Fisher sounded more cautious on tuesday. More voices being added to the flurry. Yields continue to rise today. We have seen the biggest selloff since june in terms of treasury. Alix the yield rally some most since november. Ofaking of the diversion years, Charlie Evans speaking, saying we do not need to hike rates. Eric rosengren saying we can normalize rates. We are nearing our mandates. Federal confusion. Caroline that is going to be our phrase today. Coming up, we will speak about the direction of yields with matthew. Managinggan stanleys director and strategic. He says by the fiveyear the fiveyearbuy treasuries, despite losses. Alix a lot on hold heading into jobs friday. If any action, it will be in the currency market. The dollar is mushy across the board. The pound is higher, moving against the dollar. The yen moving lower. The yen is looking at its first monthly decline versus the dollar since may. Is relative mushiness across the board. Banks doing well in europe. Into the jobsn number. In the bond market, selling. The japanese 30 year, basis points moving two basis points higher on the yield. In sweden, a similar story. Yields moving higher by 1. 5 basis points. That selloffs been in the twoyear treasury note, the most since june 2015. The yield backing up the most november as rate hike expectations rerate. When you still reigns have each president saying Different Things on the same day. How can the market make big bets . Caroline meanwhile the dollar sees a significant rise for the course of this month. We will dig into those moves in the next hour. A look around the world with the bloomberg coverage. We start with our top stories of the day. Our guest is here with the Deutsche Bank merger. Guy johnson is looking at weaker than expected euro area inflation. Doma recess dilma rouseffs pending impeachment. Part of the work we are doing smaller toour banks make it simpler. We want to set Higher Standards for control and be more successful. London. Are joined from the only way we can be profitable is if we wind up merging. He is message was that going to do what he is promising to do, which is to shrink the banks profitability and greatness. We should be talking about possible mergers. Every regulator is saying it needs to be done, that we do need to see fewer banks in the eurozone. This, no one believes merger is going to happen. We should appreciate there is logic behind there and it is. Ifficult for Deutsche Bank we criticize Deutsche Bank for having no way out of this apart from shrinking. Why not think about the good side of a merger if it helps . Alix he says banks need to become Like Tech Companies and less complex. He wants to shrink, but merging and helping under liars is the only way to grow Going Forward. Centralbank policy has put this to the german banks. If the market is shrinking or stagnating, you want to control more of the market, increase market share to resist that better. Mergers would help that. s message about being simpler and being a tech company, it shows there are structural changes happening in their own market of investment banking, outdoor rhythms, these could transform investment banking. He is showing there are bigger forces at work that he has to deal with. Alix the share price is down almost 40 on the year. Thank you. Line, a debate that remains as the ecb is going negative. Caroline maybe the pain will continue. You look at the inflation data, not going to be helping the ecb. Guy johnson joins us. You can link the stories. The bank sector is suffering from the flat yield curves. Push draghi is trying to money into the real economy. Inflation is not happening at this stage. It will pick up next month. Get the new stock projections coming through. It paints a difficult picture for inflation Going Forward. It remains a stagnant, it may pick up a little bit. It is difficult to see it picking up a lot. A little bit by little bit, we are beginning to see the result of brexit. It is starting to paint the picture of a slowdown that is beginning to gather a little bit more momentum. It gives more space for the ecb to stimulate. There will be hints next week. Mario draghi will talk about the idea he has tools available to him. A little bit more duration to it, maybe a little bit more science attached to it. It is more of the same. People are questioning if the bank for the buck story is beginning to run out of steam. Fiscal policy needs to do some of the heavy lifting. Governments need to restructure and reform. Also the difficulty of whether negative rates work. I suspect there are disappointing views on where we are at this time. He has a big fixed income business. Tough to make money when you look at it through a european lens. Thank you very much. That is the key question Going Forward, in terms of where we go from a negative based on perspective. We have had so many different views. Alix structure and reform are the key things. That leads us to brazil. This is the day where the senate will vote on doma recess will vote on Dilma Rousseffs impeachment. What makes it not likely . Not much. The last five days have been tumultuous. The sessione had or 3 00. 2 00 they will reconvene to vote. There are a few more speeches to be made and then they will vote. The overall sense is this will pass with some margin. Alix watching that very closely. Caroline, the markets are soft across the board, but movers are still seeing action. Performance today, i am bringing you one of the key winners of today. It is the new kid on the block when it comes to French Telecoms. Four years they unleashed themselves as a player in france. Today, their numbers are looking strong. About 5. 5 , one of the best performers on the cac. We are seeing profitability climbing and they are winning more customers. , iliad. T betweens talk of merger bank and Deutsche Bank. Through thee gone course of the month, 9 . This is your best month we have. Or the Banking Industry havere going to have to gone through some pain for the rest of the year to finally season green. States, this showing the moves down some 7 . Palo Alto Networks feeling a solid revenue. It is up 41 . First quarter outlet is not looking good. 56 percentis seeing per share. Now, lets get an update on what is making headlines. Donald trump is making a surprise visit to mexico today. The candidate will meet with the president. Will speak on immigration in phoenix. The u. S. Agency meeting the fight against zika virus will run out of money to do so by the middle of next month. The cupboard is bare. It republicans and democrats have not been able to agree on a zika funding measure. Valves she will not try to keep the u. K. In the European Union against voters wishes. There will be no second referendum on brexit. Global news 24 hours a day, s, this is journalist bloomberg. Alix inflation failing to accelerate last month. Economic conditions are deteriorating. What it meansn for mario draghi all ahead of next weeks ecb meeting. This is bloomberg. Caroline this morning we have gotten fresh data out of europe. Accelerate in august, adding to signs of Economic Outlook has deteriorated. Paul, lackluster. A surprise . The energy this is crisis. The important point about inflation, we should not be dazzled by the decline in the energy price. A look at the underlying trend. Theome countries, underlying trends show signs of picking up. In germany, some signs coming through there. Core inflation was not great. Still includes energy. Even though it says it excludes energy, it does not actually excluded. It includes things like airfares, which are influenced by air by energy price. 2, it is ok for now. Inflation is still off target purity gives room for mario draghi to act. I dont think he is going to act. Think even he is going to have overmit additional action and above all that they are doing is not required at the moment. And europe is doing all right. Europe is not a dynamic economy on a good day. It is performing reasonably ok in most parts of the euro empire. Are you surprised at how ok the european economy is doing . It is something most theomists were expecting in aftermath of the referendum result. The point about the divorce between the eu and the u. K. , this is something that is going to affect trend growth in mediumterm growth. We are seeing signs of Economic Impact coming through. Firms are more electric are more reluctant to hire. When they do hire, it is contract work. It is less job desert it is less job security when they hire. Exit from thethe eu, it is a trend growth thing. It was never going to be an august recession. That is putting pressure on the currency as well. Sterling is off by about 11 . At what point do we see the lower sterling feeding in the higher inflation in the u. K. . It is slightly complicated. Generally speaking, currencies do not impact inflation rates in developed countries. A just dont do it. Export prices do not respond. Event like this, which is seen as a structural break, that is something which is starting to lead to changing prices. This is something that will start throwing up the inflation rate september, october. We will get a lot of things coming together. Maybe we get a bit of pressure coming through on the unemployment rate. We see the inflation rate taking up a little bit. Do bear in mind there is another factor on inflation, on the retail price mechanism. Some mortgage cost are coming down. Dragging have been their feet. Does not pass through, what kind of mind does it place mark carney into . Does it placeind mark carney into . It will only have mediumterm implications if he sees it weeding feeding through the wages. The bank of england will look at this and say this is a oneoff shock and we should not overreact on the inflation side. Just one of those things and we will come to the normal reaction in the mediumterm. The bank of england regards most withe consequences, even the sterling move, as being a deflationary force. Caroline we will talk about inflation in a moment. , alex, we haves plenty coming up. Alix the fed will not hike in september. Morgan stanley managing director with more on that and why he says buy five year treasuries. This is bloomberg. Alix Federal Reserve confusion reigns. In beijing, charles evan says delay hikes while says the fed is nearing its dual mandate. At the heart of the debate is inflation shy of a 2 target. U. S. Donovan says inflationary pressures have been building. As cpi is atn rate or above its average twentyyear high. How much should the said the how much should the fed be hiking . Forecastnot my job to what they are doing, but what they are doing. When we look at inflation, we should be looking at the broad measures. There is a difference between one price for what one price falling and lots of prices falling. Lots of prices rising tells me something is going on in the economy. It is building inflation pressures. All of these indicators are at or above their twentyyear averages. We have a normal inflation environment. No one would describe the policy as being normal. It feels like the problem is the inflation targets. I have charted the u. S. Cpi versus the fiveyear forward break even. No matter how much prices are starting to rise, inflation prices are embedded at the heart of it. If you think it makes any difference in the real world. They do not. Markets are useless at predicting inflation. Thannly group worst predicting our consumers. Ouronly group you can trust economists. What you have is a situation where the expectation is always wrong. Why should the feds care about going totor if it is be wrong . It needs to care. They dont seem to be doing that. I dont think this Inflation Expectation is something we need to be concerned about. The fed seems to 10 seems policies. Out other what will reign in any decision . At thefed is divided moment. And away we have not seen since the early years of voelker. Laborve janet yellen as a market economist. They are all looking at. Ifferent things and are cobbling together this Patchwork Quilt of a narrative, lets take a little bit of the dollar and we are slightly worried about the aftermath and keep an eye on the labor markets. It is getting a shaky consensus about where they are going to be going. Raising rates. Be move tod to continue to a normalized policy. Certainly with a rate hike this year and a couple next year. We have been discussing all of the ramifications of european and u. S. Data. Coming up, a stock route slashing more than 2 billion in bank bonuses as firms struggle to turn a profit. Plus, matthew worn back on his hornb call matthew ack on his latest call to treasuries. This is bloomberg. Is bloomberg. Here is what you need to know. Deutsche bank is shooting down a german media report that it can uttered merging with another bank. Are actually looking to shrink. Has been cutting thousands of jobs. Goldman sachs is said to have lost out on a real estate deal because of a disagree and on terms. Goldman was the winner of a parcel put up for sale by a Swedish Pension manager. They could not agree on final terms. Property was sold to blackstone group. Donald trump is making a surprise trip to mexico. He will be back in the u. S. Described he has as racist. Caroline stoxx 600, what is leaving the charge. Keep an eye on some of the key terms. All being tugged lower because of the potential rate hike to come. Dax is underperforming. Up, beingide, cac 40 helped by French Telecom numbers. Lets look at what is coming up in terms of the fx market in terms of treasuries as well. Percentage point. Overall, a story of whether we have taken too much optimism surrounding the opec meeting next month. Gold futures flat. Of the feeling the pain fed hike. The dollar rally, the biggest we have seen since the likes of may. U. S. Yields continue to sell off. Yields climbing. We have seen u. S. Treasurys, the biggest month selloff since june 2015. We will be digging in more to the yield story later. Alix the 10 year yield, 1. 5, one point expert percent. That was the trading range. Not a lot of movement despite headlines. Morgan stanley is bullish, saying the 10 year yield will go down to 1 . It depends on how you read the tea leaves. Have more people coming out maybe showing they are not convinced on fishers bullishness when it comes to a hawkish hike coming from the fed. Alix negative rates have proven to be controversial. Betweens debate policymakers and business executives. We have heard from two leaders on both sides. Lessday, we are a lot profitable. Environmentlow rate is proving a headache for almost all european banks. The Central Banks, which are thinkenting them, they they are successful. They have said perhaps they will come back to try to make negative rates work better. Alix it feels like this is the academia of rates of negative rates. Tom that is the smartest video set i have seen on this debate. John cryan has to worry about payroll, nonprofitability versus one of the frontline academics. They are in two different universes. Alix negative rates work well for equity prices. It is harder for savers. That is not their job. Tom you are right. Mostis important here, econn academics, even in 10 one, finance and profitability is like chapter 23 and you dont get to a because you have to worry about spring break or whatever. You remember that in school. Never get to chapter 23. That was in the jackson hole tapers, which were removed and dealings from the financial ramifications of what made the good economic series. Are in two separate worlds. Alix in reality they are not. There is a lack of profitability that feeds through to ability to loan. Tom mario draghi is not worried about the many reasons the many reasons the mini reasons. One of those reasons is the distortion we are living in now. Wants to do away with a zero balance. Its an interesting theory. Throughout the papers i have read, there is minimal on the Financial System and banks and how john cryan or james dimon interestnegative rates. Alex is a german bank is charging their depositors their borrowers on deposits now. Rbs is charging more for collateral trades. It is starting to trickle through. At what point do we say hold on, let me think about this . At the end of fishers speech, he cites the only game in town. The only game in town is corporations are subsidizing the deposits to smaller accounts, to retail. That is what is going on in germany. Alix as profitability shrinks, how much more can they do that . Can. I will sell my i go back to the endurance the ignorance over profitability as part of the economic system. Alix there is a filter through, in terms of what it means for those employed at european banks. Bankers ares eating a 2. 5 2. 5 are seeing a bonus at the end of the day. Caroline that is what regulators wanted. , with a view line of where the bank is going. If your share price plummets, your bonuses are going to plummet as well, when youre being paid in kind, when youre being paid in shares. Grace, really a saving you are seeing your bonuses shrink because of that that is price. To the stock some of the regulation has helped you because you have cap bonuses. People have more bonuses in cash. Tom we can go backandforth on this. This is a januaryfebruary conversation. I was just this is fabulous news for the boutique banks. My take is global wall street is exhausted by a threeyear wait on bonuses, they are exhausted about the debate, and there is an understanding that the best people of every firm, they are not having this debate. They are getting compensated. Alix i love chatting with you. We dont do this often enough. Tom keene of surveillance radio. Radion for surveillance with tom keene and michael mckee. Caroline we are digging into the great debate of the fed. Will it raise rates during their september meeting . Something jackson hole set the stage for a hike. Morgan stanley says no. Joining us from Morgan Stanley is matthew hornbach. Fed inig into the september. Do you see any sort of payroll number, the number coming out on friday that will change your opinion on whether the fed hikes . View is that the labor market is fine. The fed participants believe that. A strong number could increase the market implied probabilities of a rate hike in september. Fed is going to look through that and focus on