Good morning, everyone. This is bloomberg surveillance. This hour, we are joined by the global head of strategy at martins family Morgan Stanley. We also talked to the current coo and soontobe ceo of the bank of morreale. In the meantime, we have a little bit of breaking news. Pmi out of the eurozone. This is exactly what we are getting. We are looking for a little bit of euro reaction. Pmi falling to 55. 4. And little bit better than expected. Not as strong as the month before, but they have been revised upward at 54. We were expecting 53. 7 figure. These other markets over all. We are seeing a little bit of a risk reversal. This after the u. N. Is set to meet on the north korea threat. What it means for the markets is yesterday there was clear demand, but today not really phasing the yen. Gold is down a touch or pretty much flat. Stocks seeing small gains, gaining 0. 1 . We will have plenty more on the markets but lets get to the first word news. Bank of england policymaker says u. K. Households should prepare for tighter policy at one point. In an interview with the guardian, he says the currently giving. Policy does not have to stay on hold because of brexit negotiations. Today is the 10th anniversary of the last time the bank of england raised rates. The Institute Directors says theresa may selection disappointment has given Business Leaders greater leverage to lobby for soccer brexit. Software brexit. Softer brexit. To attractlooking talented and skilled labor. Meansg ties with qatar the latest developments. Qatarss received answers for the demands list. Qatars Credit Outlook has been cut to negative by moodys which thed the risk from list. That is according to four russian government officials, one saying any further supply reductions so soon after the existing agreement was suspended will hurt the existing market. On july 24. The Federal Reserve could give some clues about reducing its 4. 5 trillion Balance Sheet before another rate hike. Policymakers lifted rates in june, signaling one more like this year, and have said how the fed will gradually unwind its portfolio. Janet yellen said they could begin soon, but sheila the precise timing industry. Timingleft the precise on the street. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Francine thank you. The United States has confirmed the rocket launched yesterday was an intercontinental Ballistic Missile. This is threat to america and its allies according to some. Dominatee is likely to the g20 meeting in hamburg, or President Trump is set to meet his chinese counterpart. Lets get the very latest on that from bloomberg in berlin. With the u. S. Pulling back from a Global Leadership role, how much greater leadership do the likes of china and germany have at the g20 . They are being seen as the new power couple at this weeks g20, partly because it is being hosted by germany and Angela Merkel. You have the worlds number one and number three merchandise exporters with those two companies. Obviously they pack a punch and have a joint interest in free chinesehich german and leaders have been emphasizing for months, ever since donald trump was elected and inaugurated. There are shared interests, but there are also they come at it from different political and economic traditions. I keep hearing about pandas. Is that really significant . Diplomacy. Nda it has worked before, or so we think. It goes back at least as far as Richard Nixon and Henry Kissinger and the opening to china. These two pandas arrived in berlin at the berlin zoo, the first two pandas in years. Arrived this month. Angela merkel and xi jinping will take part in an unveiling at the berlin zoo. T is a gesture it is a classic chinese gesture. There is talk in berlin of panda fever. Francine thank you so much. Lets bring in hans rettig or who knows a thing or two about panda fever. This is an escalation. There are a lot of questions about how north korea has built these missiles so quickly, why did we not know about it earlier. There are implications far and wide about china and the u. S. How should investors look at this . Isthe launch of the icbm negative. Consider the consequences for the next few days and next few weeks, and i think that will force the rest of the globe into bigger and better cooperation. It is very likely to make america much more cooperative. It is going to reach out to others and become that much more global. Between russia and china was interesting yesterday. They are rejecting this move by north korea, saying this is the wrong step. I think what we are getting out of the g20 is they will look into that and agreed to take measures against them such as increasing sanctions against north korea. It will take time to see if this is successful or not. I think the immediate risk iscerning Market Impact going to be fairly minimal. That is a reason why i continue to recommend buying dollaryen in high quantities. Francine we have seen tensions rest between the u. S. And china. Is that yen positive because it is a haven . It is a selling opportunity for the japanese yen us the border and particularly towards the u. S. Dollar. Why did i signal getting out of the u. S. Dollar . First of all look at the economic surprise indicators, first of all they have come down heavily. Look at other indications of the u. S. Economy. Costat the atlanta no indicator. That is now at 2. 9 and has been improving. Look at our own Morgan Stanley indicator, which is called area, measuring domestic demand in the United States. That has improved. Last but not least, inasmuch as the framework for Central Banks has changed. They are becoming more hawkish. They are referring to financial conditions. There is the recent dip in inflation. That is meaningful as a data point. That tells you something about the new sensitivity. This morning look at the screens. Equity markets are back again. There is do you think going to be pricing Movement Ahead of the g20 and on the backs of the g20 . I think the u. S. Dollar is is topic. Y to be a big we have seen the u. S. The dollar declining for the last six or seven months i. Internationals on cooperation. The tradealk about issues, which are still pending, and i hope we will go into a more relaxed mood. If you take that into account with a potentially better earnings numbers, which are being released for the Second Quarter very soon, that should actually be positive for risk. That should be weakening the yen because of that relationship the yen has the International Unit curve. Yield francine thank you very much. We will look at the Canadian Dollar as well. Monte dei paschi says it has asn headcount cuts as much 5000. The details unless than a day after the embattled lender won eu approval to receive 5 billion euros from its government. Entertain talks with regulators for quite a long time. I think the outcome is what the bank needs to move forward. The u. S. Government is hardly getting involved in apples text is good with the eu tax dispute with the eu. A report withd the eu. Volkswagen plans to sell cars and iran for the first time in 15 years, taking advantage of easing sanctions as growth source in asia. They could offer compact suvs and the tehran area. Rebuildruggling to operations in the u. S. After the diesel cheating scandal. Francine it is exactly one decade since the uks central bank last raised Interest Rates. Been 10en there have cuts. A new interview with the guardian member says the bank probably doesnt need the current level of stimulus and has warned hustles to prepare for tighter policy at some point. I have never seen so much talk about whether mark carney said the right thing, whether there was a change in tone over the last several weeks. How do you make this out . The town has changed over the last three weeks. The next point is we need to dive into the structure of the british economy. Thatyou do see his unsecured debt has gone sharply up. Then we see that wages are growing at a smaller degree than inflation is rising. Inflation is rising, but also sterling. You have decline in real disposable income. Domestic not generate inflation measures but inflation is coming from the Exchange Rate, you have to look at the Exchange Rate is the right thing to have them or should you stabilize the Exchange Rate level that that help you stabilize the inflation level. That tells you sterling is getting Additional Support from the more instructive best of the British Government in respect to brexit. I think the bank of england has to take that into account five or six weeks ago after the election rebranded sterling we promoted sterling because of this environment. I guess the market slowly gets into our direction. Our call for cable his still a valid call. It orne will they do because they talked it up so much, this is where they kind of wanted, so there is a 50 of something happens this year, and even if nothing really happens, it has been talked up. The main achievement is here. He stabilize the Exchange Rate and see where to go from here. If you can achieve the stabilization of the Exchange Rate, but i think you take that. Therefore i think it is a hard guess if they are going to do the move. I think the rhetoric we have seen recently is really leading into the direction that the next move for the bank of england is up. Francine this year or next year . We have this interview in the guardian that says brexit does not make much of a difference. It does make a difference because if you are adding Something Like business unfriendly brexit, you need to make it differentiation not between hard or soft do you incorporate the views of the business and therefore is business going to be worse or better in respect to your negotiation position, so if you take that into account, i think the improvement on that side has an impact on the debate within the bank of england. If you want to nail me on if this is going to be a rate hike, i think the risk in that direction has increased. Francine there is danger of all policy mistake or not given that the timeline we know by the time this supposedly Interest Rate happens what kind of brexit we would get. You would have a very bad outcome. You have Business Condition suffering a lot. Retrospectively, he could and that would be a mistake. You could claim that would be a mistake. This book policies are becoming a little more expansionary compared to what we had before. Business are Getting Better involved in the next negotiations financials are Getting Better involved. That is pointing in the right direction. Under those circumstances, based on justifications that is what theyre taking the insurance out. That is what they are doing it they are taking doing. Theyre taking insurance out. Francine thank you so much. You are staying with us. Up next as monte dei paschi has obs. D a plan to cut 5500 j this is bloomberg. Is bloombergs surveillance. We are in london. We are getting news on the banks and focusing on italy. Earlier this morning the countries present has said a snap election in italy is unlikely before february of next year. A 5. 4 has approved billion euro plan to salvage the worlds oldest bank. Joining us with the future of the italian economy, we have a guest. Great to have you on the program. Italy believe this puts and better place to achieve the economic it needs . Now that the bank seven dealt with, what will happen to the rest of the economy . It will certainly help the resolution of the two banking issues, meaning monte dei paschi on one hand. They will help settle matters with the italian Banking System, which have been improving. The improvement has been constantly achieving over the last year and a half or two years has been in the shadow given those two situations. I think that will help restore confidence in the system, and that will certainly help. Francine where do you see and when do you see elections in italy taking place . That is the question a lot of investors will want to know on whether this is the right time to put money in italy or not. Well, elections setting the election is the prerogative of the president of the republic , of course, so it is not for me to speculate. It would be fair to say that given the political situation given the fact that we have not yet settled electoral law, it is probably likely that elections will be held early next year. You are overseeing the spending review. What are the prospects for italy bringing state finances under your control . Well, over the last three nearly 30have reduced cost. N f of over that same time, italy has been the only oecd country with the exception of greece that is not increased spending. Our cost structure, if we call the machine of public services, what is called in the statistics of the european community, the final consumption of government, which means the cost of running schools and health care and so forth, we are now at an extremely competitive cost level as a percentage of gdp. We are below the u k and below the u. K. And below germany. Deficits are under control. With a little growth, next year we will start reducing debt to gdp ratio in a meaningful way. Francine youre right it is about growth at this point. Is the current growth rate sufficient, will it be sufficient or the government to meet its Public Finance targets . Debt toart reducing our starting doingre 3 nominal to growth, which is what we will definitely achieve next year. Francine what is the biggest unknown apart from the politics . What do investors look to you for answers about . Im sorry, could you repeat that . Francine in 10 seconds, what needs to be addressed by italy in the next six months . I think the economy is continuing to pick up. The good news is that italy is doing well. The job market is healthy. I should point out that in northern and central italy, our levels are now above the precrisis levels of 2007. We still have a problem in southern italy, which is picking up, too. The dynamic is good. I think there will be good news francine this is bloomberg surveillance. Im Francine Lacqua in london. Lets get to the bloomberg first word news. Nejra Michael Saunders says u. K. Households should prepare for tighter policies at some point. In an interview, he said the british economy doesnt need as much stimulus as the boe is currently giving in the policy does not have to stay on hold. Today is the 10th anniversary of the last time the bank of england raised rates. Russia is pushing back on any proposal to Deepen Oil Production cuts and will oppose the idea and an opec meeting later this month according to russian government officials. One said that any further supply reduction so soon would send the wrong message to the oil market. The Federal Reserve could give some clues about whether it will begin reducing its Balance Sheet before another rate hike. It releases the minutes of its last meeting at 7 00 p. M. U. K. Time. Chair janet yellen said the process could begin relatively soon but left the precise timing a mystery. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im nejra cehic. This is bloomberg. Francine thank you so much. We are getting breaking news for u. K. Services and composite pmis for u. K. For the month of june. The pmi for services falling to 53. 4, a little better than estimated, but a touch below what we had the previous month. N to the middle east Foreign Ministers from the arab nations that cut ties with qatar meet in cairo today. Saudis stateowned press agency said the kingdom has received qatars answers to a demand list that includes cutting ties with iran and closing the al jazeera news channel. Joining us now is yousef gamal eldin. Welcome to surveillance. Where do negotiations go from here . Yousef we havent seen the letter with the response. That is the only clue we have as to what that letter could say. Arguably, from what we heard, it is not enough to come in convinced the saudiled block to let go. There is a Foreign Ministers meeting slated for cairo later in the day. They will be able to discuss what they are going to do next. Experts saying economic sanctions are on the table, possibly gcc expulsion, further capital controls, or even asking trade partners to take a firmer stance. So choose either between qatar or the saudiled block. Francine the longer the crisis drags on, the heavier the toll on qatars economy. What are you seeing across Asset Classes . Yousef the first risk is the credit risk. Weve seen a note from moodys. Theyve changed their outlook to negative. If you look at the 12month, they are relatively stable. Resilience over the last two trading days slightly lower. Let me show you qatar bonds. I put this on the bloomberg. Btv 1060. This is qatar. Ive highlighted where we were. This is treasuries at the start of the blockade. , theyou cant see here bond spreads are still lower than they were despite the Political Tensions. That is what analysts and experts are worried about, that you are going to see a more aggressive repricing as tensions continue to drag on. Francine thank you so much. Still with us, hans redeker, global head of fx strategy at Morgan Stanley