manus: north korea warns of the highest level of retaliation after president trump orders new sanctions on pyongyang. -- may'sxit brexit reboot. we are influenced, italy. cutting the glut. its allies give mixed signals over output reductions todayy prepare to meet with the latest from emi. and the home stretch. angela historicoses in on a fourth term. the polls point to a complex coalition talk ahead. we are live in berlin.

you are welcome to "bloomberg daybreak: europe," our flagship morning show. i am in the city of london. anna: i am anna edwards in florence, in tuscany, in italy. theresa may is here. the british prime minister. to reset the brexit negotiations. it looks like the talk is going to be about transition. how much money will be on the table for that. thed like to talk about other things today. we have the opec conversation. we need to the geopolitical risks for north korea and the relationship with president trump and the united patriot let us tell you about great guest's we have on the program. we are going to be speaking with emmanuel oil minister,

kachikwu, and we will be joined by the cio at serious wealth management. -- see irs wealth management. anna: you are looking great on the top of that building. manus: a room with a view. it nearly got smashed. what do you expect? you have this repast from north korea. rocketled him a man, and north korea responds with the threat of a hydrogen bomb. this is dollar-yen. the question you ask yourself is this. the market is buying yen, a knee-jerk reaction, the inflection point, a natural trade. is it looking cloudy? that isthe question particular index is showing. this is the trendline. the hurly-burly is done and the

battle is lost and won, what do we look back to?? yields. turn to be hostage to treasury yields. the dollar, that is. let us talk about the risk radar. the world is waking up to the threat from north korea. these are the wrist radars. let us have a look at those poor the u.s. equity futures in just a second. rest off -- risk-off. the highest level of hardline countermeasures against the u.s. will be taken. second day of losses on this. s&p ratings downgraded. the first time since 1999. hong kong was downgraded today. this is something i have never seen before. let us move on from that. that is not going to all bus. new zealand dollar, and election this weekend in new zealand, and of course, the market wants to be primed for any potential risk. the dollar is falling on the wake of sales against the aussie. you are also seeing market shorting themselves.

let us show you the u.s. equity future. onhave pressure this morning the nasdaq, on the dow, and the s&p 500. they are -- anna. from some technical difficulties, clearly a risk-off markets, manus. we will talk about whether we have seen a ratcheting up of the risk in markets over the last 24 hours. let us get the bloomberg first word news update. here is juliette saly. juliette: the u.k.'s prime minister will propose a period of transition in march 20 19. in a much-anticipated speech in florence, italy, theresa may will seek a time-limited implementation that could run for two years. the goal is to maintain trade ties to britain's biggest market , to give businesses time to adjust. oil is heading for a third opec ledin before and

committee meets in vienna to discuss ongoing production verse. alexander novak has said it is too early to talk about prolonging the deal past the end of march, however, his algerian counterpart called his country's state-run press service the matter would be discussed. hong kong's credit rating has been cut i s&p global ratings after downgraded china for the first time since 1999. the credit rating company credit hong kong's long ratings. the move reflects the strong linkages between the financial hub and mainland china. cosmetic -- l'oreal cosmetics empire has come to an end. the swiss company and the betancourt family have a shareholder agreement that limits either side --

mexico's foreign minister has said the death toll of the earthquake that struck near his tontry's capital has risen 270 three. hundreds of military personnel, police officers, and civilian volunteers are considering rescue and recovery efforts in the wake of the 7.1 magnitude quake. people may still be trapped alive in as many as 10 buildings in mexico city alone. global news, 20 four hours a day, powered by more than 2700 journalists and analysts in more than 100 20 countries. you can find more stories on the bloomberg at top. it certainly is risk-off in asia and we have seen that flight to the yen pushing japanese equities down by .2%. the ratings downgrade from hong kong which came just before the market opened today, pushing the hang seng off 5.8%. you are seeing good momentum coming through in australia's thanks to some buying coming through and telcos. the kospi reacting to the north korea tensions, down by 20%. htc coming back online after for part ofm google

its engineering and design teams. a lot of broker upgrades to that stock. five on the bloomberg, up from three. a carmaker.hina is a lot of rallies on this call that we are going to have china fully electric by 2030. today, a lot of pressure on the hong kong stocks following the ratings downgrade. suncorp group showing you the picture in australian insurance say theysaw them should have a neutral australian summer, which would be good for insurance stocks there. anna, manus. manus: juliette saly in singapore. north korea, as i said, has struck back at president trump threats to destroy it with king .ohn the -- kim jong-un his foreign minister suggesting that could include testing the hydrogen bond in the pacific ocean. bymp stepped up pressure mounting a new set of sanctions

on the entities doing this is with kim jong-un's regime. nikki haley outlines the new measures. that only impacts those continue to do business with north korea. if china does business with north korea, yes, it will impact them. if they are a country in africa that does business with north korea, it will impact them. it depends on countries that choose to continue to support north korea. manus: nikki haley. bloomberg asia editor jodi schneider joins us now. she has been tracking this story. thank you for being with us. what do you know about the sanctions, and how restrictive are they? a new set ofe oftrictions, a new level restriction. it basically has new sanctions against companies, individuals, and banks that do business with north korea. the goal is to further isolate north korea and its leader, and also to try to do some economic

damage. that bankssaid that are affiliated with the haveal bank in china will some sanctions as well. so it is a new level. it goes beyond what we saw in the u.n. last week. deal with things like oil and those kind of things that the u.s. really would need china to agree to. they said they will not impose an oil ban against north korea. jodi, good morning. a new level of threat perhaps from the north koreans. the h bomb threat from north korea, put it in context for us. jodi: certainly a war of words. the endless ratcheting up. we had the sanctions last week in the u.n.. that was followed by a missile being lobbed over japan.

then we had the war of words in new york with president trump coming out and calling the north andan leader "rocket man" saying the u.s. would do whatever it could to stop him. and now, we have this verbal threat. he calls president trump some names as well, and then his foreign minister came out at the u.n. and said a hydrogen bomb might be the countermeasure that the leader was referring to. it is a test of that. it is a war of words at this point, but each action seems to bring another reaction from the other party. to point outnt that even though we have had increasing levels of sanctions from the u.s. and the u.n., the do not seem to have made a -- theyce in terms of economicink of

reactions. it has not led to the north theans at all reducing ramp-up of their nuclear program. in fact, probably quite the opposite. manus: jodi, thank you very much. jodi schneider giving us the latest. parker, good to see you this morning. waking up this morning, and again, it sounds as if the war of words, the actions and reactions, are mounting. here we are, facing the prospect of a test of a hydrogen bomb. is this a new shift in risk? bob: i think the answer to that is yes, but look at the reaction in markets. whether you look at risk indicators like the swiss franc, the yen, the level of gold, what is happening in global government bond markets, whether it is the vix, or other volatility measures. or wrongly that

investors are not that concerned about this. investors are assuming that the war of words, the rhetoric, will remain fairly intense. i think in addition, there is an element of fatigue because no one really sees the endgame here. you can make the assumption that we are going to have constant tension and rhetoric, but actually no massive escalation, and that explains why all the risk indicators still remained very subdued. morning to you. this is the constant rhetoric that market participants have to get used to. president trump yesterday said or suggested that he got some level of by end, some level of agreement with the chinese on the financing to north korea. if there is some level of agreement on how to deal with north korea, that would be a positive, perhaps not the topline story here.

bob: that is what investors are hoping. they are hoping that the degree of rhetoric from the united states will remain measured. and although the rhetoric of the united speech was obviously elevated elsewhere, we have actually some fairly moderate and measured statements from the administration. thatnvestors are assuming the lines of medication between the u.s. and china will remain very open and that china will put pressure on korea to north korea to moderate its missile launchers. that is what investors are assuming, and i think on balance, that is correct. this? can i ask you about you mention volatility and dollar-yen. we put together this very quickly, the queen of charts. economiclobal uncertainty dropping. good numbers in europe. not that growth in the united states of america. volatility is repressed. the knee-jerk reaction i iserred to this morning,

there a mounting case in the duration to buy gold? blackrock was a saying you should put 5% of the portfolio in gold. is there a base scenario for some level of geopolitics protection and portfolios? bob: you have a very interesting pattern of investing behavior, which is investors are focusing on the improvement in global growth, and you make the statement and we have seen statements from the imf, the world bank, etc., that the outlook in 2018 for better growth numbers, that argument is within thest eurozone growth numbers, probably close to 2.2 percent. japan, the growth accelerating, of progressthe lack and attacks deal, the american growth numbers probably on thehing 2.4% in 2018. one hand, investors are focusing on group opportunities. you see that very clearly in the behavior of individual sectors,

so looking at the last two to three months, our performance for the nasdaq, for example. hand, investors are concerned about geopolitical risk, and that is why there is an element of hedging. we have the barbell strategy focused on growth, but focused on hedging for an element of the portfolio. manus: for the tail risk. bob parker, part of the investment committee at wealth management. he stays with us. if you are traveling to work, you can listen to the bloomberg radio on your mobile device or dab digital radio in the london area. anna. take aoming up, we will closer look at what to expect from the u.k. prime minister brexit speech in florence this afternoon. how will her proposals be received? opec and its allies are meeting to work out what can be done to clear the global oil glut. this is bloomberg.

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anna: this is "bloomberg daybreak: europe." it is 6:18 in london and 7:18 in florence where the u.k. prime minister is set to deliver a speech. here is juliette saly. is to buyrio tinto back another $2.5 billion of its shares using proceeds from its sale of australian coal assets. limitedbuy rio tinto stock. the remaining 1.9 million dollars being used to expand its market buyout of shares. the move comes after rio .nnounced another record hewlett-packard enterprise is planning to cut about 10% of its staff or 5000 workers. according to the book familiar with the matter, the reductions are expected to start before the year. cuts are likely

to affect workers in the u.s. and abroad, including managers. a representative did not immediately respond to requests for comment. ghana's president said they up cocoatep production. he was speaking with francine lacqua. waye have to find a to connect the raw material to the finished product. that is where the value is. so far, either out of negligence on our part or difficulty globalizing the finance in the technology, we have not been able to do it. juliette: that is your bloomberg business flash. anna, manus. manus: thank you very much. the u.k. prime minister will propose a period of transition when she delivers her brexit speech in its leader's afternoon. theresa may hopes to give clarity to companies worried about the looming split.

florence, onis in location where the premise or will be speaking. anna, great to see you. theresa may will try to reboot these negotiations. i suppose that is the principle of why she has gone to florence. it is a much-anticipated speed. we have some snippets of what we think we might hear from her. what do you think the big focus is going to be? the focus on transition, it seems. we understand from our reporting overnight that she is going to ask for a transition. the bbc is reporting that will be two years, but we will wait to see. we are expecting to put money on the table to bridge the budget gap during that transition, some 10 billion euros a year. the aim of all of this is to move things on the trade. that is what you want to do for the heads of state meeting in october. will she deliver enough in order that?r to do

once you go beyond bridging the gap money, the other money she will talk about in terms of furthering the divorce proceedings, will she talk about the future trade relationship parties?he two some domestic u.k. reports said the canada model has been ruled out. does that mean we are looking at something closer, swiss-ish, norway-ish? what will the cabinet allow her to say? it has been a week of real tension between the cabinet. manus: of course, her maiden speech was at lancaster heights in the united kingdom, and she has gone to the florence -- to florence, famous for a couple of different things. you are fat-rich on this one. it was the center of banking in the 15th century. there is no irony lost on that particular statement. you have a few others. why there? anna: it is interesting, isn't it? maybe she hopes we get misty about the long existing relationship between britain and this part of italy, that predates the european union. maybe that is what she wants to get emotional about. this is a place that britons have had a love affair with for many years. room with a view.

maybe she hopes we focus on the renaissance city with outward looking trading relationships. no doubt, those images are what you want to bring to people's minds. she will be hoping that maybe people do not dwell on the fact that this was the birthplace of machiavelli and his own particular political style, and hoping the time does not the run any of those florence and the machine headlines and the speech goes more smoothly and less robotically than that. manus: i think this is going to go down as a first for both of us. pop tunes, history, movies and there. let us bring in bob parker, part of the investment committee at wealth management. listening to anna, she is on the ground, listening to theresa may. theresa may needs to shift this coming up and she? this needs to be about mining today -- about money today? number one, i think it is a high probability that she will say the british stance is "can

we have a transition period?" i think two years. it will be difficult given the domestic fiscal situation in the demand a transition period for longer than two years. that will be an initiative number one. initiative number two will be a much more robust approach towards the treatment of the rights of e.u. citizens living in the u.k. so, i think progress there. there will be an offer that is into the minimum e.u. budget during the transition period. now, where we have a major stumbling block, which rishaad barnier has alluded to this week, is it is all very an offer, but i suspect she will not make a statement about the brexit bill. if you look at the issues which still needs to be resolved before we can make any progress on trade agreements, it is basically the northern irish

remains difficult. e.u. citizens have progress there. the transition arrangements, i think progress. no progress on the brexit bill, so as a result, all of my friends in europe and i remain actually quite pessimistic that the e.u. 27 will agree to going ahead with negotiation's on a trade agreement during october. manus: anna, jump in here. anna: bob, they are reporting they are going to write into the e.u.y protections for citizens, the 3 million live in the u.k., of course, and the role of the ecj will no doubt be brought up at a later date in all of that. did sterling look vulnerable to you if she does not go further on the money than just bridging the budget gap? is sterling vulnerable? bob: the answer to that is yes. it has been much more sensitive

to policy from the bank of england and statements from the jumpof england, and that in sterling, close to 130, close to 136, roughly where we are today. it is much more due to the closing of short positions on the expectations they will raise rates in november. and you will see a move from a very easy monetary stance by the bank of england to what i would call a more moderate stance. one would not call it a tight monetary stance. stirling is being driven by expectations. that is now fully discounted in the market and the market is vulnerable to any bad news or negotiations on brexit. consequently, i think sterling is a short and i would go along the dollar. and expect a move back down to 132. manus: bob, thank you very much. a lovely piece in terms of the

unreliable boyfriend just got serious. just how serious is mark carney about doing that rate hike? bob parker stays with and i and i, on the ground in florence. up next, a potential in the oil market from opec. ♪

anna: good morning, everybody. i am anna edwards, live in florence as theresa may gets ready for a key brexit these. i am here for the european politics, global geopolitics across these markets in these mornings european trading -- or in the asian trading day, i should say. nejra cehic. as you say, geopolitical

risks weighing on the equity markets and the downgrade for s&p. then for china and hong kong, because we are seeing broad-based losses in japan, south korea, and hong kong. here is the aci index. you can see almost every industry group is lower apart from financials, which are trading more for materials and underperforming. we are seeing weakness in metals prices in iron ore. we are at 7930. we saw this dropped 1.3% yesterday's clothes. that was the biggest drop since may for the aussie dollar. it is pretty flat today. it is more down to dollar anything to do with the aussie. it may test the 50 day moving average. it has dropped below that 50 day moving average now. iron or in yellow. a weaker aussie on iron or on a dovish rba and any impact from

the fed and stronger dollar before today. speaking of the dollar, dollar-yen, we are around the 111 handle, seeing the dollar weaker against the yen for the first time in six sessions. it is two months risk reversals. have seen is, we yes, the bets against the dollar gains versus the yen have been going up somewhat. this is still very much positioning there is dollar and even more so in today's session. certainly if you look at the options market. manus: thank you very much. china has hit back at s&p, saying the downgrade ignores the country's sound economic fundamentals. and development potential. ratingers china's credit . the first cut since 1999. parker.

we have rich in our story up this morning as the s&p's first china downgrade since 1999. it could be good news for the polls. we are using to have been overly aggressive? the first since 1999. bob: let us look at the positive spirit first of all, china's capital account is now stable. foreign-exchange reserves have stabilized and are the larger still, the largest foreign exchange reserve position in the world. government debt is at a low level relative to gdp. what s&p are focusing on is obviously the problems which the chinese government is ray much aware of what they are dealing with in shadow banking. beingthree sectors are aggressively dealt with by the chinese authorities. s&p also focused on the growth in corporate and consumer debt, but having said that, those levels

are actually not problematic. at 6.5%an be maintained next year, which i think there is a high probability it can be. that growth and debt is very manageable. this we have of course got communist party reshuffle, an important meeting coming in a couple of weeks. the optics of this will not perhaps be welcomed by the chinese. investors should not concern themselves too much? .ob: i think the answer is yes obviously, there is going to be careful management of the economy ahead of the national congress. you know, if one looks through what is going to happen up a national congress and the economy in 2018, we might come back to the view in the pass to make a clear distinction between one what i call new china, the tech sector, the domestic growth drivers of the

chinese economy, and old china, which is areas like the steel industry, the mining industry, the state owned enterprises through the good news is the chinese authorities are very aware of the problems they have got in what i called china. so they are very carefully dismantling the debt problems and old china. yes, i have sympathy with what s&p have -done but one should not ignore all the positive growth things happening in the chinese economy at the moment. is in red.total debt the chinese total debt. and then, you have the world bank, china gdp. you can see about sustaining the growth level when you talk about old china and new china, but does this kind of action from the ratings company give succor to the pboc? does this mean you will have a less aggressive pboc in the interim? bob: what happened in terms of

managing what has been going on with the state owned enterprises any shadow banking -- and the shadow banking sector, is the pboc has been tightening liquidity policy, reflected in the strength of the chinese renminbi. if one looks at the actions of pboc today, i think the message is the renminbi has strengthened too much and the signal is they want to reverse it. that have already happened. we are back to 6.59. i stick to my view that we are probably going to close at 6.75. in a way, what s&p is doing almost plays to what pboc wants. i.e., a weaker remember the in the short-term -- a weaker renminbi in the short term. bob parker. a new edition of daybreak on your bloomberg terminal. you just pop in dayb . these are the stories making the front edition. it is theresa may in the birthplace of machiavelli. and anna edwards in florence.

the prime minister is set to say her landmark speech. the u.k. will pay into the e.u. 2020 according to a person familiar with the matter. the bbc reported theresa may will see give transition of two years and will not copy the relationship that the e.u. has with canada or norway. but go for a bespoke arrangement. anna: you like to talk about the spoke? deals, doesn't she we will see what she says this time. another story covered by daybreak this morning involves the commodities sector. set tolves mcquarrie, take over as the dominant bank, ousting goldman from the spot it held for almost three decades. it is second in natural gas trading in north america. first quarter commodities revenue was as much as $200

million according to a person familiar with the matter. we will watch that one. manus: the final story is on and $11which has landed billion order from turkish airlines for 40 of its dreamliner pains. carrier's the resurgence following a terrorist attack last year. it comes after years of market studies and negotiations for widebodied planes. the airline already has 75 boeing 737 maps jets on order. a reminder. if you are a bloomberg customer, you can watch the show on tv . you can stream on the video, backwards, forwards, click. emmanuel tong for join us. click on the i.b. chat at the bottom of the screen. you can join the conversation. as we have been saying, we are waiting for the nigerian oil

minister to join us. oil is a hot topic. is it too early to discuss an extension of the agreement brought at the start of the year. iain reid.now, a young syrian minister says it is on the agenda. nine months into the supply agreement that they sign, macquarie's take on where we are as this meeting takes place. guest: obviously, an extension is key to what is going to happen to oil in the next six to 12 months. we have taken a view that they would find it difficult to extend given the inscriptions in the group, but i think it is a 50-50 call as to whether they do that. i doubt whether they will do it today, to be honest. this is more a technical monitoring meeting. been reminding that.

we take more seriously the making positive statements about this. saudi arabia, russia, but i think an extension is on the cards, but i do not think we will hear about that until november. anna: we moderate our expectations about what we are going to get today. we have the russians and kuwaitis against the iraqis in the signaling ahead of this. taken to extend the cut deal past march, the market will return to oversupply. give us your thoughts on how quickly that would happen. iain: that is absolutely true. the shale is a major factor. we have seen 1.5 million barrels a day of increased production. that obviously knocks out a fair amount of what the countries are doing. even with the demand growth numbers which have been upgraded

recently, we can see surpluses returning to the markets certainly by the second quarter of 2018. we have had some good draws over the last few months, but we are period where that could reverse. they need an extension to give the numbers moving in the right direction. a little bits talk about what is going on, the subplot of the market. this is brent. the first time in three years we are seeing brent go back. i want toere understand. the physical market off africa, total, -- inloading physical oil storage. we understand they are releasing this. there is a bit of a supply. where are we with the structure of the brent market at the moment. this would indicate it is strengthening, but you have a little bit of construction, tighter supply. is that what you are seeing? is that what your comprehension is? iain: it is obvious the markets

have been tighter, but that has been a function of what opec has managed to do, if function of the seasonality of the market and also obviously, we have had more margin related issues recently. so no great surprise this time of year. we tend to be in a rather tighter half of the year. periodmoving into a where there is less demand and more refinery maintenance etc. there is demand for crude. say it is a tighter market but we do not expect that to be the case unless opec do something to extend in the early part of next year. anna: what have we learned from the most recent hurricane season bythe devastation wrought harvey and her mother about the impact that this has on energy prices? have we unwound all of that now and seen an end to the

destruction of the refining in texas and a return of the demand in florida? is that out of the market? iain: there was a spike in atoline and diesel margins the time of irma and harvey before that. there was a spike that has come down a little bit. the refining market has been pretty strong, to be honest. margins have been above five-year averages recently. this added a little bit to the third quarter profitability of a company. it has unwound to some degree. issues. the therefore, we are back to normal. thank you so much. let us see what opec and agreed today. that holds the key for the next move in the oil market. there.id tune into bloomberg radio, live on your device or dab digital

radio in the london area. discuss opec.ill more oil. anna. [laughter] anna: absolutely. more oil. up next, we will talk all effects. not u.k. politics, but german politics. reelectionel seeks for an historic fourth term. will be populist party make gains?cant the battle for number three. we will talk about that in berlin. as president trump puts pressure on north korea, how serious are pyongyang's threats over a hydrogen bomb test? this is bloomberg. ♪

london. 1:47 a.m. in new york. s&p futures down by .25%. dropping on the prospect that north korea could respond to the first sanctions with a threat. they have threatened that they may test a hydrogen bomb in the pacific. knee-jerk reaction. that yen is bid. the cash markets closed down for the first time in five days. let us see how america wakens up to the threat of additional sanctions on pyongyang. now, in terms of the other stories we are tracking, counting down to the german election. go on course for her first term -- fourth term. ofre is still a number possible coalition outcomes.

matt miller joins us from berlin. matt, good to see you this morning. how or in what way? we have had trump, we have had brexit. what way could merkel's election run that could surprise the market on sunday? is it the number three position that could up that the market? well, the number three position is looking to be almost research in one of the far left or far right parties, either -- for the afd, alternative for deutsche land. that is one of the most interesting aspects of this election. in 1976, 90% of the electorate voted for either the cdu or the spd. the biggest two parties in germany. are looking atwe the possibility of having six different parties going into the bundesbank. 5% of theave at least vote. that is one of the main stories

, the true the main main bar, which is of course who is going to win or run this country. german political scene has long been one of coalitions, but even more so when four becomes six, as you say. what about the prospects for the far right? this looks set to be the first time we see a far right party entering the national parliament since the second world war. this could change even if they are not in any position of power, this could change the and dynamics of the national debate in germany. matt: certainly. to some extent, you are seeing that in government and referendum around the world. itthis case, germany's case, looks like the far right party is only going to get into the double digits. %.ey are pulling around 10-ish there is concern germans are not willing to admit they intend to vote for the afd and they could

score higher on sunday, but it is unlikely they will get, say, unit to join any kind of coalition. in any case, nobody would join a coalition with them anyway, so it does not look like they would have a position to power, but they will be in the opposition. miller, thank you very much in berlin. joining us now from brussels is the director at the center for european policy studies. are in the final furlong for this election. leave angela merkel aside for the moment. if you take the left and the left, theyand the are pulling pretty much the same in terms of statistics as martin schulz. so the voices of dissent are rising in german politics. should merkel be concerned about those two polemic moves taking power away from the center? daniel: she should be concerned

can beermany, but she relaxed about her own position because the more you have the , her grip on the center and on power becomes also stronger because there is no used to say.as she so that is, i think, what aspect. the other aspect is one key difference between the left and the right -- the left extremists are people with whom you could be seen doing a deal, not on government, but on specific issues. the right, the afd, is somebody nobody will want to be seen to be together with. and therefore, that takes away part of their vote in the buddhis -- they will move on regardless of what the purchase parties say. anna: as the afd looks to be the first far right party in the

national parliament, how will that change the debate in germany? they have been part of the political scene for many years now and outside national parliament, but this is quite symbolic, isn't it? daniel: it is symbolic. we have seen it quite a few times. the problem becomes the guys has to propose something concrete and usually, you do not do that because their main function is to be seen, to be protesting against the assessment. election, they might say the guys, what have they actually accomplished? it is a situation exactly as bad as they keep saying. muchld not expect too staying power from them. , anna is inl

florence for today's speech with reseta may to reset and the agenda of the brexit debate. anna found a wonderful piece on the bloomberg. eating ice cream on the sofa, we got on with our lives. do you think angela merkel will help break the impasse if she exceeds two jeb bush up again? or will she be really steadfast in terms of the european view as a standup moment? daniel: she might do both. i think she will be very firm on , keepinghe 27 together the european project together. do not the same time, i think she will allow the european commission to be too tough and insisting on a big number for the divorce bill, and therefore, not right after she comes back to government, but perhaps a few months later, she

will come back into the game, and tell her other colleagues in the european council that we have had enough. let us make that a reasonable offer. that is the way things might pan out. daniel, if we do see angela merkel of the tortoise once again in this election, and that is what will it be that -- will it be because people wanted to move or stick with the center? will it be the economy? what will it be that went well franklin merkel? -- for angela merkel? daniel: two things. the economy went well, maybe because of all this austerity and some of the reforms which were done 10 years ago, plus of course a bit of luck. that is one part. and the other part is that in the end, she was vindicated when she said during the height of the refugee crisis "we can do

it." she has shown that the german body politic, the german administration, has been able to deal with this one million plus people who came suddenly, and these people do not represent a threat to german society as the afd likeso say -- the to say. people say maybe she made a mistake then. but in the end, things are not that bad and that is why she gets reelected. what: daniel, let us see sunday's poll brings to europe and germany. daniel gros, thank you for joining anna and i. up next, a war of words. north korea suggests it will test a hydrogen bond as president trump's/new sanctions on kim jong-un's regime. we will have the latest. a couple of stocks obviously in focus for you. l'oreal could be on the move as bettencourt passes away.

we will keeping an eye bang on that. what does it mean for nestle and l'oreal? additionalback of an $2.5 billion. turkish airlines signs a deal. ♪ is this a phone?

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guyanna: h-bomb threats. theresa may's brexit reboot. she will test a transition period in florence, italy. outputignal and reductions as they prepare to meet in vienna today. merkele stretch, angela closes in on an historic fourth term. inare life in berlin -- live are live in we

berlin. ♪ a very warm welcome to bloomberg daybreak, i'm anna edwards in florence. manus: i'm manus cranny in london. it is a big day in the city where you are. the birthplace of machiavelli. anna: yes indeed it is. just last week we talked about the politics. theresa may is trying to reboot brexit conversations. what will she say on the subject of money and eu rights? we have great guests on that subject and many others. we need to talk about geopolitics and oil. lets to you what is coming up on the program as opec prepares to meet with nigeria's oil

minister. we will have the conversation shortly and we will be joined by the global cio at ubs wealth management. great to get his perspective on the market. joke legal tensions between north korea and the united states. tensions seem to ratchet up. let's go into these markets, european equity futures opening up, dovetailing the asia and u.s. session. the threat is the potential for a hydrogen test in the pacific. quid pro quo, that causes knee-jerk reaction. the u.s. equity futures dropped yesterday in cash trading. hours, they eight want to see what the next move actually is. s&p futures down .25%.

north korean officials are saying the highest level of hartline countermeasures against the u.s. will be taken. second straight day of losses. think ofn what you them. hong kong was downgraded. is this an opportunity or a threat? i sprint is 56.45. brent is 56.45. the market wants to be short new zealand dollar on the prospect of a hung element. oil is heading for a third straight week of gains. toc and gathers in vienna discuss extending production cuts. a number of conflicting signals.

yousef gamal el-din is on the ground where -- for us. six morning to the minister for me. yousef: absolutely. we are waiting to hear from the opec not opec committee about what the analysis is in terms of how we are set up to go into the meeting. nigeria has been integral in this butter extension. because of the volatility and security issues nigeria is facing, they have not been a part of the cuts or reprieve of this accord. storyget to where the will be. good to see you come up minister. welcome to the program. where are we with managing the security situation and trying to get nigerian oil to a higher level? guest: we have had successful

-- is down in the delta areas. we have been getting one for 4 millionbear -- 1.4 barrels a day. we have done a good job of managing this. we will continue to have these challenges. we need to continually address the problem and keep engagement growing. we are making a good success of it. yousef: in terms of how much more you can pump, if you look at nigerian output data, not too long ago, you were pumping 2 million barrels a day. when can you get back to that? guest: a bit of time is addressing the infrastructure rules. it is time to bring back the oil pipelines.

months we can5, 6 get back into full swing. , we areers we have fairly close to -- fuels have a potential 2.3, 2.4. oil will not produce that. we will get to 1.8 million barrels. yousef: if you can maintain stability for six months. when you say joined, does that mean a freeze? guest: it means cut. we have the potential to do more than 1.8. 1.8, but we are still within that bad. everybody needs to contribute to

this. it is a collective, voluntary scheme. there is no reason nigeria wouldn't. yousef: when does nigeria join that a court? -- accord? guest: we are already doing that. we are not producing 1.8 million yet. --n we do, the question is we are not looking at the time period, we are looking at the message it sends. to 1.1. be to the goal yousef: you are an oilman and i want to lean on your track record to get a bit of context about the disparity we are hearing from another -- a lot of intent these -- attendees. what would your recommendation be?

guest: if we get there, we will definitely collectively support that extension. if prices were above $50, we are $57, $58. $67, -- the expectations are to try and get close to $60 a barrel. we are not far away from that. that, and we find we need to do more, we will. yousef: global inventories are coming down at a snails pace. is there an argument to be made for deeper cuts? guest: we will see. whatever weh, but

do, opec is a 35% producer and opecntinue to expect -- numbers can count on their own survival. we would like to see everybody more. the deal is working. we will try our best. a is not a given because country like nigeria, we are trying to survive. yousef: is there a scenario where this could be a permanent feature of the market just like conventional monetary policy we come together once a month and make decisions on a quarterly basis? guest: i hope this goes away. i hope we get to a point with the market naturally determines

what we can afford. we need to carry our own shares of loot of the package but i hope the market will balance itself very quickly in such a way that natural forces -- yousef: are you a fan of measuring exports and other data for opec and non-opec? --st: the reliable source nothing is going to replace that. the resources are reliable. that's fine. we will not tilt away from the line on the second resources. yousef: thank you for joining us.

theill be a busy day in edit for opec, non-opec. manus: great interview. the minister confirming nigeria will participate if they can get consistently a production level of 1.8 million barrels a day. but get back to the top story. geopolitics is on the agenda. is on the attack after donald trump struck back. the highest level of hartline countermeasures in history, those were his words. his foreign minister adjusted -- suggested testing a hydrogen tom in the pacific -- hydrogen bomb in the pacific. every single time we schedule an interview, kim jong-un has the secret of our agenda. on a serious note, here we are again. we were talking to and at about the same issue. volatility is repressed.

i look at global economic uncertainty. does it shift the dial at all for you? guest: i think these economic sanctions are starting to take a bite and should they continue along the lines that they bite to north korea and china and the u.s. don't get into their own fight over this, then i think it is relatively contained for a global market because it is hard ar global markets to price in more existential threat of nuclear war. anna: very difficult to price. what is your stance on the yen as we continue to see the nature of this political threat unfold? the yen typically is the safe haven, proximity to potential

crisis, does that change things this time? guest: this is fascinating and of course, we have many clients around the world who want to know about safe havens and the howis a great example of not everything is a safe haven for crisis. when you get these risk off moves, people are shorting the yen and we see that moderating of time a short period as those traits normalize. if asia is the center of a crisis, we don't think the yen will be that safe haven over a period of months or something like that. manus: i am looking at your monthly letter. ever the stoic global cio and i like it. you see the upside for equities.

you don't think it makes sense to sacrifice returns. to sacrifice returns to buy tactical hedges. that is a thing you have sent to me -- said to me consistently when we met. you don't think we are reaching a cause or a tiredness in these markets? guest: i think you are right. we have been consistent in staying overweight global equities. the attempt to achieve a tactical hedge by picking up the newspaper and getting short haved the rhetoric we seen, that strategy has not worked and we don't think it will work going forward. we have just taken down our global equity overweight to reflect a couple of things. one is the valuation for equities are up 14% for global equities, double what we expect

for the year. we had a good run. then i think we are at an historic moment at the fed where the federal reserve said they will start checking their balance sheet. they are on track for another rate hike this year. at the same time, they said inflation is not where we expect. it is a mystery to us. we have to maintain the rate path we have described. think,actors made us it's time to take a bit off and see if we get couple back around some of these factors and we can go back in. anna: i want to ask you about that. as we see the fed set a course for unwinding the balance sheet, you pull back a little bit but not suggesting stock markets look incredibly vulnerable right now. if they don't look vulnerable, why not?

saw, why areoff we more people not talking about the vulnerability of stocks? tost: i think it comes back several factors. just because the fed is pulling away their support, the ecb and bank of japan continue to provide that stimulus into markets. secondly, we have a global cigarette growth -- synchronized growth where the ecb monitors are growing at this time and we get earnings growth. that ultimately is what drives stocks. in a low interest world, valuations are not so excessive, the leverage is not so high that we see and sustainable situation at the moment. manus: stay with us. you.ve more value to

this gives you a quick check on the markets. a: 16 if you are waking up in 8:16 if you are looking up in germany and deciding who you are going to vote for. more sanctions against china are levied by the united states and donald trump and the candidate from north korea. aey may threaten to detonate hydrogen bomb in the north pacific. treasury yields at 2.26. what the bond market be able to break? .2%.utures are down they say they are trimming their global positions in terms of global equities but they do not see the upside of data. they don't believe it is tactical hedges. let's go to juliette saly with the business flash. juliette: rio tinto is eyeing

back to $.5 billion of its shares with the sale of its australian coal assets. remain $1.9 billion to buy back shares. it comes last month after record dividends. boeing has landed a second streamline owner -- order this week. the carrier bounces back from the terror attack. the deal would be worth $11 billion for customer discounts. they have raised their forecast for plane demand in the >> -- in the next two decades. it might raise the need by 9%. his country might need to step up in cocoa production. we have to find a way to come

up with the raw materials for the finished product. of negligence on our part or difficulty for mobilizing the finance, we have not been able to do it. juliette: that is your bloomberg business flash. anna, manus. manus: the british prime minister will propose a period of transition when she delivers her brexit speech. and edwards is on location in florence. has two big issues to deal with. money and the transition period to reboot these negotiations. what do you think the big focus is going to be? the money or the transition period? anna: she will be talking to

different audiences. the eu twice evidence you want to talk to and the domestic audience. them,she went to talk to but the things we will focus on our transition, will it be two years? bbc is reporting two years and there will be 10 billion euros per year of transition on the table to bridge the budget gap. that is something we have been talking about for a while. will this be enough to move the conversation on to trade? that is the overall ambition as she tries to reboot the conversation. will she go beyond that and talk about any other money to the divorce proceedings? what was he saying about the future relationship between the eu and the u.k.? perhaps the ukrainian trade deal is less favored by the cabinet and maybe that leaves away open minus like norway or

switzerland. she might talk about that. we need to watch for what she says on eu citizens. there are 3 million eu citizens in britain. will she talked about putting something in the treaty to protect their rights that can't be hampered with by lawmakers? manus: as i look at you in florence, beautiful backdrop, you said you had a story from margrethe vestager, who said it's over. they had done their solving on sofa,ofa -- sobbing on the they are getting on with their lives. this says it all. eu -- they aree not going to be in the room, are they? guest: there will not be eu

heads of state. this will be something they watch on bloomberg television. there will be a number of cabinet colleagues. davis, and hammond and look for them in the audience and how they react. just standing up there with those people around her showing what looks to be a group of people talking from the same page about what britain wants could be significance enough. there has not been a britain talking with one voice on this subject. manus: we can safely say that is the understatement of 2017. let's bring in the global cio, mark. iu just listened to anna and with that conversation. do you look today as being a moment that sterling and sterling assets could reprice, regional, move along? or is it just more hubris for you? guest: first, let me say

florence is a beautiful city and i wish you could come up with something better to say that it was the birthplace of machiavelli. the sterling was taken out and shot on and many people around the world are in a hard brexit mindset and i don't think globally we should expect much from what happens in the speech today. notably, what bank of england policy does will be more important for these assets in the near then another speech. unless the british government is , willg to tell the people have to face unconditional surrender and accept terms from your since they hold -- europe

since they hold the cards in the negotiation. i don't think that will happen. anna: it is also some people would call this the birthplace of modern banking. maybe that rings a little bit true. in your position. in terms of what is being talked what model is going to be used, none of that matters anymore. does the letter of transition matter u.k. assets? guest: i think the length of transition and matter. i'm not sure that will be settled now. the longer this can move out, i think, the longer the transition period, the easier it is for companies to adjust. for two years, companies will and thatake action

could have a negative effect on the u.k. economy. if that can be pushed out and companies have more time, that can be more stabilizing. manus: i want to get you back to markets. but highee this chart, so credit is raising faster than the earnings. there is a wonderful line that central banks are forcing debt down your throats. schizophreniaary in the bank of england. but we are borrowing, spending, credit bubbles. is the u.k. in double like territory for you? is the risk manifesting that we are not aware of for the u.k.? -- bubbles areke based on valuation and the situation is more complex in the u.k. at this time. what we are looking to see

resolve itself is -- itself is, how companies react to brexit. you see the economic impact of that. that can be a slowdown where inflation statistics have led the bank to talk tough. there is also the word stagflation. it will be a delicate policy dance to address inflation concerns and the drag from the brexit negotiations. that is what people are looking at. we shouldrt, we think be underweight u.k. equities versus eurozone equities as a way to deal with this. manus: what a beautiful way to finish it. the global cio. thank you for joining us. thank you to my cohost in

florence, anna edwards. she will bring you everything you need to know about theresa may. the market open is up next. if you are traveling, you know what to do. get on the radio dab in london. this is bloomberg. ♪

♪ guy: you are watching bloomberg markets, this is the european open. cash equity about to open in europe. we will bring you the first trade of the day. i'm guy johnson and matt miller is in berlin. what are we watching this morning? a korean wake-up call. the north said it could detonate a hydrogen bomb in the pacific. other markets getting too complacent this morning? while live in florence the u.k. prime minister is expected