i did not see that coming. don't deal with disruptions. get better internet installed on your schedule. comcast business. built for business. francine: a fresh warning. china's credit fuels growth resembles the u.s. financial crisis of 2008. when he for draghi, stocks drop of -- waiting for draghi, stocks hover. volkswagen said to have set aside $10 billion to resolve civil claims in the u.s. the stock jumps. ♪ francine: welcome to "the pulse." life from bloomberg's european headquarters here in london.

let's check on the markets. that is not much going on -- there is not much going on in the terms of european stock prices. it is all but mario draghi and that news conference. expecting a huge decision today. it will be good to get his thought. one of the bigger moves we are seeing today, 4995. let's get to bloomberg's first word news with nejra cehic. nejra: volkswagen shares are trading higher as the carmaker said to have struck a deal over payouts linked to the cheating scandal. they have agreed to set aside $10 billion to resolve civil claims of the u.s. government and lawsuits by american car owners. it comes ahead of today's to say how it will fix the vehicle. billionaire investor says china's debt field economy resembles the u.s. in 2007 and

2008. he says china's march credit growth figures should be viewed as a warning sign. president obama will tomorrow urge britain to keep their country in the european union, in between lunch with queen and dinner with prince william and cambridge, he is expected to weigh in on the brexit debate. there is little evidence that americans are broadly aware of the debate in the u.k. or care. queen elizabeth ii turned 90 today. she is the world oldest reigning marker -- reigning monarch. meanwhile, david cameron is expected to lead attribute in the comments. global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. you can find more stores at the bloomberg top . francine. francine: ecb day.

economists expect no change in europe's interest rates. closely listening for hence -- hints.ad -- for let's speak to our central banks editor, paul gordon. thank you for joining us. what angle is draghi likely to take? we are expecting him to say qe has worked and inflation has picked up slowly but surely. paul: slowly, hopefully surely did -- surely. the inflated expectation gauge has not moved much since march. he is likely to reiterate that the risks remain to the downside. on the other hand, he is not likely to announce any other stimulus majors today -- stimulus measures today. euro area unemployment has come down pretty swiftly.

it is below 10.3%. it is down from a high of wellpoint 1%. 12.1 percent. wants to say the glass is half-full, he can. he can point to those. .rancine: we had the riksbank sweden was trying to hold down the krone. it strengthened a touch. how do we reconcile the two? paul: this is a signal and reminder that it doesn't have the impact on the fx that you expect. this goes to have the issue that some people feel central banks policies are reaching their limits. have gone so far below zero. -- they have gone so far below zero. the impact is not being felt so strongly. that is been one of the

decisions from germany against the ecb. that is something that mario draghi may have to respond to today when he -- whether he refers to the riksbank are not. bloombergstay with for more on that topic. we speak to the governor of swiss -- of switzerland's central bank. we will bring you that ecb decision. it will be followed by mario draghi's has conference from 1:30 u.k. time. let's introduce our guest who is going to be with us for the first part of the program. she is karen ward. karen, great to have you on the program did thank you so much. there is a lot of qe, that if -- they say it is working as much as it can. yellen the saying it is useless. you should have done more from the start. karen: that is what we are likely to hear draghi try and divide us some evidence.

they may think they are going to highlight is we need to take account. that is their main criticism of people that say it did not work. the ecb has been working on this to try and generate some stats. it has developed this much. it has given us this much inflation. don't think this policy is not working. that is one of their key messages we are going to get. the other key message we are going to get his listen we can do so much, but we need governments to step up. we are going to start to hear a lot more pressure from the ecb and other central banks to say governments, you are not doing your part. two years ago, you said you were going to do this. you have not done half of it. it is not at our door, it is at your door. francine: the problem is governments are not doing anything about it.

let's go back to qe, is it working? or is it not working? in the euro, it has worked a little bit. karan: there is it just karen: -- karen: there is a currency channel. draghi was right to emphasize the effects of channel. to shift policy away from trying to push down the currency with the negative rate and to reemphasize the credit channel, by which it should work. as paul said, he has some things he can point to sick -- .2 to suggest -- francine: let me bring you in with the chart of the hour. it is basically looking at japanese government bonds. if you look at that yields. when you hade is governor kuroda going negative rates taking markets by

surprise. the white line is a 40 year. when you think the 40 year, 30 year and below 0.4% and they started that yesterday. bringing you back to euro, how much do we know about the negative effects of negative rates? governor kuroda's pointing to we do not know. that is the chart. confidence inout negative rates as a tool to delay growth inflation has been pretty low. we know its effectiveness is untested. the side effects are pretty evident. the impact on bank probability and how that can be counterproductive and willingness to lend. as i just said, negative interest rates are currents -- are currency policy. we have decided within the channel is not

working. francine: we start with the swedish swiss -- swedish central bank and coronas going up. no one is accepting that appreciation you are giving them. is everyone -- it is a race to the bottom. they have stopped working effectively. find anver going to agreement between everyone, including china? karen: this is where there were suggestions, and informal accord had been reached at the lefty 20. a slightly weaker -- at the g-20. a slightly weaker dollar not to push down on their currencies would help the economy. it comes back to what we just said about central banks are not trying to deliver, what else can they tell the markets what is happening?

accord is only possible if central banks can say we are not doing this but look what governments are doing. they are doing structural reform. we don't think that is good to happen, according is not going to happen either. these breaks are not lasting. francine: it doesn't sound like it is going to end very well. karen ward, chief european economist at hsbc stays with us. to come your way including negative rates -- plenty coming your way including negative rates. hugh henry will bring you our exclusive interview. a car testing scandal. it is not volkswagen. this time it is mitsubishi. we will bring you the latest on the story and despite the dough oil nearsointment five-month high. i will tell you why. ♪

francine: this is the pulse. as get straight to the bloomberg business flash with nejra cehic. nejra: erickson shares have plunged after reporting first quarter sales amidst analyst estimates. the networks equipment and software maker says sales fell billion as phone operators continue to pull back on spending to expand and upgrade network.

novartis is reporting first-quarter earnings that narrowly beat estimates. profits fell to $1.17 a share. that is above analyst estimates of $1.15. that comes after the company lost paint protection. bid.in and has raised its receive 100 $.45 -- 145 pence per share. the move comes as the company tries to seal off a rival bid from steinhoff international. they are trading sharply higher on the news. a group of investors in stock bank group have called on the board to investigate a possible desperate and possibly dismiss the company's second in command. whether there is a conflict of interest did his role -- due to his role. that is your bloomberg business flash.

francine. francine: thank you so much. there is no such thing as a founder -- under -- as an undervalued asset. that is according to hugh hendry. the only thing the market is mispricing is the fed hike timeline. i spoke to him in an interview. -- q: -- hugh: beyond that there is an issue. at that level, we think the status quo could be implemented. interest rates there's the expectation you have to rate ,ikes but those two rate hikes i think that is to long.

could you get to rate hikes this year? i think you could. i certainly hope so. that would be against the backdrop of higher risk prices generally. francine: if we have two rate hikes, which the markets are not pricing at the moment, would it not make equities tank? hugh: it is the silly business to -- if it it is fed like other central banks have been so behind its target of generating 2% inflation, that the message is they are willing to take a risk. that will only change if risk assets are higher. francine: outside of japan, what is your best market play? is there something that is being grossly mispriced or misunderstood?

money andt of easing quantitative easing of negative undervalued.g is francine: that was hugh hendry. let's get more from our guest, karen ward. are we miscalculated. are the markets miscalculating what the fed will do? it is a mixed message. we hear fed officials saying they may hike sooner then we may think. karen: the market is waking up to the fact that the u.s. is not a closed economy. the u.s. depends on the rest of the world. that is because exports have been one of the main drivers of gdp. the u.s. is now an oil producer and dependent on chinese growth. because of the large amount of imported gifts in the consumer bus game. if the global economy remains a

week, the fed capacity to keep hiking is going to be restrained. coulds where the market go off in a completely direction. it was never correct. we now understand that. the market -- francine: fundamentals in the u.s. are not bad. will they not be compelled to start normalizing? gain the is similar to troubles we are seeing elsewhere in the world. the riksbank this morning. yes, we're seeing growth and job creation. the missing link is how we expect that to be translated into inflation. the u.s. -- we have seen unemployment fall to a normal level. wage growth should be picking up, it is just not coming through. until we are confident, growth is going to deliver inflation, we are still going to see very reticent from central banks. the fed is no different.

francine: what does it mean for mario draghi's policy? karen: harder. absolutely. we talked about the idea that the ecb was willing to accept a slightly stronger currency for the global good. that sounds great but when it comes back to actually meeting your own mandate, i think the appreciation of the euro against be aollar is starting to concern. they must've known when they said we are not going to pursuit negative interest rates much more aggressively, they would see some bounce in the euro. quite as much? i am not sure. we will see them push back on this concept, this is as low as we are going to go. francine: what is your thought on brexit. i spoke to mervyn king yesterday, he said it is not going to make much difference either way. karen: i think what worries me more is not so much the u.k. referendum itself, but just the

concerns of migration. the concerns of sovereignty and brussels making decisions. that is across europe. if you look at the dutch referendum we have just seen. if we look at how people voted for the european parliament, or we look at what people are sing at the moment about migration, i think it is how that whole discussion plays out this year. central to that is what happens with the migrant crisis. if we see a replay that we saw last year, we actually see the euro political situation be extreme difficult. as a saw earlier on in the deck late, -- and the decade, that is a global issue. francine: up next, the record drops. shares are driven down after the carmaker admits it manipulated -- details next. ♪

shares areolkswagen up this morning following news the company has agreed to set resolve0 billion to civil claims by the u.s. government and lawsuits by american car owners. that is according to person of direct knowledge -- to a person with direct knowledge. tom, the postal is being given to a judge today. startes, the hearing will

in the morning in san francisco. late during the day, european that the $10d billion figure stands in addition to $7billion in repair costs. that gives the supervisory board a handle on figures that it will figure to be responsible for resolving this emissions scandal . the board is meeting tomorrow and is scheduled to release its annual report any weeks time. it is notportant is given any indication on what is going to happen with the dividend. everybody is expect in a cut. francine: help cut -- how close is vw? said, you've got about .17 billion in known costs

half of what people are expecting the company to have to pay which will include fines. involves civil damages and certain agreements with regulators. same time the company has yet to begin any recalls in the u.s. because it is not reached any agreement with the regulators. the repairs in european cars will take place to the end of this year. it has a ways to go. francine: japan's mitsubishi yesterday. 20% it opened -- it fell yesterday and today. it admitted that it manipulated cars. is there a link to the vw scandal? tom: the main link is the testing standards. with mitsubishi, fuel efficiency standards scandal, that seems to

be the engineers intervening in providing false data. that is human intervention. with volkswagen, it was quite different. they programmed the cars to automatically -- when tests were taking place. that means automation which is supposed to protect against the ability to -- it did not. regulators are going to have to come up with a new way of testing cars. also because of the standard problem of laboratory tests being better than the actual performance of the street, which does not involve cheating. it is the way things are technically. companies and regulators are going to have to decide how to take care of this. muchine: tom, thank you so . up next, there is only one way to win today's volatile markets. an exclusive interview. find out what it is what is

coming up next. we talked markets, volatility, the strength of italian and german bonds. that is coming up next. ♪

francine: welcome back to the pulse. life from uber european headquarters in london. let's get straight to bloomberg's first word news with nejra cehic. nejra: volkswagen shares are trading higher this morning as the carmaker is said to have struck a deal over payouts linked to the emissions cheating scandal. according to a person with knowledge. bw has agreed to set aside $10 billion to resolve civil claims by the u.s. government and lawsuits by american car owners. it comes ahead of today's headline -- deadline set by judge. billionaire investor george

soros says china's that fueled economy resembles the u.s. in 2007 and 2008. just before credit markets seized up and spurred a global china'sn could he says march credit growth figures which far exceeded forecasts should be viewed as a warning sign your it president obama -- warning sign. --sident obama will urge prince william and the duchess of cambridge, obama is expected to weigh in on the budget debate at a news conference with prime minister david cameron. there is little evidence that americans are broadly aware of the debate of the u.k. or care about the outcome. queen elizabeth the second turns 90 today. she is the world oldest reigning monarch and the longest reigning in british history. the absolute this scheduled to place around noon good -- gun salute is scheduled to take place around noon.

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 . francine: we are getting breaking news, march retail sales in the u.k. falling 1.3% instead of the 0.1% decline that we were expecting. retail sales a lot worse than expected for the month of march we will have to dig deeper into those figures to see what the underlying cause is. it does have an impact where easter was. that is usually a bank holiday. people do go out and shop more. you can see pound on the lower side of things. morning.re flat this let's head to the bloomberg with mark barton. mark: we were up for the nice day. we are down about a fifth of 1%. the last four ecb meetings, the euro stock 50 has swung 4.1%.

the last ecb meeting on march 10, when of course the ecb expanded stimulus, we had the most volatile day for the euro stoxx 50 in four years. it rose by 3.7%. if philippi -- it fell by 1.5%. today, little change ahead of that meeting. nothing is expected. we will see how the euro has fared since this journey began in january of last year. atve got where the euro was 108. we had more qe in december. more qe of course in march, the euro was at 110. will draghi make the same mistake he made in march i intimating there will be no more qe? it is unlikely. economists think he will say the door is open for more stimulus is needed. vw, big story today.

it has agreed to settle $10 billion to resolve civil claims over diesel vehicles rate to vehicleslution -- rigged to cheat pollution. this is vw's cap over the last several months here at -- months. the market cap was 76 lean euros. -- 76 billion euros. chased -- retraced a lot of that market cap wipeout that we saw in the preceding two weeks. today, shares were down as much as 10.5% francine. that is the most since january 2012. first-quarter sales missing estimates. phone operators continuing to curb network investments.

francine: there is only one sure way to win in today's markets and the man who bet big against the banks, i spoke to hugh hendry about his volatility plans. hugh: there is a sure thing and financial markets could -- markets could you want to the long to volatility on the dollar yen cross. thing, it is a sure is always expensive. you always have to pay more than what it is worth. that is still the case could if you look at the cross between -- still the case. that is still the case. volatility is really the same as what it is realizing the actual volatility. the bases on the chart if you look in the last six years, it is average level price.

is conjecture that i have regions know. both needing aggressive monetary adventure. i think volatility should be higher. again if something catches you and left field, i am not paying for it. i am kind of like on the beach. , i stillbetter trade think monetary policy they've got mileage. i think there is plenty they can do. let's say i am wrong. i am very intrigued about the yield spread between german .und's and italian bcps back when europe was on the precipice of this crisis in the summer of 2012, which brought forth this proclamation by mario

draghi to do whatever, that spread was over 600 basis points. it compressed. a got narrower and narrower. -- it's got narrower and narrower. 125.'s we have had -- we have crossed this rubicon. the germans have allowed quantitative easing. we have negative rates across the continent, yet that risk spread can contract anymore -- cannot contract anymore. if i am wrong on china, if brexit turned out to be more exciting than i suspected, these are things that could spread 200 basis points. for every basic move i make, i lose three basis points. there is a lot of coverage there. 25 is the downside, probably i could use -- i could lose 50 to 60 races points.

-- 60 basis points. is didierjoining us saint-georges. thank you for coming in. we spoke to hugh kendrys, a contrary and investor. he is bullish on china. he says nothing is going to go really wrong there. he wants to be optimistic. are you optimistic? didier: not long-term. it seems quite clear that a number of events are directly rekindled the system to markets over the past two weeks. been stabilization in the u.s. mostly it has been about the dollar commodity shock looking like it is over. that is been good for emerging

markets as a whole. .ostly, it has been about china not stabilizing. china sort of offering a blowout between investors. it is very pricey when you look at the numbers. things like total social bouncing. -- social balancing. francine: level territory almost here it didier: this is the government -- level territory almost. didier: this is the government priming market. moving forward the economy growth through debt. francine: you are cautious. you hear from george soros, he was talking yesterday saying gdp growth seen better. what china is doing is exactly what we found in the u.s. and

2007 and 2008, precrisis. are you that careful about china? didier: i am afraid we are. i am comparing it more to what china did in 2009. this is a question of the basically saying we are not thee enough to take necessary action which is about bank restructuring. which is about reusing overcapacity, but to the contrary, we are going to recognize we cannot afford the recession. because these services side is not going fast enough to make up for the lowdown down on the industrial side, we have to prop again.industrial side very concrete measures you can look at. francine: you are expecting a bust in china? didier: it is difficult to keep up.

they are going to have to do something about it. i was mentioning -- the typical measurable amount of activity. last year, every quarter, the sales were down to 30% to 30% every up. they are going to have to do something about quarter. first quarter this year, up 15%. this is not a stabilization, this is a program. it has direct real effect on prices and demand. that makes sense. extreme the concerning for the long-term. francine: did ea, thank you so much. didier, thank you so much. he stays with us. up next, sabmiller reports rising beer in the first

quarter. we break down the numbers. ♪

francine: welcome back. sabmiller has reported a gain in fourth quarter beer shipments led by growth in africa and latin america. the process has been taken over by ab inbev. let's get more from bloomberg intelligence. did he send george -- dj st. george.

it has to do off currency movements. didier: it is a u.s. dollar-based business. -- they have been stumbling badly over the last year on the back of currency. they are not delivering very good numbers. francine: this is a consolidation phase. the industry has gone through hughes consolidation. to make sure ab inbev can get a hold of sabmiller. are they any regulation hurdles? duncan: they have done a majority of what they need to do to get regularities twos -- regulators to sign on the dotted line. it is something we have not thought about in terms of market share it whether there is deeper issues. who knows whether they may come back and ask more from abi.

francine: this is a story of consolidation. it is a story of having the appetite for a lot of cash. it is a story of currency and emerging markets. what does it tell you that out of those three components? didier: not the emerging markets story. china.ed about if you look at the rest of emerging markets, you have a situation where overall, after hardships, a hard time of recovering from the slowdown of five years ago, we are reaching a situation now where the economy, retail spending in countries like india continues to be sturdy. probably in countries which have become extreme the complicated, like in brazil.

to situation is starting to improve just starting to improve a little bit. -- starting to improve a little bit. we want to make five-year plans, and the demands of the emerging markets to remain where you look at the growth. francine: how much of the -- we look atn something, they are not doing too badly. at what point will we have sustained growth? that is a fair reservation you can have on earnings. it is not just for retail, it is for sectors, there is fair amount of market gain which is coming from cost-cutting. you want involving growth to pick it up from there. for the issue durability of the earnings improvement.

that is why the volume has to be the next story in emerging goodts -- next story emerging markets remains the best place to get it. francine: didier saint-georges stays with us. we will be talking technology and googled next. we'll get some more calls from dda -- from didier. this is the pulse here it -- the pulse. ♪

francine: this is the pulse. let's get to bloomberg's business flash with nejra cehic. nejra: erickson shares have plunged after reporting first quarter sales that missed analyst estimates. the software maker says sales to $6.4 billion. phone operators continue to pull back on spending. novartis expected -- novartis reported earnings that beat analyst estimates. that comes even after the company lost protection on its best-selling cancer medicine. 779 million pounds. investors would receive 145 pence per share in cash. 10% more than yesterday's closing price. the company tries to seal up a rival bid from steinhoff

international. shares are trading higher on the news. a group of investors have called on the board to investigate and possibly dismiss the company's second in demand. they're questioning whether there is a conflict of interest. softbank says aurora has done nothing wrong. that is your bloomberg business flash. francine. francine: joining me is didier saint-georges. talk to me about the retail and emerging markets. talk to me about emerging markets. you on microsoft and google. . have two charts made up is microsoft. the yellow line is google. they start at different levels. you did pretty well with both of them. yesterday, we heard from the

european commission saying google has unfair competition. does this make a difference to the value you see on this chart? didier: it is going to be a long story and surely we will talk about it in several years from now. it doesn't affect investment. francine: why do you like the stock still? it is a powerhouse. didier: there is the notion to really understand when it comes to technology now, with the internet model, it has become winner takes all. andneed to find the winners it can make a big difference. google is one of those. is some oferesting the core business, the search, youtube, the mobile activity is going extremely well. you have some effort now ticking place on the car's side -- now

taking place on the car's side. two bigdd to that upside potential. one is the return on capital, simply because capital that's simply because google is sitting on cash. as a shareholder, this started a share buyback program here at -- program. the third thing is a moonshot of a long-term. programs that you cannot quantify right now but optional value on the stock. it is an exciting story. francine: you like the players who don't think they are overvalued. twitternking of yahoo!, . i know you do not own twitter. is there any value in yahoo!?

didier: touched on the right approach is not evaluation -- is not evaluation. francine: winner take all. you need to find the one that is going to get twitter percent earnings growth going forward. -- get 20% earnings growth going forward. company that in a stock price that can rise through all of this uncertainty. francine: what is your take on banks? we have the big american banks trading better than expecting desk than expected. it is -- expected. it is cost-cutting. didier: this year at least analysts have been miserable. the numbers as you suggested were not good. risen sotation has much that overall the numbers

were acceptable compared to expectations. you have a problem of growth and it is worse in europe than the u.s. in the u.s., they can make up for by cost-cutting. -- make up for it by cost-cutting. in europe, they cannot. that at the time of the crisis, you had as many banks in the u.s. as in europe. today, you have half the number in the u.s. u.s. bank system has concentrated and rationalize itself. i would favor the u.s. bank. is growth potential issue valid as well. francine: didier saint-georges -- stay with bloomberg. surveillance is next. tom keene will be joining us from new

york. talking to the swedish central bank governor. i am fascinated by riksbank. they put more qe to move krone. it moved the wrong way. ♪

♪ francine: china's credit growth to the u.s.. before the financial crisis of 2008. druggie.or investors expect the ecb president to say that his program is working. we talked with algebras. as president obama leave saudi celebrations of the u.k., we talk oil and production freeze. this is bloomberg "surveillance." am francine lacqua in london. tom keene is in new york. we are looking at markets an