♪ guy: gh -1 bolt threads mount as the balance sheet is set to strike -- shrink. james speaks to bloomberg. macron and a le pen and defendant maintain a lead in the campaign. round one is less than two weeks away.

guy: our flagship morning show right here in the city of london. matt: matt miller berlin. great to see you. manus: much safer in here. propensity for the wind and guests me off the roof. we are back in the bond market, friday morning standing on a new stop when the -- rooftop with the news came through. the bond yield dropped below 230. we made it back through this trade friday. back down below 2.30. 74.87 for the band -- bond analytic guys up there.

prisons has been with bloomberg this morning. more of that. he seemed more confident, besides of the balance sheet that he wants to get it to. yields have risen again. wondering what he is going to say to the russians this week. today.collectors there's a whole other world out there that has become more positive. french government bond yields are up tenfold. german indie positive territory. a number of risks to this market and the foreign bond get that could add more pressure. one of we take a look at the risk radar? not looking so risky except for the yen gaining strength against the dollar. the dollar is gaining strength against the yen which is why is not looking so risky. people are not fleeing into the

safety of the japanese yen. a 110 handle. at it has been rising for three days, finally breaking through the level. the nikkei is gaining. 18,793. up .7. we have seen a gain in wti. oil gaining $.15 per barrel. not a lot of risk this morning is what our radar is showing. it could be a risk on day. thank you. u.s. secretary of state rex tillerson has said america is not interested in regime change in north korea. waterts came as the diverted was near the country

and heightens tensions over the nuclear weapons and mission. he also told us this week that the program must stop all weapons testing before further deval patrick talks can take place. has declaredident a three-month state of emergency and created a powerful new palmterrorism body area sunday church bombings climbed by islamic state left 43 that. dead. to stabilizerts the country and revive an economy battered by years of nrest area just arsuch will be nuclear option to allow his confirmation. future nominees can be confirmed with a future -- a single majority vote and will no longer face a 60-vote hurdle. it has put more ideologically

extreme justices on the court. ending his long wait for a first major title with a thrilling playoff win over justin rose at the masters. sudden-death playoff on the 18th. a birdie five to win after the -- he managed a bogey. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries you can find more stories on the bloomberg at top . this is bloomberg. manus and matt. manus: let's get into the markets. a bit of a shift in gears. juliet standing by. you say the dollar-yen is on the move? a little bit more reprieve in the markets. juliette: we are seeing

resilience in the nikkei. up by .7. this down by over 1%. the major loser in terms of what we are seeing in the north three in peninsula. other than that we have seen fairly strong resilience from investors across the asia pac today. most markets tracking higher. have a look at some of the stocks. of china'sin terms hna group to offer $1 billion in singapore. rising the most since july 2015. a couple of big stocks moving in japan. stock down by 9.5%. you should be really wary of the 400% surge since august on the back of the deal. jeffrey is saying that this stock is way too expensive. .oshiba a winner today by 7.6%. in her she was

unit. this wants one here -- jpmorgan is calling unsustainable in hong kong home prices. is the gdp. there is no way bgp is keeping up with the strengthening home isis. jpmorgan saying the prices are near their peak and they are unsustainable. we will see whether or not the market listens. manus: think you very much. the very latest on the market. putting against the islamic state, if you ministers in italy today. their gathering presents a opportunity for rex tillerson. 10 days after nato talks in

brussels. us, goodthe story for to see you. how do you think the atmosphere will be post-nato. the dialogue has a considerably, hasn't it? >> it has. these guys are diplomats that are used to threading the needle. it was all about responding to the new administration message to get them to increase defense spending. dynamicsthe change of after the syrian missile attacks, the european by and large back. you will get sympathetic readings and tillerson is getting a better lay of the land for secretary of state. what are the chances of

more sanctions on russia? >> there is certainly pushback integrator consensus among the g7 allies who used to be the g-8 before russia went into crimea. there is consensus that russia is behaving badly but not a lot of consensus among the eu. new sanctions are a bridge too far. thank you very much. the latest on what we can expect from the g7. jeffrey is the head of you be self management. good to see you. in terms of the politics. u.s.the weekend, it is the that is the unpredictable state.

how do you assess where we are at the moment? >> unpredictable because what happened last week was not the market-anticipated reaction from the of ministration. there has been that area of unpredictability and now from the nude ministration, coming through as well. that will take time. if we go through in terms of how geopolitics with arab spring and elsewhere has affected market sense, not really. i think we will take things in stride. >> where do you see the most volatility? we see a strength in the end. we don't see the strength in the the riskanc after events unfolded last week. where do you see the volatility? >> i would head back to oil

prices since he were there is going to be significant volatility and how that will have a wider impact. this global reflation trade, a lot of that is on the back of rallying commodity prices. directionin either with this. if that actually starts happening, we could be in problems with reflation trade. >> we have more to get through. as --d has shifted focus a portfolio of mortgages and treasury securities. the bond market sends a message in its stride. volatility may be on the way back. bloomberg spoke to the president james bullard about his

concerns. james: one of the issues i found important is that it is putting downward pressure on the medium and longer and of the yield curve while the increases in policy right are putting upward pressure on the short end. operation.wist i am not quite sure there is any theory that says that the right things to be doing in this situation. you would like to allow the entire yield curve to it just in a more natural way. one way to do that is to begin allowing some of the balance sheet to run off. >> the head at ubs wealth management. i just come back from three days of a convention run by you guys bring together jpmorgan management. best thing i came away with

is that this is a great experiment and they are so scarred -- tenure volatility over the last 10 years in the u.s. markets. it has been fairly repressed. we are in for a bumpy ride. is that to reduce the size of the balance sheet and raise rates at the same time. >> when it comes to the balance sheet, i asked if you're a stock person. that actually does make a difference. if we are going to see a the balance how sheet is going to evolve over time, more volatility. if you see what is going on right now that is retracting

already. there is no need to accelerate that process the best beyond what is necessary. the market absorb baltic medication and found the volatility so will see if that is much more manageable. one of the concerns is that overseas debt which has been negative, $3 trillion worth of government bonds are turning positive in recent months. that is expected to be on the rise. investors and the fed it will be missing from the market. buyers will not be there. where do see yields headed? >> we have go back to the reflation trade. still quite cautious on the sustainability and velocity for

inflation in the eurozone. we still have this the virgins in terms of sustainable reflation. recovering gently from where we are without too much on the european side. not only the yield side are we going to see a rate of diversion yields, thatbal will be interesting for the dollar as well. matt mentioned oil. this, the break even with germany. the united states, japan. we are rolling over. leavitt trump aside. everyone says the reflation trade, you are obsessed. leave trump aside. he has not achieved anything economically speaking. we are rolling over here. >> i think it is a reflection

the medium-to-over -- overturn -- older turn. than onempasses more political cycle in the u.s.. was that oil prices will not go back to triple digits anytime soon. i think that is what expectations are pricing in. >> thank you very much. he is going to stick with us here on daybreak. janet yellen speaks at the university of michigan for a school of public policy today at 9:00 p.m. u.k. time. bloomberg customers can follow that on key life go. -- t live go. the final stretch of the french election.

mccain's neck with republican hopeful. that is next, this is bloomberg.

♪ manus: monday morning in london. 1:20 in the afternoon. a little bit of lunchtime in hong kong. 24,000 -- the hang seng clinging on. nothing to write home about. your business flash, hopefully more interest there. debra: moore director five of pickup trucks in china. pulling, also held a -- a meeting between donald trump and the chinese counterpart as a constructive set toward stronger ties. when you have two leaders who

meet face-to-face, they become people to each other. that basis and leading from the reports, a firm foundation to then go off and make concrete advances. in talks to buy a corn. the biggest publicly traded health care provider said that while discussions are underway there is no certainty of a deal. bloomberg reported on the discussion earlier friday following the. acorn shares were up 18%. the biggest gain since may eight valuation of $3.7 billion. thanng selling more 560,000 pounds. identified industry officials say that more than five times

the rate of demand for the previous best seven model. thank you very much. less than two weeks of campaigning left before the first round of voting in the french election. candidates held rallies of the weekend. suggest thees communist background is gaining momentum and tied for third place with francois hollande -- francois fillon >> the beginning of the allegations against the republican candidate have ran off between marine le macron, it isel changing according to yesterday. jean-luc, the far left, could come third in front of francois

fillon in this poll. the race could be much tighter than expected. you have to bear in mind also that the margin of error of those polls is around 2%. the race could be tighter with the two candidates in the front in terms of possible that feel 40% of french people, the voters who are still not sure of their choice. think you very much in paris. extensive coverage of the next couple of weeks. was on into the next -- the first round with caroline on the ground. relational -- momentum is the key word here.

what do you take away from that? >> the key takeaway is the scenario analysis heading in. processing,n we are what could be a populace votes. a centrist vote would look like. now probably the policies or proposals that should deserve market impact. manus: i will pull up this chart which he will follow up. this exemplifies the point we are making. the direction of travel. matt, dump-in. matt: one of the oldest church -- charts in the library, number 15 from way back in the day. claims can access this.

it should be french-german spread and it has been more interesting lately. leiously as concerns about pen spike may have subsided a bit right now. where do you see this going to get a macron win or a phenyl pen win.le hadhat church shows when we the drop in spreads around february. but much on the status quo, that goes in equity markets alike. but now we are going to back to the discussion. do we need to introduce new scenarios here? assessment before left policy would actually impact. manus: you and i were looking at a couple of screens. electione finish local

coming through. there's an interesting point that the extreme left his number six. >> that showed a drop as well. a .8%. correlate actually that with what happened in holland recently. we passed the peak of support for populist policies. given what happened just next door in sweden over the weekend, normally you would think that there would be for the populace process well. that did not happen either. don't rely on past events a few week before the election. >> you are going to hang with us. the head of the u.k. investment .ffice at ubs wealth management

up next, a battery for south africa's credit rating. out why the senior director of sovereign ratings at fitch thinks that they fell.

matt: it is 2:30 in the afternoon in tokyo. as the yen weakens against the lower -- the dollar, it is 7:30 in berlin. is it the heart of europe? i sometimes feel like that. let's check in on the markets right now. we go back to england. mixed pictureng a across markets. nuanced. they say a comment from the fed

policymakers that we had over the weekend. if we take a look at the asian session you can see a fair amount of green. the nikkei higher. australia higher. coming down along with the korean one. the worst-performing currency against the dollar so far in today's session. , you can seeield the yield heading higher in new zealand as well. a bit of a mixed picture. a loss focus on the dollar-yen. that the fed on friday, downplaying the likes of any cause in the rate hike half. you saw the dollar rise on that as you can see here. that's really sharing the concern over first quarter gdp. the summit getting some conviction to dollar.

it looks like investors really have seen the beauty below the surface over that headline in jobs numbers. we have the 10 year yield in the range between 2.29% through 2.64% through the end of november. we did see a 10 year yield dropped to -- drop after the strikes in syria. it's quickly rebounded to stay within the range. 2.38% at the moment. oil extending to the highest in the month. following the u.s. strike on syria, russia signaling it is weighing an extension to opec production cuts. 52.42 is where we are. managers up money

for the first time in six weeks. do so much. " it edition of derek is available. this is what is fronting the story. man on a mission. referring to rex tillerson. cover story, secretary of state. he will use this meeting in moscow to press about chemical weapons. heading to russia after a gathering in italy that starts today. a mauling for boris johnson and the press over the weekend. ,e canceled his trip to russia some would say allowing the united states of america to front-runner the british position mold in the press. >> i will get back to the french presidential race with the next story heating up. the candidates rallying polling suggests.

almost tied for third place with two weeks to go before the first round of voting. a survey shows he 118% of support. illon.int ahead of f the first championship of his career. jacket and a paycheck of $1.98 million. keeping an eye on that. i get goosebumps watching this. the greatest week of the year has come to an end with that tournament. landing the nation with the second blow in a week. foreign currency rating was produced. noninvestment grade level

on par with turkey and portugal. amid political uncertainty after president zuma ousted is well-respected finance minister. joining us now from hong kong is young freighter. the senior director at fitch. thank you for joining us. was the best case scenario for south africa going forward? >> they will continue to maintain the fiscal stability given that they have already announced that they will not speak to the prior budgets. it will find it increasingly difficult to do that. they will scale down the efforts to improve corporate governance. it will probably even weaken them and thus will have some

medium and potentially long-term indications for the fiscal situation. it'll probably also have a lot less priority on the consolidation given that they have increased focus on what they now call roaracle socioeconomic transformation. been under the previous cabinets to push .orward in reducing the deficit if it becomes less of a priority it will have less applications in the medium-term. manus: you're right. it is about what happens next and what are the priorities of the president, whether he remains. the inflection point for you and fitch. what is the next downgrade?

we could look at the different indicators. we don't have one label of the gdp. certainly a failure to stabilize would be something that we would be looking at quite carefully. a significant weakening of the governments of state enterprise would be something that we could be quite concerned about. those are two of the main things we will be looking at. would zuma's resignation -- go ahead. matt: i was wondering the same question you were about to ask. is there something that could stabilize -- i know your outlook is stable but there is there something that could stabilize

the political uncertainty or bring that to an end? for example, sumas resignation. damageink a lot of the has been done. there will continue to be a lot fighting between the zuma camp and the other camps. that will continue to be very difficult to have all of the energy focus on what is important for the economy on fiscal confirmation and to support growth. don't really expect any major progress on that scale in that direction. even if there is a change in the presidency. senseld not react in any immediately to a change in the presidency. >> what do you expect?

you highlight the possible so how likely is a recession? forecasting gdp growth for 2017. greater quite a bit downward risk on the forecast. it has always been for the last several years a big factor. companies did not really want to invest. they were uncertain about the policy environment. reshuffle has further magnified this concern about uncertainty that will make businesses even less willing to take major decisions about new capacity in south africa. they will be continuing to look elsewhere. certainly raises pressure and makes it less likely that there

will be a significant recovery in subsequent years. manus: what changes the agenda. timeline, even if he does go in there is a reappointment for someone in the sovereign ratings who is credible. give me the timeline to recovery from this position that we are in at the moment. >> we need to see that south africa has also quite structurally been on a downward trend. we downgraded two times over the last -- three times over the last three years. more because of the continued failure for gdp growth to continue to recover. a factor that south africa faces is a problematic social imbalance that will mean that the dissatisfaction of the

population with the failure to realize the full promise of the end of apartheid, pressure to raise spending programs will be increased whether it is some other presence in charge. this bigger picture and social pressure will continue to be a concern. we will be really watching that. rhetoricay the new will further in kendall with this focus on quick fix measures to accelerate measures to make people feel that they are getting the promises from liberation. senior director of sovereign

ratings. thank you very much for joining matt and myself. just looking at this, this is a convergence in terms of a resilient five-year yield. you just listened to fitch. that conversation. everybody is presuming they were so attached -- you cannot have a whole country utterly driven by its relationship with one minister. >> a proxy for criminals he and sustainability. believe for example i , overall right now we have to go back to real yields. the issue with south africa, if we look at the position right they're using currencies.

in an environment, we are seeing where the u.s. 10 here is performing. inflation up right now. global developed markets yields a relatively soft. as long as commodity prices are holding but they are. i wouldn't worry too much. adequate being price. let's not miss the big picture here. the head of u.k. investments at ubs wealth management. if you are a bloomberg customer you can watch this program using tv . , you willick and here see a blue like that allows you to send a question to the show producers. if you have question, you can

send it in and the producers will give it to us. we will ask you what you want to know. fordds china, find out how is putting an asian expansion plan. this is bloomberg. manus: breaking news coming billiton urged by alex yet -- elliott to separate in business. this is about unlocking value for shareholders. holdersa letter to bhp on a plan to unlock value. we will discuss the proposition when we return. this is bloomberg. ♪

♪ matt: welcome back to "bloomberg daybreak"

it is 1:47 in the morning in new york city. it is 6:47 in london, 7:47 in berlin. i want to cap up breaking news. paul singer, billion or paul ,inger's private equity fund usually spearheads activist argentina, they were the main holdout there. other activist hedge funds right their coattails a little bit. they sent a letter to bhp suggesting a plan to unlock value. a single australian indquartered tax residents australia and new york and london. bhpott proposes the merging billiton's, u.s. petroleum

operations, and value up nice capital return policy. unifiedis proposing a structure and a separate u.s. petroleum system. $100 billion company. billion pounds company in london trading. a very interesting story to follow. watch the shares this morning. see if they get on this activist investor. let's get the bloomberg business flash. deborah mao in hong kong. ceo is saideckley to be under investigation by cricketers in london and new york. according to a person familiar with the latter, is less to have try to unmask a whistleblower involving a senior executive. a spokesperson said they declined to comment.

vivendi, the largest investor in telecom has put its own ceo on top of the list of proposed candidates for the phone carrier board. the first name is used to indicate the nominee for chairman. listing himance for above the current chairman was not immediately explained in a statement released yesterday but it suggests a plan to replace him. u.s. drugmaker acorn. europe's biggest publicly traded health care provider said that while discussions are underway there is no certainty of a deal. bloomberg reported on the discussions earlier friday, following that report acorn shares closed up 18%. the biggest one-day gain since may. giving a corny market valuation of $3.7 billion. since on his estimated to have phonesan 550,000 s eight

in south korea. -- unidentified industry officials say it is more than five times the rate of demand for the previous as seven -- s7. manus: thank you very much. ford has big ambitions in china. it is searching for new growth. pickup trucks and 70% of the vehicles in china. asks about the plans and how the meeting between president trump and xi would affect automakers. >> to leaders to make -- to leaders who meet face-to-face know each other. that is a very firm foundation to then go off and make concrete advances to strengthen ties between the two countries. mutuals huge, enormous

ties between the two countries --m a trade 10 point standpoint. the economic relationship is the basis of the overall relationship and i am glad to see both leaders meeting on early in their tenure. is one areasector where the china cannot level the playing field. think it'sething you possible now? >> china is a very important markets. tangible reforms and openings the thing because there is how do you make sure you decrease policy uncertainty, boost this this confidence, also create equal opportunities for each nation. i sit on the manufacturing council and we all share the same objective we want a very healthy and vibrant u.s.

economy. >> what are the opportunities in china in terms of sales and how much of that is going to be reliant on relaxation of the rules in china? >> if you look at the chinese market, less than 2% is pickup trucks. even with that is the fourth largest in the world. what we've seen is the government is thinking about potentially changing something of the restrictions which we think would grow customer appeal for pickup trucks. the research that we have done and the initial orders that we thinkn our new f-150, we it is a huge opportunity for us to continue to build in china. manus: the head of u.k. investments in the investment office here in london. you listened to the ceo of ford there and he is hoping for big opportunities in china. when i look at the news over the weekend, we have tremendous

goodwill and friendship. only time will tell on trade. -- isg on trade, korea that good news that there was not more olympus surf and turf at dinner question mark -- calamitous surf and turf at dinner? think a firmi foundation has been established. volatility or flexibility in the earlier. these these things will ever and flow. return and the changes in china's trade policy, absolutely essential. went --ng globalization, time for china to deliver on the policy as well. how do you see auto sales growth in china? obviously it is a massive market but they have a real pollution

problem and they are trying to limit the internal combustion engine that they licensed. fordo you see sales growth china and autos? >> is important to look at what types of cars is generating demand and what kind the -- our outlook in 2017, looking at platinum and the lady of -- palladium. the subsidies for clean vehicles in china, i think openings right now that is where they should focus things. we will see. there seems to be a resurgence in interest in bikes in china as of late. interesting investment situation as well. will not see matt miller on one of those bikes. aggressive,l, very

steve mnuchin goes to the aggressive play as well. similar economic interests. to increase our exports -- to china. what is really deliverable from u.s. trade relations question mark with the end goal? >> i think the end goal is sustainability. not just the u.s. -- this administration, in the past there have been accusations of unfair trade practices, currency minute galatian, etc.. we should move on from this. the japanese is actually moved on from severe tension. i think that's kind of maturity is what we should shoot for as well. there's been a pleasure talking to you. head of the u.k. investment office at ubs wealth management. much for joining manus and myself on daybreak. tensions with russia and north korea escalates, secondary of

state rex tillerson is getting a chance to ease strains with allies or show some strength. what to expect from today's g-7 meeting in lucca, italy. this is bloomberg.

manus: ga-1. foreign ministers convene in italy as the u.s. secretary of state prepares for admission to moscow. bomb threats mount as the fed balance sheet is set to shrink. is the treasury market calm said to be broken? jim bollard speaks with bloomberg. and france decides. macron and le pen maintain leads in the final furlong of the campaign. round one is less than two weeks away.

welcome to "bloomberg daybreak: europe," our flagship morning show. i'm matt miller here in the german capital of berlin. manus: i'm manus cranny in london. matt, let's see where the trading week is going. i think london will be focused on bhp billiton. london, paris, frankfurt a reprieve. we wait to see with the g 11 delivers. what happens post-nato? what is the next step from the united states of america? should we be relieved that there is a 100 datay trade plan? equities are slightly better, the billiton news we will talk about later. a selloff of the petroleum business, really deliver value for shareholders. about 4%imization --

holding through a variety of methods in bhp billiton. miners are in focus, let's go to the risk radar. matt: let's take a look. it'll hshow us there isn't very much concern, markets fairly complacent. the dollar gaining strength against the yen. you can buy more yen today for a dollar and you could on friday. days, lastuple of couple of trading sessions, we saw the yen lose some strength. today is the third day of that. that boost, the nikkei right now 18,000 as they settle in for the close. i want to take a look at oil, at nymex crude, wti. a little bit of again for oil and loss for gold. crude oil up .5%. to 1253.s

manus: matt, thank you. some headlines coming across the bloomberg terminal, from the fda in regards to jes staley, the ceo at barclays. aey're issuing mr. staley pay adjustment. jus thee's a reprimand over whistleblowing probe. a number of headlines coming in in regards to staley the ceo at barclays,. we will get a little bit more on this story and will break it down. let's go to juliette saly, standing by. juliette: manus, thank you. u.s. secretary of state rex tillerson has said america isn't interested in regime change in north korea.

the comments came as warships were diverted to waters near the country amid heightened tensions over its nuclear weapons ambitions. theerson also said that country must stop all weapons testing before further diplomatic talks can take place. elsisin president has created a powerful new antiterrorism body after church bombings by the islamic state that left at least 43 dead. the declaration suggested a tougher approach against militants, whose simmering war with the government has strained efforts to stabilize the country and revive an economy. the bank of england is reported to have reportedly pressured -- have repeatedly pressured -- a secreteported

recording in which a senior manager at a large u.k. bank instructed another to lower his rates. he was quoted as saying that global benchmarks were not regulated during that period. the central bank added that it had been assisting investigations into libor manipulation. will be sworn in as the 113th justice of the supreme after senateoday republicans on friday triggered the so-called nuclear option to allow his confirmation. the rule change means future supreme court nominees can be confirmed with a simple majority vote, and will no longer face a 60 vote hurdle. the dramatic rule change could deepen bipartisan divisions and support more ideologically extreme justices on the court. to france. the national front leader marine le pen would look to pull them out of the nuclear contract in the u.k. if elected president,

according to one of her aides. meanwhile, jean-luc melenchon has risen to third-place, as emmanuel macron and le pen retained their leads. spain's sergio garcia has had a thrilling playoff win over england at the masters. both finished nine under par after 72 holes, setting off a sudden-death playoff. garcia got a birdie putt to win. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . matt: we have breaking news here, juliette, on barclays. manus gave you the initial headline.

i looking at the statement from the bank itself, talking about the investigations that the fda nto pra have opened up i jes staley. they're saying that jes staley -- they're looking into his personal, individual conduct a senior manager relating to a whistleblowing program, an attempt by mr. staley to identify the author of the letter treated by barclays as a whistle blow. the board says that jes staley explained his mistake. they believe it was an honest mistake, that staley thought he was able to look into the identity of the letter author and try to find out who it was. the board is saying that they are going to reprimand, or have reprimanded, jes staley with a written reprimand, and that they are going to very significantly adjust his compensation.

the board is saying that barclays is fully cooperating with the investigations, which are ongoing, and that just staley has the full support of the board after the written reprimand, and very significant pay adjustment. we will continue to follow this developing story. very interesting stuff coming from barclays on an investigation that is open and ongoing into their search for the writer of a whistleblower letter. manus: looking through that statement, the chairman over at barclays saying he is disappointed and apologetic that this situation has occurred, referring to what you were just saying, that jes staley is alleged to have tried to identify who the whistleblower was. personally disappointed and apologetic that the situation has occurred, particularly as we strive to operate to the highest possible ethical standard. the board takes barclays's

culture and integrity extremely seriously. we have investigated the matter firmsusing external law and will be mentioning an independent review of barclays processes and controls to determine what improvements can be made o." the reprimand, some would say it hurts immediately in the pay. matt: for sure. staley, at the end of that statement, is quoted saying "our whistleblowing process is one of the most important means by which we protect our culture and values at barclays, and i want to ensure all colleagues and others may utilize and understand the criticality owhih i attach to it." basically saying, mea culpa. i shouldn't have looks for the author of that letter. going forward, they won't try to

identify whistleblowers who wish to remain anonymous. moving on from the barclays news. the war in syria and the fight against the islamic state, top of the agenda at a meeting of g-7 foreign ministers in italy today. the gathering represents an opportunity for u.s. secretary of state rex tillerson to ease strains with his allies, just 10 days after acrimonious nato talks in brussels, and maybe show some strength as well toward moscow. joining us, james hertling in dubai. how are tillerson's allies likely to receive him after the events of last week? they're diplomats, they will receive and diplomatically. however sometimes good friends and partners can disagree, and that is what happened the first time they met. the europeans pushed back very strongly, behind closed doors,

at the trump administration's calls for them to increase defense spending, and they have publicly applauded the administration for the missile attacks against syria. there's a little bit of common ground now, that they can put together a united front and a happy face. matt: interesting that they are pushing back against picking up more of the tab for their defense. but they seem to be united in their concern against vladimir putin over the past year. ofthere a chance, james, increased sanctions on russia, now that the u.s. seems to want to show a stronger face toward vladimir putin and moscow as well? right thatcertainly the u.s. and the eu are united in their concerns and issues with putin, whether it comes to his alliance with syria, whether

it comes to the russian interference in western elections, in the u.s., france, or germany, where things begin to fall apart over sanctions. for the eu to extend new sanctions, they require unanimity, and there are too many divisions. unlikely to see new sanctions. manus: thank you very much. --ve got thank you for coming. we're grappling, aren't we? we have lurched from our myopic view of european politics, and here we are with geopolitics playing a very important point. we wait to see what the g7 response is, and what we can extrapolate from donald trump. morning, our guest said -- these are dreadful human

events, likely to play out as dramatic market events. >> yes. we are seeing that very much so far, and probably for the last six months, a broadening of economic development. and it is important to try and caveat that -- september, october, november, we will see an upturn in sentiment. what we see now is a maintenance of the survey results, followed through with hard economic data. awful as somed as of the situations are occurring on the street and with backroom politics, the broadening of growth across the world provides some stabilization force from a market valuation perspective. manus: you are optimistic in terms of your overall perspective on the market.

this is the great debate, which is the reflation trade. is the reflation trade is still very much in check? this is something -- it's beginning to roll over. japan, the u.s. and germany, -- is that ultimately to do with oil, or is that to do with a lack of belief in the reflation trade, unless there is something more substantial from the united states? >> well, i think it's a combination of both. but also you could see the uptick from a reflation perspective was driven by not only just oil price moves, but corporate prices. we are seeing some softening from a commodity price perspective, most recently. but if you strip that back, we are seeing maintenance increases, and also reasonably robust demand as well. pauseok at that more as a rather than significant role

over and return to deflation. matt: but we may be don't see the strong inflation that some central bankers are looking for in order to get more hawkish. for example, mark carney and mario draghi have been saying repeatedly that they will look through the inflation glitch they saw a couple months ago. they are no longer seeing target inflation now. do you expect central banks to stay status quo here? >> yeah, and i think it's important to differentiate the federal reserve to the bank of england and ecb. if you think about a car analogy, foot on the accelerator versus foot on the brake, we still very much expect the ecb and bank of england to maintain their cautiously optimistic footprint on the accelerator pedal in terms of monetary policy and quantitative easing. we don't see any significant requirement to take that off. again, it's not just the inflation concern that the central bank would have, it's

the stability of growth. if the platform of growth. we have some significant geopolitical changes ahead, either with the implementation of brexit and the european from a centralh bank risk perspective are very high in terms of what could force a destabilization or weakening of future growth. i think it is quite right that they are looking to short-term inflation and trying to balance that in terms of medium to long-term growth expectations as well. matt: let's shift from inflation u.s.rowth and go to the that focus shifted last week after the central bank made explicit reference to its plans to begin the opposite of qe, winding down more than $4 trillion of mortgage in treasury securities. the bond market took the message

in stride. volatility may be on its way of ending thects reinvestment program of the proceeds from insurance securities. bloomberg spoke to st. louis fed president jim bollard about his concerns. >> one of the issues i have felt is important about the balance sheet is that it is putting downward pressure on the medium and longer end of the yield increases in the policy rate are putting upward pressure on the short end of the yield curve. it's kind of a twist operation, and i'm not quite sure that there is any theory that it's the right thing to be doing in this situation. what you would like to do is allow the entire yield curve to adjust to the rate increases in a more natural way, and one way to do that is to begin allowing some of the balance sheet to run off. matt: wayne, i have a great

chart here. showing yield spreads between 10-30 year treasuries nd white, 5-30 year in blue, you can see they are all kind of flattening out, which is what he was talking about. are you concerned about that? how do you play it as an investor? >> i'm not concerned at all. i think there was a significant amount of worry with the implementation of qe -- would it work, how does it work, what would it affect just in terms of government bonds but the overall fixed income market? and there is some concern and worry about the removal of qe programs and how that will affect the market. it was good and nice for some clarity around no outright selling.

i think that will be a big, important development, that the maturing of the book is the way that qe will be reduced versus an outright disposal program, which could create havoc in terms of liquidity and yield markets. early days, but the market seems to be taking it in stride. manus: the other story we have on the bloomberg this morning is the shrinking negative yield. you remember this time last year, you were paying germany to hold their debt, paying japan to hold their debt, paying france to hold their debt. debt yields and france have spiked tenfold. japan is in positive territory. germany is in positive territory. this is used for foreign ownership in the u.s. bond market. what looks like high-yield -- it

could be a draw. they could be a drawback to bund, to jgb. morean additional threat, than $3 trillion negative yields, all turned around. >> i agree. as we move into -- going back to broadening growth, the stabilization of growth, the potential from higher levels of inflation. those bond markets have reacted appropriately. before, the u.s. was significantly high-yield compared to the market. it's still very attractive from an outright yield perspective for foreign owners and investors. but as other markets come back into play, it's quite natural and quite right to diversify portfolios. i'd extent that not just a fixed income markets but to broader equity markets as well. we have seen a consensus trade of owning mid-cap and small-cap as other markets have languished

or struggled. those other markets, be in european, asian, emerging, also become more attractive with the potential for return and also equalization compared to what happened in the u.s. matt: all right. wayne, you will stick with us. apacc cio.s, let's get to the bloomberg business flash with juliette saly. juliette: matt, thank you. barclays has said that jes staley has been reprimanded and will have an "very significant u.k.'s," as the financial conduct authority and prudential regulation authority has started investigations into him. the investigation centers on his individual conduct and senior manager responsibilities related to barclays whistleblowing program, and an attempt by him in 2016 to identify the author

of the letter treated by barclays as a whistleblower. investor elliott management has called on bhp billiton to unify its corporate structures, spinoff more asset, and improve capital return. elliott says the world's biggest mining company, which has two separate entities in sydney and london run as one group, should become a singer australian headquartered company. the new york-based hedge fund also urged bhp to seek a merger of its u.s. petroleum business. tod's ceo has unveiled plans introduce more electrified models and pickup trucks in china. speaking in shanghai, he also held the meeting between u.s. president donald trump and his chinese counterpart, xi jingping , as a constructive step. >> when you have two leaders who meet face-to-face, they become people to each other. that basis, i think, and reading from the reports, that's a very firm foundation to then go off

and make concrete advances. juliette: and that is your bloomberg business flash. manus: thank you very much. our guest onset says that european equities are attractively priced relative to other regions. he's fully invested across global equities, including emerging markets and the united states. he is part of the northern trust asset management team. you are fully invested. the great debate is, you want to be in the small-cap rush, the mid-cap rush, that ramped higher. here in europe, we thought we would have a look at this. this is the msci, small and mid-caps in the dark blue, versus the large cap. beautiful. does that gap closed? where do you want to be

positioned? isi think that blue line showing you that continue to domestic activity we saw in europe. you similar to the u.s., can use it as a risk on or risk off trade, bearing in mind the potential for tariffs, the potential for external shocks. perspective,ropean we saw 70% of gdp coming from within europe -- and that has certainly fell through your blue line -- a lot of small companies doing very well within their own markets. we have always been surprised that they haven't done better in europe based on not only the effects of quantitative easing, but also the production of the euro versus every other currency. the ability to export goods and services at a cheaper cost from some of the larger companies. it's surprising it hasn't been better. gapn, we would say that the

should certainly change, andd should recover. but if you look at the ability for large caps to navigate through times a significant stress, and stress being not just political, but the derivations of political stress, changes in currency markets, currency valuation -- as we see that go through, large-caps tend to be in a better position in revenue generation. wayne, you are over such a huge part of the world. pacthere any place in a where you think equities are overvalued in need to be sold? >> i would say no. [laughter] >> it's all relative, obviously. i think the uk's interesting. u.k. has done very well post-brexit, post sterling devaluation. that still could provide some

tailwind for u.k.-based companies, careful and cautious around the currencies. in terms of more broadly, i think emerging asia still looks extremely attractive. the big caveat is what's happening in china. economically, still ok, but some of the capital controls from the chinese government can produce some kind of potential negative effect that you need to be aware of. but emerging asia is another place we could look to go. matt: wayne, thank you so much for joining us, and giving us your views on markets. wayne bowers, northern trust asset management. two big stocks in focus. billis creating value, jes staley the red line. the significant pay cut for the ceo at barclays. this as their whistleblowing program comes under question fro.

those are the stories we will be discussing in the european market open, up next with matt miller and guy johnson. this is bloomberg. ♪ anting a size-six,

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you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. guy: good morning. this is "bloomberg markets european open." i'm guy johnson in london. matt miller is in berlin. what are we watching? macron and le pen maintain their leads with just two weeks to go until the first round of voting. does the market now seeing a binary outcome? one-month euro-dollar risk reversal. digging in. activist