anna: mate clings to power. today the u.k. prime minister faces a catastrophic election, the loss of the parliamentary majority. investors assess the political risk. qatar feels the pain. almost a week after the isolation, investors cut losses. we will head to delhi for the latest. awaiting the fed. investors expect the central bank to raise rates on wednesday, even if the inflation outlook weakens. ♪

anna: a very good morning, you are watching "bloomberg daybreak: europe," i'm anna edwards in westminster. manus: and i manus cranny, safe in the studio. you are in for a rough and tumble week in westminster. what can we expect? theresa may has got to go to her party and explain herself. anna: yes, indeed. the first place, the cabinet meeting. we heard from the former counselor george osborne, enjoying his new role at the newspaper, describing her as a dead woman walking. within the cabinet she has been giving some support -- boris johnson denies he is planning a coup, liam fox speaking favorably, but she is sent to promote some political rivals so we will see how it turns out. the key question is how will the

talks go? there was chaos over the weekend about whether there would be a deal. no deal has been done yet, so we will continue to talk about this into the rest of the week. from the moment, what else is happening? manus: the reality of what is this makes of this -- what do business makes of this, the potential hung parliament, thi s is how businesses are looking at the situation. they are more pessimistic now as a result of this coalition of chaos than they were at the moment of brexit. a hung parliament would be a disaster for u.k. businesses. that's the warning. almost all businesses are now more worried about the makeup of the new government than they were at the time of brexit. 57% are pessimistic about the prospects for britain. t ithe time of breci was 43%. 92% are concerned about the makeup of the government in the

u.k. economy, but 59% don't want to see another election. that is what you see people like boris johnson saying i'm not necessarily going to run against her. let's look at the wrist radar. more of the u.k. feels today because this is all about the time we went banking on friday. 1.2753 for reprieve, the pound, a slight studying of the nerves. volatility is interesting, euro-sterling .8787. as theresa may goes to interest the committee, the rank and file, the volatility of the ftse is down and will continue because the pound dropped. that discount is very much implied. let's look at it and have a look at the asian equity markets, because it is all about the

technology stocks. that valuation is beginning to the question. msci asia is off, tencent, samsung taking it lower, nasdaq down, apple down 4% on friday, microsoft, amazon, facebook losing more than 2%. crude, if you can't keep the price up with action, you can always talk about. -- talk it up. the rigors added in the united states for the 21st week in a row. let's get out to juliette saly with your first word news. juliette: manus, thank you. in france, president emmanuel macron has expanded his control to put his party on track for a sweeping majority in the national assembly in the first round of the legislative election. vote,rty won 31.5% of the almost 10% ahead of the republicans. according to projections, the

result would give him between 415 to 450 seats out of 570 in the lower house of parliament. has president donald trump renewed his attack on former fbi director james comey, tweeting that he is leaked comments about their white house talks were "cowardly" and suggested they could be illegal. meanwhile, jeff sessions will testify on capitol hill tomorrow about alleged russian meddling in the presidential election. he says it's important in light of the testimony last week. and president trump is reportedly considering scrapping or postponing a planned visit to britain this year amid a growing backlash over comments he made after the recent terror attack in london. according to "the new york expressedump has increasing skepticism about the trip after coming under intense criticism for a misleading charge that he leveled against the london mayor.

north korea says it has moved closer to testfiring an intercontinental ballistic missile with the potential of hitting the u.s. mainland. n news agencies say they are not far away from such a weapon, despite president trump's pledged to prevent it. last week the u.s. said in a drill it had successfully intercepted and destroyed a mike icbm -- a mock icbm. qatar is ready to understand the concerns of its neighbors. the kuwaiti prime minister said his country would not abandon mediation efforts. it's a sign that the spat between qatar and a group of middle eastern nations led by saudi arabia may be easing. slash global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. is and find more stories on the bloomberg at top . a number of markets closed in

asia today, including in malaysia and the philippines, but we have had weakness coming through from tech stocks on the back of the selloff in new york on friday. the nikkei is down by .6%, hong kong and hang seng down. and you have seen some weakness in the korean tech stocks, particularly samsung. having a look at some of those stocks in detail, there's a bit of corporate news around toshiba, the battle for its memory chip unit heating up. western digital is said to have planned to raise its bid. grande down, selling a 14% stake to shenzhen metro. and samsung, have a look at this chart. it's quite interesting because we have these stocks in

facebook, amazon, netflix, google, but you have these other tech stocks in japan, the so-called sunrise have been doing very well, up 65% compared to a 19% rise in the topix index, certainly outperforming those stocks that had the drop. anna: juliette, thank you. let's get back to the u.k. political story. theresa may will face angry lawmakers today in a showdown that could signal the end of her premiership. how close to the end are we? it comes the day after she reshuffled her cabinet, which took place in an ongoing situation over the weekend. er rival unsuccessfully stood against the prime minister in last year's conservative leadership race. another nemesis, george osborne, told the bbc that may's days are

numbered. >> theresa may is a dead woman walking. it's just how long she will remain on deaths right. i think we will know very shortly. in other words, we could get someone next week or next month. anna: let's talk about the u.k. political story and how it rubs up against the economy, business, and investing. we are joined by allen higgins, the cio of --. your thoughts after the high political drama of thursday into friday? has your view on u.k. assets changed in result of what we have seen here? >> good morning, anna. well, on the one hand, if you look at sterling, it seems to be more difficult than a harder brexit. on the one hand, that's positive sterling. but we haven't changed our view on sterling. the heavily shorted currency comes first.

ilt is overseas investment and you can understand why there is nervousness. that.ore cautious on when it comes to u.k. equities we saw clearly for the ftse 100 in terms of the weaker currencies, it immediately rebounds. that playbook continues. equities.aith on but at the end of the day, whoever is in charge, it is a conservative minority government, so no big changes to otheration, it seems, and levels in terms of business. it may not feel like it, but it is business as usual. manus: the next thing is what happens with the democratic unionist party.

they will meet tomorrow. the debate is that they are in favor of brexit. we need to understand more on their position. but the ramifications in terms of hard, soft, or light brexit is a debate for markets. the cost of the brexit with access to the single market might be too high for the conservative party, which would be unlimited immigration, and paying money into your. >> you are right, it looks like there will be some kind of split, and you could get, will conservative, it's a difficult situation. it looks like the economy is going to come first. a rather modest fall in slight recovery, focusing more on the economy. from our perspective, is a bit noculative, but the idea is

deal walkaway seems to have dissipated. that so we are reporting many are talking about philip hammond being the soft brexiteer, perhaps the economy takes it will, but there are many other players. we were up after the week in the u.k. political story, but this is just the u.k. sorting out what it wants to ask for, what it wants to go to brussels having in mind. this is not what the u.k. is going to end up with in the end, is it? that is worth reminding ourselves that this is only half the story. the eu will be the other half. >> correct. and look at it for mr. macron's perspective. he needs a strong economy. you look at it from a french perspective, we had the socialists, now the independent macron. french exports need to come to

the u.k. he is pro-business, x rothschild, from his perspective, he will want to those export markets working, whether it's champagne -- the u.k. is still the biggest market aor champagne -- there is pro-business narrative behind it. manus: going back to the chart of theat the start, level of pessimism in the u.k., ratcheting higher, they are more pessimistic than they were at the time of the brexit vote. we need some kind of shot, whether it's from the bank of england. where do you stand on the view that the next move from the bank of england could be a form of easing? i heard that on friday. is that too far out there? >> right now, it is too far out

there, because the global economy is reasonably strong. -- idea of a rate rise i think the rate rise will go completely, that's knows the price. but i think a rate cut into negative territory, i think they will say that for negative gdp. it is still a positive economy, and we saw the u.k. economy very strong post-brexit. -- lookingd that it ifward, i would be surprised the u.k. economy entered recession. anna: if interesting, with the negotiations around brexit, that you see the french stance more influenced by the pro-business desire to keep exports going then perhaps the political ambitions that many have talked

cannot not encourage other countries to go the same way as the u.k. risky. i use bonds as an example, especially german car manufacturers and many others. a lot of my colleagues in france, if macron can't make it in gets the unemployment rate down in france, then surely it will be le pen next time. businessis that doesn't come out and the politicians -- we are stuck with a bad deal. it's a risky situation. but in my experience, business tends to come through. manus: vive la champagne. alec stays with us, our cio of the day.

here are the highlights for the week ahead. it's all about central banks. tomorrow the rate decision from argentina. wednesday is the main event with the fed. thursday is the announcement from the boe. weeke round off the with japan and the bank of russia. coming up, kuwait mediates. we will have the latest efforts to resolve the dispute between qatar and its saudi opponents. this is bloomberg. ♪

anna: welcome back. you are watching "bloomberg daybreak: europe," i'm anna edwards in london. manus cranny is in the studio. let's get to hong kong where we find juliette saly with your business flash. juliette: business optimism u.k. economy has plunged after theresa may's conservative party lost the majority in parliament two weeks before brexit start

talks -- talks start. 57% are pessimistic about the prospects of the economy over the next year. the institute of directors says it was higher than when they voted to leave the eu. uber has said its board has approved several changes to the company, that provided no clarity. the announcement that the board had approved all recommendations from an investigation came after a meeting yesterday that lasted more than six hours. the company declined to comment further. tencent has led declines by technology shares in hong kong after friday's tumble by excessive gains. the hong kong stock market has become increasingly reliant on 10, which -- on tencent, which added billions in value to its share. it accounted for a quarter of the hang seng's gains in 2017.

and that your bloomberg business flash. manus: thank you very much. let's focus in on the middle east. the gulf crisis mediator kuwait has said qatar is ready to understand the concerns of their neighbors, but the comments come from the kuwaiti foreign a disputesigns of that may be easing. qatar's the main benchmark plunge last week, the worst since december, 2014. the index is now one of the worst performing this year. our middle east anchor yousef gamal el-din is on the road in qatar. great to see you. let's talk about this -- is there any -- the latest in terms of the great political maneuvers, kuwait is the mediator. what is the latest? point, a lot of

smiles and promises, and kuwait is saying that qatar understands there are concerns from their neighbors and is willing to listen. they are also happy to hear them out and have additional talks, but nothing beyond that as it stands. if anything, we have seen qatar reach out to its allies and peers around the world, trying to make it -- a set of allegations that are false, that it is being caught on the wrong side of the bigger conflict. there in mind that rex tillerson has been on the phone with the deputy crown prince, who has been trying to mediate this ongoing conflict. generally have a meeting between the russian and qatari foreign minister is, a lot of words, but nothing tangible. i want to quickly quote the eurasia group, who make the point that qatar has two two choices -- one is to say i've got bullies in my neighborhood, i need to reach out to allies

and go with this direction, or abandon foreign-policy objectives that they have worked so hard to build and submit to the saudi-led demands. the politics is behind the scenes, meanwhile markets have been reacting and qatar looks weakened. escaped the notice of lng customers. yousef: on the one front, we are seeing enormous pressure on the qatari stocks. i have spoken to some of the key investors, and they said the biggest concern is that this is not an isolated story. there is a contagion risk that has spilled over into why the risks have some of the ambitious plans of the kingdom of saudi arabia. think along the lines of iran, the appetite for investors to put money to work. it's one of the

biggest exporters of lng around the world, and now some of its now tryingtomers are to seize the opportunity, trying to push qatar in terms of better pricing. maybe you can get better deals out of it. always -- anna: thank you very much. yousef gamal el-din, joining us in doha. allen higgins is with us in london. allen, really fascinating story. when you look at the unprecedented pressure we are seeing on the qatari currency, the interbank rates in qatar going higher, default is higher, yields go higher. these are all pressures around an emerging-market debt perhaps don't lead you to believe that ends well. what are your expectations?

>> you are quite right, and you have this strange situation that such a wealthy country that all of a sudden has solvency in question. it issued a lot of bonds in dollars. i'm looking at the chart that manus has pulled up, which shows -- we are not quite at february when oil and gas prices were much weaker, and to many the perception was the chinese economy was about to implode. that was quite a dramatic situation. but this is a big move, and should this continue, there would be a real concern. yousef made a good point about contagion. saudis will want to contain that, it's important strategically for them to get aramco away, to start investing in private equities, and turn

themselves into a mini norway if they can. i would expect them to try and calm the waters, to say enough is enough. manus: the qatari banks are out there. no sign of a run on the banks in any way thus far. >> no, and i wouldn't be surprised if it really got difficult in terms of raising dollars. you can imagine central banks trying to revive dollars. and the other interesting thing, qatar individuals and institutions are huge investors in the u.k. they are essentially getting income screens, and some of the individual stocks -- i think you will see more money coming into the u.k. from individuals. manus: ok. an interesting thought.

allen higgins, he stays with us. we will talk fed. that's next bloomberthis is bloomberg. ♪

it too: 30 in the afternoon. a beautiful day in tokyo. these markets are fairly sanguine at the moment in terms of race. -- risk. 110.27, dollar-yen. cover. the front you know how to get it on your terminal. story, continuing to come with the u.k. election.the fallout theresa may set -- faces.

serious conservative lawmakers, which could be the end of her career. george osborne saying she's a dead woman walking. cabinet, butak a he could struggle to push through a hard brexit. that's the key issue for markets. theesa may will meet with northern ireland cu p tomorrow after failing to finalize a coalition deal. confusion over the weekend in terms of what has been agreed and what hasn't been agreed. manus: anna: is a lot of backtracking. there was a deal, then there wasn't a deal. let's stop -- top of that another story breaking this morning. this concerns coal. glencore offered $2.55 billion

u.s. for coal and allies, higher --n the chinese companies company plus bid. they would also by mitsubishi's stakes in the ventures. they should clear the proposal by the end of june. manus: finally, lease focus on the central bank. on federal reserve focused the central bank this week. the bank of england follows through with plans for the u.k.g, muddied by elections. the bank of japan is forecast to stand, and governor kuroda is how heressure to reveal will exit from negative rates. let's talk about one of the big items on the agenda this week. that is the federal reserve. treasuries have become unhinged from reality.

they yields have nowhere to go but up. that is the view of a group of diehard on bears -- bond bears. chief global strategist at deutsche bank u.s. securities unit is training in. he says investors are ignoring higher wage pressures and bursting budget deficits, which will send the 10 year yield to 3.25% by the end of the year. that is his view. let's get the view from allen higgins. talking aboutnk, a 10 year yield of 3.25% by the end of the year. -- in a bloomberg story this morning, i real -- read that wall street expectations have been decreasing for year end yields. forecast at 2.7% at 20 basis points lower than it was two months ago. treasury 10 that

year yield, keeps coming down. what are your thoughts? know, he is to be expected, but there's a huge number of bears on bonds. our perspective is slightly --ferent in the sense that we are saying the treasury market knows. the treasury market knows that 2.5% short rate will be enough to slow the economy. that's why these yields are relatively low. bank argument is predicated on wage growth. there is a modest uptick in wage growth, i agree. but it is modest. we have to look at what happened in japan. ultra low unemployment, but wage growth is hard to find. manus: interesting. in the copy in that story, wages -- wage growth in the usa is the fastest pace in the first quarter since 2007.

it might not be aggressive, but it is the fastest since 2007. well he talk about work and the probabilities, june is a virtual -- almost a certainty. but september is slipping. goldman sachs is pushing back to the third-2017. they thought you would get the third hike in september and a balance sheet. it seems as if we have slippage in terms of the ability to do a third rate hike, and to do it on a timely basis in september. do you agree slippage is a feature of the market now? >> i think that's right. weak.as been inflationary pressures are low. i take your point on wages. it has waged up. i find a fax, i hang onto it. >> they are data dependent. they would not hike rates in

june, but interestingly, they talk about financial conditions. i know bloomberg has an index as -- basically,ows it shows financial conditions i was because credit spreads are tight, equity markets are high, the yield curve has no particular signal. quite hard ons that. that's why we will probably see the june rate hike. actually, if they are looking at the data, they shouldn't raise rates in june. september, completely agree. anna: manus: anna, before you jump in, i have u.s. financial conditions for alan higgins. never let it be said we don't deliver for higgins. >> make it a five-year graph. give the viewers some perspective. manus: there you go. five years. >> you have it the other way

around. high means loose financial conditions. i'm more familiar with the goldman sachs one, but basically loose financial conditions overall. manus: anna, jump in and save me. anna: you are doing a fabulous job. [laughter] let me ask you about flows of money going into fixed income. all these questions about how strong inflation is, how high wages go, how low or high do we go on the u.s. 10 year treasury yield, fixed income funds are getting more dollar worth. we are seeing the most inflows in the first week of june compared -- this was a really numbers we haven't seen since 2015. what does that tell us about market expectations around treasury? >> it's incredible, all the money going to fixed income.

notwithstanding, we are saying yields are going to hold.i used to be an ink -- institutional fixed income manager, and people say, why are you more positive on equities? income streams. the income stream is so much more attractive and equities increasingnd also income streams. i find it very surprising that people are willing to pay and take 10 year treasuries 2.25%. it does surprise me. i actually don't know why so much money is going to fixed income. manus: you have just decried and decide pimco. bill gross, saying these are the best in terms of developed markets. my question is this. i mentioned bill gross. i think this tells the story you wanted, we have gone from highly

negative two extremely accommodative. bill gross said last week that markets are the most risky since 2008. i put it to you that the whip around you saw on friday is the curtain raiser to a dynamic shift in market. facebook, amazon, alphabet. 4% down on google. we are getting cranking on gas miles. incrediblyhad an strong start, but, it is virtually the only area of the equity markets where we see speculation. no one is interested in the banks. i noticed the banks are holding up well. even in japan overnight, most major japanese banks were up despite tech being down. i don't think -- i understand where bill gross is coming from, especially on fixed income. when you see a tight credit

spread, it is frustrating for us as well. there's less value. nevertheless, credit is probably a better trade then government bonds in our view. do we see this as some kind of 2008 or 2009 event? i would say unlikely. we just don't see the leverage in the system. anna: looking at your notes, you talk about tech stocks. this is one of the sectors you like. you like the big names manus was talking about. japanesemore about stocks are european stocks -- or european stocks? diversified. when it comes to tech, we invest wea general tech fund, which include some of the larger stocks. there are some that are ridiculously expensive, but there are some like apple, where the pua shows more modest and supported by yield, going back

--the comparison with on bonds. it depends. we have been in tech for quite a while.it has been a tremendous run. there's no issue with the correction. the rotation in the market can go on for a while, but we are in tech for the longer term. a fairly obvious narrative in terms of where you get growth from. manus: it has to be said, i would hardly call a 4% drop in apple is eating anywhere near a turning of the tide. i just get excited when things go to percent or 4%. forgive me. you stay with us. about the oil market. if you look at the rough and tumble on volatility, saudi arabia and russia have worked to reassure investors that production cuts by opec and partners are draining the global glut. sayshinese energy minister there's a decline and reduction will accelerate in the next

three to four months. and the need apologize us from dubai. saudi and russian ministers coming out with rhetoric to bolster the deal that they did in opec. our words enough -- are words enough? reporter: full steam ahead from them, according to their comments. they are not adding anything new to the table. they say they will stick with those cuts. what they are pointing at now is the reaction of the market. they are seeing we are going into a higher demand period right now. they are hoping that increased demand coupled with cuts they are maintaining is going to take stockpiles off the market. that's what they are looking at to see a boost in prices. we saw them fall a week after the data out of the u.s. showing stockpiles were still high. they are looking a little further down the timeline, hoping to see stockpiles reduced by the end of the year. i will pick up, anthony.

what do the ministers say they can do is the markets don't turn around? if we don't see actions against the glut being effective? >> they are saying they will take a decision further down the road here it is they don't see stockpiles produced by the end of the year, maybe they will look at additional steps. they lowest said they could look at the length of those cuts and continued them. some members did discuss deeper cuts at the last meeting in may, but they were not accepted. we will be looking at drilling down into the market and looking at how those markets are reacting. we are seeing stockpiles in the u.s., we are seeing the rig count go up. we are also seeing market minutia. the saudi's raised their pricing for official prices to asia for july, but we are seeing them also keeping full levels for buyers.an

that's an indication that if they think they can sell the same amount of oil with a higher official selling price, the higher differentials, that they are seeing demand coming back into the market. they also said they will increase sales into the u.s. we have seen that, that the saudi sales to the u.s. over the last four months are a little more sluggish than they have been historically. we are seeing how they are acting and interacting in the market, trying to bring down stop isles and hit the spots where they can keep market share and have an impact on prices. fors: anthony, thank you joining us. part of the energy reporting team for divide. go to alan higgins. when i look at the oil market, it is the last throw of a desperate dice. are is that just me going for a punch on a monday morning? we get it to you last week. nobody really believes they will beat defectors.

>> you know the middle east well. you spent time there. i think you are quite right.they need to -- i was tempted when they said -- another political scandal many years ago. -- as soon as oil rises, you can supply out of the u.s. having said that, what is not talked about, there is demand out of china and india.it was interesting to hear that saudi s are managing to increase prices into asia. chinais good demand, as and india continue to invest. manus: alan higgins there, our guest this morning. if you are a customer, not only do you get to watch this show on the television, you can use tv to see an a and i. everythingctions and

you need. if there's a chart that catches your eye. jump into your chat. do it for the market. coming up, another win for macron. the french president's party is projected to win the most seats in parliament. we are live to paris for the latest. this is bloomberg. ♪

anna: welcome back. you are watching "bloomberg daybreak: europe," here on bloomberg. let's go to juliette saly in hong kong. she has your bloomberg business flash. reporter: business optimism in the u.k. economy has plunged after theresa may lost the majority and parliament, less than two weeks before brexit

talks start. 57% are pessimistic about the prospects of britain's economy over the next year. the institute of directors say it was higher in june of last year when people voted to leave the eu. cooper said the board has approved several changes to the ride hailing company, but details on the fate of ceo travis kalanick. came after as meeting yesterday that lasted more than six hours. the company has declined to comment. that is your bloomberg business flash. manus: thank you very much. i will pick it up from here. french voters rallied behind their new president andy first round of legislative elections yesterday. macron's party, the public on 10 percentage points ahead of the republicans.

the result could give macron's seats in out of 577 the lower house of parliament. that's according to projections. for more, let's get to paris. carol lina is standing by outside the national assembly. good morning. it is the morning after the legislative elections. macron is set to win a large majority in parliament it. sunday. good morning. when president macron was elected, we were all very anxious that he wouldn't get us majority in parliament. do you feel different now? >> yes>>.

first of all, he's getting the majority. we were anxious because we were not paying attention. at the time we were saying he was coming with the revenge of the enlightenment, the respect of people in -- and ideas that we don't see in the u.k. or the u.s. but he also has the sense of realogy. he and his team realized very early there was a reality after the presidential elections, and that is the legislative elections. that's what we have just seen. consequently, they were getting ready for it way before we were thinking about it. reporter: we are seeing a major shift. the governing socialists decimated, and the national front might not even get a group in parliament. and theresa may weren't messing up so badly in their own countries and grabbing all the headlines, people would be saying this is a new french revolution. this is a very, very big deal. it also represents a powershift both within france and between

france and the rest of the world. a power shift within france, because not only socialist, but also the national front is dead. the right, the traditional right, which thinks of itself as the governing party, actually doesn't know whether it is in opposition or in support of macron. reporter: very different, obviously, from the results of the u.k. elections last week that resulted in this hung parliament, even though theresa may is trying to find some coalitions. do you see a shift of power away from the u.s. and u.k., and more towards france and germany? >> there has never been a time in our lives when the united states and united kingdom were less legitimate and less authoritative in world affairs. it is absolutely extraordinary. that creates the big vacuum. nature abhors a vacuum. the fact is that macron's arrival in france is what the

french were waiting for, what they call a national savior. if he hadn't come along, we would have had one of the old, mediocre, establishment politicians in office and everybody would have been unhappy. or it could have been the national front. under the circumstances, with the revenge of the inlet in then and sense of reality, he will be a france in the way everyone has been waiting for in 20 years. farrter: what you take so on macron's first month, and the diplomatic relations with donald trump? >> i think he realized as soon as he was elected that he had the upper hand. he went to berlin, he demanded a quick relationship with angela merkel. it looks like she's going to win the legislative elections in germany in september. that french german couple will go on for quite some time. another thing to be conscious of his that there are more -- no

more elections in this country for a while. the senate elections in september go through and --ntoral college process a electoral college process. then there are no more for several years. reporter: thank you so much. a sense of reality, the first round of the legislative elections in france. back to you. manus: thank you very much. studio, it ishe alan higgins. animal sounds as if they have a new tony blair on their hands -- it almost sounds as if they have a new tony blair on their hands. it away, it really does re-embolden the european equity story. >> it does. that graph, put it in a g5 context. very disappointing.

unemployment is much lower in the rest of the g5. that is the issue, plus government spending. will he do it? i hearthe same thing about sarkozy. my french friends were very bullish about sarkozy delivering, but he didn't deliver. i would add in brexit, they could take a brexit angle. strong --s a really lower unemployment, he needs a vibrant export market, which the u.k. is important here and let's hope he is pro-business and introduces reforms. anna: thank you very much. out in great to have you on the program. great to have you on the program. when we come back, we talk more about u.k. politics. that's why i'm in westminster.

may tested by the tories. the british premise -- prime minister preparing to face serious members of her own party. westminster with the latest. this is bloomberg. ♪

manus: today the u.k. prime minister faces furious party members after her catastrophic election that lost the tories a parliamentary majority. the pound edges higher as investors expect political risks. qatar feels the pain. investors in the country, stocks, bonds, settled with losses. we are live in doha. awaiting the fed. investors expect the central bank to raise rates on wednesday even as the inflation outlook weakens.

♪ manus: you are welcome to "bloomberg daybreak: europe," our flexion morning show in the city of london. i'm manus cranny. anna: and i'm anna edwards in westminster. we talk about you take -- u.k. politics. once again, theresa may now has to face our cabinet, her slightly reshuffled cabinet. she will no doubt come under criticism. how much will she be under direct fire? how long will she stay in the position as prime minister? she's hanging on despite people like george osborne saying she a dead woman walking. denying talk that they are, in the case of boris johnson, looking to launch some kind of coup. michael is back in the cabinet. what does that add to the cabinet? he was one of the cheerleaders for brexit. the deal with the dup was

on-again, off-again over the weekend. it seems there is no deal yet. those conversations will continue. what will they contain? crucially, the brexit conversation, how hard that border would be between the north and the republic of ireland, and what else will they demand? we mentioned corporation tax, 12 points i've percent -- 12.5% was a key condition. the markets?e in a selloff in the united states on friday. what are the other stories? manus: that tech selloff is taking u.s. futures lower and our european equities also getting battered despite macron's early election indications, potential victory in terms of the number of seats. london is the swing voter. down 0.75%. sterling volatility dropped in

the last three days. that is more a reflection of the boost from sterling which gives the ftse 100 companies that. european equities set for a lower open. msci asia-pacific, samsung falling through on the selloff in u.s. technology. asia being dragged lower. this is the sterling board. dollar sterling just has a small bounce in it. that is really a reflection, we got battered on friday but not as badly as some people thought on the prospect of a hung parliament. %, 1.4 percent. will there be this potential deal for the dead woman walking? ftse futures down by 0.4%. let's look at those asian equities. i think that they reflect very clearly the whip around that

we've had in some of those stocks. the nasdaq down 0.3% this morning. on friday.nearly 4% crude, however, you've got the russians and the saudi's this morning coming out and trying to talk a good book on oil. this is really trying to kick back against the rigors. they've added rigs for the 21st straight week in a row according to baker hughes. let's look at the bond market opening. what we want to see. slightly stronger in terms of price. that means lower in terms of yield. bunds are up. the real momentum is on the o.a .t.'s. let's get across to juliette saly. she has your first word news. juliette: in france, president macron has expanded his control

as voters put his party on track to a majority in the national assembly in the first round of elections. macron's party, republic on the move, won about 31.5% of the vote. according to projections, the result would give macron's backers between 415 and 455's seats in the lower house of parliament. u.s. president donald trump has renewed his attack on former fbi director james comey, tweeting that his leaked comments about their white house talks were cowardly. he also suggested they could be illegal. attorney general jeff sessions will testify on capitol hill tomorrow about alleged russian meddling in the presidential election. he says it is important in light of coney testimony.s trump is reportedly planning scrapping or postponing a visit to britain over backlash over a

comment he made over the terrorist attack in london. according to the "new york times," trump has expressed increasing skepticism about the trip over the past week after coming under intense criticism for a misleading charge against london's mayor. north korea says it has moved closer to testfiring an intercontinental ballistic missile with the potential of hitting the u.s. mainland. state-run news says recent tests have shown the military is not far away from such a weapon despite president trump's pledge to prevent that happening. last week the u.s. said it had successfully intercepted and destroyed a mock icbm over the pacific. gulf crisis mediated. cutter is ready to understand the concerns of its neighbors and bolster stability in the region. the kuwaiti foreign minister said his country would not abandon mediation efforts. it is a sign that the spat

between qatar and middle eastern nations led by saudi arabia may be easing. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. analystsournalists and in more than 120 countries. you can find more stories on the bloomberg at top . session in asia, though a number of markets closing. you've got japan weighed down by this selloff, off by 0.5% on the close. on the hangging seng. also, that fall in tech stocks, samsung, weighing on the kospi, which is down 1%. corporate news. toshiba had a good day in tokyo. the battle for its memory chip unit heating up. western digital is to increase its offer to $18 billion. it will table the new offer by thursday. that is when toshiba says it will announce its preferred get up.

a little bit weaker in hong kong. this is a stock that keeps hitting record highs. samsung, that story of the tech stocks following what we saw on the nasdaq on friday. facebook, apple, netflix, and google. there is a group in japan called sunrise, softbank, nintendo, recruit, sony. they have risen on average 55% so far. this is nintendo, the purple line. the pink line is the overall topix. interestingly, these stocks have all outperformed the fang as well. anna: thank you very much. let's return to the u.k. political theme. i'm live in westminster. we continue to track the aftermath of the u.k. election. theresa may will face angry lawmakers today in a showdown that could signal the end of her premiership. how long will she cling to power?

it comes a day after she reshuffled her cabinet. changes include a return for michael, who stood against terror in last year's conservative leadership race. another nemesis, former chancellor george osborne, told the bbc that may's days are numbered. >> theresa may is a dead woman walking. it is just how long she's going to remain on death-row. i think we will know very shortly. ofcould get to the middle next week and it all collapses for her. anna: let's get some analysis. we are joined by manish singh from cross bridge capital. have you changed your view on u.k. assets as a result of the election results? manish: not really. if you see the most likely outcome, and i don't like to use the word "hard and soft" exit, but it is not going to be as severe exit as some would have thought if tory party had a full

majority. there is going to be a conversation with other members within the tory party and possibly across party lines to members of the labour party. ultimately, the brexit has to be approved the parliament. i think there will be more compromise. if you take that in account, it is probably not as bad news for the markets in the u.k. sterling has not reacted as negatively as it would have in a hung parliament scenario. manus: the prime minister is set to meet with the democratic union's party tomorrow. what kind of deal will she put together with them? when you look at sterling, it was a rather muted response. as you say, if the outcome is a slightly softer brexit, and that is still to be decided because the right of the tory party, it could be too high a price for them to pay -- do you see in the

medium-term sterling recovering its momentum? manish: not really. in terms of monetary policy divergence, the u.s. is going on a rate increase path. if you look in terms of monetary divergence, it favors the dollar. all things are not going to be priced in so quickly because there is still uncertainty about the government lasting or a new round of elections. i don't think there will be any pickup in the upside. if we have negative data, then probably slightly more downside. that will see sterling probably stay where it is. aboutwe've been reporting a survey done by the institute of directors. it shows that over the weekend, 57% of businesses they surveyed were pessimistic about the prospects for the british economy. timecompares to 43% at the

just after the june referendum last year. perhaps it shows just how pessimistic businesses are because of the hung parliament or perhaps it shows that the economy has worsened a bit and we've split down the rankings of gdp performance in the first quarter versus the rest of the g7. what are the prospects from here? do you see a more sluggish economy from here? manish: i would say that before this election happened, nobody even contemplated that there could be a possibility of a labour government. given that labour has done better than most expectations, if you are business, you have to start thinking about what is there in labour manifesto. if there is a new round of elections, you need to take that into account. that is going to temper the expectation for businesses. you will have some businesses getting worried about mr. corbyn's policies were he to

come to power. thehat is not the case, overhang about brexit negotiations still exist. .hat just adds a bit i understand why the expectations are lower now. this is the time for the prime minister and cabinet to give clarity to businesses. manus: one thing is very clear. i was driving down a street near me. look at this. this is a redevelopment of housing in kensington high street. kensington went to labour. this shows you the heart of tory dom was upended. affordable housing, ha ha. the bottom line is, if you go beyond the westminster and central london bubble, britain is fed up with brexit and austerity. the risk is, if they go to the polls again, how do you see that? manish: i think you are

absolutely right that it is about economics. even though you call it a brexit election, everything is about economics. the young have to have a stake in the society. look at the student loans. people talk about how it was popular with the labour voters, which is why tories lost enter very. bury.nter that is going to go up by next year. that is not very cheerful for students. i think it is about economics. we didn't see as much -- [indiscernible] how can you lose your own voter? if the market is not working, go and make the market working. don't get government involved in it to put a price cap. the message was lost. it was neither for the tories, the labour voters, and mr. corbyn came with all the promises, which was great on

paper, but i think the message was lost. it was not on economics. if you don't get your message clear, you don't win on either side. you can't make everyone happy. anna: the labour party has been saying they think this is very much about austerity and a verdict on the austerity agenda. case, if number 10 are reshaping their thinking, is there thinking about how much stimulus they can afford? how far back do you think they push that goal of balancing the books? as it think that sticks was before? does this continue to be the priority of this conservative government or do we see looser pursestrings, more fiscal spending? manish: i would think that there has to be some amount of fiscal spending. look at the response the voters have given. the tory party cannot ignore labour messages and what really sounded with the voters. to ignore that would imperil the

future for the tory party. it is right that the young don't stake in society as much as much as they had before. it is also right that the young in europe is going to be much poorer than the previous generation. there has to be a response for it. this is where the tory party can get back on message, but not abandon the values of economic confidence. if you start thinking about interfering in markets, that is not what the tory party is about. i think there is a slippage on the fiscal side, but that leads to growth and better spending, that is going to be a good thing. manus: that is not what the tory party is about, but this was about theresa may and her vision of toryism, conservatism, and to reset.

anna is at westminster. will anna edwards ever get back to the studios? we're going to talk about the fed and the potential for hikes. what economists are saying about a soft shift in inflation outlooks. this is bloomberg. ♪

anna: welcome back to "bloomberg daybreak: europe." i'm anna edwards in westminster. manus cranny is in the studio. david davis is speaking right now. , theys that george osborne former chancellor, is wrong to say that may is a dead woman walking. that is what he said yesterday morning on the bbc. david davis going on to say that tories will not be adopting dup policies. we will see what demands dup

makes. for the moment, let's get to hong kong. juliette saly has your business flash. juliette: business optimism in the u.k. economy has plunged after theresa may's conservative party lost its majority in parliament less than two weeks before brexit talks start. a survey of business leaders showed 57% are pessimistic about the prospects of britain's economy. the institute of directors says that is higher than when the country voted to leave the e.u. uber has said its board has approved several changes to the ride hailing company. it provided no clarity on the fate of ceo travis kalanick. the announcement that the board had approved all recommendations from an investigation it commissioned came after a meeting yesterday that lasted six hours. the company declined to comment further. tencenthas led the --

has led declines in hong kong. hong kong's stock market has become increasing reliant on tencent. china's largest internet company accounted for a quarter of the gains in 2017. microsoft has announced a worldwide release date of november 7 with the company said will be its smallest and most powerful videogame console ever. the xbox 1x. the device is designed to work with a new generation of 4k televisions that offer greater picture quality. the new console will be compatible with older xbox games and accessories. that is your bloomberg business flash. manus: thank you very much. he says the dup is a strong supporter of brexit and the the dupon't be adopting

policies. a great deal was made in regards to lgbt issues and a number of other key issues around climate change. the tories have a duty to make the government work. dup is a strong supporter of brexit. nobody wants a hard border in ireland. you've got to square that circle with hard and soft brexit. let's talk about the federal reserve. we are on target for two more rate hikes this year and the fed will start shrinking its balance sheet in the fourth quarter in the a clear downturn inflation outlook. that is according to economists surveyed by bloomberg. where can we see the next rate rise after wednesday? let's bring manish singh into the conversation. , 94% it would appear probability. look at this. it is a fading glory for september. everybody is pushing this further out. do you agree?

will we still get three done? it is dissipating in regards to the later parts of the year. forsh: i think three hikes this year looks a certainty. we get one next week and then we are left with one more. i think what is more concerning is that despite the fed raising rates, long rates are falling. the fed is trying to tighten and things are not tightening up. what does it make? could they tighten much quicker? which brings the question, you could have an additional rate hike if the fed sees there's no impact. if you look at the tens and twos, it is 1%. the risk of having more than three hikes for the year only comes in the picture because the financial conditions are not tightening. you still have qe in europe. you still have qe in japan. investors are looking for yields. if that happens, the long end

might not increase. that might force the fed to increase rates faster. anna: so you think there is a risk that we get more than these two hikes. what does that do to treasury yields? we were looking at forecasts for year-end treasury yields in the united states, the end of this year forecast coming down over the last couple of months. now at 2.7%. manish: that is true. the reason i say that is because fed's objective, if it doesn't achieve it, said will have to increase more. is the only scenario where i think you could be surprised and get more hikes. the other thing you have to bear in mind, a lot of the reflation trade and this whole excitement about mr. trump was based on his stimulus policies and other tax

policies which he hasn't connected. could he do that? he has been too busy fending off his russian investigation. those things could come to an end and then he could focus on economy. if that happens, you could have things looking better economically to make it a ground for fed to increase more. then you would have a change on the long end of the curve. i was thinking just now that if there's still a demand for those assets because easy monetary policy continues in other parts of the world, the fed could have to increase more. manus: along with the other central banks this week. that is manish singh from cross bridge capital. one more line from david davis. self-indulgent to talk of ditching may. this is as theresa may faces a cabinet meeting today along with the rank and file of the tory party. can she survive?

what are the implications for the markets and the dup? that is what we discussed. a and i.it from ann we talk about the market open. that's next. ♪

>> welcome to bloomberg markets: european open come but will be the first traits of the day. i'm manus cranny and here is what we are watching for you this monday morning. theresa may will face furious lawmakers as her conservative party and her investors look for any excuse to sell the pound again. andr parliament as uncertainty reigns in the u.k.. francis mccrone expand