francine: msci defers adding china's mainland stocks to the index. the greek prime minister is set to meet angela merkel and holld ande. the german yield climbs above 1%. the mansion house speech later today.

welcome to "the pulse." i'm francine lacqua. also coming up, we'll be joined by the deputy leader for the christian democratic union party. we will get his reaction to the latest developments in the greek saga. first, the global index from msci has held off from adding china's mainland stocks from its indices, opting to work with the nation's security regulator. how have the markets reacted? let's check in with mark barton. mark: looking between gains and losses today. the gains to the tune of 1%. the losses to the tune of 2.2%. the shanghai composite closing the day down .1%. the msci has held off adding china's mainland stocks to its benchmark. it's opting to work with china's

securities regulator to overcome remaining obstacles to inclusion. msci does still expect to put yuan denominated shares, a-shares in its global benchmarks. those concerns are about a, accessibility and b, share ownership. have a look at the shanghai composite index chart. get in here. the lows were 2.2%. we did rise throughout the lay session -- the late session. over the day, the shares finished down by .1%. this is an index that soared 151% in the last 12 months. spurred by record margin debt and surging participation by individual investors. it is going to happen. just not now. francine: big moves for the yen today. mark: interesting comments from

kuroda, the boj governor. he said today, speaking to parliament, it is hard to see the yen falling more. earlier it rose 1.5% against the dollar, the biggest one-day move since december. what he told the lawmakers in parliament is the currency's real effective exchange rate adjusted for inflation and trade, was already very weak. he said the yen had returned to the levels it was last at before the collapse of lehman brothers in 2008. last friday, the yen fell to a 13-year low against the dollar. kuroda's comments underscore the view that policymakers are not seeking further declines in the yen. we have the newest member of the boj board, he said in an interview -- the damaged manufacturing in japan in recent

years have been corrected. what have done is looked at a chart of the yen against all 21 of its major trading peers. as you can see, getting close. only the ruble is rising against the yen. out of the top 31 currencies in the world, 30 are falling against the yen. only one is rising. that is the russian ruble. do not forget. the yen's fallen 31% against the dollar since since you are a came to office -- abe came to office. the downside is it has increased -- costs for importers and other the purchasing powers of japanese consumers. that is what officials from the boj and the government seem to be concerned about. francine: thank you so much of the latest on the market moves.

that brings us to today's twitter question. should the msci have included chinese a-shares? you can tweet me. the greek prime minister tsipras is due to meet with his german and french counterparts. yesterday's budget proposal fell short. the types of angela merkel and francois hollande wouuldld break the deadlock over greece's finances. hans nichols joins us from berlin. what are we expecting from angela merkel and francois hollande today? >> we do not know what to expect. we are not sure that this meeting is going to take place. there is a chance it may not. the e.u. leaders will be in brussels for a summit with latin american heads of state. and the greek, german, and french leaders are planning they have said they will meet on

the sidelines of this. but at the same time, there was not any progress in the talks on the greek program yesterday. that is one of the things the creditors have said they need to see before the talks can move forward. an interesting point -- the european commission has not said they are going to the dissipates in the talks. they said -- they are going to participate in the talks. they said they need a concrete plan. they have not got that. what is supposed to happen after the summit of the latin american leaders today, sometime tonight we will keep you posted. francine: thank you. hans, we are here pessimism that progress is being made this week. hans: according to international officials, there was no progress yesterday. they are at an impasse on the primary budget targets and on top of that how you would actually reach them. you have conflict in two places.

the three page. commit that greece center versus -- sent to brussels was rejected. they want you access to fresh cash. it underscores how perilous their financial situation is. they want to get access to 10.9 billion from the esf. they want to make it easier for banks to buy greek debt. there is a big refinancing later this month. in addition, they want 6.7 billion euros in another separate font. this is not even talking about the 7.2 billion left over in the bailout. they would need to complete reforms to get some of that unlocked. leave a great deal of pessimism. your guest will give you a good sense of how difficult it will be within germany of angela merkel has to take a bailout deal to the parliament. what opposition there will be.

it will be a key challenge. francine: it will. breaking news from greece. this is the government in athens saying that greece had no feedback so far. what is the mood in brussels? theesese are two sides that are so far apart. as time passes more and more without a deal, our officials in brussels frustrated? or is there a realization that something negative may happen? jones: i think the overall sentiment here is one of frustration. it seems from the brussels perspective, the greeks seem to be saying one thing in meetings they have with eu.u. officials. when they get back to athens juncker has been upset about that vis-à-vis tsipras after a meeting last week. the problem is the deadline is

coming close. people talk about the end of the month. that they need to have something in place by june 14 in order to get it to go through the parliament. germany being one of those parliaments. francine: thank you so much. of course, here is a look at what else is on our radar this wednesday morning. the russian president vladimir putin heads to italy today where he will meet with the prime minister and the pope. it comes as european union sanctions against russia are set to be extended. south korea has reported two more deaths from middle east respiratory syndrome or mers. that came as the president postponed her trip to the u.s. to handle the outbreak. 1500 schools are closed across south korea as a result of the virus. almost three and a half thousand people have been put into isolation. the u.k. chancellor would use his annual speech to the city of london to set out plans to reform britain's fiscal framework.

george osborne will commit the government to talks of new finance rules that will require it to run a budget surplus. now, the bank of england governor mark carney will speak at the mansion house dinner. now, let's take a look at what else is coming up on "the pulse ." at 9:30, we get u.k. manufacturing data. at 9:45, we will look at london's luxury housing market. and then at 10:00, we will hear from the u.s. -- uefa president speaking in paris. sepp ballatter's successor could be chosen on december 16. up next, the highlight of my morning we will be speaking to the deputy leader of germany's ruling christian democratic union party. we will talk about angela merkel and greece coming up next. ♪

francine: welcome back to "the pulse." breaking news out of china. this is something that the chinese government has started a couple months back. it's now decided today to swap more local debt. it will grant an additional one trillion yuan for local government debt swaps. the country is grappling with slower growth.

we will have more on that breaking news throughout the morning. our top story. the greek prime minister is making with the french president and the german chancellor. as talks continue to wind down for -- the clock continues to wind down for greece to make a deal with his creditors. we speak with christian democratic deputy leader michael fuchs. give us a sense of how concerned you are with greece? we are not closer to an agreement. it seems with every day we are further and further apart. do you think your chancellor will be able to make a deal with mr. tsipras in the next couple days? mr. fuchs: it is very difficult because the new proposal of mr. tsipras which reach us yesterday as what e.u. officials told us is nonnegotiable. it is far away from what we agreed in february. the second bailout package

cannot be changed with any prior notice, with passing the german bundestag. if you do a change, it has to go through bundestag. the bundestag can only accept it if greece is coming up with a proposal we can talk about. but what they are doing in the moment is not negotiable. francine: do you think we will have a deal to the wire? it seems the deadline now is june 30. i know it is difficult, but do you think that something will be reached? mr. fuchs: i hope we can reach something. but it is fully and only on greek's side. we cannot go through anything which has not been agreed. and we have an agreed on -- agreed on a certain amount of reforms. it is a deal. you cannot just break the deal. it's not the greek people. it is the government. i am sorry.

he can't tell us the germans will not get their money back in on the other hand he wants more. that is difficult to understand his position. as a matter of fact, we want greece to stay in the euro. we want greece to stay very much. we have to come up with proposals and proposals which are really serious. what they are delivering at the moment is not serious at all. francine: what i am hearing from you is you seem to be more worried that we have a deal that is -- so that creditor is given too much rather than having no deal. is that right? mr. fuchs: no. no deal is fully on greek's sid e. it is not on our side because we have a deal with greece and they have to fulfill what they have agreed upon at the moment they are not coming up with any other proposal which is negotiable. you cannot say, i am not doing

my surplus anymore -- my primary surplus. but the primary surplus was agreed was 4.5. yes we are little bit willing to come down a bit but not 0.5%. they have to come up with a decent proposal. and i wonder what he's talking to angela merkel and mr. holland e. without any decent proposal, it does not make sense to talk. mr. juncker this very morning said, no way of talking to him. francine: do you see a potential christian democratic party rebellion if we do come up with a deal? mr. fuchs: no, i do not think it is necessary because nobody will agree on a deal which is not really coming up with the same kind of proposals we had in the first one. because of bailout package cannot be changed just by the chancellor.

it can only be changed with the german bundestag. in the bundestag will not accept anything that is causing greece to be in more difficult situations later in the day. francine: is there still a split between angela merkel and wolfgang schaeuble wayon how to deal with greece? mr. fuchs: i do not think so. mr. schaeuble has stated that greece has to come up with a decent proposal. it is fully up to mr. tsipras. if they come up with a proposal we can accept, we will help. greece is a european state. we want greece to be not only a european state but a euro mem ber. without greece, the euro is not going to fail. a grexit is not a problem anymore. it used to be a problem five years ago. but we have many measures taken ever since. like esm esf, banking unions,

stress tests, everything has been made to prepare in case of a failure of greece, we are prepared. i'm pretty sure it is not necessary. greece cannot -- if they come up with a recent proposal, fine. of course we will pay out. we will fulfill our agreements with greece but they have to come up with their proposals as well. francine: what is a reasonable proposal? is there anything your party will agree to that is more lenient than what has been agreed to in the past? mr. fuchs: i do not think so, because for the second bailout package we need to have a primary surplus because if it is not there, how can imf agree on a new deal? we have a very clear statement that imf is a must. it must be one of three parties helping greece. if imf is stepping out, we as

the german bundestag, we will not stay with the second bailout package. we have to make sure that imf can agree. imf can only agree if there is a certain step for greece to repay. mr. fuchs: you said that your party's rich old in the german parliament is unlikely. if there was a deal -- that is actually more lenient, that you seem to disagree with, how many dissenters which you have in your party? mr. fuchs: i mean, that is very difficult to predict it. i do not want to make a prediction because it is depending on the proposals which they are coming up. if the proposal is acceptable, there will be not many people not agreeing with angela merkel. but the proposal news to be a reasonable one. i'm quite sure mr. hollande,

angela merkel, and jean-claude juncker are negotiating with the greek people. only if they come up with a reasonable proposal, there will be another deal. francine: what is your best hope for the next few days? what is your best hope for this meeting in brussels between angela merkel and mr. tsipras and france while lond? -- hollan de? mr. fuchs: my hope is that greece is at the end of the day being more reasonable. what i heard from tsipras was not reasonable. we would need reasonable people to negotiate with us. we want greece to be a euro member but only after they have fulfilled what we have agreed. francine: great to speak with you as always. up next profits rocket for the world's largest clothing retailer. the details on into tax -- indetex next. ♪

francine: inditex, the world's largest clothing retailer, has a 28% drop in first-quarter profit. charles allen joins us with the latest. sales up 17% since 2012. charles: the euro has been weak. good cause control and good

underlying like for like sales probably in spain as well. francine: what has helped? a weaker euro and the spanish economy. charles they they must've done well everywhere for this 13% constant currency sales increase. so good collections as well, i think. francine: in terms of what has been boosting this, the weak euro is this also because the previous quarter was down significantly? charles: the point is also their sourcing. inditex sources a lot in spain, portugal, morocco, and they have been hurt in previous years by people, compared to people in asia. but that has reversed and health margins as well. francine: in the u.k. sainsbury's sales fell for a sixth straight's quarter. charles: their volumes were up for the second straight quarter.

especially and fresh food, which keeps the money sales down. people are buying more stuff in their stores. they were slightly surprised by that. francine: give me a sense when you look at supermarkets overall in the u.k., how do sainsbury's compared to their competitors? charles: they have been ahead of the game and cutting the amount of promotions they had simplifying pricing. only 30% which is a lot, of their merchandise is now sold on promotion. it was 40% a few years ago. simpler prices heard they are strong and fresh food, which makes a difference, made them more defensive against the discounters, even though they are improving their fresh fruit. francine: thank you so much. inditex 28% jump in first-quarter profit. thank you so much. up next, the msci holds off from

adding china's mainland stocks to its benchmark for now. when might that change? we will speak to the head of china's -- research next. ♪

francine: welcome back to "the pulse" live from london. i'm francine lacqua. now, we are just getting breaking news out of the u.k.. here is mark barton with the latest. mark: yes, industrial production in the u.k. rising more than economist forecast in april. oil and gas output surging. manufacturing, though unexpectedly contracting. amid a decline in pharmaceuticals. total production rose by .4% for march. economist forecast a .1% gaine..

oil and gas extraction jumped 8.7% the biggest increase in the year. factory output dropped by .4%,. that fall in manufacturing, of course, highlighting britain's reliance on domestic demand and consumption as well to fuel its recovery. yesterday data show that exports are likely to continue to drag on growth. that is data from the u.k. economy. we did have and the last half hour news out of china. it is important news because china has granted another 1 trillion yuan $161 billion quota to provinces to swap high interest debt. this is double the previous amount. the increase comes as the first stage of the bond swap is

underway. commercial banks have been buying the bonds after the central bank flooded them. theis will help the government cut risks from a record surge in borrowing that local authorities took on to fund the blood of projects. it is alleviating a funding crunch. local government obligations in china may have reached 25 trillion yuan, bigger than the size of the german economy, according to estimates. that compares with a figure of 17.9 trillion yuan as of june 30, 2013. this comes on top of other news out of china today. china won't be, yet included in msci indices.

they will be eventually. two big bits of news out of china out of -- on top of manufacturing data out of the u.k. francine: mark barton with the latest on the break and marcus news. here are the top headlines. the greek prime minister is scheduled to meet angela merkel and francois hollande today in a bid to break the deadlock over financial aid to the crisis hit nation. the talks signal the urgency of resolving the struggle to keep europe's most indebted country solvent. the german 10-year yield has climbed above 1% for the first time since september last year. inditex saw profits surged thanks to a weaker euro and new stores. the world's largest retailer reports a 28% rise in the first quarter. now, the retailer has opened 400 new stores in the last five

years and operates in 90 countries. the global stock index provided, the msci, has held off from adding china's. mainland stocks to its benchmark indices . it has opted to work with the country's securities regulators to overcome remaining obstacles to inclusion. now, chinese shares dropped on the news but msci says the decision to include the nation stocks may come at any time. we will get more on all of this. we are joined by our guest. great to have you on the program. we talk about china as being this massive opportunity for a bubble that may burst. does this make sense? the fact that msci says a-share will be included but not quite yet. miranda: it is very clear that it will be probably going next

year. definitely scheduled for inclusion. by may 2017 you will have full access to the market. it makes absolute sense. it has been a closed market, but the regulars have made strides in opening the market. you have the stock -- launched in november. you have the expansion of the qpr program. there are quite a few hurdles. the msci said that they will work together to resolve these. and china once more investors. francine: what is your take? we also have the chinese government saying they will increase local government debt swaps today. the government is doing everything they can to kind of make it stable. a lot of people of saying that there is confidence china will continue to grow as we see its

benchmark indices going higher and higher. miranda: the interesting thing about the equity market and the bond swap is the use of capital markets. that is the big shift. instead of using what china has been criticized for is -- it's low cost debt is inefficient. the use of capital. that has always been the criticism. now, they are going, ok, we will go to a market-based economy. it is china's definition, but this means they use the bond markets to finance local government debt, which was shuttled off into the banking shadow sector. they refinance the soe's. in a slow and not slow for equity markets but it is using capital markets to refinance a market-based system. francine: this means they have it right. they are pacing it? is that a fair assumption?

miranda: you cannot do everything at once. it opens up -- if you think the explosion of the asia market , up 150% over the last year. you had a little bit of liberalization. then you get an explosion. but then you get these constant waves of liberalization. that is what we will see over the next two years. that means that there is a very strong -- capital market. baby steps going towards that. francine: is there a danger that there is an asset bubble that is close to bursting? because of the fact they are pacing the opening of all this we're nowhere near bubble bursting. miranda: it depends where you look for the bubble. in the overall index, it is up 150%. 20 times csi.

and you have got some stocks, yesterday some of the tech stocks were trading at an extra 500 times. but the idea that this is is going to peak and burst, annual have this cat asleep -- this cataclysmic crash is too pessimistic. what you will see is a correction in some of the really highly valued areas. francine: which is what, real estate? miranda: real estate is a different -- the real estate bubble is gradually being -- well yes. the inventories are being, um, trying to be sold down. some of the real estate companies are refinancing. that was the bubble that should have burst and is now deflating. so with equity markets much

more difficult to manage that process. you cannot say ok, we will gradually deflate something that is at 500 times. there is a big risk. but that is not the whole market. you still have, the broad market is not trading at anything like it was in 2007. so it may seem exuberant but it is not yet completely irrational. francine: interesting. thank you for joining us. now that brings us to today's twitter question. should the msci have included chinese a-shares now are are they right to wait? now up next, we look ahead to tonight's mansion houston or where george osborne is set to stress the need to run a - tonight's mansion dinner where george osborne is set to stress the need to run a surplus. ♪

francine: welcome back to "the pulse." the u.k. chancellor woodson night set out plans to reform -- to guard against future financial crises. george osborne will say in normal times governments of the left as well as the right should run a budget surplus to prepare for an uncertain future. the bank of england governor mark carney will also speak. let's get more. great to have you on the

program. in terms of what we are expecting, this is positioning britain to stay the course for the next couple years, depending on, no matter who is next. >> absolutely. this is the platform the conservatives were elected on. it is really saying we want to force everyone -- how that works in practice is more debatable. the meat of the speech is going to be about financial services industry because that is who he is addressing. he has also got a budget in one month's time or he can do most of the policy agenda. francine: so what are bankers waiting to hear? svenjia: what the city is waiting to here are a few sweeteners. we had a long time of banker bashing.

stamping out market abuse. i think now by this time, the city feels, for the chancellor to actually bakc tck them more. they are the support of the conservative party largely. what we may see is some moves from osborne to try to dissuade banks such as hsbc to move elsewhere. we might get promises of maybe a reform of the way banks are taxed. that would be a good way of delaying a departure. francine: i mean as you are saying, this is less banker bashing. how do you square up with the fact that we also heard the conservatives wanting to be less out of touch with the people? svenjia: it is a fine balance. trying to stamp out market abuse. that is their way of saying we are going to be tough on this. make no mistake. at the same time, they are also a technology that financial services are almost 10% of the

economy. he cannot neglect that. they are a source of revenue. somehow you have to keep these big lender's in the u.k. francine: thank you so much for now. we are focusing on the u.k. because of a predicted rebound in london's luxury home market is failing to materialize. we have seen the figures over the last couple weeks. buyers pushing back. estate agents had expected money to flood the market after the victory. that has not happened. price growth and london's most expensive district has slowed. we are joined by. patrick. is it down to the referendum? patrick: champagne corks were popping all over was lending seeing the end of miliband's mansion tax and rent controls. it was short-lived because we have reports of brokers saying that their sellers were putting

their house prices up fro 15 million pounds to 18 million poundsm. there is a lot more going on here. osborne raise taxes several times over the last few years. a four million pound home in 2007 you would pay 150,000 pounds otto buy that. the tax on that now would be worth more than half a million pounds. francine: we also have a price boon since 2009. that attracted a huge amount of money for development. is there an oversupply of mansions? i'm thinking of mayfair and the more affluent neighborhoods. patricks: prices went up 60% during the financial crisis. that attracted huge amounts of money for development. but we have a cyclical property market.

if you take, say, mayfair popular area. the billionaire john called were has a big place there. there is a planning commission to increase the stock by 10%. there are only so many buyers out there for 30 million pound mansions. francine: the money is coming from where? when there is a crisis in greece and spain, there is money from modest savers coming into the london property market. has that trend stopped? patrick: any where were you need a stable investment or move money out of the country, london is a good bet. i think the days of double-digit growth each year ar behinde us but you're still looking at a 3% return when, if you leave money in your own country, you could lose assets. it still looks like a good investment if you need to park money somewhere. francine: when you look at the

housing market and the u.k., if you are the government in power, is it something that you say london house prices are high. that means i am attracting the brain talent of the rest of europe. or do you look at it and think this is a problem because it means that my own british workers cannot get affordable housing? svenja: one of the biggest policies we saw in the conservative manifesto -- that's potentially telling a lot of people who never thought they could buy their own home, we are going to give you this opportunity. that is old-fashioned conservative policy. yes it is a problem. at the same time, you do not want to turn off the tap to investment entirely. francine: what is the outlook for prices for thse maese mansions? patrick: without another global recession, is unlikely we will

see large drops. but they are falling in places like notting hill, which was unthinkable in the last six years. there is a lot of uncertainty. non-doms mike it looked at again. the e.u. referendum, there are lots of weighs on demand. the days of 15% a year are gone. francine: think you so much. here are bloomberg's top headlines. the russian president putin heads to italy. it comes as sages against pressure are set to be extended. jbeb bush has issued a strong warning to russia in a foreign-policy speech ahead of his expected announcement on monday that he will seek the republican nomination for president. bush said under his leadership the u.s. would be prepared to step up actions against russian aggression. hea heads to: today. netflix investors have backed proposal to boost the company's

shares outstanding two 5 billion from the current 117 million. reed hastings said in april he plans to recommend stock split to the board and that a lower price would make the shares more accessible. up next, putin and the pope. as sanctions extension loom will the russian president be hoping for divine intervention during his trip to italy? we'll discuss that next. ♪

>> ukraine, a sovereign european nation, must be permitted to choose its own path. russia must respect the sovereignty of all of its neighbors, and who can doubt that russia will do what it pleases the progression goes unanswered? our alliance, our solidarity, and our actions are essential if we want to preserve the fundamental principles of our international order. an order that free nations have sacrificed so much to build. francine: that was former florida governor and potential 2016 u.s. presidential candidate jeb bush talking tough on russia in a speech in berlin yesterday. president vladimir putin to italy today were he will meet with renzi. sages against pressure are set to be extended, but could putin coerce renzi into breaking rank? i'm fascinated he is meeting the

pope later on. what is behind the visit? ryan: the russians and the italians have a strong relationship, one of the stronger relationships in europe. p9utin was in hungary early in the year. this is his second trip to europe. it is about trying to solidify that relationship getting away from ukraine being the singular conversation at the table. so the italian prime minister the russian president will be at ane xpo -- an expo center in milan. they will have a joint press conference that looks good when the two are side-by-side for the russians. then he will get on the plane and go to rome and meet the pope. he's likely to meet his friend silvio berlusconi. it's a very different kind of trip to milan from the one he made a year ago, when all the talk was about crimea and

ukraine. there was a gathering of european and asian officials and they grilled putin for two days. he's welcoming this is a turnaround. if you look, i think the russians real game here is one of attrition. they do not think western europe, the united states will be as interested in what is going on in the view pane -- ukraine a year from now. if you look at the polls. pew found that in germany only 38% of germans thought their country should defend a nato ally that has come under attack by russia as section v dictates. there does not seem to be a whole lot of interest in germany. frankly, across europe, the numbers are below 50% where the population says, yeah, we should back those people up. there is not a lot of appetite for military confrontation

though the russians are not popular with europeans. francine: going back to italy, does it market change in any way? he's going to be around the expo. the views the pavilions. does that mean he is friendlier or is it a special relationship with italy? ryan: i think it is an opportunity for russia to say, if you are the first or break the coalition of backing sanctions which will almost certain to be extended irrespective of this trip, hey we have some carrots for you. we were listening to jeb bush. jeb bush is possibly going to be the next president. what is he doing this week? he is in europe bashing russia. then he goes back to the u.s. and makes his first campaign speech. potentially a very continue tough line against russia from the united states much more important what the e.u. does. francine: for those listening on

bloomberg radio, "the first word" is next. the second hour of "the pulse." we will speak about uefa. we will review the mansion house speech later tonight. ♪

francine: on hold. msci defers adding china's mainland stocks to benchmark indices that says inclusion could come at any time. tsipras showdown. the greek prime minister set to meet merkel and hollande the day after his proposals are projected by creditors. the german 10 year yield climbed above 1%. george osborne is to outline plans to reform written's fiscal framework -- britain's fiscal framework at his mansion house speech later. ♪ good morning to our viewers in europe, good evening those in

asia and a very warm welcome to those just waking up in the u.s. i am francine lacqua. this is "the pulse." we are getting some -- we are monitoring this press conference from michel platini. live pictures from paris. he has just started. the uefa president. we will bring you any interesting developments. let's go to greece to berlin, where alexis tsipras is due to meet with his french and german counterparts. the talks could be thrown off course after yesterday's budget proposal from athens fell short of targets. the talks will aim to break the dead lock. three weeks before the bailout expires. hans nichols, what are we expecting today? hans: there is actually a

meeting. things have been deteriorating so much that an actual meeting is now in doubt. the greeks are saying they have not heard anything formally from the europeans on the latest three-page proposal. the europeans, according to some officials, have been clear it has been projected. -- rejected. it seems as though, this is according to an international official familiar with talks there has been no progress in the last 24-48 hours. we do not have any agreements on primary budgets or surpluses or percentage of gdp. talks are stalled. you could make a case that tonight they could be jumpstarted. looking at public rhetoric, you just had michael fuchs, a lawmaker and germany. it seems like publicly the sides are part. varoufakis seems to be

antagonizing things. he did yesterday with that op-ed that was published. guy: -- francine: if you are an investor, show you be pessimistic about progress made at all? hans: none of the officials we have been speaking to have given us any reason to think there is a reason for optimism. here's the one caveat, what are the numbers for the primary budget surplus. if they can agree on that number in some ways the other fights are secondary or tertiary. what should pension reform the? if you can agree on a solid set of numbers and what the targets are in terms of how much greece is bringing and beyond what they are spending when you take out their interest on debt you can see a pathway for it. leave aside splits within merkel's party, there's a golf between the creditors and the country that wants more money. yet greece is asking for more

money from different parts of revenue. i -- it is hard for me to be optimistic if you think there should be a deal for iran greece . and germany, one way to make sure you keep spain and italy in, is to have strickt rules for greece. it is more dangerous to cut a soft deal with greece. francine: makes sense. as a matter of it interaction where do you stop, the others will want to negotiate. there's work we have been covering, that merkel's differences with wolfgang schaeuble the finance minister are growing. hans: we are hearing the same. officials say the distance is clear. a tablet paper here has been pushing this, leading this charge.

ultimately, angela merkel and mr. schaeuble share many ideas. it is a question of where the difference is on contagion. mr. schaeuble seems to think that contagion from a greek ex it, economic contagion, can be limited. there is a growing sense that merkel and her finance minister on a day-to-day detail are not on the same page francine: something we will keep an eye on . uefa president michel platini is holding a news conference and paris. as the bbc reports that a successor to sepp blatter could be chosen. let's get tomorrow with mark barton. what he is talking about is not fifa, it is 2016. mark: platini is speaking

french, i'm sure you can understand what he's saying. he's said that today is not the time or place to talk about fifa . he has been at the center of the fifa discussion, the head of uefa touted as a potential successor to mr. blatter, who stepped down after the election, days after he won his 5th victory. according to the bbc, the fifa presidential election is planned for december 16 in zurich. the final decision is not expected to be made until july. so says the bbc. without stating where he gets its information. fifa has confirmed today that an extraordinary executive committee meeting will convene in july. we put those two bits of information together. seems as if that meeting may decide on the day for the

presidential election. we know that the election will take was between december and march. many have called for it to be brought forward. you need time to prepare for an election, to that the candidates. blatter will be one of the candidates. those against mr. platini will state he was one of the executive committee members who voted for the qatar world cup the choice of qatar to host the world cup in 2022. very contentious. those that voted for qatar are not looked unfavorably. that might deter his possibility in becoming the next president. we getting some interesting quotes from jerome valcker, the secretary-general of uefa. he seems to be in russia right now inspecting one of the venues

of the 2018 world cup. he says there were no major violations in the russian fifa bid. there have been question marks about the bidding process, not only regarding the qatar world cup in 2022 but russia in 2 says there018. valcke were no violation. we getting some comments from the russian sports minister. he says russia is planning to hold, i quote, one of the world's best world cups. he says our task is to preserve fifa. russia acted within the framework of existing rules. we have powerful government support, which helps russia. russia has been investigated by swiss authorities about voting. many think because the russian

world cup is taking place in three years, it is likely to be stripped. if we listen to the bbc, the election for the next president after blatter will take place december 16. platini of uefa is not speaking about fifa he says there will be a time and place to do so. francine: here's a look at what else is on our radar. vladimir putin head s to italy where he will meet matteo renzi and the pope. as european union sanctions are set to be extended. south korea has reported two more deaths from mers. after the president postponed her trip to the u.s. to handle the outbreak. more than 1500 schools are closed across south korea as a result. almost 35 hundred people put into isolation. the global stock index provider msci has held off from adding

china's mailing stocks to benchmark indices. it has opted to work with the countries securities regulator to overcome obstacles to inclusion. chinese shares dropped on the news. that brings us to today's twitter question. should the msci have included chinese shares? some pretty good responses. we will round them up. "it is not an open market manipulation is easy, the answer is no." next, looking ahead to tonight's mansion house dinner. george osborne is set to stress the need to run a spending surplus. stay with us. ♪

francine: welcome back to "the pulse," live from london. the u.k. chancellor will tonight set out plans to reform britain's fiscal framework or formalizing the need to run a surplus to guard against future financial crises. addressing leading banking figures at the mansion house dinner george osborne will say a normal times governments should run a budget surplus to bear down on debt and prepare for an uncertain future. mark carney will speak at tonight's event. let's get more with bloomberg's correspondent and what will the message be? svenja: two things.

there is the markets review published ahead of the speech. the government and bank of england are going to be tough cracking down on market abuse and crime. the message there is fines for the financial sector. if you break the law and continue with practice is not seen as ethical, then we will come down on you. on the other hand, we've had a lot of noise from banks talking about possibly relocating. they've been hit very hard by a bank levy. we can expect some appeasement from the chancellor. this is a conservative chancellor. the financial sector usually backs the conservative party. he's got to be seen as giving something back. francine: can banks expect appeasement as well? svenja: a little bit.

hard to see how much he can afford to do without being seen as going back on the political messages of being tough on the banking sector, on the causes of the financial crisis. but yes, i think if he can, for example suggest that they reform the way banks are taxed, that would be one way of delaying any decisions that would have a dramatic impact -- such as hsbc leaving the u.k. francine: can george osborne stop banks leaving the u.k.? is there anything he can do doing, being seen as a little bit more tough with the public but making sure banks do not go anywhere? svenja: hsbc has threatened that kind of thing before. yet they are still here. if we had had a labour government with ed miliband who was suggesting to be even

tougher, we could have seen an exit. there's the potential threat of brexit. that is being addressed through a referendum. a campaign to keep the u.k. in. i think doing something to be seen to be looking at why the bank levy is so high and hits some banks disproportionately would go a long way. francine: thank you. for more on what we can expect from mansion house, we are joined by the british chamber of commerce chief economist david kern. give us a sense of how you would position yourself. he needs to talk about the budget surplus, be banker friendly but not too much. david: by march, it is very complicated. i think george osborne is right. on the banks, the financial sector is a key sector in the u.k. economy.

having said that, it has been decimated during the crisis. the taxpayer gave a lot of money. so, like all politicians, there's the need to maintain a strong financial sector where we are a global leader. it is something we have to preserve. at the same time, we went to shield the taxpayer from having to fork out huge sums of money. what is happening with hsbc is not so bad. the fact that they are rebranding possibly giving it another name, maybe calling it a business bank again. a very large british bank. at the same time, investment banking is not something you're going to get rid of. you want to make sure that when it stays again, you do not have to go into our pockets and pay

for it. francine: how do you achieve that? this is a conversation we have had. yesterday when hsbc updated investors. are a lot of the banks to break into complex is about more tax? david: the banking sector has to pay its own shares of taxation. if you tax people too much they go. that'as a clear message about individuals and large banks. we don't want to drive away people that generate wealth. as we said a minute ago, we do not have to -- if we can make sure they can look after themselves, it is like any other sector. it's an important sector. many people work for it gambling is legal some people do not like it.

some people do not like investment banking. if a gambling firm goes bad, it is unfortunate. we want to achieve the same thing with parts of the banking sector that are not crucial to the economy. the retail side is critical. it is like a utility. he always had to have firmer controls on the region sector. the investment side, if we can ensure it looks after itself hsbc is an unusual animal. francine: it is so big. david: they are big their headquarters is in london but the bulk of the income is in china. if they want to go back to hong kong -- hs means hong kong shanghai. francine: do you think they should? david: i do not. i'm not sure they will. there are problems. the legal framework in hong kong is not as firm as the u.k. it is part of china. francine: give me a sense of what you think of the budget

surplus. it is just basically talking the book austerity is the right way. is there any legal fundament? david: i might say this. i dislike the word austerity. austerity seems to suggest something abnormal. living within your means is not austerity. what is going to happen today will not affect the next few years. it is a message for the future. he is trying, quite rightly, to change the debate. get rid of the idea that living within your means is an abnormal thing that you have to do for a number of years. when things go well -- francine: i understand, but when you live within your means and you are the public you do not necessarily look at what the public is expanding. you havea an hs unit closing that is austerity. david: i think as it happens the

nhs is shielded. that is the position with the nhs. what i think he's trying to do is change the whole public debate. trying to do something that a future nonconservative government will be difficult to change again. there's an economic element there. the economics are basically collect. do not call it austerity. call a living within your means. by definition, if you want to reduce your debt -- francine: we are talking words, but it is austerity. david: if you want to reduce debt, our debt which is going to approach 100% of gdp -- if you have a surplus this year, it adds to debt next year. you have to pay interest.

if you want to reduce your debt -- the whole idea that you have small surpluses in normal years as will not decide on his own. the whole idea that the -- we're going to have a different framework. we had a decade or deficits were normal. francine: a lot of people say that is how the crisis started. david: we want to change that. francine: thank you for coming on. the chief economist at the british chamber of commerce. back in two. ♪

francine: well-connected "the pulse." live on bloomberg tv. inditex the world's largest clothing retailer, has reported a 28% jump in first-quarter profits. sales up 17%. what is behind it? charles: currency added about 4%. it is basically good performance elsewhere.

store openings and what must be a strong like for like performance. it must be mid-single digits. francine: zara is massive. what are the stars doing the best? charles: one of the interesting ones is zara home. this is a small concept at the moment. but 19 out of 60 openings with zara home. a diversification into another product area away from clothing which lays the foundations for longer-term growth. francine: we also heard some reports from sainsbury's. how did they do? sales. charles: sales were down a little bit, as expected. we track this through our data. a couple of encouraging things one was that volumes were up. people were buying more stuff for the second quarter in a row

after several years. secondly, convenience scores. 11% up. francine: thank you. up next, msci holds off from adding china's mainland stocks. ♪

francine: well-connected "the pulse." i am francine lacqua. the greek prime minister alexis tsipras scheduled to meet angela merkel in francois hollande today in a bid to break the deadlock over financial aid. the talks signaled the urgency of the struggle to keep europe's most indebted country solvent. the german 10 year yield above 1% since the -- for the first time since december last year.

inditex, owner of brands such as zara reported a rise in first-quarter profits, the fastest growth in two years. the retailer operates in 90 countries. the u.k. chancellor george osborne will use his annual speech tonight to set plans to reform britain's fiscal framework osborne wilkinsll commit the government to a surplus to guard against future crises. mark carney will also speak at the event. let's check in on the markets p jonathan ferro has the latest. jonathan: all the attention will shift to the speech from mark carney and george osborne. for the markets, we look set to end the six-day losing streak on

the stoxx 600. some gains of the dax. decent gains on the periphery in italy. the stock market and in the trend of losses. the bond market is not. bond yields for fixed incomes german 10 year up by 5 basis points. the story is the spread between germany abnormal 1% and -- at 1% and the u.s. ten year. it is that spread narrowing from 190 in march to below 150 you have a stronger euro. one euro buying me $1.13. up another 2/10 of a percent this morning.

the ever stronger euro. the overhead line overnight, dollar yen. dropping like a stone. down to below 1.23. we were up 125 a couple weeks ago. governor kuroda saying he does not foresee any reason for the yen to weaken from here. what he says is one thing, what the bank of japan does is another. a lot of investors expecting another round of easing later this year. yen weakness is over, big question. francine: the global index for msci has held off from adding china's mainland stocks to its benchmarks index. opting instead to work with the nation's securities regulator to overcome remaining obstacles to inclusion. how have the markets reacted? let's check in with mark barton. a little disappointment.

mark: gains and losses. the shanghai composite finished down by roughly a 5th of a percent. the lows of the day sent it 2.2% lower. disappointment for chinese stock bulls. msci still expects to put yuan- denominated a-shares in global benchmarks after settling concerned about accessibility. the decision on inclusion may come at any time. just to rewind, china wants the msci endorsement to elevate the status of its domestic market on the world stage. and of course make the yuan more of an international currency. china has made efforts to open its stock market including the exchange link with hong kong. that has helped the shanghai composite surge in the last year. it has added $6.5 trillion to the whole chinese equity market

in the last 12 months. fund managers remain divided about the msci move. they are wondering is it a good thing, isn't a bad thing. foreigners are cautious about entering the chinese market. retail investors account for 80 percent of trading. the shanghai composite index of of the last month, this tells the story. up by 149%, the most among major global benchmark indices. spurred by record margin debt and surging participation by individual investors. i looked at the valuation earlier, valued at 20.8 times estimated earnings versus a multiple of 12.6 for the msci emerging markets index. china through companies listed in hong kong, accounts for more than 25% of the emerging market benchmark. it is the biggest weighting,

followed by south korea's 15% and 13% for taiwan. i want to show you the yen against all 156 currencies across the world. only 6 currencies, the guinean franc the russian ruble sierra leone, nicaragua, the west samoa n currency are rising. out of 156 currencies, wow kuro da's comments have had an impact. only seven currencies in the world rising. hard to see the yen falling further. it is all about china and the msci. it is a disappointment for china stock bulls. they will get in there one day. francine: mark barton with the

latest and some random foreign-exchange markets. we are getting news, watching the fifa story. fifa we understand, will delay the 2026 world cup bidding process. we had a news conference in paris from michel platini head of uefa. this is the latest from the fifa secretary general jerome valcke. commenting on the 2026 bidding process to reporters in russia. that is the latest from fifa. we will bring you breaking news. everyone is interested in these developments. let's keep the conversation on china. we are joined by the brown brothers vice president and emerging markets currency specialist.

two main things on china. msci says a shares will be part of our indexes but not right away. is this a smart move? they want to be sure the regulators are behind them. >> it is covering their backs. it is preferable to have inclusion when everything is all set. then have a situation where someone could complain later. as long as investors do not think that is off the table. francine: do you think the process and china, the slowing economy is under control? we heard the government saying they are going to swap more local government bonds. >> this is one more step in the fast process of financial reform china's going through. in essence, this is a way to move money from the shadow banking side into the more

official sector. is this going to work is a different story. there's a lot of things happening. whatever risks about china, they are smaller than you were before . francine: a big couple of weeks on china. we've had a crazy week and a crazy day monday because of the turkey election result. what does it mean for investors. >> turkey, it means a period of uncertainty in the short term. it looks like the government is trying to form a coalition. maybe it is going to join forces with the more right nationalist party. if that happens, you probably will have an end of uncertainty in the short term. francine: is there a buying opportunity or is there a danger of a second dip? they have 45 days. do you wait, buy on the next dip? >> in the short term it is.

in the long-term we think the situation is a very difficult. the social tensions are still complicated. turkey became s social-political pressure pot. things are not going to be resolved anytime soon. francine: where do you place money? in january i remember india prime ministers modi is going to reform. he's a little short of expectations. is there one emerging market that is going to outperform the rest given that we are looking at interest rate rises from the fed this year? >> we think choosing the stronger ones against the weaker ones. we still like india. there has been a question -- a correction. we also think mexico is in a good position to outperform. the government, even though it is under corruption allegations,

did well in the elections and the economy is doing ok. it is a good neighborhood as far as global growth. we like mexico and india. francine: what would you buy, equities or currencies? >> equities are a bit of a safer bet. the strong dollar trend will continue. this will put emerging markets on the defensive. francine: when you look at when the fed is likely to raise rates , how much outflows are you expecting from the emerging markets? you have picked ones that have done structural reforms investors have asked of them. >> i'm hoping a fed hike will not come as a surprise. francine: you never know with the markets. >> if you compare the fed -- the fed has been closer than most others it we believe the fed will hike this year. yes it will cause volatility as it always does. we do not think it is going to be a big game changer.

what is happening at the back end of the yield curve is more important than the fed hiking. francine: what is the worst emerging market? the one that you do not want -- i'm thinking of frontier markets. we talked about scandal, corruption, politically they are more difficult. is there anything you look at? >> the frontier market less so. in terms of the laggards, it depends on asset class. fx, fixed income and equities function different. we are negative on turkey, brazil and some in latin america and south africa. those are the ones we like the least. in terms of worst, hard to say. francine: thank you so much. vice president and emerging markets currency strategist at brown brothers. putin and the pope. as sanction extensions loom, will the russian president be

hoping for divine intervention in italy? ♪

francine: welcome back to "the pulse," live from london. vladimir putin heads to italy where he will meet with matteo renzi. european union sanctions are set to be extended. could putin colors -- coerce renzi into breaking rank? ryan: the russians would like

warmer relations with the entirety of the european union. is he going to try and encourage the prime minister to break rank and defy the rest of the eu and not extend sanctions, probably not. that's probably not going to go anywhere. italy is part of the g7. the g7 said they are going to extend sanctions. why not make things warmer for further down the road. what is extraordinary, this is almost a normal visit. the two of them are meeting at a tradeshow. they are going to look at some russian goods, some italian goods, they will have a bilateral press conference. putin is going to go meet the president of italy. he's going to meet the pope. he's going to meet berlusconi. francine: that is not like a normal visit. ryan: we will not go into the parties here. that's going to happen very late in the evening.

this is a remarkable change from the kind of visit putin had to milan one year ago. he met merkel got grilled on ukraine. he met other eu leaders, got grilled. there was no bilateral aspect it was crisis talk. he's trying to turn the page. francine: one person crafting foreign policy that would like to grill him is jeb bush. ryan: jeb bush is effectively on his first foreign trip as a potential future president. what does he do? he badmouth us russia. starting in germany, moving to poland and he will finish in estonia, a nato ally. a real country that is really concerned in the baltics as a neighbor of russia about russian aggression. he's going to continue to talk tough on russian there. he's going to go back to the u.s. on monday he will make his first

real speech where he makes his pitch to become the first president. wow -- the next president. wow. what a way to stamp out your identity. i think the relationship between the u.s. and russia is trouble. the russian foreign minister told me last week they are pragmatic. they are not going to get great under obama. he does not trust putin. obama is gone november of next year. there will be a new leader. that is the most important factor, other than the oil price, in terms of how russia develops in the future in getting out of the mess it's in. francine: here are bloomberg's other top headlines. deutsche bank, commerzbank and other german and austrian institutions had their ratings cut by standard & poor's. governments are less likely to provide aid in a crisis. barclays and rbs had their ratings reduced. the flex investors have backed a proposal to boost the company's

authorized shares outstanding to 5 billion from the current 170 million. ceo reed hastings said the lower price would make stocks more accessible. fifa is to delay the 2026 world cup bidding process. the organization's secretary-general jerome valcke made the announcement in russia within the last hour. football's world government body is embroiled in scandal after several officials were arrested on corruption charges last month. universal's latest blockbuster "jurassic world" opens this week. one country that is hoping to capitalize on the so-called dino-mania is mongolia. the country is famous for its deposits of fossils. the economy is struggling. money to develop is scarce. >> it is delicate and

time-consuming work. telling colleges remove earth from around the 125 million-year-old dinosaur. -- paleontologists remove earth from around the 125 million-year-old dinosaur. mongolia's fossil beds are among the oldest in the world. financial difficulties are hindering efforts to look after its most valuable cultural treasures. >> we understand the mongolian economy is not at its best. if we could support this sector, it could develop more. our country is bad at protecting the cultural heritage in the field due to the lack of management illegal expiration -- exploration has been done. >> an expedition outside the talk -- ulanbaatar showcases historic wealth. it's only temporary.

the old museum is where longoria hopes one day to permanently display its collection of dinosaurs. currently it is little more than a building site. it is unlikely it will resume. >> we are a state owned company. no money was budgeted this year. we are not sitting here hoping for next year's budget. we've organized fundraising events. >> the government of mongolia says it recognizes the value of its prehistoric heritage but a knowledge is there are challenges to funds when money is tight. >> the state money is never enough. with science you can lose, lose again. learning from the losses, you win. it works differently from other sectors.

the government should provide fundamental investment in the sciences. of course, the government budget is related to the economic situation. >> there's an irony that just across the street from the dinosaur museum is the cinema. while the museum struggles to attract visitors and find money to house real dinosaurs, people flock to watch a multimillion dollar movie featuring cgi versions. francine: "jurassic world." when we come back, we tell you what we should be keeping an eye on. ♪

>> without greece the euro is not going to fail. a grexit is not going to be a problem. we have many measures to take. and ever since, like esm, a banking union, bank stress tests. everything has been made in order to prepare. in case of the failure of greece we are prepared. francine: michael fuchs, deputy leader of angela merkel's christian democratic union talking to his earlier. we're joined by hans nichols in new york. hans: it is all about greece.

whether or not there's going to be an actual meeting. the latest we have from a german official is that a meeting between angela merkel, francois hollande and alexis tsipras -- it is not confirmed. that is from the german side. you go back to what was said at the g7 in southern germany the french are saying we will not meet unless there is progress to be made. merkel a few moments ago said that there would be a meeting. now it looks like we are trending back to the category of no meeting no progress. as we have been hearing, looks like they are taking steps backwards, not forwards. francine: hans thank you. hans nichols watching that for us. we are keeping an eye on south korea. the president had to postpone a u.s. trip to oversee her government's handling of the middle east respiratory syndrome outbreak. that is it for "the pulse." stay tuned for "surveillance,"

live from new york. follow us on twitter. the question was on msci and whether they should have included china a shares. keep the tweets coming. @flacqua. see you tomorrow. ♪

announcer: this is "bloomberg surveillance." tom: to road of japan says enough is enough. the yen appreciated 62% since

2011. take that, korea. the stock market cannot get out of its own way. we consider watching paint dry for the rest of the year. it is not the bird flu. the mers virus strikes fear in the heart of korea. their president postpones a trip to see our president in washington. good morning, everyone. this is "bloomberg surveillance " live from new york. wednesday, june 10. tom keene. joining me brendan greeley and vonnie quinn. there is a lot of overnight with the german 10-year. brendan: and these remarks by: rhoda -- by coroda and the japanese market. tom: there it is:. brendan: it goes back to a bounce. when you look at what he said it does not necessarily comport with that one statement