Welcome to the pulse live from bloombergs European Headquarters in london. Lets get straight to the markets. We are seeing pressure on rbs. That is putting pressure on the bank stocks. What a day in europe. Trading hour into the session, the stoxx 600 gaining some 1. 5 . The pound, weve seen a huge fall in sterling since the beginning of the week, but it is now above 1. 40. This is the week for pound and eurodollar. Seven pointoil gain one percent. Lets get to the bloomberg first word news with nejra cehic. Nejra iranians are voting today in the first election since the nuclear deal. President Assad Rouhani is seeking to bolster parliament, where rivals have hampered his efforts to revive the economy. Voters also go to the polls in ireland today to choose who will run the country for the First Time Since exiting a bailout in 2013. The Prime Minister is seeking to become the first leader of his party to win a second consecutive term. The set of the threat of brexit is hitting the u. K. Some say the upcoming Eu Referendum will curb housing activity. The measure of optimism has plunged to the lowest in almost three years. The pound has fallen against the dollar. Global news 24 hours a day, powered by 24 hundred journalists in more than 150 news bureaus around the world. Francine thank you so much. As the World Finance ministers gather in shanghai, all eyes are on china. The central bank has made a Monetary Policy stance. The governor highlighting the possibility of further action if needed. China still has some Monetary Policy space and some Monetary Policy tools to address potential downside risks. China is also improving its Monetary Policy framework. Francine joining us for the first part of the program, kevin daly, senior economist at goldman sachs. We are also getting some breaking news out of the u. S. Treasury secretary, saying the world is suffering from a shortage of demand and the g20 should use all policy levers to combat this. The markets want some reassurance. Everything seems to be pessimistic. Theres not anything fundamentally wrong yet, but what kind of message should the g20 deliver . Kevin i think there is a lot more that policymakers can do. Weve changed our call on the ecb. We expect them to introduce measures to cut deposit rates by 10 basis points, to introduce a tiered system, to accelerate the pace of purchases, and to expand the Asset Purchase Program by an additional six months. If they do carry out those measures as we anticipate, i think that will be a positive. I wouldnt agree with the idea that policymakers are out of ammunition. Francine one of the things we talk about the most, something we cover on bloomberg, is the negative rates. Not only negative rates, but the fact that the ecb was probably going to do more. If you look at inflation, this is the one big thing that certain thinkers not only economists, but certain people out there saying, they cant really fight inflation. So much limited scope that even if the ecb delivers, he wont really be able to do anything on cpi . Yesterday, we produced our quarterly forecast. It will be interesting to talk about growth first. On growth, our views havent changed much. Francine they have on inflation . Kevin they have on inflation. On growth, we think that oil prices, the boost from Lower Oil Prices will offset the drag from weaker equities and a stronger europe, so growth, we continue to expect to average around 1. 5 going forward. We acknowledge the downside risk. What has changed is the inflation outlook. The fall in oil prices, the rising the euro. We expect inflation in the euro area to return negative. We expected to reach a trough of 0. 6 around the end of the year. The nearterm inflation outlook is clearly a lot weaker, not just in the euro area, but across the world. In the euro area, core inflation remains relatively stable. Francine should i be more worried than the markets . They are volatile because they latch on to the price of oil. A shocknk theres or a crisis. Kevin at the start of the year, we thought there was a disconnect between what market behavior and what was happening with the economy. Not just for the euro area, but across the world, a lot of the data we are looking at for Growth Continues to be reasonably good. That is not true for the industrial sector. Theres big divisions between what is happening to Industrial Production and what is happening to surplus output. Overall, growth seems to be relatively ok. I think part of it is some of the flows youre talking about. Sovereign wealth funds, the petrodollar is being taken out of the market. I think those flows are an important factor. We think the market is too pessimistic and we think some of this extreme fear recently is overdone. Francine what is mario draghi planning on . You think he will put these measures in place march 10. Will it move euro . Does it spur inflation . Does it go back to the real economy or is there a disconnect between qe and what we see on the ground . Kevin after the g20, there will be something about not noturrencies to manipulating currencies. It will be difficult for mario draghi to come out with decisive comments that are designed to push the euro lower. We think the euro will fall to some degree. That will provide benefit to the euro area economy and help unwind some of the strength weve recently seen. We think some of the other measures will also be beneficial. Francine we will talk more about euro. That may also be linked to brexit. Kevin daly, senior european economist for goldman sachs. Stay with the pulse. Zerosum game, bank of england governor are carney weighs in on negative rates. Apple brings out the big guns as it continues to battle a quarter from the fbi to unlock the iphone used by the San Bernardino terrorists. Facebook and microsoft prepared to back their tech rival. Fifa votes for a new president. We are live from zurich. Francine lets get straight to the Bloomberg Business flash with nejra cehic. Nejra royal bank of scotland shares have fallen sharply in london this morning after britains largest taxpayerowned lender said it would take longer to resume shareholder payouts. Rbs posted a net loss for 2015 of 1. 98 billion pounds, its eighth consecutive annual loss. The London Stock Exchange has released more details about a potential merger. Would haved headquarters in london and frankfurt. Group iag reported fullyear operating profit rising 68 to 2. 34 billion euros, matching analyst estimates. The owner of British Airways which tapped transatlantic traffic and bought aer lingus said it expects it will grow by a similar amount this year. Iag to clear a . 20 per share dividend. Francine thank you so much. Denmark, sweden, switzerland, the euro area, and now japan. The list of countries adopting negative Interest Rate strategies keep lengthening. Our negative rates a zerosum game . That is the fear of bank of England Governor Mark carney. Nonetheless, when negative rates are implemented in ways that insulate retail customers, shutting off channels that affect domestic demand while allowing wholesale rates to adjust, their main effect can be through the exchange rate. From an individual countrys perspective, this may be a way to boost activity. For the world as a whole, this is ultimately a zerosum game. Carneye that was mark talking at the g20. There has been a lot more concern about competitive devaluation in the last five to six months. Kevin daly is with us today. You were telling us that youve changed your forecast on what the ecb is going to do march 10, but also changed your forecast on inflation. Are you more uneasy about this competitive devaluation game that seems to be going on . Kevin certainly, the marginal benefits im not sure i agree that it is entirely a zerosum game, but the marginal benefits of increased reductions become smaller the lower you get. We are at the point with the soponse of bank stocks and forth with credit spreads, where markets are beginning to question whether there are benefits. Our view is that there are benefits. We not quite as concerned as others. The benefits are clearly smaller. For the u. K. , given the structural, its banking system, given the existence of mortgages in the u. K. , the u. K. s ability to cut rates is as low as other countries. It certainly can cut if need be from the level of the bank rate currently. Their scope to cut rates is more limited. Francine they cant go negative. Are negative rates really bad . We are hearing that more and more. Saw comments from the fed about this within the last month. The flow ofto cut rates is a lot lower than was anticipated only a couple years ago. Even the u. K. , it was clear previously than the base and great was 0. 5 . Now they are clear that they can cut it below that level. Probably not as low as the euro area, certainly not as low as denmark and switzerland, but lower than it is currently. Francine theoretically, are you uneasy with the side effects of negative rates . People are saying this could happen in the u. S. How much more policy can we get around the world . Kevin the zero bound hasnt gone away. Weve just discover that it is not a zero. It is somewhat below zero. Because of the cost of storing money and so forth. But you will reach a point we havent reached it yet introducing a tiered system will allow the ecb in our view to cut the deposit rate even further if need be. Closenly, we are reaching to the floor now, which we in our minds put somewhere between one have to 1 . Francine is there a danger that this market angst actually filters through the real economy . Kevin the three risks we would identify, one is that the industrial, Global Industrial cycle, is weaker than we previously thought. Francine but no hard landing from china. Kevin at least in our forecast, no hard landing from china, but that is a risk. The second risk is the feedthrough from higher credit spreads, particularly on european financials. If that derails the credit easing currently underway, that would be a material development. Riskhird risk is political from the threat of brexit, from the refugee crisis. These are the three risks we are watching most closely. Francine what about a policy mistake from the pboc . Butn it is a possibility, from a euro area perspective, not the risk we would identify most highly. Talk morewe will about brexit and sterling in a couple minutes. Kevin daly, senior european economist for goldman sachs. The pound heading for its worst week in almost six years. With irish elections, we will talk european political risk. As we go to break, lets leave you with a chart which illustrates the slowdown in chinas economy. Seamen fell for more than two decades as construction should load. You can see that chart by typing your bloomberg. Chinas production last year alone was the equivalent of half the u. S. Total during the entire 20th century. Francine the pound heading for its worst week in almost six years as investors worry about the risk of u. K. Voting to leave the european union. Kevin daly is still with us. Im not sure how we model brexit. Im not sure what polls we believe. Im not even sure what happens to the pound because it is so the big unknown. Kevin theres a few things. Theres a huge amount of uncertainty. Be careful of the polls. There is a reporting bias in the polls. The polls suggest that the u. K. Is going to leave. They are reported much more prominently than the ones that dont. It is a much better news story. The poll of polls that we follow shows a pretty consistent majority in favor of staying in. Francine have they changed since boris came out . Kevin so far, they dont appear to have. We dont think the u. K. Will leave. But if it does and we are wrong, the risks are pretty severe. The uncertainty shock, u. K. Companies will not know on what base they can trade with the eu, with the rest of the world. Francine a recession out right in the next few quarters . Kevin it is difficult to be precise about what the uncertainty shock, to precisely say how big a risk that is. U. K. smpanies, all the existing trade arrangements are via the eu. It will not only have to renegotiate trade deals with the eu, but with every other country in the world. Companies will not know on what basis they will be able to trade with customers abroad. Say, letskely to wait. Lets pause on investment spending plans. If a mother of companies pause on their plans, that will be very damaging for u. K. Growth. Whatever about the longterm implications of brexit that we think are negative, it is those shortterm implications from the uncertainty shock that worry us most. Francine what happens to pound from now until june 1 . Kevin it depends on what happens to the polls. In one scenario, you can continue to see a majority in favor of staying in. The pound has fallen a lot on those risks. In another scenario, perhaps the polls swing in favor of a brexit. Then you wont get more weakness on sterling. It is in part because of that think ultimately the probability of the u. K. Voting to leave his smaller than other people suppose. In a sense, that panic would be the neck and is him which would force people or persuade people to vote to stay in. Francine overall, a slightly weaker pound is not bad for this country and mark carney. Kevin it depends why the pound is weakening. Francine that is fair. Kevin im not sure how positive that is. Francine what happens to be only policies . Are we stuck in this campaigning for referendum so they cant do anything either way . Kevin i wouldnt say they are stuck. If the economy slowed significantly, there is scope for them to cut rates. I think the likelihood of raising rates before the referendum is very limited. That theast is still bank of england will begin to raise rates toward the end of this year. That presupposes that the referendum votes to stay in, then theres a confidence boost in the aftermath of that. And that wages begin to tighten. At the moment, i think the risks in the near term are more toward a rate cut. Francine gdp growth at 7 , ireland, falling unemployment, surging bond market. That is the sort of landscape European Countries would dream of. , it is anland important day for ireland given the general election today. Francine is there angst in ireland . Kevin ireland is interesting. The last time, five years ago, the election, there was an awful lot of economic uncertainty. You had this decisive majority in favor of labor coalition. Now we are in the reverse situation. The economy is doing well, but theres a lot of political uncertainty. I wouldnt exaggerate that uncertainty. Who,u take the parties together, broadly support the existing economic plans, they together collectively represent about 60 of the population. Theres a clear majority in favor of maintaining the same course. Not quite what the competition what the composition of that coalition will be, but i dont foresee a significant change in direction. Francine kevin daly, european economist for goldman sachs. A quick level on eurodollar. Kevin we think the euro will weaken. Certainly if the ecb is decisive. Francine kevin, thank you. Kevin is coming back very shortly. Shares in rbs have fallen after it reported its eighth annual loss. More on rbs coming up next. Rancine welcome to the pulse live from bloombergs European Headquarters in london. Lets get to the bloomberg first word news with nejra cehic. Nejra iranians are voting today in the first election as the nuclear deal. President rossano honey president assad romney is seeking to bolster parliament. Voters also go to the polls in ireland to choose who will run the country for the First Time Since exiting international bailout in 2013. The Prime Minister who leads the Coalition Government is seeking to become the first leader of his party to win a second consecutive term. The threat of brexit is heating sentiment in the u. K. It is said the upcoming eu housingum will curb activity. The measure of consumer Economic Optimism has plunged. The pound has also fallen against the dollar. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. Francine thank you. European stocks are on the rise on it speculation about further stimulus from Central Banks. Lets head to mark barton. Mark global stocks set for a second week of gains. This is the msci over the last two weeks. Weve got a gain of almost 5 . We fell for the first two weeks of the month. We rose for the second two weeks. As you said, the Chinese Central Bank governor setting the tone for the day earlier when he said that he still has Monetary Policy tools at his disposal and theres no reason for yuan depreciation. Have a look at this chart. A wonderful chart averaging out the 10year yields of germany, the u. S. , and japan. G3 yield, the average as it is known fell to a record low. Even though we are seeing an appetite for risk, we are seeing an appetite for safe haven assets as well. Five weeks of gains for u. S. Treasuries. Sincet winning stretch january 2015. According to citigroup, chances of a global recession are high. The that continue to boost allure of fixedincome assets . Rbs, big stock story. Falling as much as 11. 5 , the biggest drop since september 2011. It posted its eighth straight annual loss since taking a bailout at the height of the financial crisis. This is going to prove a challenge for the ceo to reinstate a dividend. Shares are below the government price. As ireland goes to the election, look at the key metrics. Unemployment has dropped. Borrowing costs have dropped. The Property Market has risen and growth has risen as well. Big election in ireland today. Francine thank you so much. To west, all eyes were on shanghai this morning as g20 finance ministers met. Furtherp warned of market turmoil. Germanys finance minister made clear before the meeting that that was not an option. Later today, the focus shifts west for u. S. Gdp. Goldman sachs president gary cohen spoke to us exclusively in shanghai about the u. S. Outloo