♪ guy: in the red here to europe stock markets fell and oil extends its decline one-month low as investors reset last month's rally in the riskier assets. such a banks beverage as india cuts rates to a five-year low. toreiterates his commitment just two more u.s. hikes this year. lagarde speaks as the path to a new imf loan for greece gross rockier. we talk bailout, brexit and global growth in a bloomberg first interview with christine lagarde. ♪

guy: welcome to the pulse. where live -- we are live here diane guy johnson did the reason why -- guy johnson. the reason why i am sitting here and christine isn't, she is getting ready to talk to imf director. risky assets have been rallying. that seems to be running out of road right now as you can see european equities certainly on the back foot this morning to take a look at around -- this morning. take a look around, the dax down 2.2%. the reason for that divergence is what is happening in some of the asset classes. i want to show you the banking sector. i want to show you what is happening with some of the big banks. we have seen what is happening with the panama story. the headlines that are being generated. had a great interview out of asia with tidjane thiam. very cautious about his

commentary. what the regulators are doing. , you got ubsside down 2.15%. hsbc another bank that is being chucked around. the banks are being clear that there ridley tory supply story -- regulatory supplier story is down. the nikkei down. brent trading lower as well. -- the german tenure is at zero. -- the german 10 year is at zero. let's get you that. what is happening here is we are seeing disappointing data emerging out of the eurozone. we are seeing the french data. it was meant to be north of 50, it came in sub 50 at 49. falling to 53.1.

this is the more aggregate number. you get the core europe number first and then you get all of the other numbers being pushed together. one of the reasons for that is what is happening in france. berks first word news with nejra cehic. nejra: thousands of icelanders have taken to the streets to express their anger against the government. that is after doctrine slipped in the panama paper scandal. -- panama paper's scandal. a few hours earlier, the mp put forward a motion of no-confidence and called on the prime minister to resign. german factory orders unexpectedly fell in february and a sign that a global trade a global trade slowdown is weighing on europe's largest economy. orders adjusted to swings and 1.2%.ion dropped

the reading which is typically volatile -- and a bloomberg survey. pimco says -- he would lose his bonus if he quit in the third quarter of 2014. a court filing challenging his allegation that he was forced out. the cofounder is suing for his cut of the bonus pool. any settlement would be donated to charity. global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. you can find more stores on the bloomberg at top . guy. guy: policymakers taking the spotlight speaking at frankfurt good christine lagarde says dish frankfurt. -- frankfurt. christine lagarde says she sees -- growth too low for too long.

over in hong kong, charles evans reiterated his commitment to tightening and a two like strategy in 2016. he spoke to bloomberg. cooks i am looking to this year. i would not -- >> i am looking to this year. i would not be surprised if there was one in the middle of the year and one at the end of year. i think it is going to depend on the data. i'm going to be open-minded about it. the market not pricing anything like that. india cuts interest rates for the first time in six months. the lowest level since 2015 -- we could see a downward trajectory when it comes to rates. let's talk about such a bank divergence -- about central bank divergence. the market and risk off kind of mode. feeling nervous about what is

happening. christine lagarde making it clear that she sees the risks increasing. is she right? ofnu: china is coming out pretty strong numbers. the relative to what it was last year. a lot of liquidity being pumped into china. monetary policy being quite loose. the china issue is not going to go away because credit to gdp, china is rising at such a rapid pace. you are bringing forward some solitary investment. at some point they have to pay their bills. it is clear that although you are seeing an increase in construction and industrial output, even export, they are are -- slightly better. you have slightly decline in growth did -- you have a slight decline in growth.

, in fxis rally we see and elsewhere in the e.m., are we done? today, it is extremely high. you could see a self for about two to three months. a stealth -- a still for about two to three months. because global growth is challenged, i think the key weightede.m. trade weakness is not done. commodity prices plummeted. that kind of headwind is not going to be in front of you. the key question is growth. as christine lagarde says, what is the balance sheet to give mobile growth? -- to give global growth. if you don't get that kind of expert growth, you tread weaker.

that is -- you trend weaker. that is what is going to happen. i think we are in the later stages of this. the view still is that emerging-market currencies have jump.ater to maybe. talked about two the market is not anywhere close to that at this stage. the fed has twisted down toward market consistence. hike from the fed, how does that shape the market? bhanu: the united states is the only country that has cleaned up. if you look at it overall, the has dhe public-sector leveled. there will be a point of impulse for global growth. it will be nowhere close to where it was in the 1990's.

most importantly, a lot of this growth is becoming more internalized, the demographics in the u.s. is changing and becoming more service-oriented. services being procured onshore as opposed to offshore to the same degree of -- 3% in 1990's. the percent in 2016 if we are lucky. lucky.n 2016, if we are guy: want to get your take on what the governor said this morning. bandar the way jet is going to stay with us. director givesg her first interview of the day to francine lacqua. we'll bring you that later. why the brexit debate is the number one threat to the euro. we speak to the forecaster in 10 minutes time. that is coming up on the pulse. ♪

guy: you're watching the pulse. -- china'sisitions this get the-- details now with nejra cehic. nejra: thanks guy. this chart pretty much shows what you just said. you can see the new bars. china's monthly outbound m&a.

you can see that spike in february, more than $60 billion. topped $97als that billion -- this year alone. already the record. meanwhile, the white line is tracking the yuan exchange rate. the yuan versus the dollar. after the worst start to the 2000 11two decades, -- low this january. the currency as client a little bit against the dollar this year. the longer-term outlook is bearish. a blue books strategists that's --loomberg strategists says by year-end. you've got citigroup forecasting a 7% slide through 2017. this means for chinese companies to put money into u.s. market investment. as growth slows in china, there

are also benefits to oversee expansion. there is a potential cost of delaying rather than dealmaking. china companies do seem to be getting the message. you get china national chemical call and tsingtao higher. china isnology but suspending -- china's spending spree poses a threat to authorities. this is a surge in outbound m&a due to the trajectory of the yuan. have seen the yuan strengthened against the dollar, we have seen it weaken versus a basket of currency. some are saying weaker yuan against the dollar as well. guy. guy: nara, thank you very much. chinese companies are being rational. the growth project three -- the

growth trajectory materialize, you need another engine of growth if you're running a business. bhanu: that is the key reason why chinese companies are headed to indonesia. one could question the reason. china is looking for growth outside because it is difficult to grow organically. what i don't think this is is a sign for all chinese companies to run for the hills. there is a negative -- there's a they have weakened the currency. china has a massive growth problem but i don't think it is a near term play at all good china has enough preserves to meet its liability demands. down andiven by paying unwind the trade as opposed to companies or retail investors

running for the hills looking to buy gold or dollar cash. that was not the reason why it's so a decline. that's why it saw a decline. that should not make us feel warm and fuzzy about chinese growth. it means it is not the right channel to play china's growth. guy: if i was looking for a channel which we are going to see these problems materializing, i think certain crises you see other assets. which is this? bhanu: this is not 1997 with the currency to constrain. -- 1997 where the currency took the strain. i think in this situation, financials in e.m. are likely to trade with strain. what we have ahead of us is a vicious cycle between the financials and the sovereign.

fiscal problema in the emerging markets. guy: that is peripheral euro. -- europe. bhanu: a much bigger problem in emerging markets. 2014, 2015, a decline in the, -- decline in commodities. what we're building towards if christine lagarde is right, is the fiscal issue in e.m. because of the conflict that is going to affect the sovereign debt. -- two a two to three it to three-year issue. guy: the reasons were fairly clear, a it wasn't existential threat -- it was an existential threat. whether or not the whole thing with full apart.

can we compare what europe did to what china will do echo how do the 2 -- will do? how do the two compare and contrast? nice -- naived be to suggest it would not have a global impact. unlike the dollar and euro, mobile companies are not the.ced in the remember if you have a crisis in china, that is not going to choke of the desk going to took the libel -- choke the global financial system. -- that is what was going to happen in the u.s. had the fed not stepped in. that is unlikely to happen as a result of china.

it will impact your earnings, it may not impact your cost of equity as much. guy: we will come back. up next, the budget debate will wipe out the euros largest quarterly advances. we will speak to him next. ♪

guy: 21 minutes past the hour.

he is the bloomberg business flash with nejra cehic. nejra: allergan trade -- shares plunged in trading after the u.s. gorman of treasury announced -- u.s. department of 's run from allergan new jersey but has a legal domicile in dublin. last year it agreed to merge with pfizer and a $150 billion deal. walt disney chief operating officer tom staff is stepping down. was widely seen as the air to whoset ceo bob iger contract runs until june of 2018. shells -- shares fell. -- the company missed its sales estimates. it shipped fewer than 15,000 vehicles last quarter. tesla says because that was mainly because of part shortages.

adding too much technology to the suv. the company reaffirmed plans to deliver 80,000 to 90,000 vehicles later this year. guy: thank you indeed. the brick to debate is euros biggest threat -- the brexit debate is euro's bigs threat. let's get to munich and speak to the banks economist. thank you for taking the time. walk us through the trade. where do you see the levels? where do you see the single currency going? guest: i did not hear you. guy: talk us through we see the single currency going given the political headwinds we see facing the brexit. guest: there is a lot of political risk priced into the euro. the markets are pretty calm.

in our view, this should change by june. with the brexit in the end, which is pretty like it could happen with a 50-50 chance. the whole european project could be questioned again and we could come into a situation which is 2011 where the european union was questioned by the market. guy: in many ways that is a bigger threat, the british leaving and the effect that would have on the pound. but -- that is a much bigger story.

guest: i did not hear perfectly. as you mentioned, it is a much wider topic when you look at the pound. the pound is pretty clear to almost every economist that the brexit would be a short-term disaster and long-term damage to area,t comes to the euro it is not that obvious what would happen. you have to look at the political side and the dynamics in the european union. you have to look at the refugee crisis, terrorist attacks and all of this stuff. markets are a bit cautious. we think this will come for sure within the next month. guy: i am going to try and speak clearly. what level are we predicting euro-dollar? , where we are right now.

where are we when the u.k. votes? will: -- guest: when the u.k. votes to leave? will head to 1.05 in euro-dollar. the britons would want to leave, we could have the parity very shortly. guy: we are going to leave it there and thank you very much indeed. joining us out of munich. obviously these levels are pretty interesting given where we could go with this. why there is a debate surrounding what is happening with the eurozone takes is directly with what is happening with greece and will the imf back up the euro plan to keep

those loans going? we are going to find out very shortly. christine lagarde giving us her first interview of the day out in frankfurt. francine lacqua is going to be conducting that interview coming up shortly. tom: -- ♪ . .

guy: welcome back. you are watching "the pulse". e're live from london. let's get you caught up on what you need to know with nejra cehic. nejra: thanks, guys. thousands of icelanders have taken to the streets to express their anger against government. a scandal suggested that the prime minister benefited from

offshore accounts and tax havens. a few hours earlier, opposition m.p.'s with a motion of no-confidence and called on the prime minister to resign. a global trade slowdown is weighing on europe's largest economy. inflation dropped 1.2% from the prior month. the reading compared with a median estimate of an increase of .3% in a bloomberg survey. pimco said bill gross was warned and he acknowledged he would lose his bonus if we quit the fund before the fourth quarter of 2014. there was a court filing challenging his algailingses that he was forced out. he is suing for his cut of the bonus pool, around $200 million and said any settlement or award he will receive will be donated to charity. global news 24 hours a day

powered by journalists in more than 150 news bureaus around the world. guy? guy: thank you very much indeed, nejra. a quick look at what's happening ith the markets. mark: i want to start with pugepovepl shares down. the most since september last year. the french car maker predicting the spending on new models and technology will weigh on profits in the coming years. amid investments to introduce 26 new cars and eight commercial vehicles. it is forecast the profit will average 4% of sales between 2016 and 2018, below the 5% margin last year. these are the three big bulk car makers in europe in 2016. i normalized it as 100. you'll see all three trading lower but renault is the best

performer, down a mere 12% this year. peugeot 15% lower and volkswagen down almost 20%. we were just talking to the bank about the euro car. they said the your oo's performance last quarter won't last because over the prospects of the upcoming u.k. referendum on e.u. membership. interesting call from the bank which has been the most euro forecaster in the last quarter. they said the euro will slide to 109 and then 104 by tend of the year based on the assumption that britain will remain in the e.u.. fourth year of stimulus for the b.o.j.. that is an anniversary that started yesterday. we have the government today speaking, mr. kuroda. he said he will keep marketing 4 x markets. he reiterated the potential for

further stimulus which leads to this chart, the b.o.j. stimulus. it rippled through markets beyond the japanese bond market. this highlights just that. that was the first back in 2013. that was the second at the end of 2014. and that's the third bazooka, not only did it push yields in japanese bonds into negative territory but it pushed yields on the treasury market down as well. barclays monk those. -- among those. it will prevent the e.c.b. from tightening rights. we have the r.b.i.. we have the r.b.a. today. australia keeping rates on hold today at a record 2%. india cut rates to 6.5% today. the lowest in six months. this is a chart showing the benchmark going back to 2010. it is looking for more room to

ease, guy, as it watches monsoon rain. india lowering interest rates today. guy: mark, thank you very much indeed. perfectly positioned. our guest is still with us. going to cut again? by how much? >> he would like to. he is a man who is committed to his inflation target of 4% by 2018. again, as mark was saying, it depends on whether the crisis can stay quite low. the economy is very weak. the currency had strengthened -- export volume is up. i think part of the signaling that we are comfortable with modest currency depreciation and we want inflation expectations to come in from here. india has more food in the c.p.a. basket than any other

economy in the world. what's happening really depends on what's happening with the foods. monsoons are likely to be better this year. i think there is a little more room for -- and we are short the rupee as a result of that. guy: the process moving at a slow pace. he is having to focus more on the rural farmers. is there a compensation process that works because of what's happening with structural reform? >> it is difficult to make that argument to be honest. in india's case, the governor has made that point consistently. you need government reform in order to bring inflation down. i don't think he is compensating for it. he is getting lucky for the the fact that -- oil prices. these are the two variables that he has been given an opportunity. i don't think he is compensating

. i agree with him. if the government was to reform and spend construct ily, it will bring inflation down. therefore inflation will come down over the medium term. if the government is not able to do that, it is more limited. i don't think they will compensate for it. i think the reform iny and is absolutely crucial. there are so many people invested in the indian equity market. india is at serious risk of squandering its demographic prime and we have not seen the reform we would like to see from the government and at this point the only real snow town has been the r.b.i. and their focus on inflation and what is attracting investors to india. this is where india is benefiting from. it is a little bit concerning.

guy: we talked about the banks thus far. the issue with indian banks is their inability to pass on decent credit to the economy. are we any closer to resulting -- i hear talk again and again and again about it. >> i think in india's case you probably are at more of an advanced stage. in many places in the world, china, being one of them, they have begun to recognize that issue. it probably will resolve that snu the coming six months and i ink the issue is much more furcated in india. it is very exposed, the financial system is very exposed to them and i think over the next six months, you will see some retribution. it won't be easy. i think you will see the resolution out there. trend growth is much weaker and

that is going to affect the balance sheet and it will affect the balance sheet even more. the lack of recognition there is what worries me. guy: let's -- we're about to talk to christine lagarde. we already talked about peripheral europe and the comparison that can be made with the emerging market story. a number of questions, let's sigh the periphery blows up again. it could be greece. let's say it comes back and this summer we're once again talking about peripheral banks. walk me through how investors are going to read that and extrapolate into the space the e.m. is unlikely to be a safe haven. let's go to turkey. that is unlikely to happen.

the initial part of 2012 when europe first saw the problems, i think it is likely to happen again. i think the more interesting part is the falling. europe had its problems revealed en you had the growth led by the u.s. the stuff we have been discussing, e.m. financials and having a relationship, that could become obvious once that play book is very clearly defined in europe. in europe, a growth shock -- guy: we're pretty clear on that link here in europe. why not? >> because the difference is the public debt is still at a low level. the sad part is that public debt is a lagging, not a leading indicator. where was ireland's public debt in 2007? 2009, 2010, it was close to 90% g.d.p.. if we get a global growth shot

d by europe, that shock is going to put more strain on e.m. balance sheets and it is going to become obvious what you see it is veryith a lag, easy to be seen in china. when went looking for the -- in the u.s. in twen, sadly, we start doing the -- in china. where the account receiveables are. i think that story will come to the fore, where we will see european growth shock. guy: if you were to see a stress test like what the fed does on banks, what will it show? >> it is completely incorrect. years of weak income the sames has deflated the balance sheets. p/e is not at 12 because your e. sts at seven. 7% growth.

that is too high. your p/e evaluation is wrong. ive that five years. your income affects your balance sheet. that is where i think we are. persistent weakness. the market today is almost 180 degrees reversed because people are coming into emerging markets. it is very difficult not to get sucked in. but i think this is likely to be a -- i think this is a rally that we'll want to see. i think if you compare it to 2012 and 2014, it really doesn't, which lasted for six months to nine months. it really is a commodity-driven rally and i don't feel that commodities have completely bottom out here. guy: the markets are feeling that this morning. thank you very much. head of emerging markets at

u.b.s.. thanks very much indeed for joining us. up next, lagarde and the global economy. she speaks to francine lacqua. that is next. ♪

guy: 9: that in london. 10: 45 in frankfurt. very shortly we will be speaking the i.m.f. 's christine lagarde. this morning she laid out her

thoughts on global growth. she is pretty bearish to be honest. we have to be honest about that. she is actually very right over her concerns over recent months. let's lay out the groundwork. we're joined by john. good morning, christine has a lot of things on her plate now. the big things she is concerned about is probably not greece. she is worried about global growth. >> she is worried about global growth and china. a range of other political issues. so in the grand scheme of things, greece is really different now compared to where we were in 2010. it was a major systemic risk in the financial system as you saw last summer. it is relatively contained now. yes, it was all about the drama when it comes to greece.

but for now, it is probably a pretty lowdown -- guy: the financial impact could be fairly limited. most of the government bonds held by the governments -- it is a sentiment story. it could end up being a problem at the same time we're watching the brexit very carefully. we were talking about how that could ripple into the emerging markets. let's find out exactly what christine lagarde thinks about all of this. she is standing by now with francine lacqua. francine? francine: thank you so much. welcome to all of our radio listeners and global viewers. we're pleased to introduce them to christine lagarde. thank you so much for giving some of your time to bloomberg today. >> pleasure. francine: you look at the world. it looks very different than six months ago. this was the main topic of your speech. why? >> we see the baseline as slightly lower but we also see what we call downside risks a bit higher on the horizon and we

don't see much by way of upside. we believe there are three key risks that are china, change of business model and the result of growth and the lower commodity price and the tightening of financials as a result of new monetary policies that has just begun. the three key factors. that is on the economic front but then on the top of it we see also some very concerning geopolitical threats that have an economic impact on many countries around the world. francine: and then we have of course the brexit. is that in your top three risks for this year? >> it is clearly part of uncertainty that we have at the moment particularly in the european union and concerning the financial sector as well because of the size of the financial sector that london represents. francine: you talked about china

and we're concerned about the debt load there. we're concerned about despite all of the central bank action, rut. in an economic are wee going to see another recession? >> i wouldn't say china is slow growth. 6.5%. it is really something to write home about. if we had more countries -- but we see the chinese authorities as being determined to tackle some of the fragile its of the system. and you know, when all leaders come out to inforce the fact that they will restructure the state on enterprises which are clearly one drag on growth, particularly in that change of business modelsings you don't need as much iron, you don't need as much construction. you don't need as much of the heavy duty manufacturing, work that had been done for decades

in china. that is a restructuring which will imply a lot of hard work, a lot of manpower being retrained, hopefully. and it implies a lot of balance sheet revisions that will have an impact in the longer term. but in a way, the fact that china can produce -- it is a bit of a badgor honor of being part and a critical part of the globalization over the economy. francine: you don't worry about recession, though? even if all the concerning news were to come true? >> what we hear is this sort of very new mediocre that i have warned about last year. which would mean weak growth, no -- no new jobs, no high inflation, still high debt.

all of those things that should be low that are high continuing that trend. we call for policy actions and we call for what i have named the three-pronged approach which combines structural measures, fiscal policies and monetary policies. so the three together, not just one after the other. we have seen a lot of monetary policies at the moment but we need three and we need it fast. francine: over the weekend, we had that leak on greece. does that change your relationship dramatically with the greeks and e.u. countries in general? >> you know, we continue to be focused on addressing the greek situation by negotiating in good faith with a two-fold objective. one is to restore the financial stability of the country and to give it debt sustainability and number two, to equip that economy with the

competitiveness, the productivity, the structural reforms that are needed for it to be independent. the objectives have not changed. the negotiations will continue. i have a team on the ground at the moment and we will continue to do so in good faith. francine: the transcripts suggest that the plan is willing to agree to for lenient fiscal -- is that still the case? >> everything has to add up. those are magic words. if the primary surplus is a bit lower because that is what the greeks can deliver, then it means that the debt operation needs to be a bit stronger or longer term. but it needs to add up and we hope that it is not going to be done -- we want it to be done by long-standing sustainable measures that will last long after the i.m.f. has disappeared from the greek landscape. francine: but at the moment, you're still planning to play an active role in greece?

it will be advisory? >> i have been invited by the greek authorities to engage our efforts to actually help the greek economy and the greek people and we have to do it transparent. we cannot cut a special deal on the side. we have to do it the way we do it with all countries because we are independent and we do it for all. francine: and i get the earning and the animosity amongst the greek government towards the i.m.f. is something we haven't really seen in the past. is it unfair? >> we have gone through ups and downs and ups and downs. it has been around for the last six years or so and it will continue because we are there for the people. so that the greek economy can thrive, can be stand and independent. francine: will you speak to her about debt relief? >> we have the -- the annual

meeting of all the international financial institutions later today. i'm flying to berlin in an hour and a half and i will be seeing her tonight. but we have exchanged and we regularly do so. francine: on the currencies, how much of a concern is it that we see almost all of the central banks chasing currencies or financial fluctuations. it is a reversal of what we have had in the past. >> we believe that monetary policies handled by central banks are fine. they have been a huge, huge support to growth in this part of the world in the euro area in u.s. and clearly there will be a shift as these combined three policies, structural, fiscal, monetary policies work together. hopefully time will come to actually have a more traditional monetary policy with interest rates being raised again and

measures going forward. but for the moment and certainly for the past three or four years, it has been critical in order to sustain growth. francine: overall, if donald trump were to get into the white house or brexit were to -- how would the i.m.f. deal with this? >> we have to deal with new political reality all the time. as i said, the countrys are our members. the people are our concern. they decide to change political leaders, we have to engage a dialogue with whoever is in charge. francine: have you already spoke on the donald trump? >> no, i haven't. as far as i know, elections have not yet taken place. francine: a final question on oil because you were talking of course about the countries and the fact that we have seen a lot of volatility and pavenlt which are the one s that aredoing for structural reform? are you concerned that what was meant to be the decade of the --

is no longer the case? >> i don't think there is a frick anymore. they all have their separate and individual parts and they face big challenges of a completely different nature. india has the benefit of lower oil prices. brazil and russia, rich in oil, have their downturn caused by other factors as well as the decline in commodities. mexico was oil rich and it has taken significant measures. it is reforming. canada, rich in oil, all the new resources out there west. they are taking the heavy duty measures on all fronts. so they are not at all different and some of great hope. francine: you have already spoken nibet the past. thank you so much. that was the i.m.f. managing

director talking about greece -- he was almost give giving a warning to the world economy. this is bloomberg and we're back in a couple of minutes. ♪

>> tom, in frankfurt you're in new york. with -- and she says we can't talk about them as brick, the emerging markets, but they each have re-structuring reform. tom: we will look at the data check. wh