the rightwing promising brexit and more clash with europe. Vonnie in the meantime, do you run a mile from those credits you mentioned and others like them, or are there select opportunities even in the shorterterm . Almost at zero exposure to the u. K. At the moment. We are looking for some selective opportunities, but i think it is better to wait at this time. If there is a turn to a softer brexit, what we think will happen is the pound could rally on a short squeeze, but to be economy will continue probably to struggle because of the global picture, but also because of the lack of longterm investment and lack of increasing productivity, which means lower real wages. Consumers have been levering up the last few years in the u. K. To almost a sort of euphoric brexit honeymoon. Now we are seeing that they are paying the price. In this context, the warnings by the bank of england that we are seeing, that they were going to hike rates in a hard brexit, are doable because the bank of england will cut. Even in a bad brexit, but not so hard, it is unlikely that the bank of england will be able to hike rates. So we remain very concerned about u. K. Riskier. Vonnie alberto, you also mentioned em. There are still places where you would be very interested in investing. How has that changed over the last couple of months given trade war rhetoric and so on . Are there places now you would consider that maybe you wouldnt have before . Alberto there are some great opportunities in emerging markets. The first half of the year was more about a general repricing of risk, given Central Banks moving from hawkish to dovish. In the second half, we think there is more selective opportunities. One of the ms. Ukraine. We just one of them is ukraine. We just had parliamentary elections with a great win for the president , which will enable him to do reform. This is the result of a repricing of ukraine repricing in bonds, very under owned by investors. These are bonds that offer almost a 10 real yield above ukraines local currency. In the less spicy world of emerging markets, we have mexico, russia, indonesia, all countries which offer very high yield above inflation, and where Central Banks were hawkish last year when the fed was trying to normalize stimulus. These Central Banks have turned more dovish this year, so these bonds are gaining on rate cuts. Guy im still waiting for this dollar weakness. People keep talking to me about dollar weakness. Is going to come because the fed is going to cut rates. Alberto to question here is really, what is the endgame of qe . We went through 10 years of stimulus from central bankers. In the last two years, they told us they would normalize stimulus. The fed is the only central bank that actually made it and hiked up to 2. 5 . Now we are seeing a uturn not just by the fed, but by the Central Banks that didnt manage to hike. So we are in a sort of qe trap, a qe infinity environment. At what point do domestic market currencies like the dollar, the euro, the swiss franc, at which point do they start appreciating, and at which point do the Central Banks lose credit ability if they restart qe . The dollar being the global reserve currency, the first one that should start depreciating, but also the euro and potentially the pound. At which point do investors buy gold or other real assets . That is the real question that we will face in the next two or three years, and emergingmarket currencies look interesting from this point of view because they offer 3 to 5 real yield above inflation. And gold. Not well, gold potentially much real yield, but you could see the attraction. Plenty of people are talking about it. Thank you very much indeed, Alberto Gallo, Algebris Investments portfolio manager. Vonnie use gtv on the bloomberg to check out all of the charts used on bloomberg tv and save your favorites for future reference. This is bloomberg. Vonnie live from new york, im vonnie quinn. Guy from london, im guy johnson. This is the european close on bloomberg markets. Vonnie time for a look at some of the biggest business stories in the news. Credit Rating Company equifax has agreed to pay 700 million to resolve investigations into a massive data breach. The hack, or mice to some of the most Sensitive Information of more than 1 the hack compromised some of the most Sensitive Information of more than 140 million. In china, a trading frenzy gripped the opening of the countrys new nasdaq style exchange. The Companies Listed rose more than 140 . The market is an attempt to avoid losing alibabas next listing. The lowest inflows in at least atyears at baron hard julius baer. I think we stabilized the firm. We calmed down the markets. In thised more direction that we started to really work on the core markets quite heavily. Not just share taking. Hodler cleaned up julius baer after a moneylaundering scandal. That is your latest Bloomberg Business flash. Guy a bit of breaking news over the last couple of minutes. Lets talk a bit about the liberal democrats, a party we dont spend a lot of time talking about. It was in Coalition Government with the tory party. It has just named a new leader, james winson taking over. This is important and worth paying attention to. The liberal democrats have firmly pegged themselves as the no brexit party, and they are pulling relatively strongly. If we were to see are polling relatively strongly. If we were to see an election tomorrow, the liberal democrats could potentially take a large number of seats. It will be really interesting to see what joe swenson what jo takeon does next, how they advantage of the momentum liberal democrats have towards a general election. This could be a piece of the jigsaw as we approach the end of the year and potentially a new general election. Pay attention to this story. ,tse 100 not reacting to this european markets absolutely flat as we head towards the close. This is bloomberg. Guy 30 seconds to go until the end of regular trading in europe. Not the most volatile of sessions. Europe absolutely flat. The u. K. Going nowhere. Continental markets either little bit up or down. Ftse 100 absolutely flat. Dax rising little bit more. Some of the car stocks have done better. Daimler stands out. The italian market up. 2 . Lets take a look at how the sector breakdown works today. Some of the car stocks are doing well, some of the oil stocks as well. The tension in the gulf. Those are the biggest gaining sectors. Basic Resources Trading to the upside. Hard to discern any clear trend out of the sector rotation story. Lets take a look at the bottom end of the market and take a look at the idea of where we said. Where we sit. Real estate down. 7 . Telecoms trading lower as well. Some rotation. Not a great deal when it comes to the sector story. A the individual names. Phillips decent numbers today. Theyve pushed forward a whole load of new products. It seems to be working. Oncredit, a report earlier talking about significant job cuts. Weve just seen the big job cuts through Deutsche Ba