>> welcome to "on the move. we are counting you down to the european open. berlin and here's what we're watching today. the road ahead is embattled. will we see signs of recovery in the wake of the emissions scandal's. the treasury stagnates as the dollar dominates the month of may. that are the markets prepared for the fed shift? as investors turn on china.

short interest on chinese equities jumped to the highest level in a year. it's the big short back in china. we are less than half an hour to the european open and that all lines are open as we open for futures trading where up just slightly. for the w toing cross at any moment this morning before the market opens. also take a look at the amazing story unfolding in asia. the nikkei to 25 getting about 1% right now but it is really in china that the interesting story is unfolding. you can see the chinese if i 300 up 3.1%. this is an index keep in mind that was limit down overnight in less than one minute chinese stocks dropped 10% and then bounced almost immediately back. it's interesting because we are also watching the incredibly

high levels of short interest in china. it doesn't seem to have stopped a quick recovery for what looks like it may have just been a technical glitch or so-called bad finger. in currencies you can see a little bit of gain and emerging-market currencies. you can see the yen getting about 0.1% and the aussie dollar putting up the biggest gains of any of the major currencies against the u.s. dollar at about 9/10 of 1% as the dollar loses some of the steam it had built-up yesterday and especially friday. let's get to bloomberg's first word news with julia. the japanese industrial output rose 0.3% in april better than an estimate of 1.5% decline. year on year it fell 3.5%. agoding 12.4% from a year less than the 1% drop forecast. the data comes as investors

await announcement from prime minister shinzo abe on a delay to increasing the nation's sales tax. reversedce minister cause and joined the ranks of lawmakers calling for it. chinese equities are once again in the cross hairs of short fellows. short interest in one of the largest hong kong exchange traded funds tracking chinese stocks have surged fivefold this month with highest level in a year according to data compiled by markets and bloomberg. the last time they were so high they to prove well-founded as china's bull market turned into a $5 trillion route. meanwhile the chinese stocks when inclusion to the msci global indexes in june have shut up to 70% with the government's efforts to curb trading halts and clarify that. that's according to sources. inclusion of asia.

an ally of german chancellor anglin merkel said the u.k. must and resist clinging to its imperial passes voters decide whether to leave the european union. the european parliament foreign affairs committee and a member of the democratic union the political arguments favored saying it is a block bash on the other side of the motion. for global news 24 hours a day powered by our 12 400 journalists in more than 150 news bureaus around the world. you can find more stories on the bloomberg. -- >> have to be talking about what is happening in the united states. the fed shifted toward raising interest rates. meanwhile, treasuries have lost their edge over stocks. stagnating in the second quarter.

the s&p 500 has returned to over 2% which is a reversal of the trend we saw in the first three months of the year. guest,elcome our first daniel morris, senior strategist at bnp paribas. andys good to have you always good to hear your american accent when we will be leading with the u.s. because today, king dollar it ain't. we are seeing some he currencies related to minors doing well today but give us a sense that the u.s. dollar really has been the out performer. suddenly janet yellen adding to the course that is a hike to come, is it june or july? >> it is the swiftness of the change in tone. if you took it how cautious they were highlighting risks about china and seemingly in a short period of time turning it around to the next several months you may have a hike. that is the most important thing

we've always seen and have strengthen the u.s. economy to justify a hike. it is surprising how quickly that has changed. >> does the economy support this change as well as some of the vocalization that we are getting from the fed? that you got is on the one hand remaining the market that u.s. interest rates are going up and make a up sooner than you think but there is always a caveat -- the result is a caveat that if the data justifies it. which could be nonfarm payrolls are unemployment dropping. in the fed itself and highlighted that core inflation was in their view going to rise temporarily in the first part of the year, it did and has been coming down the last two months. if we see that continue, it will be more difficult to justify something in the short-term. >> 160,000 is currently expected for nonfarm tables and wage growth is excited to fall off a little bit. do those numbers back up the data?

>> we had a slight contradiction of the first part of the year that you had really good nonfarm payroll growth at the same time that u.s. gdp was weak him a that was a disconnect. growth suggest there is more tightness in the labor market and low participation rate is not a significant as people think. >> i think june is probably less than 50%. july is probably 50-50. much more on how it affects the emerging-market as well. we will be digging into that chinese news. then you morris, the senior strategist at b&p paribas. up next, the big short is back in chinese stocks. the highest in a year. ♪

>> welcome back, it is currently 7:14 in london and we have been seeing the futures market continue to signal that we are on the upside today up about 0.2%. you can come into my screen and we are up about 50% on the overall market when you're looking at the stocks 50. we could see the 5100 up for about a 10th of a percent. let's ask denny morris, the

senior investment strategist at e&p paribas. what are the effects that the potential -- that the fed could move faster than anticipated. what is that mean for european equities? are they a buy or a cell? do we concern ourselves that will make it risk-averse or is it time to come out of that? >> the frustration for a lot of investors this year is when they look at the earnings outlook for the u.s. versus europe europe look much better because our margins were lower so the majority of people -- european equities have not worked out very well and the reason for that is certainly at the beginning of the year the fed was so dovish that we did get the strength in the dollar that we expected so european equities underperformed. that seems to be changing. a defenseman to earnings outlook they still look more attractive another we have dollar strengthened we now have a path through to exporters.

more than we had a december the way that we had hoped. >> how much is there a concern that if the fed moves, even though we have not seen u.s. treasury's move all that much, and we seen the continued strength in u.s. stocks, is there a way this could destabilize the emerging markets in particular which would rattle our equity feature outlook? >> if it goes to the far too soon yes. that's the story we had earlier. so now has been signaled that there is always been a knee-jerk negative reaction to the idea of u.s. interest rates going up but you realize we are doing this because hopefully fundamentally the economic numbers look good. hopefully it's a short-term setback and it best are is a modest appreciation. you are not likely to see the u.s. fed hike this year. not too much appreciation and

not too much turmoil for emerging markets. >> there is still some. looking at thebe short interest that is building in one of the largest hong kong exchange traded funds tracking domestic chinese stocks. in fact they surged fivefold this month of the highest level in a year. let's join her asian market structure team leader sam moody in hong kong. talk to us about what's happening. why are investors getting so bearish on chinese stocks. >> it is a currency play. there is a suspicion that the chinese currency is weakening it will continue weakening and that he had been discussing with daniel, the expectation that in the u.s. they will increase the rate slightly which will strengthen the dollar further. when you get that kind of situation you will see investors getting out of chinese assets and that's where they show that they are pouncing. >> it seems to be displayed

particularly in the exchange traded funds where we are seeing the rampant buildup but even the last time short interest was this high we saw the crash in chinese stocks. should we be worried to the same sort of level that that could be about to happen? >> one should always be worried. but there's a situation different now. shanghai composite is 40% lower than it was at the start of last summer's are you could say even if there is a bubble, the company is so overvalued that it is not quite as extreme as it was and also there's the belief that the policymakers have learned some lessons from january. china did some things that did work in some things it didn't in the pboc's keeping an eye on things now. >> give us a little sense of some of the volatility we have been seeing. displayed even as soon as today we have seen some very interesting news, dramatic news.

from the cfi 300 futures. we saw as much as 10%. is this all about -- >> that is what we are hearing from our colleagues in shanghai especially. but the talking our markets seems to be at the was a fat finger and briefly we saw a 10% decline and it snapped back again. >> we won't get too concerned yet but there seems to be a bit of a reoccurring theme. we'll keep an eye on what happened use of a phenomenal moves it did not really seem to dispel the buying we have seen in the csi 300 the underlying edge mark for the rest of today. somebody thank you very much in hong kong with all things you should be watching out for an let's bring back our guest, daniel morris, senior investment strategist from bnp paribas. as long as the u.s. doesn't hike too quickly or suddenly, we could, not fall off a precipice but is it still time to be long

china? there are views that from the valuation perspective are quite expensive. >> it depends on the market you look at which is a bit of a challenge i'm in. if you look at valuations for in emerging markets equities as a whole. they seem much less than you get in developed markets. the look at the sectors within china the sectors are probably more worried about the banking sector with nonperforming loans paid on enterprises. those are the parts of the market that are cheap or have more valuations than the past. the parts of the market you probably like such as tourism or internet commerce those are above average. as always when you look at an index you're taking an average and the variations of parts of the market are cheap for a good reason. the parts of you that you like with growth potential you're paying for that. >> we are going into one particular industry, the auto industry. give us a sense of breaking news and even -- maybe even more about cpi.

>> let me give you volkswagen right now we are getting headlines rolling across here. first quarter sales at 51 billion euros. a little bit lighter than the estimate 51.5 billion euros. the first quarter operating profit is 3.4 billion euros. and volkswagen is reiterating its 2016 forecast as a whole. so we are seeing sales that are a little bit light of the forecast and we are seeing operating profit of 3.4 billion euros. i cannot tell you how that all compares with the estimates, but we are a little bit light on sales here and the forecast remaining unchanged. we will see when volkswagen stock opens up in about 13 minutes how investors are seeing this and we will continue to get headlines. but i'm looking for to the amount of

money that they put aside to deal with this in emissions scandal. eurosut 16 .2 billion aside. we could see a revision of that although hopefully not by too much. and then i will look for anything in the outlook. they say they are reiterating the 2016 forecast as a whole. groups quite interesting sales resonating slightly but the operating profit seems to have been helped by special items, certainly coming in better than expected. beating that estimate of 2.7 billion euros. sticking to their overall full-year forecast but it does seem to be interesting digging into the detail of what the special items exactly were. still seeing twice 16 operating returns on sale.

>> as you say, operating profit is up 3.4 billion euros. we're looking at 3.3 billion euros -- it is hard for me to get my head around it even after a few weeks around using the term euros when looking at numbers, i automatically think dollars. that will change. we are seeing sales come in a little bit right and is this a question for volkswagen? diesel has been some of the most popular products recently and across europe diesel is incredibly popular. consumers are turning their nose devotees all. will this expect -- will this affect sales? in the first quarter they missed the estimate slightly with 51 billion euros compared to 51.5 billion euros. i will get into the statement and look for any statement from the ceo or the cfo as far as what they expect.

>> ew has outperformed the rest of the market. despite the emissions scandal they are starting to even shake off those initial concerns and in the last month alone the risen 6.6%. let's check in on where the rest of the market comes in at the moment. it looks like a great day. we are likely to see holding on to some of those gains, ftse 100 up about 2/10 of a percent. not a runaway success with volkswagen. it will be dictating where we move. talking at the new york post in fact regarding deutsche bank been potentially probed. keeping a close eye on all the equities out in the open we have about 10 minutes to go will bring you the other stocks. you have to stay tuned. this is on the move.

>> welcome back to "on the move." we are minutes away from the open and it went to get some stocks to watch for you. kicking off with volkswagen.

you can see the company coming out with earnings that were slightly higher operating profit , 3.4 4 billion euros versus 3.3 3 billion euros because of some special items. however sales were down 3.4% and missing estimates as well. sales coming in at 51 billion euros compared to 51.5. a statement from the company says it is not only due to a drop in unit sales but also to a drop in currency and fx effects. sales are coming in a little bit light because of special items comes in better than not only better than expected but also better than it had been in the year ago period. >> finally are we signed to see the dubya managing to look forward and shake off the emissions scandal. checking another big german stock, keep an eye on deutsche bank. it could fall on the open with this also running a report by the new york post saying that actually deutsche bank --

deutsche bank is the focal point of an investigation into traders potentially suggesting the auction of some u.s. debt. the new york post is that site anyone, these are unidentified sources but of the 22 primary dealers of the u.s. treasury, all are being asked for data at the moment. there is no reason to be a political point. essay deutsche bank we get a quick check from daniel morris briefly. we have about one minute. ati think we want to look particular to the w but he says more broadly about sumer demand in the eurozone. that is one of the stories people are hoping to play. consumer confidence getting better again slowly so hopefully more consumer demand. so it should help auto sales. culturally you been looking at small-cap stocks within europe. they performed significantly better over the last year but on a relative valuation basis they are still attractive. betterconsumer demand,

for small-cap stocks and valuation totals. >> eurozone and unappointed out later today. and out of germany the unemployment figures as well. ♪

caroline: are welcome to caroline: -- caroline: welcome to on the move. we are moments away from the open of trading. matt: good morning. the road ahead. volkswagen's profit rose 3.4% in the first quarter as operating profit climbed to 3.4 4 billion euros. hawks flock. the dollar dominates in may. our markets prepared for the fed shift? investors turn on china. short interest on chinese equities jumps to the highest level in the year.

is the big short act in china? --back in china? let us take a look at futures. do you want to look at futures? caroline: i am tracking it here. we are seeing the dax coming off of its previous highs. the futures market signaling we should still hold on to our gains as we open up on the market. 100 openeing the ftse about 0.1% higher. the tax -- switching into green. yet to open.ill let us get straight over to . green across the screen's. ap up hereave the imp on the bloomberg. the majority in the green on the

stoxx 600. financials leading the game. up 0.2% following by consumer discretionary. industrials edging into the red. that is how industry groups are performing. we are seeing the u.k. guilt market open for the first time since janet yellen spoke on friday. look at the spiky. the 10 years is up three basis points. the reaction we are seeing in the u.k. market. treasuries we saw move higher. european yields when they opened yesterday, moved up yesterday. stocks we are watching -- on to stocks including volkswagen. this is the first time the carmaker has not yet as i aliens of euros in provisions since admitting in september to

rigging those vehicles to pass the emissions test. operating profit number for the first quarter was a beat as well. deutsche bank. that ithave heard is has emerged as a probe into whether traders rigged options for u.s. debt. they are citing unidentified people familiar with the matter. the newspaper said deutsche bank has not disclosed that it is under investigation for treasury trading. we are watching deutsche bank traits. we are also looking at alliance trust. trust said it received a takeover approach from rothchild capital partner. at it looking that -- being the last close. we are also watching rit. matt: thank you.

rose 3.4% inprofit the first quarter. operating profit climbed to 3.4 4 billion euros. it is a first time the carmaker has not set aside billions of euros for provisions. since rigging -- since admitting that it had rigged the vehicles to pass the emissions test. talk us through these numbers, chris. it is a big beat but a lot of it is special items and currency effects. currency adjustments for the 16.2 billion they have set aside so far. otherwise, it would have been a decline at it is a better declined and people were expecting. it would have been 3.1 billion. bloomberg consent -- bloomberg consensus was 2.7 billion.

actualwhat about the sales of cars? volkswagen is still the big meet as far -- the big meat as far as revenue is concerned. a slight smith there. chris: that is a sense of discounting. and revenuegrows declines. that gives you a sense that they are discounting some cars and putting some money on the hood to move metal. matt: unit sales are still in line. chris: unit sales were up but revenue was down. they are getting less than average for the cars. if you look at the brand, the vw brand has taken the enormous heads. is 0.3%.lity it has fallen off the cliff. the hit to their image has

been incredible. it is weird that it has not hit audi or porsche. also have diesel engines. also some engines caught up in the scandal. those brands have been unscathed. chris: they have a lot more equity in there. people who buy those cars want the image. the image damage has hit bw. hit vw.i matt: the image and their performance. -- and the performance. caroline: style over substance. chris, it is always great to get his perspective. daniel morris is with us.

sector is dictated by consumer preference. about other industry groups you are liking at the moment. where would you be actively investing? i think weeurope, have seen a nice return in the u.s. with the increase in interest rates there. less similarly in europe, we are not likely to see the change in outlook. the valuations for the financial sector are attractive. valuations seem quite low for the financial sectors. whatll come down to policies you get out of the ecb and the pressures you have on earnings and revenues. caroline: where would you look? we got news out of deutsche bank. the new york post focusing they could be the focal point of an investigation into u.s. treasury

sales. are there more appetizing banks to be looking at? daniel: you will see more credit growth in the quarter countries like germany. in spain, it is still negative. you have to wonder about underlying recovery in the quarter countries and in the u.k. -- in the core countries and in the u.k. daniel, i wonder how much risk is amplified. we are talking about assets ranging from risky in china to very risky as far as italian banks and spanish credit is concerned. this week, we have an opec meeting. we have an ecb meeting. report june -- may jobs

out of the u.s. aren't riskier assets more risky now? hand, we just had the recovery in oil which has helped equities have more optimism on china. that is good. at the same time, you worry about the market and investors in general becoming more complacent. the risks we have had in our minds in january and february are still there. in thewhat is happening depreciation of the yuan. the risk of the reversal in oil prices. plenty of negative catalysts we could bring up that would shock the market. with valuations so high, it suggests the markets would not

take it so well. matt: if complacency is your aggest concern, that is not horribly risky climate. have the pressures lifted? daniel: the risks for the market -- the height is one of -- the hike is one of the smaller ones. secondarily, it should be something positive for the markets. it signals stronger u.s. growth. about more concerned eight to fast appreciation for the dollar and what that might mean for emerging markets. a lot of these countries are still struggling with the current account deficits. budget deficit problems given the fall in commodity prices. that is the biggest risk we are aware of right now. until we see unknown unknowns, that is always the risk with investing. near all-time highs for the s&p 500. you wonder how well they would

take that if something unexpected came. matt: excellent wrap of the risks. daniel will stay with us on the move. up next, the fed in focus. what does a more hawkish rate path mean for emerging markets? we will discuss. ♪

caroline: welcome back to on the move. let us check in on the markets. we are holding on to the days. -- the miners are leading the pack. a rebound in metals. keep an eye on overall household goods. ftse catching up on yesterday. it was closed for the holiday. they open up a little higher. giving upd the cac some of yesterday's gains. the worst performance -- pulled down by volkswagen. down by 2.5%. german stock to keep an eye on. that is why we are seeing the dax trade lower today. let us head out for the bloomberg first word news. hear from juliette saly. juliette: speaking with

volkswagen, the earnings rose at 3.4% as operating profit climbed to 3.4 4 billion euros. that compared to the average as to met from 11 analysts. it is a first time the carmaker has not set aside billions of euros in provisions since admitting in september 2 rating vehicles to pass emissions test. the company is shifting focus from the scandal towards accelerating turnaround efforts. roseese industrial output 0.3%, better than an estimated 1.5% decline. year on year, it fell 3.5%. household spending fell 0.4% on a year ago. what was forecasted. investors are awaiting an on a likely by abe delay to increasing the country's sales tax.

chinese equities are once again in the cross hairs of short-sellers. short interest in one of the largest hong kong exchange surged five has full this month to its highest level in a year according to data compiled by bloomberg. it was this high, such pessimism proved worthwhile. the odds of the chinese stocks winning inclusion into the msci has shot up to 70% with the government's efforts to clarify beneficial over -- ownership rules according to goldman sachs. 5 inch --dressed 2- issues. global news 24 hours a day powered by our 2400 journalists

in more than 150 news bureaus around the world. you can find more stories on the bloomberg at top . matt: thanks very much juliette. the fed is in focus not just in the u.s. index is ong dollar its biggest monthly in advance since september 2014 as u.s. rate hike x dictation continue to mount. that is bruising emerging-market economies across the globe. india's finance minister. >> we have to maintain a balance rupee and astrong realistic rupee in which weekend continue in the current environment. not doingde is exactly buried well in the world. matt: let us bring in our guest in london, matthew morris.

i am stepping on your toes this morning, caroline. caroline: that is ok, match. daniel, let us talk about the effect on currencies in emerging markets. how do investors start to hedge themselves? daniel: the real question is if you are looking at potential emerging market investments is how much further do you think the currencies can continue to depreciate. we think it we are likely to see some appreciation in the dollar and depreciation of emerging-market currencies. not to the degree we have seen in the past. that emerginggest markets may be attractive. you will still have short-term volatility.

from a macro point of view, we still have current account deficits and macro deficits and the slower growth in china. it may not be the best trade over the next month but long-term, it could be an attractive entry point for emerging markets at this point. caroline: how do commodities play into this space? crude is trading higher. metals are trading higher. daniel: two size. commodities have helped. -- two sides. 80% rally in oil. you start to feel more cautious about commodities. if they roll over a bit, that will have a knock down affect. emerging markets are not quite as weosed to commodities assume in the hole. if you look at their shares for

exports, it is not that much higher than developed markets. if you look at the composite of index, -- it is a factor and it gives them a slightly higher sensitivity. there are opportunities and it is not just commodities. daniel, correct me if i am wrong but the gain in oil is down the supply coming more than demand rising. emerging markets need growth. that is where the problem lies. is that correct? daniel: the positive way to interpret it is exactly what you said. the reason we had the decrease in oil was fundamentally over supply as opposed to collapsing demand. demand is still rising. we just need to bring the markets into balance. that is happening. oil is still lower than it was previously.

still, a little more cautious. two reasons. if you expect the dollar to argues forthat moderately weaker oil prices. if you think of the range for oil prices in the future, we think a more valid comparison would be the range of from 1986 from 2003 when oil ranged $30-$40. that is a more realistic range. when we look at emerging markets, i want to ask about risk again. profilestment risk strong enough to make that jump or are investors still suffering from jitters of a u.n. -- of a yuan devaluation? daniel: the risk relative to the reward. risk is still elevated in emerging markets.

attractive is that margins are below even the levels you saw in 2008. margins in emerging-market equities below 2008 levels. do you think they can go any lower than they already have or is it more likely that they will go up? that is what has changed now versus the past. hopefully, marginally less risk but more opportunity. caroline: what about credit? there is not that huge a selloff in u.s. treasuries. -- the probability coming in of a rate hike by july. is it time to start to get out? daniel: on one hand, if you -- it is ahike

fairly significant increase. at the same time, not anywhere near the commensurate of the increase in the 10 year treasuries. buyingl have the ecb bonds. the bank of japan might increase its him quantitative easing program. there is a lot of downward pressure on yields at the same time. that may cap the selloff. you very much. daniel morris. he joined us today. next, we will be talking about our chart of the hour. fed?l pegged to a hawkish ♪

welcome back. here is your chart of the hour. we are talking about made being a good month. phrase, sellow the in may and go away but perhaps not with the dollar. the dollar has gained in may and it is on track to rise for a seventh straight may.

i have tracked it in red. it has to do with more prospects fed.e rate hike by the which currencies have been the biggest casualties against the dollar? in the developed markets, the yen and the aussie dollar were the worst performers in may. the yen is still up about 8% toinst the dollar is year date. will this continue through the end of the year? a couple of people have said we are poised to see more dollar strength. the next question is what does this mean for the u.n. -- for the yuan? interesting that the chart shows that the strength of the dollar was good in may. caroline: i wonder why it is a monthly theme. thank you very much. up next, we will be digging into comments.d the draghi

we will be digging into the data including eurozone inflation and can it reach its target? that is coming up next. ♪

caroline: welcome back to on the move. we are 30 minutes into the trading day. the marketscture of as they treat. autos are dragging the pack lower. vw earnings missing many expectations. the stoxx 600 remaining flat. other day of catch up for the ftse 100. yesterday in the green, today, a racing some of those gains. helping usou will be understand what is happening to vw. nejra: i will first talk about

arista. looks like volkswagen has picked that. they sell specialty bakery products. the stock is down today. third-quarter revenue coming in at 949 point 8 million euros. .8 million euros. volkswagen heading lower after an initial gain. we got profit rising .4% in the first quarter. the first time the carmaker has not set aside billions of euros in provisions since admitting in september two regain the emissions test. the number was a beat. perhaps that is why we are seeing the stock moving lower. there are also currency related adjustments. volkswagen is down.

ig group, one of the best performers today. we have some numbers here. four year earnings are slightly ahead of views. it performed well in the quarter. all key metrics remaining strong. a cost increase was offset by strength in trading revenue. matt: thank you very much. policy divergence. that trade is back on with a vengeance. investors reacting to a hawkish fed. janet yellen said improvement in the u.s. economy would warrant a rate hike or hikes. mario draghi will have a better idea of how far he is from his target. the rate of just under 2% has not been released since early 2009 the we did hear from his vice president that they could

hit that in a couple of years. let us discuss this further. we are joined by valentin. i want to ask you about the ecb's predicament. possiblear that it is they get closer to their target of 2% in 2018. we had german inflation rising back up to 0% in the reading we had yesterday. things do not look quite so bad here in europe. going into the ecb meeting on thursday, the ecb will take the latest data to revise its inflation projections for this and next year. we also expect upgrades to the growth projections. on the whole, more constructive outlook expected from the

governing council. it hasng the data today, to be a big disappointment relative to the consensus of change. 's not overly happy about what it is seeing but it is not as disappointed as it used to be in recent quarters. on the whole, and improving and fairly constructive outlook for the eurozone expected to be signaled on thursday. caroline: how do we play that fx point of view? -- to whats a case extent will that be credible and we are what extent seeing draghi act. on the whole, we think there will be two key implications.

especiallyd recover if it signals the euro is not a regarding appreciation. because it is focused on the domestic side of the economy. side, depending on how credible the message is, the markets will be encouraged by risks or could turn more defensive. in juneto the meeting or july we do expect a rate hike. may not beput extended anytime soon. from that point of view, we remain fairly bearish. what about the other key central banks that have the capacity to stimulate including the japanese?

where are you seeing yen-dollar? going into the june it said meeting, and the boj june meeting, on the whole, the outlook may be more balanced because of the risk aversion. the fed is hiking rates. they have to take into account the impact of further tightening in global financial situations. that environment, safe even currencies could be supported. down the road, we think the boj could be on course to deliver further easing which should strengthen the divergence. we are conscious of the fact spiken unexpectedly sharp in risk aversion should derail any rally. aversionis that risk

that a lot of investors are telling us is pushing them into .he yen there are a lot of risk factors this month including ecb, the jobs number, the fed meeting, and the brexit vote. once this is past, especially the brexit vote, you think the willaversion coming off give the japanese more room to breathe as far as the currency is concerned? guest: there is a strong correlation between where the yen is trading and how risk averse the markets are. if the boj wanted to announce , i would expect more easing, they will want to apply that to maximum effect. anre will be easing in environment where the market is willing to buy risk.

one of the assets that officials may want to target is not necessarily the fx market but it would be the equity market. that would be accompanied by yen appreciation. aimed atmore measures supporting investor confidence in those markets rather than fx in isolation. further easing may come after that bout -- whether it is geopolitical risks is behind us. longer-term we do think the yen could depreciate further. beoline: sounds like cautious on spikes in risk aversion. go slightly younger in the euro. we will be asking much more on japan. up next, we have had a batch of data out of japan.

industrial production, employment, and household spending. is the japanese economy improving? we are live in tokyo to run through the numbers. ♪

caroline: welcome back. this is on the move. let us get straight out your bloomberg business flash. shares downlkswagen this morning as the embattled carmaker said 2016 revenues are

down by as much as 5%. the company reported a 3.4% rise quarter oft operating profits. it is the first time the carmaker has not set aside billions of euros in provisions since admitting in september 2 rating vehicles to pass the emissions test. bankruptcyruled out as a way to reduce its vulnerability. is seekinge company buyers to take a controlling -- canhat can carry its carry it through its crisis. rover is helping put talk top motors -- tata motors in the fast lane. luxury car sales in china and europe have gone well. says it is

cautiously optimistic about global growth. star driving sales in the u.s. may affectag scandal some of its vehicles but it has put aside $100 million for repairs. the new york post is reporting that deutsche bank has emerged as a focus of a probe into traders rigging options for u.s. debt. -- wrongdoing. 22 primary dealers in treasuries. deutsche bank has not disclosed that it is under investigation. that is your bloomberg business flash. caroline: juliet, thank you. let us stay in asia. a lot of economic data came out of japan this morning. jobless rates, unchanged and remains low. industrial production inched up higher.

let us get more from tokyo. give us a sense of what is happening with the japanese economy. is it getting stronger? yes, it was mixed. all in all, it is not getting any better in japan. normally, a low unemployment rate would be a good thing but not -- but in japan, it is not driving wages any higher and we see that coming out in the consumer spending data. industrial production come it inched a little higher that we are not seeing any strong rebound there. year on year, it failed. japanese exporters are not getting much help with the yen getting stronger and domestic demand in japan continues to be weak. in that case, it makes a lot of sense that the government

would delay a planned increase in the sales tax. that is what we are hearing from people in other parties. what is the latest from tokyo on this? rent: moore lawmakers are coming out supporting a delay in the tax rates. the finance ministers said that today was not the time to be increasing that tax. that comes after he was speaking with g7 counterparts saying that japan would go ahead. more and more people are coming out in support of a delay. the finance ministry will see this as a blow. thoughe finance minister is now behind a slow down. caroline: thank you very much. thatkyo, spelling out there is not yet a turnaround in japanese data. let us talk about what is happening in japan.

give us your sense of the sales tax debate. more big hitters are advising to delay.ent and now the finance ministers supporting batch. valentin: that is the big debates. i wish i could say that there is a lot of confidence that even if they delay that measure that there would be a significant positive impact on the market. ultimately, i think they will delay but to what extent will that get the nikkei rallying or dollar-yen weakening. there was not much confidence around that. anything, what clients were concerned about was that abenomics is working.

it will ultimately get the economy growing, people do not support that view. the yen to potentially weaken again. we would have to see both fiscal and monetary stimulus working together. view is stillhe that we will get both before long. the question is when. -- itlighted that the boj would make more sense for the boj to ease further when conditions are right. in terms of more government stimulus, it is already in the making. delay. that is the there would be more fiscal stimulus to come. the hope is to help the economy recover from here. to get the investors confidence back. it may require more. matt: i want to bring it back to

berlin. merkel, told us that that you kate needs to cast off its old dreams of empire as voters decide whether it wants to leave the u.k. the foreign affairs committee and a member of merkel's party -- this is what he had to say. >> i hope the young people will go and vote. they are for staying with the european union. they understand that britain has no future. all dreams of the empire is not a dream for the future but of the past. matt: i find that fascinating. certainly, a german telling the brits to give up hope will not much.he brexit debate it does seem volatility has quieted down in the pound.

it looks more and more like we know the outcome of the vote. valentin: i wish i could tell you that the outcome is getting clearer. unfortunately, what we keep seeing is that the staying vote gets a bit of a boost. following that, a rebalancing in the polls. the risk of from the current point of view is that the pound may suffer again especially if the polls turn again. the latest polls we have overnight pointing in that direction. the eu referendum, our view is still that brexit will be avoided. we remain bullish on the pound for the second half of the year. before that, we advised against taking any bullish view because the uncertainty is still fairly elevated. some polls were suggesting that

there is a strong support for the staying vote. the pattern has been following the latestme -- discussion about the number of isrants arriving to the u.k. having an impact. to have a very strong the you. trading inill remain the current or wider range which historically tended to depress volatility. let me ask you about the swiss franc. it is one place people are looking to hide. 1000 swisstion of franc notes is up 8% year-over-year. do you think people are going to switzerland to hide? valentin: when of the trade classes we are discussing

following the eu referendum is to by the pound against safe a vince like the swiss franc and the japanese yen. while i would agree with that view in part, i think the timing is pretty key. if anything, given how close the polls still are, too close for comfort, i think the timing may not be right just yet to be long sterling or swiss franc. the second half of the year, sterling swiss may be one of the more attractive traits there. caroline: thank you very much. walking us through everything. next, we get a reading of the labor market in europe biggest economy, germany. those figures are just moments away. matt will bring it -- will break it all down for us from berlin.

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caroline: welcome back. most in our into the trading day and we are still fed focused. the index is on its biggest monthly in advance since september 2014 as rate hike expectations continue to mount. richard jones is here to help us break down these fx moves. it has been king dollar since

friday when janet yellen spoke. richard: a lot of data. we have janet yellen speaking a week from today again. data. it will be a very busy and -- fxant week for fedex expectations. i think june is too soon. july is looking more real. it all depends on the data. we have a lot between now and the meeting at the end of july. caroline: you speak about a lot of data. matt, you have the breaking german unemployed -- employment data. matt: falling to 6.1%. falling by a 11,000 in may. we were looking for a drop by 5002 6.2%. german may unemployment falling

to a record low 6.1%. not a bad number. richard, what do you make of all of this data coming in from the eu? it is pretty good for mario draghi. data willhe german give him some comfort that their policies are starting to take cold. a look at the german retail sales numbers and they were not rate. it is still early days. unemployment data must be the best since post-reunification. if you look at other parts of europe, the numbers are still lagging. it highlights the challenge that mario draghi has. we will be keeping a close eye on the german data and the rest of the data. always great to have you, richard jones.

stay with us of course on bloomberg television. up next, it is the pulse coming on live. we will be breaking down more data. matt always a joy to have you. ♪

>> hawkish comments from the fed. janet yellen drives market as the dollar closes on its best month since september 2014. not the end of the road. vw reports a profit beat more than the 2016 sales declined as stock falls. the short on china. as the bearish specs yuan slumps. a money meant -- a one minute slump increases for the volatility. volatility. further ♪