sustainable? in a word, yes. from there.ck it up &aa is swirling around -- m is swirling with imperial tobacco laming they have been eyeing. i will be delving into smoking and slimming. more on those deals a little bit later. back to germany. >> thank you so much. we will be looking at how angela merkel is trying to seize control of this spy scandal by expelling the top u.s. intelligence officials here in berlin. it is a remarkable story. we will have more on that later on. for now, i will hand it over to elliott. >> day 4 of israel's operation to stop rockets being fired from gaza into israel. it has called up more reservists as it appears -- as it prepares

for a possible ground operation. 90 killed soabout far. and the first rockets fired from lebanon into israel. israel responding in kind. i will have the details in about an hour's time. we are watching this morning. european markets, we are just starting. we had a situation yesterday surrounding portugal. two-way risk is back in the market now read or is it? buying opportunity yesterday? let's find out. let's see how the markets are opening up. lex futures a little bit higher this morning. happy friday for me. the stoxx 600, the worst week since june of last year. concerned about the bank in portugal and missed bond payments. raising the possibility that there is this thing called risk. wow.

newsflash. this is your open friday morning. ignore the price on the dax. that is yesterday's number. you cannot really call this a substantial rebound. over 1%dices were down yesterday. keep an eye on these movements for any news out of the eurozone through the day. check out the bond markets. guess where the money went throughout the day? into treasuries. the best week in four months. yields on the 10-year, five-week low. money going into the buns as well. nds as well. spanish bond yields below 3%. is that sustainable? investor complacency. novotny said to me that it is sustainable. is the euro too strong? he meant -- he mentioned the success of the ecb measures and capping the appreciation of this currency. 1.3604.

dead flat. this one did not move at all yesterday. >> certainly did not. it was interesting. it was fascinating. it did not really take us anywhere. that was yesterday's session. we will talk about where we go from now with james bevins. good morning to you. just a blip, a buying opportunity? >> for people buying back into treasuries, i think they will get a shock. clearly, there have been huge markets,o peripheral equity markets, credit markets. what was the easy money to be made in those traits? >> way too easy. i agree. i struggle so with china. we still haven't resolved this fundamental, underlying issue. 10%, realrmany down

improvements in wage costs. peripheral economies typically off 15%. a gap of around 25 percentage points is not resolved by easy money. it was resolved by devaluation of the currency. that is resolved by fundamental change at the underlying economy level and we have not had enough of that. the investment case? a lot of people are buying the opposite of that. >> absolutely. i want to buy good quality european companies, companies that have competitive advantages. for example, european comm manufacturers -- car manufacturers. ofpanies that are capable delivering strong global growth. where is that going to come from? thing is much better news coming out of china. yes, there are lots of risks. but the risks are adequately blamed by the current pricing. 30% of german car profits come

from china already. car sales in china are only 22 million units a year. we can easily see 30 million units a year with an explosive impact on car profits. the know you do not look at -- at tobacco companies, but we have a big and mende deal -- m&a deal. is that one that has sustainability? there is a case that is made -- there is a fear that the cost of credit is going to rise and these sales will become a little bit more punchy. if we start to get problems with the economy in europe, maybe that defers some of the timing. >> i would say there are two very different strengths. one is about operational efficiency an opportunity. i would see the deals going on with imperial and tobacco, absolutely about accumulating

the superior brands within a diversified marketplace. in contrast, i see plenty of mna that --a coming to coming together, passing from one entity to another. on the other side, i see a lot of financial re-gearing, but not operational logic. that really worries me. it is really worrying. >> this is the first deal that does not seem to involve a tax inversion. >> and a u.s. one at that. one does have to worry about a lot of the u.s. deals. >> on the banks, i take your point that there is a heavy lift -- a great deal of heavy lifting that needs to be done and we need to see more efficient economies, especially in europe. we haveless, every time a serious problem in the economy , there is a central banker

standing on the sidelines going, hey, do not worry about it. >> central-bank policy maneuvers have led to the low volatility. this is a mirage. it is a numbers game. it is not a fundamental, underlying reality. there is a big gap between what is going on at the real level of company operations and what we are seeing in price movement. >> do you think we are going to start to see that rising? at the moment, it is being , maybe being pushed down by central banks. do we start to get that? >> i absolutely do. greater volatility within the market, but also between markets. the thing that worries me about what is going on with central banks being good for markets, what they have done also is driven down the yields on treasuries to the point where a

lot of the deals which would have been dependent on collateral do not make sense anymore. >> stay with us. we are going to take a break and be back in a couple of minutes. ♪

>> 10 minutes past the "on the move hour, welcome back. you are watching "on the move." -- 10 minutes past the hour, welcome back. you are watching "on the move."

let's get a bloomberg exclusive for you now. novotny is the governor of the austrian central bank. we asked him whether investors in europe are a little bit too complacent when it comes to market risk. what we have now on an international scale, there is one group, as we have seen at , that seeseting bubbles emerging. therefore, it is ok to increase rates. on the other hand, we have the position that is urging especially europe to be on a very expansionary path. in that context, i see the policy of the ecb as something like middleground. expansion, but we do it in

a cautious way. we are quite aware that, in addition to monetary policy, we have events of macro prudential policy. if there is a situation i could immerse -- that could emerge, markets, this is something where instruments have to be applied. we have examples across the u.k., switzerland, in the netherlands. i think one has to see this in a broader context. >> when we talk about sovereign debt and we see yields at 3% in spain and italy, surely that is just as unsustainable for these countries to borrow at those low rates as it was at 6%. >> i would not see it as unsustainable. one should not ignore that there there has been

substantial progress in these countries. obviously markets are honoring this progress. on the other hand, what has to be quite clear, it is not the goal of the ecb to have a uniform level of interest rates because clearly there are different risk concerns. i think we have made quite a lot of progress of lowering these debts within the euro zone and that has contributed to the stability of the euro zone. here. jonathan ferro is now. also with us is james bevins. portuguese yields are where they are because of the ecb. whatbly more to do with

happened yesterday. nevertheless, peripheral spreads are where they are because of the ecb. yesterday was a bit of case in point. actually, we are increasing the risks. he did not seem inclined to think about that. >> we talk about investor complacency and how can we talk about investor complacency -- it exists, but where can i put my money? where can i get yield? -- a seniorr a see member of the ecb saying yields are sustainable, does that mean you're going to go out tomorrow? no, because you are being told that it is not. risk has been in existence in europe over the last couple of years. >> from his point of view, portugal with a high debt burden, italy with a high debt burden, that makes it more sustainable. is it sustainable? of course it is sustainable. are,th yields were they

the largest ramping exercise ever seen in the history of finance. the fundamental question we have to answer in terms of peripheral europe is what our growth prospects? the real problem i have with portugal is the overdependence on handouts within the euro zone. not enough real growth within the economy to justify the current levels. that suggests that yields should be much higher. >> absolutely. you have to work out what is going to happen to the benchmark. i think we're going to see a 10 basis point move up as part of the global move towards reflation. debtsuspect the portuguese -- nevertheless, its sustainability comes back to the question of who is it sustainable for? low yields are sustainable for lisbon. the risk is sustainability for

investors is completely different. fantastic forare lisbon. my point is that when you start relying on yields below 3%, at some point, they will rise and that is unsustainable. that relies on a yield the low 3%. higher europe needs is road. -- growth. say, wepoint do they need higher nominal growth? we need to ramp up inflation. if we are in a disinflation area environment, then you could argue that these yields are priced where they should be. >> absolutely not. in the climate of deflation come at you have to worry about credit worthiness. >> so this is a credit story. >> it is a combination of factors. , the basise story upon which everything else is car -- is price.

it is a compensation for risk story and we have to see sufficient growth that allows nominal capital to be repaid. if it is not, the debt burden will simply go back up again and it will fall apart once more. >> the question is duration. >> it is a really interesting challenge. i do not think we want to bet long-term in europe. there are people who say that is a great call to make. they think qe might be coming. >> not because they think there will be some fantastic recovery. when i asked milwaukee -- nowotny whether he thought qe was coming, he said we are just not there yet. >> you wonder whether we see yield spiking up, whether that would generate this kind of response. portugal trading back up, that will be the stimulus. is a world-class

poker player with a really rubbish hand. he knows he has to say the right things. ,f he can get confidence up consumers will spend money. reduction innot a the high street prices. that is fine. what it is is a reduction in real wages. therefore, an implosion of economic activity. that is a real worry. >> the other end of the stake is what is happening in the united states and the euro rates and what is happening with the fed. my colleague sat down with charles evans from the chicago fed and asked him about the unemployment soared. -- story. and talked about what rates might make this sustainable. >> i think it is more like the normal rate that we used to think of before the crisis, other than the 5% unemployment

rate. that is what i take to be the sustainable rate. we still have quite a ways to go. >> you see a lot of slack. >> i do. and i think the wage growth today is indicative of that as well. i think there are many signs of continued resource slack. >> it is a different story from the other end of the telescope we how do we get potential groups higher on both sides of the atlantic? >> we have not seen real investment into the economy. corporate bond issuance in the states, very large on supporting share prices through earnings enhancements and buying back shares. ofis all about remuneration boards, not trying to build better companies. expect ratesssibly to rise? >> it is going to be extreme the hard. >> we all agree. >> i do not think there is any disagreement here, but as larry summers continues to argue, you have to find a way of raising

potential growth in the economy. it is mission-critical that everybody figures out a way of doing that. it is more important in europe than the united states, but it is important everywhere. you look at what is happening everywhere, you whether -- you wonder whether merkel is right, renzi is right, is larry saunders -- is larry summers right? >> i worry less about what central banks are doing. what i can do is position capital to take advantage of the big themes in the markets. i look at what is going on in china and i accept that there is a big risk. they have a triple bubble to deflate. but i look at the pricing of some base metals. rio stands out as a great long-term buying opportunity. critically high free cash flow yields. dividend yields around 4. structural supply problems in a lot of base metals like zinc and nickel.

a big opportunity for those companies to do well. >> we will wrap it up there. jonathan ferro will be back in little bit later. james bevan. we are going to take a break. leading up a potential deal. imperial tobacco is in talks to buy renault and loreat.

>> good morning, everybody. you are watching "on the move." we are in here in london. with me is caroline hyde. we are going to take a look at two stocks that are on the move. imperial is up. merge, it companies it with more is caroline hyde. the logic ofgh this, why they are doing this. &a, lookingall u.s. m to become the number two player. this could be the biggest deal in tobacco history. they are looking to join , $30her two companies billion in terms of sales. the problem is the regulators are sitting around this. they have been trying to do it for months. together, they would have too many brands. , they would have to sell off a few.

selling 30%acco is of its holding in the just a -- logista. many speculated what they would do with that extra cast. increasing its presence in the united states. it could snap up some of these potential smaller brands, the likes of pool, winston. that is what many analysts felt would be disposed of. the u.s.be about 5% of market. at the moment, imperial tobacco only has 3% of the u.s. market. suddenly, a bit more of a competitive edge. you have scale. it could cost them up to $7 billion. >> this is all a credit story. there have been some expectations this money might be used to pay down debt. >> there will be some concerns. this is going to be a financial

stretch for imperial tobacco. many analysts say it makes sense that they would do it. the reason is because of sheer scale in the united states. the chief executive in june said at a conference that they are on a role in the united states and are looking to increase their presence. positive momentum. many are not surprised they want to get into the u.s. more. the question comes, why are these companies doing deals at all when this is a shrinking market? we are expecting tobacco consumption to fall in the next four years. many are moving to e-cigarettes. that is why you need scale to put more money into new developments. you also need to have better market share, better brand presence. that is why it makes so much tose for imperial tobacco stack up bigger brands in the united states. they could become the second biggest player. >> all of the main rating agencies have this as stable at

the moment. we will see what happens. we are going to take a break and coming up, tensions rise throughout the gaza strip. we are going to tel aviv next. ♪

>> good morning, everybody. you are watching "on the move." i am guy johnson. we are at bloomberg european headquarters in london. we are 30 minutes into the trading day. things are shaping up ok. equity markets getting a little bit more traction. traders love days like yesterday. particularly in a world of incredibly low volatility. it is about every asset class. a little bit of movement. equities are trading up a little bit. the euro is trading a little bit stronger. we continue to focus on that two-way risk that might have returned in these peripheral markets. ecb might have a few things to

say about that. let's talk about the top headlines a bloomberg this morning. in an exclusive interview, nowotny has told jon ferro that he needs -- he sees no need to further ecb action. he did not rule out quantitative easing. is economicaspect development. what we see in europe is that we do have a recovery, but it is not a very strong recovery. >> ukraine has said separatists etsk, with their strikes killing 50 people. pro-russianthe insurrection that has rocked the country since march. we are going to get potentially more eu sanctions. israel has called up reserve soldiers according to an official in the country. world leaders are trying to

persuade israel not to invade the gaza strip. the palestinian leader has called on hamas to stop the rocket attacks. more details on what is happening in the region with elliott gotkine. he joins us now from tel aviv. reservists in addition to the ones previously called up read what does the number now stand at? total ofk it is a 33,000 reservists. the state capital approved 40,000. so 33,000 in total. that is alongside three infantry brigades that have been deployed, preparing for a possible ground invasion. will we get one? prime minister netanyahu has been deliberately opaque when describing the complex battle that lies ahead. he is being egged on by people to the right of him in his coalition. in all of his time as prime minister, he has never presided and it -- over anything like a ground invasion of gaza. the last time it happened was in

2008-2009. or than 1000 palestinians were killed. war crimes leveled at the militants in gaza and also at israel as well. that not the move netanyahu is going to take is what is likely. serious injury to israelis after a rocket hit a petrol station, sending plumes of smoke into the air and leaving a trail of smoldering vehicles in its wake. at israel in the north from lebanon. israel responding in kind. no word yet on who those rockets have come from. the prime suspect is hezbollah. the death toll in the gaza strip now around about 100. us news of them women and children. them women and children. >> hence the calls for a cease-fire from international leaders. egypt and seem to be saying that hamas is on its own here.

>> the president of egypt has come out and talk about the irresponsible aggression of israel. he is cracking down on the muslim brotherhood, which hamas is an offshoot. at the same time, not wanting to lose his stance in the arab world. he is not necessarily out of the game, but so far the palestinian leader has said that egypt has been unable to broker a cease-fire. he said that the turkish prime is not a great relationship between him and israel right now. the u.s. said it was happy to help with a cease-fire on a call yesterday. he said that the americans supported israel's right to defend itself, but that america was also there to help broker a cease-fire, which would be the best possible outcome. no sign of that just yet. remarkable, really we had the palestinian leader going on palestinian television thesaying publicly, what is

point of firing these rockets? what are you hoping to achieve? interesting given that they just formed a unity government with hamas as well and how that might play on the militants in gaza. you very much indeed. elliott gotkine joining us from tel aviv. from israel back to europe and germany has expelled the top american intelligence official in berlin from the country over spying allegations. let's get more details on what is happening here. , serious business, isn't it? >> it is serious. it is escalated. there is a sense from reading the german papers that angela merkel wanted to get the u.s. attention. this is her way of seizing the narrative a little bit and trying to control it, saying it is such a big deal, i am taking out your top spy. we are waiting on confirmation if it is indeed the cia bureau chief. it is the top u.s. intelligence

official, ordered to leave german soil. it is a remarkable story. we still do not have a firm otherse from the u.s. yet than niceties about the u.s.-german relationship. you are still waiting to hear from the u.s. on this and whether or not there has been a call between president barack obama and angela merkel. >> it would be fascinating to find that out. this story not going away. in headlines more dominated germany about what will happen over the weekend. the only intelligence the world really want is what formation we will be seeing germany playing in. >> i wish i knew my football formations a little bit better. been knownteam has for attacking. they have also been known for efficiency. we wanted to compare the german economy to the argentinian economy. take a look to see if there's any correlation. here is one for you.

gdp per capita versus goals scored in the world cup. take a look at it. 45 goalss around scored. for argentina. productivity, there is so much written about productivity and the efficiency of the german worker. the same could be said about the german national team. take a look at shots on goal versus shots. a much higher percentage from the german side. 46% for argentina. 62% for germany. you correlate that to the efficiency of the economy, we are basically pretending to be economists and football analyst. either way, it is a lot of fun. the data seems to bear this out that there is some correlation. sometimes, you have got to play the game. are basically talking about my entire career here, pretending to be an economist, depending -- are tending to be an analyst.

hans nichols, thank you very much indeed. some company news that you need to know about. amazon has asked aviation regulators for permission to ask van -- to expand drone delivery outside of its research laboratory. the company wants to deliver packages by drones. amazon says 86% of its deliveries are light enough to be conveyed by such drones. and the maker of camel cigarettes, reynolds american, is nearing a deal to buy lorillard. it may announce it next week. the big story is that imperial tobacco has confirmed that it is potentially in talks to acquire some of the assets that may be spun off to keep regulators happy once those other companies merge. could belike im's looking to buy some of those. and the german digital music

company is negotiating with universal music group, sony entertainment, and warner music. it would be in exchange for not suing sound clout for violations. this is according to people familiar with the plan. up next, unilever slims down with a big brand sale. it is part of the consumer goods efforts to trim itself up. all of the details when we come back. ♪

>> good morning, everybody. you are watching "on the move." let's talk about the currency markets. yesterday, everything sold all. we saw a flight to quality in the european bond structure. bundsved -- we saw getting big and peripheral paper being sold. the euro did not move a great deal. we saw it trading down towards that level. that is where we find ourselves this morning. let's talk about what happens next. bittene market has been too many times to aggressively sell the euro. we have learned that over the last five years. in a world where it is clear that the ecb will do whatever it takes, that is the right trade, isn't it? wax it is for now. i think the ecb is waiting for trade language to change. when that happens, i think we

will get the euro lower. until that happens, you will get a chorus of people this morning telling you to buy the dip in her furl debt and european equities. all of those voices are effectively telling you that we are in a range in euro-dollar. can we have some coffee? wax as you say, it is clearly a story of what happens on the other side of the atlantic. will not see if we a significant blowing out of peripheral spreads, if we were to see a significant catalyst for the ecb to take further action, would that change things? >> i think it does. still respond to peripheral spreads. if you look at portugal and said we have gone from 15 to 2 to 2.8, that is not a huge move in spreads.

if they were to blowout, that would be a catalyst for the ecb to do yet more. whether the ecb does something that makes foreign investors say yields are attractive. it is that flow of money into particularly european equities. that and it is a different story. >> we come back to the sequencing story. bad news is good news. how do we sequence this one out? halted.kept europeans ,hen there is the assumption you say the ecb will do more. how do you sequence that one out? >> at the moment, we have learned that oil prices fell

.ack quickly the crimea and ukraine was a short-lived affair. the market bias is that way. so that is a sequence for them. i guess the only western that comes to me is portuguese spreads have gone from 15 to 2 buying theif you are dip, where are you aspiring them to go to? if these are not the dregs, they are pretty close. made. easy money has been >> everything from here is much less. so we cannot return to the same thing when the driver of each problem in europe is also the same. in the long run, unless we get growth, this problem cannot go away very long. >> change gears a little bit.

what was the negative deposit rate? >> i think it was aimed at a .sychological measure that otherieves countries set negative deposit rates that we can currencies. difficult bit is the amount of money on deposit at the ecb is not what it used to be. we are charging negative rates on much less than we would have if we had done a year earlier. everything the ecb has done has been part of the problem. helps men if you do it late. if you cut rates late -- i think that is where they are. we have not been through 1.37 in

a bit. >> nowotny was saying that they helped a little bit. it is about keeping a lid on the currency and not going to hide. learnednk the ecb has that if you want to get a significant move against the dollar, you need a stronger dollar and something from the fed. in the meantime, do not let europe be one of those currencies that goes too far to the upside, of which there are a few. >> do you think we get a few more of these incidents like yesterday? how do you think the ecb will respond to that from a communication point of view? continuek they will what they are doing, which is to screen at countries that need reforms. scream at the banking system that it needs to reform. going tor. drawdy is be much bigger on the structural reform within europe going forward from now. he has done everything he can

for every problem. he needs tears for the fundamental disease. i think that is where they're going to put pressure on. look as if -- here is a bank that is marginally vulnerable from being part of a group. exposure is not a big problem. of this week, when i think about where markets are and volatility is and what the rest of the year is going to look like, is there anything i can drag away from this week that will help me trade through the rest of the year? or is this isolated? is this something that is a message? thatere anything realistic i can take in terms of communication from what has happened is jim -- from what has happened? >> this is a short-term pickup but it is also a canary in a coal mine in terms of what happens as tapering comes to the

end of the united states, as the divergence between europe and the united states economic growth gets wider. when i come back in september, i want to be short risk and shortly euro and along the dollar. at the heart of this week's problem is this lack of growth and excess of debt through the european system. >> that is not a trade for now. that is a trade for further down the road, september, october. >> once the u.s. is within six months of a potential rate hike, i think the difference between europe and the u.s. becomes the biggest story in the markets. >> i am stunned it is not already. a big story in relative government bond yields. we make another new , which isly, august not at all impossible, i think the risk that when we finally

get that change in lynnwood from the fed, the risk is that that will be relatively messy. >> thank you very much indeed. to's turn our attention economic stories of the morning. unilever is shedding more assets, this time slim fast. here with more is caroline hyde. process, as smooth it seems. >> it was not because they had to keep a minority stake in slim fast and did not get the price they wanted. the puns are just two easy. unilever slimming down, tightening its belt, setting off what is slimfast. slimfast has been a brand in decline. in the 1990's, it dominated out there. it was the number one player in the united states. the came along the 2000's, atkinson's diet, other diets.

we do not want to have the its valuet snacks so took a hit. it was bought by unilever for about 1.4 billion pounds. we understand that they probably wanted about one billion pounds for this asset. unlikely that it got that. it sold it for an undisclosed sum. stake.kept a minority they had to take charges against this asset as well. the value of the brand declined. clearly not quite as tasty as it used to be, but they are doing what they said they would do, getting rid of this brand, which is what they planned to do by the end of the year. the chief executive came in and said, i am going to start selling off the food, in particular. look at what he has already got

rid of. ragu was sold back in may to the japanese. he has also been disposing of , appy as well as wishbone salad dressing brand. he has been trying to dispose of the food assets but is not getting as much bang for their buck. this is a company that wants to dine out more on health and beauty. has ice cream, which does well for the company. it will keep the margarine spreads, which have been in a bit of turmoil. but their real focus is shampoo. treseme, resume -- dove. that is where the margins are and the profitability is. that is why he has been making disposals in certain brands. another one, but we do not get the juicy details of

how much they sold it for. >> thank you very much. we are going to take a break. back in a couple of minutes.

>> good morning. welcome back. you are watching "on the move." i am guy johnson in london. we are coming up around 9:00. that means but one thing in the world of business television, the arrival of "the pulse." co-anchor, olivia sterns, is

going to be joining me. i am not sure if she is quite ready, but somebody will tell me ear anyar -- in my minute now. we will be talking about imperial tobacco. plus, we are talking about germans buying. -- german spying. >> thank you so much. as you said, we will be talking about cigarettes because imperial tobacco is in talks to buy up new assets. why? because over in the states, reynolds, camel cigarettes, and lorillard are in talks about a potential tie up. the concern is the u.s.'s second and third biggest cigarette companies might have to get past antitrust regulators. in that case, imperial tobacco might be in the mood to buy something. we will talk about that and what it means for all of those companies. makes sense when you talk about what is going on in the cigarette industry because this

is an industry awash in cash that has seen slowing sales. looking forward to it. >> "the pulse" is up next. we are going to take a break. ♪

>> light me up a deal. imperial tobacco lines up $7 billion to buy big u.s. cigarette brands. wax and ecb exclusive. stocks rise after a five-day drop. says pcb stock europe from sinking into a depression. >> and world leaders tell israel not to invade gaza. this is the country with tens of thousands of extra soldiers at the border. good morning, everyb