>> 7:30 in london. 8:30 in berlin. i'm guy johnson. caroline hyde is in bratislava. here is what we are watching. no way u.s.a. deutsche bank says it won't pay the $14 billion sought by washington to settle a mortgage-backed securities probe. how far will the stock fall at the open? europe threatens to revolt over bank capital rules. they have had enough.

has banking reform gone far enough? in bratislava without britain. e.u. leaders gather to discuss the future mine us the u.k. how united is it? let's try and answer that question. in bratislava e.u. leaders are gathering, the first meeting in more than four decades without the u.k. what are we going to get today, caroline? >> a desperation guy to show some unity as we see the e.u. being ripped from its very core. we have the likes of angela merkel saying this is a question of war and peace. this is a fight for the e.u.'s very existence. can they come together and decide whether the response the brexit is more e.u. integration or less, guy. guy: that is the big question. we're less than a half-hour away from the market open.

lem show you what's happening. let's start off, you click the futures box here, you get the mixed price. at the moment america america is softer this morning. looks like we're going to see a softer start. one of the reasons we're going to be paying attention to market today. particularly in germany. it is going to be deutsche bank. this is the a.d.r.. this is after hours. down by 5.23% on the back of this historic -- the u.s. regulators want a whop a lot of money from the german institution which has said you have got to be kidding and the market to take -- from this story. and let's finally wrap it up with the g.m.m.. walk us around the world, tell us what's happening. australia up nicely. canada also rising. the commodity equity markets picking up today. in terms of what else we're watching, hong kong five-year, keep an eye on that. switzerland, an interesting story what's happening there at

the moment. interesting moves. minus 2 basis.s. first, let's get a bloomberg first word news update with heidi. >> guy, as you said this this is a stock to watch. deutsche bank saying it won't pay the $14 billion sought by the u.s. justice department to settle an investigation in the investigation of mortgage backed securities. that is more than triple what some analysts estimated to be the potential worst case. the company says discussions are just beginning. it expects they will eventually lead to a lower amount. the department of justice declining to comment on the negotiations. deutsche bank's shares losing more than 6% in the afterhours session. donald trump has dropped a major tax cut from his presidential proposals. the change will make his plan much less favorable for private equitys and hedge fund managers.

the republican nominee had previously out thed the proposal for a 15% tax rate on income from such businesses. meanwhile hillary clinton has been out on the campaign trail for the first time since her stumble at sunday's 9/11 event. she accused trump of using fire tactics. >> donald trump is running the most divisive campaign of our lifetime. his message is you should be afraid of people whose race or ethnicity is different or whose religious faith is different or who were born in a different country. there is no innuendo. or dog whistles anymore. it is all right out there in open now. so we have got to come back twice as strong and twice as clear. >> global news 24 hours a day. powered by more than 600 journalists and analysts. this is bloomberg.

guy? guy: thank you very much indeed. it has been a turbulent week for the markets and next week is the fed and b.o.j. decision. we'll get decisions from both central banks and the markets are on edge. joining us now is a chief asset strategist at morgan stranly. good morning. >> good morning, guy. guy: does this frighten you? what's going on? should by concerned? >> this is interesting, right? you have had over the last week this dynamic where curves have been steeper and markets have been down and that has generated a lot of market fear. if you look back through a long period of market history, steepening has been the best equities t for both and credit. i think so this is much more about short-term fears that central banks after getting very dovish after brexit might be reeling that back a little bit,

more so than it is a big shift in how the curve affects overall market performance. guy: history tells us many things about what's happening in the future but it doesn't match up. my concern and this is being reflected in the market. what we're witnessing here is not a kind of rowing back from brexit. this is the b.o.j. maybe by extension the e.c.b. hitting the political buffers of what is possible to deliver via monetary policy. >> i think i see it probably just a little bit differently. if we think about why does the curve steepen, why can it steepen? central banks can say things but for the curve to steepen, i think you need some level of faith that long-term growth and inflation will be somewhat better. for that coifer steepening to be real and sustained. that type of back grop is generally good for markets. guy: do we have better growth and inflation? >> what has been interesting is

if i look at our near near term tracking measures, they ever been treal pretty good for the third quarter. our realtime tracking estimate for the u.s. is running about 3%. our realtime tracking estimate for china is running pretty well. running better than we thought it would be running. at the moment there is less inconsistency between the curve steepening than we would have otherwise thought. guy: which is more important, the fed or the b.o.j.? >> at the moment the b.o.j. i think so they are too worried about the fed upsetting the apple cart. there is a good likelihood sfa that if the fed was to hike this year, would tailor dots to make the path look more dovish. with the b.o.j., it seems to be a bigger change in policy moving to try to change the shape of the yield curve, change the shape of policy.

that to us seems like a much bigger policy meeting to watch out for. guy: stay with us. that's just the start of it. we have so much to discuss. the banking sector as well. we are going to take you back to bratislava. e.u. meetings meeting without britain for the first time in decades. later we're live in moscow and still to come, talking tax. jeremy corbyn gives you his view on what corporations should be paying. we'll bring you all the news and analysis and the conversations around the u.k.'s vote to leave the union. this is bloomberg. that conversation is coming up at 9:30 u.k. time. ♪

guy: welcome, let's get a bloomberg business flash. here is heidi. >> thanks, guy. deutsche bank says it won't pay the $14 billion sought by the u.s. justice department to settle an investigation into the sale of residential mortgage-backed securities. that is more than triple what some analysts estimated could be a potential worst case. the company said discussions are just beginning and they expect it to lead to a lower amount. deutsche bank's shares losing more than 6% in the afterhours session. the u.s. regulators have

announced a recall of around a million samsung note 7 smart phones after more than 19 reports of batteries overheating in the u.s. market. the move gives the u.s. government the toppings ban the phones on flights and makes it illegal to sell them. the world's biggest hedge fund manager indicated it plans to cut jobs. it has 1,700 up from 1,100 five years ago. the memo was written by the founder and calls the changes a renovation. they said it was bloated, inefficient and bureaucratic. guy? guy: thank you very much indeed. markets' open 17 minutes away. e.u. leaders are gathering for an historic meeting in the slovac capital, brat slave

pavement european apartment president martin schultz highlighted the need for unity. >> this is a crucial moment in the development to have european union. this is the first time that the 27 meet without the united kingdom. there is a lot of necessity to coordinate and to incorporate more and more intensively. a co-heerpt united kingdom line. it will meet 27 different lines over the european union. i hope the message over the summit is unity. guy: caroline is not in berlin this morning. she is in bratislava. it is also sunny there. this is the starting point in so many ways. what are we expecting to achieve today? wewell, we can see caroline, can't hear her. actually can't hear me. andrew can.

he is sitting next to me. martin shuments making the point that while the u.k. seems to be all asea in terms of its brexit position, the e.u. appears to have not formulated a policy as well. what where does the biggest challenge lie? is it europe figuring out what it needs to do next or britain? >> a good question. i think there are issues on both sides. in our view, the biggest challenge lies with the u.k.. there is where you put an issue to the vote for people where i think there were some kind of competing aims or goals of people who went into that vote, in terms of many voters prioritizing the free movement of people and prioritizing access to the european market and those are in some cases mutually exclusive negotiating aims. for the u.k., it is the one that is going to be up against the clock in terms of negotiating an

exits. for them, formalizing that negotiating position is going to be much more trickier and difficult condition. guy: caroline is back. we cannot only see her but hear her and she can hear us. what are we expecting today? >> i think the key question is a sign of unity, guy. it is fascinating behind me this castle the 27 leaders will come together at a time when the rhetoric is ramping up. angela merkel usually the voice about war and peace. we're going to hear from the 27 leaders and move towards a road map and a plan for bratislava. you'll hear talk of securing borders, particularly bulgaria with turkey. you'll hear about the push towards a threat against terrorism. they are going to ramp up that.

talk about a common defense policy. something they could never get through when the united kingdom was part of the e.u. and the last thing is a future in terms of growth. this is this when you're seeing a divided e.u.. on one side you have those calling for more integration. jean-claude juncker, the e.c.b. president mario draghi saying we need the political union to back up the monetary union. then you have poland and hahn gary calling for more power back in the individual countries. i'm hearing from the likes of barclays talking about the economic issues. i'm hearing goldman and bank of america's fund survey says the number one threat, number one risk is a disintegration over the e.u.. is it the number one threat to you as well? >> so i don't think i would put it that high. again, i think maybe to point

that we were just discussing, i think this is an issue where a ally the u.k. might have more difficult position ins of formalizing its negotiating policy maybe than the rest of the e.u. does. but i think this issue as you highlighted this issue of what is the e.u. really for? can it move beyond this narrative? that it is just about austerity in the wake over the financial crisis, getting the books in order and forming a positive message and addressing a lot of these issues that are on voters' minds across the u.k. and the european union. that list of priorities seems pretty high up, the concerns. i think a lot of voters across europe. guy: stay there. caroline, thank you very much. caroline will be with us throughout the day. she is covering all of the events surrounding this bratislava meeting. she is going to stick around. andrew sheets is sticking around as well. we're minutes away from the european market open.

up next, one of the potential massive movers in today's trade. deutsche bank after they reduffed a proposed $14 billion settlement with the u.s. b.o.j. the market open 12 minutes away. ♪

guy: 7:50 in london. 8:50 in frankfurt. deutsche bank is refusing to pay a $14 billion claim by the u.s.

department of justice. shares stumbled. for more, let's talk to bloomberg's finance managing editor and andrew sheets still with us as well. walk me through $14 billion. that sounds like an enormous amount of money. >> this is the entry point. this is where they start. in situations similar to this, that number tends to move lower but there is no one size fits all. every case is very different. where they end up is clearly a concern. there is a degree of uncertainty which is what we saw last night with shares in the u.s. dropping as much as 6.5% at one point. we know where they are starting. there is no real way to tell where they will end up. >> we have known for a long time

they are provision. do we have a number on what they are expecting? >> jpmorgan pointed to a figure in the ballpark of $4 billion something that it would be provisioned for. anything north of that potentially because we don't know how much they provisioned for this case, leaving them exposed to further reserve. guy: it is something that analysts have been watching for a long time. we're looking for clarity. in terms over the order of magnitude of what we're looking at here, where does this fit into the various litigation issues that deutsche faces? >> this is at the top of their list. one of a handful of cases that john kleine, the c.e.o. you know what i'm sayings he wants to move on and this of course the russian trading case which also involves u.s. trading authorities being at the top of

that list. guy: if i take a look at the price on deutsche, it has been crushed. there are so many issues to deal with. $14 billion is an enormous amount of money. is it going to be enough for analysts to start to get interested back in deutsche and european bank stocks? >> i think it is still going to be tough. this goes back to some of the discussion we had earlier in the show by the steeper yield curve. that is great news for banks. banks have been doing better recently. but i think maybe in contrast to the u.s. banking sector for wr some of these capital needs and fines are better settled, in the european sector across a number of different geographies, there are bigger questions about capital that needs to be raised. i think that is still a headwind to the european banking story and the attractiveness of european banks.

guy: do you think european banks need to raise money? >> in an overall basis they probably still do. i think it is a question of how much that is and over what time. if we look at those numbers, they generally look reasonable but the risk is you get surprises rellive to the market's baseline on individual names around n.p.o.'s or lawsuits and the like. guy: where would this take the capital story for deutsche? we have another rate this morning that is being pushed on on what's happening with basel? you think about risk weighted capital and deutsche. does it need to raise money or not? >> in deutsche bank easkice case, it will depend on how how the legal bills end up being. a few billion difference in l make a big difference in the capital base. in the midst of deep restructuring it is important to put these numbers behind it, whatever the final figure is.

guy: is it almost irrelevant what the final number is, just to get it done? >> that is a bit strong. at least you have a figure that you can start with. at the moment, they are still in the position where it is not entirely clear how much capital they will need without knowing how steep these bills are going to be. guy: tow big of a distraction is this? >> that is other issue. it comes at a very sensitive time for the bank. in the mids of this restructuring that is made that much more difficult by the trading environment and the low interest rate environment. the conditions that would have made the turnaround hard enough as it is, have made it even tougher by these very, very difficult negotiations. guy: thank you very much indeed. it is going to be an interesting opening in a few minutes. andrew sheets from morgan stanley is going to stay with us. coming up, we're watching deutsche very carefully. the a.d.r. closed down around

5%. we are expecting it down 6% in frankfurt trade. the the market open is four minutes away. this is bloomberg. ♪

guy: good morning. welcome. you're watching "on the move." i'm guy johnson. we're near the city of london. caroline hyde in bratislava. moments away from the start of european trading. caroline has your morning brief. >> indeed, guy. no way u.s.a., deutsche bank says it won't pay the $14 billion sought by washington to settle a mortgage-backed securities probe. how far will the stock fall at the open? europe threatens revolt over bank capital rules. they tell regulators they have had enough. has banking reform now gone too far? and in bratislava without britain. e.u. leaders gather to discuss

europe's future mine us the u.k. ow united guy is that union? guy: ok. let's talk about this europe market open. e are 5, 4, 3, 2, 1, go. let's see what happens with deutsche. let's see what happens with the london market. negative this morning. denmark, norway, and ireland.

let's deal with the details in a little bit more detail. the cac is up by .2%. we are waiting for deutsche. here is nejra. nejra: i am starting with the gilt markets. the 10 year treasury yield, the jgb treasury has been pretty much unchanged. it looks like we are a little lower on the 10 year yield on the gilts, too. just down one basis point. we are at 88 basis points here at the open. that is how the gilt market is opening up. let me check on the stoxx 600, in terms of sector health. we are seeing mainly red here, though not massive ms to the nmoves to the downside. utilities are down .4%. financials are down .3%. actually, financials are leading

the losses now. also in that top three of losers, i.t. stocks. health care, the best-performing industry group, but pretty much unchanged in tehe green. three stocks i am watching today. vg, thed to bring up s boston-based private equity firm made an unsolicited offer to the company for $1.3 billion in cash. the offer undervalues the company. so, this stock was called higher at the open. it looks like it is moving a little higher there, up almost 2.5%. atlso wanted to take a look these energy shares, 11.69 euros per share. it looks like galp is moving lower, down 4.4%.

finally, i know you will talk more about this so i will be brief. deutsche bank, the shares are d own 7%. deutsche bank, saying it will not pay the $14 billion sought by the u.s. justice department to settle an investigation. the key thing here is that figure of $14 billion is triple what some analysts say could be the worst case. guy: i am trying to update my charts on deutsche. let me just bring this up for you and show you what is happening. this is the chart. as you can see, it is a big move . that is where we are now, down by 6.6%. so, a big drop for one of europe's most important institutions. -- the sessionay chart is now showing it down nearly 8%.

and morgan stanley, just when we thought a steeper yield curve could help institutions, we get hammered by those. that could be another reasons why u.s. will look at europe and say, "i want none of that." >> our view looks pretty tough across a number of different asset classes. i think you have come at the central bank level, the ecb was very dovish. but now that it has held up reasonably well, we have seen an increased risk that they will be less dovish. market coulde take poorly, but the euro could take it well. there is a decent chance the euro strengthens between now and year end as the market becomes less dovish. and then, you throw on some of these other risks, like the upcoming referendum in italy, some lingering political risks

in the rest of europe. that is why we prefer u.s. equities over european stocks. guy: we have seen european equities being sold. and to be honest, that has happened in the united states as well. my question is, do i own anythignng? can you see yourself getting cash, orlrweight is that money burning a hole in the pocket right now? >> it is tough because if we look at our expected returns across different asset classes in the region, they are all pretty poor. we think, european peripheral spreads go wider over the next 12 months. we think european yields will go higher. we think credit spreads will be roughly unchanged in europe. i think across a lot of european assets, it is not a great outcome. we think the euro is a pretty

attractive thing, but i think it has a couple of pretty attractive properties. when we think about, what has been a surprising currency story of 2016. it was the yen. and performed very well because it was cheap and held to diversify portfolios. the central banks wanted to weaken the currency, but did not have the tools. i think we see a number of those same properties here. the ecb has already done a lot of easing. i think investors everywhere are struggling with this problem that they want to add diversification into their portfolio and yet, a lot of diverse the fires are expensive. versifiersot of di are expensive. guy: that is not great news for europe. >> it is not, no. it is my terribly optimistic story. there is a reason that why at the regional level, we see

better risk award in u.s. assets and emerging-market assets. across a number of different things europe is in a tough replace. guy: this is interesting because there is a danger. what happens when people will be selling out of equities and their font market portfolios? they will go to cash, they will be nervous, and they will look for safety. they will not see that safety in the euro. nevertheless, this default position, even with the fed doing nada, it is the run to the dollar, which upends some of what you are saying. you think there is a danger the market could run to safety? >> and could. -- it could. in our view, what will drive these currencies will be surprises versus expectations.

what could work against the dollar is the expectations that the fed will hike this year. the market is currently expecting that ecb to cut rates even further, even the recent data has been ok. so, there is certainly a risk that the traditional pattern of dollar strength would kick in. v think about in terms of central bank expectations -- but if you think about it in terms of central big expectations, there is still a greater risk to the euro. guy: i just want to talk you through the mrr this morning, because it is fascinating. deutsche is getting crushed. we knew this was going to happen and it is unfortunate because we just had positive news coming through. bytsche bank is down 7.86% at the moment. this is the price index for european financials. is down by 4.27%.

ubs is trading down. in europe isor under pressure and do deutsche nearly 7%.down we are going to talk japan, next. absent during the eu summit in bratislava. plus, it is all about the rubles. is today a little too soon for the russian rate cut? we will take a look at that story as well. this is bloomberg.

guy: welcome back. you are watching "on the move." let's check in on the markets. european equities are solved this morning. it is the financial that are under pressure. i just wanted to -- i want to take a quick shot of this because one of my colleagues send it to me. .his is deutsche bank we were talking about cash raising and capital. you can see a really dramatic move there.

the moves we have seen over the last few days are unwinding. the selloff in the back end and the curve steepening story, but that is an interesting move as well. here's the bloomberg first word news. reporter: thank you, guy. deutsche bank shares are also trading sharply lower this morning. they said they would not pay the $14 million to the u.s. justice department to settle an investigation into the firm's sale of backed securities. that is triple what some analysts estimate it would be the potential worst-case. they do expect they will reach a lower amount eventually. the boj, though, declining to comment. donald trump has dropped a major tax cut for businesses in his presidential proposals. the change will make his plan much less favorable for private

equity partners, hedge fund managers, and other who receive income from partnerships and limited liability companies. the nominee has previously touted the proposal for a 15% tax rate on income from such businesses. hillary clinton has returned to the campaign trail. she accused trump of using fear tactics. hillary clinton: donald trump is running the most divisive campaign of our lifetime. his message is, you should be afraid, afraid of people whose race or ethnicity is different, or whose religious faith is different, or who were born in a different country. there is no innuendo or dog whistles anymore. it is out there in the open now. so, we have got to come back twice as strong and twice is clear. reporter: global news 24 hours a day, powered by 2600 journalists

and analysts in more than 120 countries around the world. this is bloomberg. guy? guy: thank you. the leader of the u.k. opposition party spoke to jeremy gordon. in the european it accessrea, giving to the single market, but not the single market itself. maybe we can learn a great deal from norway. it is a much smaller society but nevertheless, they have a very strong social democratic condition. they have a huge and very effective health service. the model of their social economy is not that different from what we and the labour party talk about. chief crosssheets,

analysts strategist for morgan stanley, still with us will step the ea model seems to have been ruled out, largely by the may administration. if we look at what is going to happen next, how much clarity do we actually have? there seem to be four main options on the table at this stage. where do you think we are and what is the most likely, and what are the implications? >> that is what is difficult about this. it is hard to handicap them because it seems mutually exclusive. if he referred to the norway model, norway still pays quite a bit per capita. with the u.k. population support that, given what they think they voted for? i'm not sure. a lot of people in the u.k. still believe they can have open market access, and that it is

pretty important. but other people in the eu believe they voted for greater immigration restrictions. the big challenge comedies aims have not been -- the big challenge is these aims have not been ironed out. guy: are we under or over discounting the bexrexit's impact? >> the near-term impact has been but dramatic than feared, this is still a issue that looms over the u.k. economy, creating quite a bit of uncertainty. it is certainly not done and in in many ways, markets arme mabye too relaxed. guy: one of the fears is japan could have control over its sovereign budget. the idea that we can expand

fiscal to meet the petering monetary impetus. >> i think that is pretty important. i think a huge advantage that and japanthe ju.s., have relative to the eurozone is an ability to borrow in your own currency, making fiscal expansion much more straightforward. if you think about, how could the u.k. boost growth in an environment hit by brexit scalrtainty, i think that fi policy could help. selling gilts here make sense. there are two different ways gilt yields good rise. maybe the bank of england will not be as doe dovish as we originally thought. and they could rise if people believe they will be a bigger change in the austerity politics of the chancellor of the exchequer, driving higher

borrowing needs. guy: as we speak, george osborne i speaking. andrew will stay with us, and we will carry on the conversation. up next, mind the yield gap. we are going to check in on the bond market, next. this is bloomberg. ♪

guy: welcome back. you are watching "on the move." let's get to the chart of the hour with nejra. nejra: we keep talking about the steepening yield curve. a lot of this is down to bets that the bank of japan will try to defend the yield -- will try to steepen the yield curve. a lot of this has been upending conventional wisdom about the world's biggest bond market. the spread between the five-year and 30 year yield widened to the most since june this weekk. the u.s. curve has actually flattened in the five rate increases taking place over almost five decades. i have highlighted three of those points here when you see the curve flattening in a rate hiking cycle.

most recently, we have seen those bets pull back a little bit on the rate hikes from the fed. i believe we are at 18% probability of a rate hike in september. we have fallen below 50% for a rate hike in december. i thought it was interesting to show this historically, given the talk about the steepening yield curve. guy: thank you. sheets, still with us. this is the yield. do you think that boj expected it to move as much is this? >> i really don't think they did. if you look at where the 30 year was at the moment when they introduced rates in late january, it was near 1%. then, it proceeded to fall close to 0%. so, i think this is the challenge that the bank of japan had. they clearly wanted to lower

real interest rates and saw that as a stimulus measure, but the move was so large that it clearly had a very big impact on the insurance sector and the banking sector, and overall market confidence. the question of, can you walk that back little bit without the market believing you are completely reversing this policy that, for a long time has empathized the idea of keeping rates and yields low. guy: has the boj simply run out of political road? is that what is happening here? this review ordered by the government, looking into what policy will deliver in the future, it is a clear message around the world. the bank that has been at the forefront of negativer at rates is beginning to hit the political buffers. >> this is one of those things that in hindsight, makes negative rate policy such a difficult policy.

when you take rates negative, the markets will ask, what do you have left after this? no central bank want to be in a position to say, we don't have another obvious policy back. the different japan has relative to the eurozone in this regard is, in japan, you have a fiscal stimulus plan underway. that policy is reasonably aggressive and the government is committed to stimulating the economy through fiscal measures. but i think it is tough because i think the bank of japan has a fair point to say that its options are limited. guy: that is a fair point. the problem is, in japan, we can see nationalization of the markets. they own the bond market and the credit market. we are reaching the point to where this stuff is being nationalized and you wonder where you go beyond that. >> it is a difficult question. this -- one think

thing i think is quite interesting though is, when people express those fears, the natural extension of that is, well, we are setting ourselves up for a much bigger shock to those markets. when you have that level of intervention, it makes them unstable. guy: and how do you get out? >> volatility in japanese rates, which you think would reflect that fear, is exceptionally low. my counter to that concern is, the market that should be reflecting that fear is in japanese interesting volatility, but for the moment, it seems relaxed. it might be at the wrong level, but at the moment, rate volatility markets a reflecting -- call it relaxation or complacency -- that this can be unwound in a reasonable manner. guy: many people are talking about this idea. many think the ecb has gone too

far. many thanks to andrew. up next, we will look at the emerging markets and we will be back in bratislava. this is bloomberg. ♪

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you don't see that every day. introducing wifi pro, wifi that helps grow your business. comcast business. built for business. guy: welcome back. we are watching "on the move." we are negative across the major markets here in europe. germany is underperforming and let's find out why with nejra. nejra: i am going to start with one of the biggest gainers on the stoxx 600. the company basically saying it is investing to grow in china. is he is a total investment of about 15 million euros. mobilization to be completed at the end of 2017. these shares have hit their highest since 1998. they have also risen the most in almost a year. but you were talking about the german market and we have got to

talk about deutsche bank. the shares have dropped 8.2%. the company received a $14 billion claim from the u.s. justice department to settle an investigation into its sale of residential mortgage-backed security. willerman lenders says it not stay this and in a statement, they said negotiations are just beginning. that number of $14 billion is more than three times the worst-case scenario that analysts were expecting. so, and as that the shares have gone down so much. though, i will say that is not quite as much as the $17 billion that the bank of america company reached in a similar settlement in 2014. the "wall street journal" reporting that the $40 billion number considers an opening bid. we are watching deutsche bank. another bank, standard chartered, it is one of the

worst performers on the stoxx 600 this morning. the shares are down some 2%. according to two people familiar with the matter, standard chartered is considering selling out his private equity business. they are trying to reduce the amount of risk the bank takes on. guy: thank you very much. there is a historic meeting in bratislava, the first in four decades without the u.k. caroline hyde is there. what are we getting so far, caroline? caroline: we are getting the arrival, guy. they are all this sending upon the council behind me. you can hear the helicopters above me. we are starting to hear the first lip service said about the need for unity. a prime minister said there is a

need for unity. the foreign minister though, says not to expect any knee jerk reaction to the u.k. exiting the eu. polish have been talking about that need to bring power back to the countries, rather than the eu institution. this is the division between war and peace, like merkel talked about last night. do we need more integration within the eu, or less, as hungry and poland are pushing for? lastly, i will leave you with what the luxenberg leader has said. security and economic focus is where the priorities lie. a petitiono seek coming back into that eu, and indeed, perhaps a movement to a defense policy, something the united kingdom in

particular pushed against. guy: what a lovely day out there. it is quite a hike up to that castle. good job caroline, jumping up those steps. great stuff, caroline. let's talk about the emerging markets. .e see further declines our guest.now is the world is that says with the steeper yield curve. just walk me through the transitioning into the emerging markets. >> the first thing is, on the steepening of the yield curve, that effort, initially at least, is part of an effort to help the bank, which are being penalized by negative interest rates. if you steepen the yield curve, the bank will engage in more of a carry trade,

capitalizing that way. the difficult thing for emerging markets, and other asset classes, along the way here, the transition to a very flat and low structure of interest rates -- like you said, a steeper one. the ultimate question is, how far are yields going up, even if they steepen? at least from today's vantage point, the answer is there is a significant steepening of the yield curve, but not a huge rise in the level of nominal interest rates. they are still going to be, for a while, in a low inflation and low growth kind of world. if however, what we get out of the political process is much l priming, assca has been suggested by the candidates in the u.s. election, the potential in japan and europe could significantly raise inflation expectations from very low inflation to somewhat

abnormal inflation, making the transition more complicated. i have to add, we are at least several months from that, if it is going to happen at all. and when and if it does happen, it will still be constrained because public debt is high in japan. there are concerns in the u.k. about how all this plays out. and of course, in the united states, we have a divided government. they will be constraints in fiscal priming. at the end of the day, we are looking at a transition from a low, flat structure to the steeper one. could becomen somewhat more painful, but we will still be left with a low yield world, in all likelihood. still see em?il we >> that is probably where we are

going. if trump is elected, it is possible he says to the em, " you're fired." put up some barriers to investment outflows, or at least encourage read blows into the united states -- or at least encourage re-flows into the united states. that could impact emerging markets, which would be negative. we would still be left with a situation where you are transitioning to some higher interest rates because of somewhat higher growth. you would still have em being you know, to a degree, more attractive. the danger is when barriers go -globalization.de guy: right, so kind of a stasis. this is a nice chart. what happens with the peso, and the correlation is pretty clear.

how do i play trump from the emerging market point of view? >> it is partly about mexico. mexico has some challenges of its own, regardless of whether or not they have to pay for a $1 trillion wall, which isn't going to happen. the peso is a proxy for mexico's issues and for trump. it is also proxy for emerging markets as a whole. it is a very convertible and liquid kind of trading currency. it is not just about mexico, from trump's point of view, and from the demographic that would like to see him elected and some of those barriers put up. mexico is on the front end of this. there will be spillovers to the rest of em, but of course,em as a whole, it is a very wide raging, fuzzy as a class. so, within asia, particularly

within china, there is a shift going on to domestic demand, less reliance on the rest of the world. of course, trade and investment make a big difference. there will be something of a challenge there. in europe, you have a bunch of emerging markets that are, depending on what happens at the summit and in the rest of the process with the eu, goo coudld continue to integrate, to some degree, with the rest of western europe. there is still probably some flow of capital there. the commodity producers have been going through a big adjustment because many of the currencies have collapsed. russia and brazil have been in a very severe economic downturn, though they are coming back up little bit. guy: we're going to talk about russia and a minute because we have a russian rate decision coming up later on. the expectation is that they are going to cut. will they?

we will take you live to moscow, ahead of that decision. this is bloomberg. ♪

guy: welcome back. you are watching "on the move." let's talk t about deutsche bank. the $14 billion settlement number is certainly scaring the market. bbk trading down by nearly 7%

this morning. just when john cryan thought he might be able to get a grip on the story, maybe the steeper yield curve would help them out. we have a significant spread. the market versus the boj at the moment. 1218 is where deutsche is trading. a little under pressure this morning. the coffee is good here, i promise. let's talk a little bit about what is happening in russia. economists are expecting the bank of russia to cut interest rates. there was an unscheduled speech, announcing a moderately tight policy going forward. should russia cut? should we see the central bank delivering on march the

government would like? >> we expect them to cut. i think the general story here is there is a much more prudent approach to macroeconomic management in general in russia, than has been the case historically. i think it is all part of you of , putin's demonstration a calm face in between these shocks. there have been some calls for a radically easier monetary policy. they probably won't deliver that. they will probably deliver something of a cut because inflation has been coming back under control. the process is a little bit fragile because the ruble is sensitive to oil every time the ruble moves, that affects the inflation rate. guy: as lizzie angela merkel rising cash as we see angela merkel rising -- as we see angela merkel rising in

bratislava, what are the chances of some action being imposed? >> the bigger picture here is, the issues that are causing the sanctions in ukraine remain. so, borish johnson has been talking up the sanctions. the americans are probably still generally in favor of sanctions because the issues in ukraine are being separated from whatever is the cooperation on the ground in syria. thes issue-specific, relationship with russia. i would have to think the sanctions will persist for a while because the point needs to be made by the west that what is happening in ukraine is unacceptable. and the point still means to be made by russia's that interfering in -- maybe russia that interfering in our neighborhood is unacceptable. that logjam is still there. here isral solution

that the sanctions prevail. guy: when you think about that -- to get into the geopolitical inhabits. putin we have now got europe talking about the security story. does that change his thinking in any way, shape, or form? nato the mind, is opposite of the warsaw pact? the impetus idea of recently for the european defense concept is at least, in part, a response to brexit. from one of the things, which the united kingdom had been resisting in the past because of problems with nato, and the british desire not to be part of a federal superstate. so, that is a good thing from

the point of the you of the integration within nato. -- from the point of view of the integration within nato. what has been happening, ever since, i think for three successive administrations, the u.s. has been asking europe to shoulder more of the cost of its own defense. going back to george w. bush, continuing since president obama came in. during that period, most countries cut defense spending. germany, they do this constitutionally, but others by choice. the european neighborhood has become more and more dangerous. there is the idea that you can have some unity and have european defense coming from within europe. it could be easier because the u.k. is a longer blocking the way. from president putin's point of

view, it crystallizes the idea that you need more of a territorial buffer from the russia federation. they lost the warsaw pact as a result of the cold war. it is going to can you to shore up its -- it is going to continue to shore up its defenses. guy: how do you think they will influence policy in europe? >> i think there are a lot of crosscurrents going on. there is still an issue with russia. in hungary, there is more of an alignment with putin. there is this discussion the a lot of the insurgent parties in central and western europe are being financed by president putin. this idea that the trump campaign is benefiting from that kind of support. guy: a lot of speculation. >> maybe there is some fire. i think you have to go back to

the underlying geopolitics. poland, in particular, has serious issues with russia and when it comes to defense and security policy, it will clean west. when it comes to political integration, poland and hungary, romania even, when it comes to sharing the burden of the refugee crisis and undermine the of those countries with a lot of immigration and many refugees, they will resist that. they are all quite concerned, along with the northern portion of europe, with how the balance of power tilts within the european union, depending on what kind of a brexit we get. because of all of these issues, they will probably stand in the way of, if not actively undermine, much deeper integration. defense, yes, but the rest of it, maybe not. guy: thank you for sharing your

thoughts here on "on the move .," arnab das. we will bring a brexit and the european union. the u.k. was excluded from the eu summit in bratislava. we will be on the ground in full bacslovakia. this is bloomberg. ♪

guy: welcome back. you are watching "on the move." a quick update on what is happening with deutsche. the stock is down by 7.18%. this is john cryan, trying to steady the ship. he has been talking about strategy and has been benefiting, as the whole of deutsche bank, from the steeper yield curve. let's talk about the day ahead. it is coming out of bratislava, where we have the first summit in more than four decades without the united kingdom. caroline is there. what are they saying, caroline? caroline: they are all meeting behind me in the council. merkel is talking of a determination, guy. they need some sign of unity to project the fact that the 27 countries together are stronger post brexit, rather than a push

we are seeing at the moment toward less integration, more h ungary and poland foisting this at the moment. a determination to tackle what she calls a crisis. she says you need to be tackling security, defense, and protecting the eu orders. it seems they all got the memo. we heard hollande talking about security. we heard the luxembourg leader also speaking about security and economic competition being a priority today, guy. we do have one outlier, the czech leaders saying, you must respect the national parliament. this is where the divide makes itself apparent. the reaction to the post brexit world. is it more integration, or less integration? is it power back into the

individual countries, like what poland and hungary call for? they are railing against the immigration quotas. guy: what does it mean for economics, caroline? this is what we are all wondering about. caroline: i know, this is the key question. when does the political risk feet into economic risk? many here goes, yes, of course, another eu meeting and another so-called crisis. but what does that mean for you and i, and the growth without the united kingdom within the eu. the barclays economist says, a lack of ambition was shown today in the eu. they will remain a lack of confidence and a lack of spending. clearly, there is a concern about an economic slowdown. there is also a notable bond management survey done by the bank of america merrill lynch.

the number one issue for them is indeed, a risk of a disintegration within the eu. they are not so worried about trump or china and its depreciation. they are worried about the number one threat, some bank of america fund managers say. this could be a worry for the united kingdom and their ongoing negotiations. we're looking to see how renzi reacts. he is still to come. guy? said, europe must stop speaking in the wrong direction. great coverage coming out of bratislava. let's talk about what is happening with the banks, and show you the mrr function. it tell you deutsche is down 7%. bnp is down 7.6%. deutsche, the lead story.

that conversation carries on. "the pulse" is up next with francine lacqua. show.oming up, the brexit that is on "the pulse." ♪

francine: deutsche bank shares slump on concerns as the u.s. justice department tables on a $14 billion claim. against thes back world's top banking regulator. and, eu leaders gather to discover -- to discuss europe's future without the u.k. we bring you our weekly show, "brexit: what's next." welcome to the show. live from bloomberg's european headquarters in london, i