anna: terror threat critical. top security officials raise the risk of another attack to the highest level. the assessment is not only that an attack remains highly likely, but that a further attack maybe imminent. anna: china downgrades, moody's cuts its rating for the first time since 1989. stocks slipped to a seven-month low. and when in rome. trump heads to vatican city for an audience with the pope, but back home, the budget fights drawing criticism from both sides of the aisle. ♪

a warm welcome to "bloomberg daybreak: europe." from here in the city of london, i'm anna edwards. welcome to vienna. the sun was shining as they began to arrive yesterday afternoon. duration of the november agreement, 6, 9, 12 month at $54.n, and crude the scale of the cuts, 1.8 million barrels is what they had agreed the last time. could they go for something much more significant? all take you back in time. 5 million barrels back in the late 1990's, and the grand coalition which is ok and non-opec. do the heavy lifting and get on

with your job. that is the message, but could they bring more non-opec members on board? they get together today to study the prospect of what a 12 month extension might mean. we will be chasing around vienna all day. anna: some critical things to talk about with regard to the oil crisis -- oil prices. oil prices will supported right now, partly on the back of the opec conversation and also with the u.s. data in mind. technical indicators suggesting put someures in london upward pressure on as well. let's look at the chinese story through the lens of the aussie dollar and the chinese stock market. we are weaker on the chinese equity market, the australian dollar also taken a bit of a hit on the back of that news that moody's lowered its

rating on china. the outlook for financial strength is really the key question here, but we see chunks it -- stocks rising in that mixed asian session. ofincrease in the level terror threat here in the u.k. continues to put an emphasis on u.k. assets as we go through the day. a lot to talk about on the oil front. movies hit the panic button, so what comes next? juliet, a very good day to you. juliette: china's debt rating has been cut by moody since a first time since 1989. while maintaining a pace of economic growth. chinese stocks headed to the lowest level in almost eight months. the yuan retreated in both onshore and overseas markets and default risks increased after

the rating was reduced. u.s., president trump first budget has been dismissed by critics as a fantasy. it would dramatically reduce the government's role, cutting social safety nets and negatively impacting many of the rural working poor who propelled him to the white house. the plan proposes spending cuts of $3.6 trillion over the next decade, including cuts to food stamps, medicaid, and low income housing assistance. later today, donald trump is due to meet the pope for the first time since becoming u.s. president. in the past, they have publicly disagreed on many subjects, including climate change, refugees, and well inequality. it comes against the backdrop of the manchester suicide bombing that killed 22 people. fed president has said june is a distinct possibility for the u.s. central banks second interest rate increase of 2017.

he avoids what investors have been thinking, futures pricing suggesting most expect a move when the at omc concludes its next meeting on june 14. the fed lifted rates in march and economic projections suggest policymakers expect to more increases this year. >> first and foremost, based on the strong economic outlook, i continue to see three rate hikes for 2017 as appropriate. we have one under our belt and given the forecast right now, i see two more of the course of this year. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. find more stories on the .loomberg at top the movies out great with a little bit of a surprise, particularly the timing of it. shanghai composite trading at levels we haven't seen since .ate october or mid-october

elsewhere, a lot of brazilians in the markets, the yen fluctuation higher by .5% at the australian share market pretty flat. important that it's still at record highs. againgroup plunged once on the open although it has recovered somewhat in singapore trade. beforeay it plunged 28% being put it trading hold. toshiba doing very well, up 8.5%. the ceo of the westinghouse unit saying it's likely that unit will be sold or talks will start by this fall. fortescue metals group impacted by iron ore and the ceo saying he expects iron ore will retreat further. in terms of what were looking at on the charts if you are a bloomberg subscriber, this is an interesting one because it shows

emerging-market currencies as well as the yen both being bought by investors in terms of being long. normally they divert. bank of america merrill lynch saying this is unlikely to continue. emerging-market currencies have been doing very well and could end up a little bit mixed. quite an interesting correlation at the moment between the yen and other currencies. anna: let's get back to our top story here in europe. in the u.k., the military will guard music and sports events and unprecedented security operation. police are looking for potential accomplices of the suicide bomber. after meeting with top security officials, prime minister theresa may announce intelligence analysts had raised the u.k. terrorism threat level rum severe to critical, the highest level, for the first time in a decade. >> the threat level should be

increased for the time being from severe to critical. this means that their assessment is not only that an attack remains highly likely, but that a further attack may be imminent. talk to the european head of global markets research at mufg. some of the news is still very raw from what happened in manchester over the last 48 hours. heardg at what we've about the security threat to the u.k., the move from severe to critical, it makes you wonder what impact it has on the u.k. psychology and economy. quick certainly over the short term, the announcement from prime minister may does at the potential to unnerve people living here and of course there's a lot we don't know. potentiallyve it becomes could have implications

for economics. chart thate a overlays the changes in the threat rating in the u.k. with consumer confidence. it does not paint a very clear picture. long levelss on how of concern remain elevated. >> i suppose if we do get specific evidence that there were accomplices who were involved in this, basically that the government is looking for these people, that would certainly unnerve people here and that could have implications over the short-term area manus: good morning to you. story is side to the unimaginable, but from the context of the election campaigning which is on hold at the moment, from a brexit discussion point of view, do you think this is one of those moments that could help unify the brexit discussion between europe and the u.k., or is it still just too early to say as

we go into this critical level of worry in the u.k.? >> is difficult to say. certainly it does have the potential for giving the incentive to both sides to at least get the negotiations up and running in a more favorable environment and climate. willegotiations themselves not kickoff until immediately after the elections there is still a bit of time. certainly the threat level licks still very high and there's a high degree of nervousness and concern. i think the last thing both sides would want is to go into negotiations to create big divisions, that just sours the atmosphere further. so i think it does potentially incentivize both sides to be more pragmatic as a starting approach. away from the immediacy of this event, tell us a little bit

about your expectations around the pound. you say the fears of a hard brexit have receded further and i hear contrasting things about this, different views on what a big mandate would mean for the hardness or softness. some saying it's going to either be hard or very hard. is a snapt that there election taking place, if you assume there is a bigger majority in the aftermath, what i would emphasize is that it simply gives the u.k. greater flexibility on both sides. so simply from a negotiating standpoint, going into the negotiations, i think the u.k. are in a better position. i think that is important for the pound. my own view, and i know there are different views, but my own view is that one of the big focuses of the government is in relation to the transition

phase. they want a favorable transition in place with the u.k. willing to potentially continue it hearings during that time. effectively we are in the eu for much longer time. anna: so we will have to wait to see. manus: the consensus from the surveys we've done is that the pound could fall another 3%. to sell into the rallies. it's amazing how the global landscape -- where is the haven in global landscapes? is is still dollar-yen in these moments of great crisis in the markets and in society that we look at towards a haven? >> yes. right now, obviously with the dollar negative momentum, therefore macroeconomic factors and political factors in relation to trump, i think in

that context going into a time of risk aversion. certainly the japanese yen at these levels i think could perform very well in a time of risk aversion. it's not clear cut anymore. you've got to take account levels, as of just mentioned. dollar-yen at these levels would be viewed as attractive to sell. momentum is important as well. a riskcould benefit in haven type environment over the short term. and liquidity for both those currencies are favorable as well. here are some highlights for your day ahead. donald trump is in rome to meet the prime minister and of course to meet the pope at 3:00 p.m. u.k. time. there's a rates decision from will getof canada and the minutes from the fed's last

policy meeting, so plenty to talk about here on bloomberg. a little bit later in the day we will speak to the short seller, the manage our jet muddy waters. that's at 3:40 u.k. time. coming up, china gets downgraded, moody cuts against chinese debt rating for the first time since 1989. we're live in hong kong for the reaction. this is bloomberg. ♪

manus: it's 1:17 in the afternoon in hong kong. 7:17 here in bni. the hang seng at the bottom of your screen as china gets the moody blues with a downgrade. flash.et a business -- glencores. grain

set its sights on the company. it said it was approached about a friendly merger. the share price surge gives them of $11.5 billion. the chairman of bloomberg lp is senior independent nonexecutive director at glencore. morgan stanley has said it will cut back on using recruitment bonuses to poach investment bankers. the firm will honor existing recruitment deals that are approved by june 16 and include start dates by the end of september. the company is developing new recruiting policies and plans to rollout a suite of digital tools this year to support advisors. u.s. justice department has sued fiat chrysler over claims its diesel powered pickup and suvs was fitted with the legal software that allows them to pass emissions test.

the complaint alleges that nearly 400 -- 104,000 vehicles were equipped with the so-called defeat devices. the company said it is currently reviewing the complaint but is disappointed that the suit had been filed. commodityembattled trader noble have been on a roller coaster ride during singapore trade as investors weigh concern about the singapore listed companies abilities to sustain his business and meet debt obligations. noble said it remains in talks with several strategic partners. the shares plunge as much as 27% to the lowest level since 2000. trading resumed after all and then reversed from that slump. china still has some way to go to win approval for its mainland stocks to be included in emerging-market indexes, according to henry fernandez, head of the company that compile the benchmark. process has been hard and theree last three years,

have been other places that it has been harder. there's still a lot of issues to resolve in a short time. juliette: that is your bloomberg business flash. manus: so she's just been telling you about china, moody's downgraded debt for the first time since 1989. challenging the idea that china can rate in the debt while changing the face of economic growth. editor spoke to bloomberg television and said this about the downgrade. >> authorities have recognized the risk that come with high leverage and have a broad agenda of structural reforms. andake that into account the measures will not be enough to reverse the increasing leverage. manus: the sovereign debt is mostly on by domestic investors. ,here is a market impact

chinese stocks headed to the lowest level in almost eight months. joining us from hong kong is our chief asia correspondent for bloomberg news. ofuppose there's a number debt to gdp. is that the driving force for movies, the debt load? >> its early one of the real factors here. total debt has risen to 260% of gdp from 160% as recently as 2008. the pace of accumulation is concerning people. moody saying enough is not being done to rein in leverage in the system. even though the authorities continue to preach reform, as recently as a few weeks ago they were saying they would tackled the risk expansion system. this is a good remember the challenges that china still has ahead of it if it wants to get

its financial markets to join the global stage the way other developed markets are. so i say it's a slap on the wrist and reminder that movies must try harder. anna: what does the downgrade mean in a country that doesn't relies much as many others on the kindness of strangers? >> it is an important point to say that china did not need external funding. less than 20% of its debt comes from outside the country. government debt itself is actually quite low. the overall impact on the economy is seen as reasonably limited in the near term. it will at the margins weigh on sentiment toward china. remember china's trying to open up its bond market to global investors right now. they are making it easier to buy government bonds in china through hong kong. when you get a movement like this by moody's, it's not

exactly a vote of confidence. i would say a moderate economic .mpact anna: thank you very much, for joining us therefrom hong kong. derek, do you agree with what we just heard, that it's sort of a but not soal low much of an impact on the chinese story? yes, i completely agree. it will pass quite quickly. the key thing is that even before this announcement, the sentiment was pretty weak, which was mentioned. the chinese equity markets of the worst-performing asian markets this year. this concern about the policies, the direction of policy as they're trying to tackled this leverage. our view is yes, we will

continue to see this very slow, gradual, disappointing pace and --t gradually will start to even though we have the dollar weakening more broadly. manus: when does the slap on the it was colloquially referred to from movies, weight is a slap on the wrist earnings is into something we need to pay more attention to because they go back to the stock market from 18 months ago and it had the world in a tailspin. everything that happened in china that far has been moderate global market reaction. >> again, looking back on what's happened in the past, that's the greatest risk going forward as well. perhaps speed up a little bit at some point and we get some unraveling of confidence that is more severe for the market in terms of the shanghai composite coming down sharply i did the markets oncetially taking those

again. but the big positive i suppose in terms of that risk going forward is dollars cn why and the fact that were now in a situation where broader dollar sentiment is weaker. we don't have this significant dollar bull run and therefore the upward pressure of dollar cny and chinese investors getting their money out of china is not as it used to be. as i mentioned a moment ago, we still think the risk could materialize once again. anna: so little bit of relief in the sense of the dollar story changing if not the yuan. shows chinese mortgage loan rate versus median income growth. the growth year on year in mortgage loans and that chinese median income growth, clearly showing something that might worry those who are thinking about debt levels. but moody's is talking about

economy wide debt and the burden that would take from the state's finances. fall into thell lap of the state because so much of the debt in china is owned by the state. >> absolutely. the broader macro figures are startling. just over a year ago the imf did its own calculations from a bottom-up approach going corporate by corporate to build estimatelem loan seeing on chinese banks. the figure they came up with was approximately $1.3 trillion. is 15% of chinese gdp. just hey you quickly about a red-hot headline, a $4 billion softbank,vidia for

making it the fourth largest shareholder. president trump and pope france's have little in common, but they will meet later. we will discuss that next. this is bloomberg. ♪

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manus: welcome back. it's 2:30 in the afternoon in tokyo. the dollar rising ever so slightly. 7:30 a.m. in the anna. let's get into the markets, we haven't downgrade to deal with from china. let's talk about that downgrade by munis in the impact in the markets. we've seen japan and korea a little higher. the big impact is on the shanghai composite. it declined as much as 1.3% in the session. it still heading for its lowest close since october 2016.

yield close to a two-year high. i've tracked the shanghai composite against the 10 year yield and its normalized as of the end of last year. a bit of a mixed picture across other asian equity markets. the aussie dollar is bearing the brunt of the china downgrade. one of the worst performers today against the greenback. it seems to be the preferred fx proxy according to a lot of comment. showing the aussie dollar spiked above the downtrend in march, looking a little bit like a false break perhaps. u.k. asset still very much in u.k. as well as the continues to digest the terror attack in manchester. if we look at sterling, it is

recovering a little bit today after two days of losses but to get back below 130. whatever the outcome of the u.k. election, you got the median forecast for bloomberg. thank you very much for those details from a fascinating debate about the pound where heads with the election in the mix. president trump continues his foreign tour, landing in room as -- landing in rome as he prepares to sit down with the italian prime minister. it is his meeting with pope france's at the vatican that's attracting the most attention due to their major differences. kevin cirilli is on the ground for us in rome. what is the emphasis that this trip going to be? we've been watching the carefully choreographed, stage-managed president trump that we've seen of his travels so far. what are you expecting today?

today's the conclusion of the first portion of the president's first international trip, focusing on religion. we are here in rome overlooking vatican city behind me, st. peter's basilica where the president will be meeting with the pope following his visit to saudi arabia and jerusalem. were also joined by the rome bureau chief. walk us through this significant in terms of the political policy that could be discussed with the pope and the president. >> what you have to remember with the pope is that he is the official leader but he is also a political leader, and as such, it's an important meeting. he wants to meet trump and made his policy known. it's going to be about integration, he's worried about donald trump's policy and about the wall. there have been some tweets about that in the past.

the pope's against capitalism, he believes that something needs to be done about climate change. these two people cannot be more different. >> when you talk in terms of actually the politics behind it, a very political pope and we should note that, but the president will be meeting with someone else in the vatican. talk to me about that influence. pope, thereting the will be a general audience and then he will meet the secretary of state. we have to remember that the vatican brokered a deal with cuba, for example. so they really set policies on a global scale. i think there will be some interesting conversations going on and because trump is so unpredictable, there might be things have in common and think they can work on together. next the president will then promise to.e

what will come up in that meeting? thing willthe main be the upcoming g-7. they will talk about immigration, italy is really concerned about immigration but they don't believe in walls, there will be some back-and-forth about that. .taly is freely with iran italy is concerned that perhaps trump's stances a little too aggressive on a rant, but this will be behind the scenes. generally speaking, it will be a friendly meeting. iran, int point of saudi arabia, the president had look to unite arab nations in terms of coming up against now former president barack obama's nuclear deal and we saw the same thing in israel with prime minister benjamin netanyahu. nuclear deal and we saw the same they are very much at odds with the white house. >> it's a matter of nuances.

is not just the italians, it's the french as well. that trade relations with iran and they think iran and saudi both have issues. they are not freely nations per se and they don't think it's fair to divide them in such a sharp way. israel is trying to unite arab nations but the italians are concerned that trump is missing nuances and it might create more problems. i appreciate the historic lesson as well. thank you so much for being here. back to you in london. kevin, in rome, getting delightful context as he continues to track president trump across the middle east and into europe. travels the trump middle east and heads to rome, back home, things are not looking quite so rosy in terms

of his plans for the budget. we heard from him yesterday, or we heard from his team about what he wants to do about the big tax cut. it's a taxpayer first budget, we are told. food stamps,to medicaid, disability payments and the like. impact expectations on the u.s. economy? to -- the bare-bones you a few months ago, but the details don't change much in terms of a lot of it lacking credibility and not getting wide support of backs across congress. a lot of skepticism in the accusations of double counting on the gained throughre

the 3% growth. i think huge changes in terms of the details of this in order to get anything past. manus: of course the other aspect is this, we have -- the trump administration will go from receiving $116 billion from the treasury receiving $50 billion by 2020. has aump administration big squeeze on its hands with the fed and active play. yes, that certainly makes things a lot more difficult in terms of fed policy going there's a huge amount of ways in which that could go. certainly in terms of the balance sheet shrinking the balance sheet going forward, i'm pretty convinced they will be old for cautious in terms of the pace in which they reduce that.

i think the real focus of the fed is to try to keep the market focused on the federal funds rate and try to create a perception about the balance sheet reduction, something more tactical than policy driven. that i have this chart throws into the mix some of the other central banks that we will talk about. this is the fed it might, showing you the extent of the trillions of dollars of balance sheet that need to be unwound. how quickly does this come down? 2013.t up during will it take for years to come back down again? quick count be skeptical that this would be resolved in this economic cycle, i will put it that way. i think we will get started perhaps but as an issue in terms of normalizing it, it's probably

a bigger story for the next economic cycle. the other question is, we don't know exactly where we need to get down to. the regulatory changes, the demand from banks for liquidity means there's got to be a lot greater desire for reserves to stay up considerably at higher levels. takes five years to build up, it takes potentially a decade to unwind? g-7.: let's pivot to the the new york times is leading this morning, brussels is a hellhole. the european union is a vehicle for germany and nato which it calls obsolete. those are the lines that trump used in regard to some of his european peers that he's going to meet. europe and the euro have had a nice run but this kind of to underpin those trade relations between the two. heidi see that playing out in

terms of the g-7 and the trade relationship? >> the pattern we've had in particular on international policy and policies abroad, trump has tended to kind of pull back somewhat and has been more pragmatic than the rhetoric would have led us to believe. i think potentially we might get something similar in terms of his meetings across europe. therefore i'm not convinced it becomes an issue for the markets. i think the euro drive higher is more monetary policy relative to the fed and a positive, cyclical story that we getting in terms of economic data from europe. , the i have this chart german and euro area conga bit really doing very nicely. how high does the euro go on the back of this, do you think?

had bullish forecast and were expecting 115 at the end of the year. that looked quite bullish a couple of months ago but not so much now at the moment. i think we could go to 115 over the short term. the big story will be the ecb. we think there will be a communication change coming up. confirmation of getting that means rates in europe will become more sensitive to income and economic data. that means a scope for yields to rise further in europe with further support going forward. anna: thank you very much for your time this morning, derek. remember if you're a bloomberg customer, you can watch us not just on the regular tv but also using the tv function on the bloomberg. you can follow all the charts and functions we put up an influence the

ask thetion by clicking guest a question at the bottom of the screen. as futures are holding gains opec ministers gather for talks on extending production cuts. manus is there in the anna. talk oil.ntinue to this is bloomberg. ♪

manus: it's 1:46 a.m. in new york and 7:46 a.m. here in vienna. welcome back, this is "bloomberg daybreak: europe." u.s. stocks pushed through yesterday in the cash market. that's the state of play on the futures. will talk about the oil markets and that's where we are actually

seeing a little bit of a rise in the oil price. so we have the movement their last week in the american petroleum report delivered their numbers. here is the chart of the hour. yousef: inventories are going to be in focus as we await the data. you mentioned the api, there was a drawdown last week. ,he forecast more than that your stockpiles have decreased by 2 million barrels a day -- or week. we built a fabulous chart and you can see with been happening, some key technical levels have been broken. that includes the 50 day moving average, the 100 day and the 200 day moving average. research saying these are critical technical indicators of the last year that you can see right here. the other thing i'm watching is

what is happening with the sbr reserves. goldman sachs coming out with a note saying the proposal by u.s. president donald trump relative to the opec cuts in the global oil markets, such a measure, the impact would be negligible and more focused on the local market. a reminder of mostly heavy crude, but it still may contribute to a slowdown and normalization of inventories in the u.s. anna: thank you very much for that fascinating technical chart on oil. let's stick with the opec story. where they'rena poised to extend production cuts for another nine months. i ran canal past an extension removing one of the last remaining obstacles to an agreement. you are on the ground. you then indiana since the start of the week. give us your sense of whether the consensus around extending the cuts is building.

manus: certainly if you go by what is coming through kuwait and out, there seems to be a months. toward nine there seems to be a coalescing around nine months. not everyone is the board, according to the kuwaitis. the algerian saying maybe nine months is off the table. what you have is duration under , the scale of production, and then the grand coalition. can you see more non-opec coming in? really just putting your house in order. you've agreed to do the cuts but you're not fully compliant. going to do whatever it takes to move the market, and he did come up from $49 to $53. our guests will be able to put this in context.

in 1998.on barrels three years later they came back and did 5 million barrels. scale, 1.8 billion barrels, the shift in market does it. there thereference opec story. how critical is that? >> iraq is the problem child, second-biggest producer in opec. they did not hit their levels. the saudi's did the heavy lifting as it were. did not cover themselves in glory in the first quarter, either. they are up in the last month. the question for opec is, if the uae and russia are not that compliant, what will stop the others from beginning to turn the page? that got to do better. and right snapping at their heels are the frack are's. -- frackers.

and opec04 when russia launched on the ground coalition. very grand lobbies at hotels near vienna. anna: they with us because will carry on the conversation about the oil story. at thekinson international energy agency joins us here on set. great to have your thoughts this morning. let's come to you with a very basic question. do you see a deal in the making in the anna? >> it looks as if there is going to be a deal. i don't think anybody doubts there will be an extension of the current cuts, whether it six months, nine months, or longer, it remains to be seen. but it is almost certain there will be a deal. morning to you.

you will be on this rooftop with me. i talked about compliance. compliance is the critical issue, isn't it, in terms of everybody, there's a spirit of agreement. how critical is compliance? >> it's obviously very important indeed. whole is opec as a concerned, compliance has been very good by historical standards, around 95% or something like that. you are right to point out that within the overall turtle -- overall total, we track it by following the tagger trucking data. compliance has varied but i think the most important message has been that the cuts had largely been delivered in terms of production -- reductions. and there's some debate about the balance within the members.

we will wait and see how that plays out at the opec meeting. manus: the other side of the equation is, you have the cuts on one side, but the demand. how do you see the demand level on a global basis, while we talked about china this morning, we talk about the economics of trump coming in and his new administration. talk about the demand side. >> we've had a very steady forecast the last few months. we're looking at oil demand going up by about one .3 million barrels a day -- 1.3 million barrels a day. would not change at forecast are madly in the last few months. we see growth in china actually being quite strong this year, slightly stronger than last year. there's little bit of downside in india because of the fallout from the monetization policy and a little weakness in the u.s.,

but globally it looks to be on increase in 2017 of about 1.3 million barrels a day. i don't think demand is too much of a problem for the opec and esters as they gather in the anna. anna: how do we keep the -- as they gather in the anna. vienna. what is the range we expect the oil price to trade in? thes widely believed producers are looking to put a floor on the price is around $50 a barrel or something like that which they need to provide stability in the market. they realize that because of the efficiency improvements in fracking, the refinancing and all the efforts at of gone into seeing production recover in the u.s. shale industry, they recognize that production in the u.s. is going to increase. what they don't fully understand

, and the rest of us are still trying to get our head around ofs, is how fast the case shale recovery is in the u.s. in 2017. opec remain steady with its production cuts but meanwhile it's increasing from the u.s. shale producers. that puts a limit on the ability for prices to inch up in reaction to the opec cuts. manus: i mentioned the non-opec producers. they were slow to deliver in the first quarter. how important is it that russia recommit to this process from the non-opec side? what would shock and move markets here? >> the russian said all along that they would be moving toward their production cut rather than implementing it immediately. that seems to be the case that

they are largely moved toward that cap. it would be a great surprise if the russians were to pull out of agreement.n-opec they're responsible for delivering half of the non-opec production cuts. i don't think many people expect that is going to happen. ana: any chance that we see big change in strategy in the months that lie ahead? there doesn't seem to be much talk at the moment of the level of cuts being increased, but we could yet be surprised by that. we come down to the fact that the oil market balanced. we publish this every month in our monthly report. the message we been putting across is that if as a scenario opec were to continue the current level of cuts, the oil market would fall into a deficit

in the second half of 2017. quite significant, possibly a million barrels a day. anna: thank you very much for your words this morning. neil atkinson draw -- joining us on the iea. this is bloomberg. ♪

manus: terror threats critical. election campaigns remain on hold as top security officials raise the risk of another attack to the highest level. >> their assessment is not only that an attack remains highly unlikely but a further attack may be imminent. manus: china's debt downgrade. moody's cuts its rating on the second-biggest economy. for the first time since 1989. stocks tumbled to a seven-year low. when in rome. trump heads to the vatican city for an audience with the pope. back home, the budget bites drawing criticism from both

sides of the aisle. welcome to daybreak europe. our flagship morning show live from vienna this morning. i am and is cranny. anna: i am anna edwards in london. you are in fee and a for the opec meeting. one of the key things? all a one-month high for crude. oil is point about it is big, and there is a cola sing of decide, sixhas to or nine or 12 months extension. what is on the table, there seems to be a coalition of thinking around nine months although no one is talking about anything extravagant like deeper

cuts. we have breaking news to get into. i have kingfisher. anna: sticking with the oil fame we will go through another and -- headline. capitaland all share for an unconditional payment of over $1 billion in cash and debt basis. a contingent payment of $150 million related to a stabilization plant and a contingent payment of up to $100 million subject to other factors. headlines crossing around that danish energy business, very active in the renewable space and selling its oil business to any of the u.k. i have marks & spencer's, i will go with that one. billion revenue, 10.16 ahead of the estimate. we have fully adjusted pretax

.8 million pounds. looking for the q4 sales numbers, we are getting those coming through now. q4 them a home in closing compatible sales down by 5.9%. that is worse than the estimate. a drop of 7%. the range was -621 -- -1%. we were always expecting a drop. affecting the business in the fourth quarter. clothing and home sales has been a tough part of the business. they have shunting some of the stores and opening up some of the stores in the food line. this is under the ceo, coming from a retail background as does archie norman, the newly appointed chairman who has some people excited about what this business will deliver. to continue when you

look at the comparable sales numbers but adjusted for text profit has come in ahead of expectations. let's move on to dixon's car phone, we have those numbers coming through. salesear like for like plus 4%. profit before tax guidance at 485 million to 490 million and about theirnts gross margins being stable across the year. you have some further news on retail. manus: i have indeed. the home-improvement banner comes under kingfisher. macron versus macro. that is a french business. this is the branch we are -- we know more familiarly in the netted kingdom. sales down .6 of 1%. atst-quarter sales come in 2.9 billion pounds in line with what the market had expected on that top line. like for like sales down .6 of 1%. we have that question around the

slow down,er, a perhaps a little bit of a slowdown in moving houses, etc.. there are a variety of issues weighing on kingfisher numbers in the u.k. but the top line number in terms of sales comes in pretty much in line with what the market had anticipated. the headline on marks & spencer's, let's get your first word news with juliette saly. juliette: china's debt rating has been cut i'm ladies for the first time since 1989. chinese stocks headed to the lowest levels in eight months. the yuan retreated. increased after the rating was reduced. the idea thatging the leadership will be able to rate and debt. >> we recognize the risk that come and have a broad jen --

agenda of structural reforms. we think of leverage will increase more slowly. these measures will not be enough to reverse the increasing leverage. trump's: president first budget has been dismissed by critics as a fantasy. it would reduce the government's role cutting social safety nets and negatively impacting many of the world poor that propelled him to the white house. the plot -- plan proposes spending cuts over the next game -- decade including cuts to low income housing and medicaid. later today, donald trump is due theake -- meet the pope for first time since becoming u.s. president. in the past the two world leaders have public lead disagreed on many subjects including climate change, refugees, and wealth inequality. the meeting comes against the backdrop of the suicide bombing that killed 22 people that has been claimed by islamic state. philadelphia fed president patrick parker has said june is

a distinct possibility for the u.s. central bank second interest rate increase of i-17. parker voiced what investors have been thinking, suggesting that most expect a move when the fomc concludes its next meeting on june 14. the fed listed -- lifted rates in march and policymakers expect to more increases this year. foremost based on strong economic outlook, i continue to see three rate hikes were 2017. we have one under a belt and given five forecast right now we will talk about that in q&a, i am sure. i see two more over the course of this year. juliette: 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 . trade in close of japan. also a story you. a weaker yen pushing the nikkei

up by .71%. downat the csi 300, it is .5 1%. shanghai stocks trading at levels we have not seen since early october. hanghe switch out of the seng index. it has been down for the past few sessions that we did see a downturn in the aussie dollar on the back of that credit downgrade to china's debt. having a look at some of the stocks we are watching, noble group is recovering in singapore after plunging heavily on the open again today. saying it is not aware of reports that sinochem is walk -- has walked away or is not invested -- interested. tokyo. by 8.4% in the westinghouse unit said they are looking at starting to sell out that asset. fortescue metals group impacted by what we saw in the iron or price. comments.ming in with

have a look at this chart, you are seeing investors quite low on emerging-market currencies is also on the yen which seen is that safe haven risk. quite interesting that these two are core -- correlating when normally they go in a different direction. bank of america merrill lynch saying these cannot be sustained. it is likely the yen will fall when the fed starts to tighten policy and we could see and diversions coming through on some of the em currencies. interesting that we have seen investors buying into the yen and a number of emerging-market currencies. thank you very much. back to the u.k. musiclitary will guard and sports events in an unprecedented security operation as police hunt for accomplice move -- for compasses of the bomber. -- for accomplices of the bomber. let have raised terrorism this level to its highest level

in a decade. >> the threat level should be increased for the time being from severe to critical. assessmentthat their is not only than an attack remains highly likely, but that a further attack may be imminent. anna: journey us now on the phone is our london bureau chief -- joining us now on the phone is our london bureau chief. how long do these warnings usually stay in place? >> this is the third time that we have had this morning since the system was introduced. the last time in 27 -- 2007 a in there for four days and 2006 it was there for three days. manus: what are the police saying at this stage about the investigation? thate key thing has been they seem to be saying that they cannot rule out that there is a

network behind this individual whereas the westminster attack it was a lone wolf attack. and that did not have the impact on the security situation after the attack. here in this situation they have arrested an accomplice or suspected accomplice, i should say. thathey cannot rule out there is another attack being planned and that is why they have increased this let -- increased the threat level. that makes the situation even more critical. an election in running up to the election and campaigning has been put on hold indefinitely, i understand. what could this mean for the upcoming election? ,: how long thesen security measures are in place. this is an extraordinary situation that people are going to the polls with troops on the street. which is a visual reminder for everyone of the threat that is

facing the country. as you say, campaigning has been suspended. media is making hay out of this. the comments in the and we have not seen any of that at all. i think all the parties seem to be, seem to have agreed that they are not going to make this a political issue. at a subtlet worked level. the tories had a pretty terrible week. it is fair to say that their support has declined to or their lead has declined in the polls. tend to lookoes very statesmanlike and she is on top of the issues.

zone.s her comfort time, the analysts we speak to say if she tries to make hay out of this it will go badly with voters. if there is a bungle, that would reflect badly on government. anna: thank you. let's turn our attention away from the immediate devastating events that have taken place in manchester and focus in on the u.k. economy. let's leave manchester 21 side for the moment and talk about the broader conversation. months beenmany wondering how hard a brexit we are going to get and i am drawn to the interesting comments you had about how you think a big conservative majority would dilute the influence of the mps

who are pushing for a hard brexit. you see this election taking us on a softer track. others would say we should get a mandate, that sounds a pretty hard brexit. >> things are pretty uncertain. few hard-line members who -- who have been pushing for the hard brexit. -- only deadly their effect. the chances of a softer brexit, i would not highlight that. it is not a soft brexit. i think from the words we are hearing is that they are pushing the eu and notrd having a trade deal. a lot of them believe they are not having a -- that not having a trade deal is not an important thing. from that perspective i still have my concern.

you -- kingfisher this were -- this morning and marks & spencer delivering a turnaround. this is a critical issue. where all human, we all reacted to these tragic events. people werefidence, concerned about consumer spending and consumer confidence. these tragic incidents do knock the psyche. this is going into prime tourist season for the u.k. economy where you are in london and around the country. the risks are rising for the ,ound, rising for a slowdown stagflation, is it too presumptive to use the word stagflation for the u.k. economy? >> it is probably a little too strong but i would say that my expectations for the economy before this week and the events size a slowdown to come. any kind of brexit soft or hard

will have a downward impact on the u.k. economy. some decent numbers from the u.k. economy which surprised many economists. a lot of it has been down to the fallen sterling. i do not think that should give can pushthat the u.k. through this without any kind of impact. there is going to be a slowdown coming. the increase in inflation will start eating into spending power. high street sales will suffer. we are starting to see a few signs of that so that is coming through. now with the terror threat where it is, that will take its toll in confidence. anna: how long do you think that lasts? is that what the eu would hope for as an investor? we have this chart here shorting the pound.

--t is something that is encouraging tourists. what matters for the pound, is at the transitional arrangement that we get with brussels? >> it is important partly because it goes to show that the government understands the complexities of -- that businesses will be facing. not and arent estimating the risk. that is going to be important. also we need to know whether -- where negotiations are going and what does theresa may want to do? no one knows where her intentions lie with this. anna: we will get back to you shortly. our guest is staying with us. consumers have supported the u.k. economy. we will continue that conversation looking through the retail numbers that we have from marks & spencer. a little backward looking given the devastating events of the

last couple of days but we will talk about retail next. this is bloomberg. ♪

anna: welcome back. we had retailers from the u.k.. estimates, some weakness in some of the closing numbers. covers retail. beatour-year number estimates on pretax but the concern lies in home and clothing comparable sales. >> they had an increase in clothing in like for like. calendar effect was not where it was a year ago and that had five days of sale. that helped on christmas but it

has hindered this time around. manus: let's talk about the u.k. consumer. of thes concern in terms amount of debt we have, how we are spending it. what do these numbers tell you, does this do anything to reaffirm your confidence in the british shopper? >> the m&s is a particular case because it has been struggling with its clothing. we all seem to have gone off buying close. if you set those factors aside the consumer has held up pretty well. i think the clouds are gathering over whether that can't continue. clothing, pointing to that at -25 basis points. maybe the clothing top line suft they are trying to shore up the profitability of that business even as it shrinks.

>> all the retailers have the pressure from sterling. -- the slump in the pound is not great. they have been trying to cut the amount of time they are on sale. there were constant promotions, constant sales. they have cut that back which will give them a bit of a buffer. anna: pointing out you are live pictures coming to us from the meggitt -- from vatican city. president trump has conducted part of his tour, has been on tour in saudi arabia and israel. his journey takes him to europe into italy and he is meeting with the pope. two men who have not a lot in common. my colleagues to have been writing about this in terms of immigration, the role of islam and many other subjects. youident trump will bring

-- we will bring you the latest as it develops from this visit by president trump to europe. still with us, our guest. plenty more talking points as we go through the week around defense spending. the euro zone economy at the moment, what is your -- where does your concern light or the electoral calendar, all -- does all your concern rest there? >> some data have been improving. focus, the risk perspective is on the italian elections, when they are. it could be early next year but group,r it is, we have a they have strong support and they could feasibly c 6 -- be successful. it will be watching how the economy continues to thrive.

is it going to be improving, where is the euro support going? a lot of the discussion is around eu membership. discussion how the goes. have: one of the themes we picked up, ubs has shifted to europe area do you join that wave of money in terms of taking something out of record values in the u.s. and follow the flow into europe? >> excellently. equities, equities are doing pretty well but the focus should be shifting from the u.s. to europe. it is pretty clear. and the u.s. we have the economic data, the momentum is peaking. we have a slight sign of softening. at the same time we have in hadpe growth and we have

good numbers. on top of that we have the fed looking to raise rates which is accommodative. more iner it is looking favor of european equities. anna: how do you expect the ecb to react to this kind of data? this is the pmi data heading in the right direction, how will the ecb respond, a change of town in june and change the guidance in september, that seems to be an assumption, a forecast we're getting from a few people. >> next month we should see a change in their forward guidance. and talking about interest rates, where they are going and september, some discussion of tapering to begin axt year when we begin decrease in asset purchases. there's a lot of debate. we have had enough comments from ecb members with very different views.

till we'll have to wait june. that is it for daybreak europe. we will bring you all the latest from vienna. manus is live on the ground and from vatican city. this is where donald trump meets the pope. ♪

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delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters. that's how you outmaneuver. you are watching bloomberg markets. this is the european open. the first trade of the cash session coming up shortly. matt miller is in frankfurt. what are we watching question mark the china crunch. cuts beijing's rating for the first time since 1989. the markets have ignored the move. is chinese debt the elephant in the room or is the rating agency overreacting question mark threat level critical. theresa may warns of --