the shrinking yield curve. >> welcome to daybreak europe, live from dubai. a conference yesterday. the headlines this morning, you have some changes on the board. committee, this comes back to the hiring of the special consulate in the unites states. felix on iheart will retire. novartis. new head of

a change at the top by the ceo at novartis. anna: breaking news coming through. an engineering business over in france, 514 million euros, ahead 473 spottimates, three, also coming in higher than estimates, at 7.9 5 billion euroes. euros. billion being joint venture is created with alstom. interesting to get these numbers from them this morning. talking about global risk, asian equity markets are coming under pressure. a host of things for markets to

be a little concerned about. down 8/10 of a percent. are you worried about trade? the dollar in the emerging markets? the higher yields in the united states? we will talka -- more about north korea. above 3.06%. interesting, despite all of the talk around geopolitical tensions with iran, we haven't really seen gold really getting a bed. up around 3/10 of a percent in this morning session. investors still remain in gold. you mentioned treasury yields.

popped to the highest level since 2011. there has been a great deal of debate, the correlation between significantlyving into a positive relationship between yields in the united states of america and the -- highest expectation in four years. ility is nice, above 50%. hikes onbility of four the table is now hitting above 50%. willave to ask yourself, the dollar trajectory continue higher? it is correlating at the lower end of the curve. one thing for sure, that relationship, that marriage, relationshipc

between the dollar and yield is firmly entrenched. anna: indeed. a big marriage taking place this weekend in london. let's talk about what is going on in the u.s.. the equity session, really touched by that retail sales it didsterday and what to u.s. treasuries. looking flat on this trading day. markets, 6:30rg p.m. london time, we have an exclusive interview. james bullard. let's go to juliette. korea hasnorth threatened to walk away with the meeting from president donald trump, due to a "one-sided

request" regarding nuclear weapons. the move undercuts the optimism after kim agreed to discuss his nuclear weapons program in a first of its kind meeting. economy shrank for the first time in two years during the first quarter of 2018. gdp shrank 0.6% during the previous three months. the contraction was more than expected due to fly private consumption and business spending. china's u.s. treasuries have risen to a five-month high. tes increasedd no to $1.9 billion. trade tensions between the two largest economies. its holdings dropped to the lowest level since october 2011. the leader of the anti-migrant league has been talking with the

anti-establishment five-star movement in italy on a populist government. talks have ended the final stretch, but parties are still trying to find the right balance between the two policy platforms. lawmakers from both sides continue to find negotiations on a policy program today. -- malaysian prime minister former malaysian prime minister is said to be part in after his victoryon pulled out a last week. a public celebration is planned later, where he is due to speak. out toopean union sets identify practical solutions for salvaging the iran nuclear amidd within weeks, attempts to contain the fallout from president trump's decision to plot of the landmark deal.

>> we want to ensure the jcpoa stays in place. we are determined to do that. we want to ensure this happens. are seeing the same willingness on the iranian side. global news on air, 24 hours a day and at tic toc on twitter, powered by more than 2600 journalists and analysts in over 120 countries. you can find more stories on the bloomberg at toc go. anna: a downbeat sessions on the markets in asia. yields above 3%. stocks in asia are being sold off. the nikkei in asia down by 4/10 of 1%. the bid in u.s. shale assets is encouraging. if we have a look at the stocks,

you can see why new zealand is falling so heavily. the company that has the largest market cap, falling the most after acember 2012, flagging forecast below estimates. corporate scandals have been happening in japan. have been lender may aware of document falsification. it came through after the bell yesterday with its number. the president said it will not resign. tencent lost $17 billion in its value so far this week. analysts are expecting it could be bad news. the firstxpecting fall in profitability since 2003. a little bit of weakness coming through in that stock today. manus: a lovely chart for you. traders are preparing for

another 3% to move either wa on those tencent numbersy -- either way on those tencent numbers. geopolitics. north korea has threatened to walk away from next month's meeting with president donald trump, because the united states made a "one-sided" to demand for the regime to surrender its nuclear weapons. let's go to dan. this is why to noise. -- is white noise. win.d trump needs this is this just out of the north korean playbook, "i'm in charge?" >> certainly, that is a possibility. the tensions have been rising for the past few weeks. what is this meeting going to accomplish?

national security team is saying, north korea, you have to get rid of all your nuclear weapons in a verifiable way. north korea, says, we want a phased approach. youive you some things and give us some things and we have a negotiation. today, this is their strongest message to date. we will not give up our nuclear weapons and wait for you to give us sanctions. if that is what you want, we have to rethink this meeting. this day of reckoning was probably going to come. it will be interesting to see how the united states responds. koreans,om the north libya has been talked about by some u.s. officials. andeems that kim jong-un some of the u.s. administration might be taking very different

lessons from the libya example. dan: that is exactly right. the lesson kim learned, if i give up my nuclear weapons, the united states is going to come in and i will be overthrown. john bolton, the u.s. national said theadviser, has u.s. is looking to the libya model, which involves the country packing up its and and shipping them out of the clear weapons and shipping them out of the country. is saying, i am not going to do that. i am a nuclear power and you have to treat us that way. sanctions to be eased, but the way this is going right he is not going to abide by the u.s. terms. does trump move forward to some sort of, not total complete reversiblen, or the

denuclearization -- irreversible denuclearization, but something more incremental? does he take away the intercontinental ballistic missiles that construct the u.s.? -- can strike the u.s.? dan, thank you very much, are asia government managing editor. sarah, good morning. this clearly taps into the markets. i have a chart that shows bank this gauge of market stress falling to the lowest since january. this is a little backward looking if we take into account the news overnight. it seems the caribbean news is taking some of the risk from your out of the -- the korean

news is taking some of the risk out of the market. >> the development up until last night had been positive. many people are not too surprised there is a bump in the road. we are looking at a situation where we have a range of risk across the world, not just korea. there has been a big surge in oil prices for the past few months. we have questions over trade and protectionism. in all of this is happening in an environment where banks are moving positive accommodation, and markets are starting to anticipate more rate hikes from the u.s. fed this year. anna: manus? manus: good morning. from a financial conditions point of view, in regards to

accelerated economy, is 2018 looking to be the beginning of a more constricted financial condition on a global basis, h may shift us into a capping of global growth? sarah: we have seen a tightening. if you look at the long end of the u.s. yield curve, what is happening to market rates, stock markets, they have not done so well this year. i wouldn't say these are but it isy headwinds, more a case of what the market is expecting. they have anticipated an endpoint for the 10 year treasury. the fed rate, all of these factors are significant in terms michow confident econo

players feel about investing and spending over the coming months. nna: that is what we have seen with the iran story. wti, down 3/10 of a percent. what kind of hold would that have on the global economy if we saw an impact on oil? how different would that be from 2011? arah: $100 per barrel would be a big hit to growth. we wouldk at india, expect that to have a significant impact on headline growth. the question is how long $100 a barrel would last. we expect this it would be --

this to be temporary in response to a geopolitical event. be,ink the question will how long people have this high oil price. sarah, stay with us. beyond.p, 3% and thethe 10 year yield hits highest level since 2011. that is next. anna: our exclusive interview with a fed president. the 10 year yield is now part of that conversation. this is bloomberg. ♪ manus: welcome back to

"daybreak." ylive shot of cigna poor -- a live shot of singapore. you are seeing a drop in asian equities. day.e off the lows of the let's see how the geopolitics plays out. bond yields rising above the 3% level. a post on the eye of the bond market. julia is in singapore for us. lia: the united states is ready to impose sanctions on the european union after there was a ruling that airbus -- after the airbus ruling. this is in addition to president trump's steel and aluminum tariffs. -- elon musk

readies a reorganization of the top management team at tesla. bob rudd, who lighted north american commercial and northies sales -- led american commercial and utilities sales have left the company. musk declined to comment further. rudd couldn't be reached for comment. relianced bonds of munication some slumped after an indian tribunal ordered the wireless carrier be placed in insolvency proceedings. a $3.7ision jeopardized billion asset sale. and two of its subsidiary us will decide on the next quarter action after studying the detailed order. anna: thank you.

the 10 year treasury yields reached the highest level in almost seven years. this morning, it is holding above 3%. the bond market has the attention of investors, who will look to the fed for guidance on rates in the united states. we had to san francisco fed president weighing in. three or four rate increases is appropriate for this year, and a few more increases over the next few years. this will be the right direction for monetary policy. manus: a chart was put together for sarah. is our chief economist for europe. this chart is about gradualism, inflation behaving itself.

the market is finding a 50% probability above four hikes this year. would you look at that shift in probability? is, what isto you the risk to the u.s. economy of four hikes, if at all? sarah: we have been expecting there would be four hikes this year. we have had that forecast for a while. if we look to where inflation is be, the economy still seems to be moving at a fair pace. the fed will want to get the fed back to a more neutral level and achieve that over a shorter time than the markets have been expecting.

anna: what kind of damage do you think the higher yields will d . or do you think they are entirely appropriate? ah: the sharper rise in yields will have an impact on global growth. how much further will yields rise? we have seen this before. we have had the 10 year treasury moving higher, and then retracing. auctions have gone well. >> there is chinese demand. sarah: plenty, for the four-year treasury yield. the hedge fund community have record short decisions. then you have the management community, much more stable. what i took heart from was the

comment in regards to inflation. itself and not concerned about a few tenths of a percent. a heart of the issue is tolerance for a slightly hot usa> sarah: that is quite important that we have had from the fed. other speakers have indicated there is a tolerance a lot get too concerned if inflation rises -- they won't get too concerned if inflation rises temporarily. we are headed in that direction. the question is, what will change? we don't see too much evidence, could see a sustained drive and energy prices, which could drive inflation. anna: thank you, sarah.

we have an exclusive interview with a fed president, james bullard. can the european union save the iran nuclear deal? this is bloomberg. ♪ retail.

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the emperor's palace. the dollar is at a four-month high. streak came,growth with a first-quarter surprise and a decline in business spending. in 1989? i i was graduating from university. what should we be watching today? anna: i can barely remember 1989. bulgaria, discussing global

trade. the european union discusses the iran nuclear accord. maintain oil to shipments and protect companies related to the iran nuclear deal. there is a real effort to salvage this. manus: the other thing is ensuring those tankers. that is going to be one of the most important things. to the rescue and deliver the physical movement of oil from iran? -- can never get of a enough enough of a fed interview on bloomberg. bullard is the restraint in terms of going for the four hikes. you are going to invert that yield curve. but if history is

monthsg to go by, 18 later, if you invert the yield you go yield curve, for rec. anna: a policy decision due later today in brazil. the brazilian central bank is going to give its decision. brasil tennis cup the emerging markets a real headache if we see a rate cut. let's check out the broad market action. inquiry -- annmarie: japan, hong kong, china, in the red. stocks have been fluctuating throughout the session. north korea is threatening to , if thehe trump summit u.s. makes a "one-sided" demand for nuclear weapons. and a return to risk aversion

with the yield. we also have the bloomberg dollar index, steady across the 2018 high. look at the correlation we are seeing between the dollar and the treasury. it seems to be making a comeback. the u.s. treasury is in the white line. the bloomberg dollar index in the blue. the correlation is getting stronger on the bottom. pimco expects 10 year treasury yields to rise through this year. could-year year -- yield be in the 3% range for the rest of the year, there is a crime consensus for higher rates this year. recently sent to bloomberg rates are heading toward 4%. the u.s. oil reached about eight u.s. dollars below the international brent benchmark yesterday. it is about seven dollars, the

cheapest since april 28 -- and crude has been5, boosted to near $80 a barrel. saying theerman spread is even wider between shale and oil, to $10 a barrel. manus: annmarie hordern with the very latest on markets. union has set out to identify practical solutions to salvage the iran nuclear accords. the bloc is attempting to contain the fallout from the tru mp decision to pull out of the landmark deal. has said she is determined to keep the accord alive. >> we are ensuring the jcpoa

stays in place. we have started to work to put in place measures that ensure this happens. we have seen the same willingness on the iranian side. anna: the foreign-policy chief of four europe there -- for e urope there. sarah is still what us. -- is still with us. putting aside atoll order, -- a a broader, this is growth story for europe. where are we right now? data over the next couple of weeks that will tell us whether the slowdown in the fed quarter was temporary. what are your thoughts? sarah: the first quarter was

clearly hit by a number of factors. the weather was particularly bad. there was a flu epidemic. there was a downward impact on growth. a couple of factors that may be a cause for concern. the rising oil and energy prices , negative across europe. there have not been any clear trade tariffs being imposed. protectionism seems to be weighing on business sentiment. we could see growth recovering in the second quarter. some data could be pulling in that direction. we need to follow the data over the next couple of weeks for a sign of where we are headed. us: one of the considerations is what is happening in italy.

we are in a delicate situation in europe if we have a new coalition coming to power. they could be fiscally more liberal. where are we on the deficit situation in europe, on the debt to gdp situation? is there anything in the backdrop we should be concerned about? sarah: the deficit is particularly low at the moment. we are looking at a deficit of under 1% of gdp, quite remarkable when you consider where we were five or six years ago. may be aan situation little bit of a cause for concern in terms of the dialing back of some of the reforms, but at the same time, there could be a little bit of scope for a fiscal stimulus.

think, we don't need to be too worried about a fiscal stimulus. that will be something that will support growth for the rest of this year. anna: what about some of the other policies that have been talked about by five start and the league -- five-star and the league? monday, they were talking about allowing countries asking thee euro, ecb to forgive 250 billion euros worth of debt. a lot has changed since then. do you think investors are being too complacent about what could be a policy statements from this new italian government? or are there so many hurdles to get there? if we look at what the

position has been from five-star on the euro and e.u., they have said some pretty tough thinsgs. the btpis chart shows spread over bunds. there is a bit of nervousness, but not pichai kind you have kindted to see -- not the you have expected to see. sarah: the road -- there were real concerns. we need to keep an eye on where policy is going. there are many hurdles to cross before italy. there would need to be a change in the constitution for italy and the euro. i don't think we are going in that direction, but we need to be aware of the coalition that

is being formed, what they are starting to do. said in heard what you regards to the budget and gdp. portugal is at 3% and spain is at 3.1%. what is more fascinating is what is happening with german growth. do you think there is something more at play? europe's largest economy. it is its weakest in a year. nothing accelerates forever. do you think it is be anomalies thehe weather, the flu in first quarter, and it is just a company road -- bump in the road? sarah: i think it is a company road.

for businesses in particular in germany, the uncertainty over the global trading environment is weighing on sentiment. we have to remember in germany area,ross the euro domestic demand is significant and we see no particular reason for consumer spending to slow down. in germany, you have an incredibly strong market rising, wage confidence amongst consumers. wages, confidence amongst consumers. we are looking at a much better picture than we saw in the first quarter. forward to the second quarter. sarah, stay with us. to united states threatened impose sanctions against the european union after the wto airbus received a legal government funding.

illegal government funding. the wto ruled in two thousand 11 the european union it violated international trade subsidies toairbus design and produce commercial jets. that significant hurt sales of ircraft and ordered the eu to stop the subsidies. has notpean union complied, the wto says, leaving room for trump to impose retaliatory sanctions. how much will be determined in another court case. boeing claims it is owed $20 billion, and robert lighthizer must the european union stops breaking the rules, the united states will have to move forward with countermeasures. the european union argues any

sanctions should be minimal. says boeing has half the market and they have not been damaged. plain-makers have spent more than a decade wrinkling about subsidies. the wto is expected to issue a final ruling in a separate case. the litigation adds to rising tension he tween united states and europe, once cooperative trade partners already sparring over trade tariffs and trump's decision to back out of the nuclear treaty with iran. can: bloomberg users interact with any of the charts we use during the program. at can find the btp chart gtv go. use them in your own analysis should you wish. your btp more than my dollar coalition -- correlation

coefficient. up next, japan's economy shrank for the first time in a two years. we discuss the outlook for the world's third largest economy. we bring you an exclusive d,terview with james bullar later. this is bloomberg. ♪ anna: this is "bloomberg

daybreak: europe." a headline crossing the bloomberg. there could be a possibility the five-star party and the league the italianturns as premier. who would become prime minister?

eight -- a couple of academics who said there could be the idea that they pick someone unknown in the italian political space. happens.ee what we are expecting news in the next few days. mind: one brings to discussions when it comes to european issues. one individual perception of how to go forward with brexit may be different from one's cohort. policymaking on a cyclical nature within one administration would be fascinating. this part of the world has many banks, consolidating. hsb and rbs in saudi arabia -- hsbc and rbs in saudi arabia. they have reached an initial intoon merger terms, nip

financial analytics on the bloomberg. 3.4% of the overall net revenue for hsbc. abouterating revenue is 6.2% of their business. rbs doesn't express what size their business is in saudi arabia. that gives you a sense of the consolidation story. sbc, both businesses, coming together. they have reached initial deal terms based on an exchange ratio of 35.5. you 53.3 real -- bank discussions for a reaching arger,

preliminary nonbinding agreement on the exchange ratio. of saudi british bank. juliette saly with the headlines. --iette: novartis has set said its general counsel over retire next month following revelations of payments becomes -- the company made to a consulting firm led by donald en.mp's lawyer, michael coh an interim general counsel has been appointed. novartis -- tencent holdings is about to release quarterly numbers into the most negative market in more than two years.

shares are struggling to rebound after yesterday's $17 billion wideout, the first today decline since the chinese giant's third-quarter profit report in 2015. ook spoke out against tariffs on chinese imports in a recent meeting with donald trump. his message to the president focused on how cooperation between the countries can boost the economy more than nations acting alone. trade and theout importance of trade, how i felt -- two countries trading together makes the pie larger. true,true, undoubtedly ntaged frome has adva that in either country. we have to work on that. i felt the tariffs were not the right approach.

juliette: you can watch the full version of that interview with tim cook in the new season of the david rubenstein show, coming next month only on bloomberg television. that is your bloomberg business flash. na: japan's economy shrank for the first time in two years, during the first quarter of 2018. the contraction was more than -- related tod fly private consumption and a surprise a slowing in business spending. james joins us from tokyo. talk to us about business and private consumption. james: two main factors are driving this contraction, much larger than we expected. private consumption was flat.

it did not expand since december. there was a lot of bad weather in japan in the first quarter. led to private consumption to be flat. there was a big fall off for phone demand. the new iphone came out in the fourth quarter of last year. people who wanted to buy new need to buy them again in the first quarter of this year. that was why private consumption was flat. the big surprise was the falloff in business spending and investment. there was a very small expansion in exports, expansion exports from 2% to 0.6% from the fourth quarter to this quarter.

you saw these problems between the u.s. and china on trade, threats of tariffs. businesses were a lot less confident. they cut back on spending. the hope is that the current quarter is going to be a lot better. the data we are seeing is showing better expansion. but this is a speed bump. james, thank you very much, our economy editor in tokyo. what's goon with -- ing on with abe is also going to play their. -- to play there. will see how the export numbers in japan play out. we have run are analytics on the chinese data. -- our analytics on the chinese data.

the numbers are the strongest since january. global growth remains intact. you have run the analytics in terms of the risk of trade wars. bulwarkw on china is a for global growth? china to bepect growing at 6.5% this year. slightly slower than the 6.9% we saw last year. data is moving in the right direction so far. we have additional support for the economy coming through to beijing. there is a nervousness about the potential trade excuse with the united states. there seeing consumption, ongoing shift to consumption and domestic demand, away from investment and the export sector. ecti function on the

bloomberg shows the relationship between china and the united states on trade. how far can you go with this, working out what damage is done on global growth by a trade war? sarah: we can do straightforward calculations, looking at how reliant china is on the u.s. market. there could be an impact of about 2/10 of a percent of gdp i products, if tech they are banned by the united states and that has a larger impact on china. potentially, there is a significant impact. we haven't seen that yet. , thankarah hewin you. at 7:30 a.m. u.k. time, she will

continue her conversation with us on bloomberg radio. north korea has canceled its talks with south korea and has threatened to walk away from a historic meeting with the president of the united states. ♪

manus: good morning from dubai, i am manus cranny and this is "bloomberg daybreak: europe." anna: i am anna edwards in the city of london. here are today's top stories. manus: north korean no-show, kim jong-un scraps talks with soul and warns that the summit with donald trump may be in jeopardy. yearang for bonds, 10 treasury yields touched the highest level since 2011 and china's u.s. debt holdings raise the most in five months. the dollar hits a 2018 high after strong u.s. retail data and a warning from the fed against a shrinking yield curve.

we speak exclusively to the st. louis fed president. anna: good morning, this is "bloomberg daybreak: europe." 7:00 in london, 8:00 in germany. we get the data from germany right now. consumer prices rising 1.6% year on year, unchanged month on month. that is the latest in the german data story. ais comes in the context of stumble from the german economy. that is what we heard early on this week on .3% increase in the size of the german economy, softer than forecast and the weakest in more than a year. dutch-portuguese growth cooling. of weather fx,e the flu, idiosyncratic factors?

or is it something more sinister around trade? we are seeing the cpi number coming through in terms of the euro. pretty flat on the euro-dollar at the moment. we will get more details on that. you have breaking corporate news. burberryver far from a brand check. this is the state of play, up 16%. they are doing another share buyback, a new share buyback. is million pounds, this making progress, raising consumer demand. highlights, 2.70 3 million -- for the full-year revenue. just a in line, 2.73, little lighter than market expectation. comparables up 3% as the market guided for the company. the share buyback will be the one thing the market looks at.

execution is back. burberry is really trying to he has said wea, have been successfully financially approached. it is about re-approaching the company from a design heath oh's, upscaling the project, getting subsidiaries. he has appointed a new designer, that will come through later in the year. if you let -- look at louis vuitton, they have had a nice wrapup from china. part from theng chinese story. up share by -- buyback, trading with guidance. what will his designer deliver to the catwalks in the autumn? let's talk about the futures. a couple of different things at play, one is the move between north korea and the south korea and the u.s., the perfect triangle of geopolitics. is it unraveling or just a

short-term playbook from north korea that they will withdraw from talks? equities down 11 pips, are shaken but not stirred as u.s. bonds hit the highest level since 2011. is this the beginning of the next move in the bond markets to a higher echo long -- echelon? where d you want to have your money, what happens with real yield on the market? i think that is yesterday's close, paris is down 4.5 pips. politics at play in the u.k. anna: shaken, not stirred on the equity markets. that in what we have seen in the asian session, down 1/8 of a percent. markets worried about higher treasuries and the chinese trade conversation. do they have to worry about geopolitics on the korean peninsula once again? u.s. futures pretty flat at this state. -- stage. your backup at 3.07, we crossed

into that range yesterday, taking some in the market off guard. key to that, gold is getting a bid. that wasn't the case weeks ago. we dropped below 1300, we are up .3%. manus: i know you like this, the bonds hit a big button yesterday and the 10 year government bond yield, do you want to worried about year -- that or the 30 year? james bullard will join the bloomberg team and put this in context. one of the most important driving voices overnight in the past 24 hours has been from williams. a couple of tenths of a percent in the change in inflation is not going to make or break the bond market. yields are at the highest level since 2011. you have broken out of the three-week trading range and there is a juxtaposition between those who want to be long u.s.

treasury bonds -- the asset managers, who have a long position, versus the hedge funds who are phenomenally historically short positioned, versus your o.a.t.'s in france and bunds. the bank of france governor reset the agenda for bund, and for btp's. they have their own political risk. that is the state of play on the bond market. let's get your first word news with juliette saly. north korea has threatened to walk away from its meeting with donald next month if the u.s. made a "one cited demand." canceledea abruptly talks with south korea and warned america to think twice about trump's summit with kim in singapore. discusser he agreed to his nuclear weapons program in a first of its kind meeting.

china's holdings of u.s. treasuries have risen to a five -- five-month high. increased by $11 billion to $1.19 trillion. it underscored the allure of american government debt, even amid trade tensions between the economies. japan, the second largest foreign creditor, saw its holding dropped to the lowest levels since october 2011. in italy, the leader of the anti-migrant lead -- lead has said talks with the five-star movement on a populist government have ended their final stretch. he also said the parties are still trying to find the right balance between the two platforms. lawmakers from both sides are due to continue negotiations on a policy program today. politician abraham is speaking as a free man after more than three years in jail in the wake of his coalition shop election win last week.

-- had left the hospital where andad received treatment was pardoned by the king. it is unlikely he will take over as premier anytime soon as the prime minister said yesterday that anwar will potentially take a cabinet role. israel is coming under increasing diplomatic pressure following its bloodiest confrontation with palestinians since 2014. turkey has expelled the ambassador a day after ankara -- its own envoy from israel. 60protest the killing of palestinians and wounding of hundreds on monday. france called the response "unacceptable," and the u.k. termed it opened shocking." theresa may will publish a forcing hern, cabinet to agree on a common approach. of a summit ahead

on june 2018 and should give the clear his vision yet of what the u.k. wants post-brexit. that comes more than two years after the surprise result in the eu referendum and nine months after the deadline for britain to leave the bloc. global news 24 hours a day, on air and tic toc on twitter, powered by more than 2700 journalists and analysts in more .han 120 countries you can find more stories on the bloomberg at top . as we saw, the msci asia-pacific down by .1%, flat to lower. off the overall lows of the day because we had an uptick in some markets, australia closing higher by one third of 1%. pretty flat in seoul. you are seeing japan's nikkei index close lower by .4%. selling coming through in china and we have been watching emerging markets very hard because indonesia is dropping another 1.3%, overtaking the philippines as

the worst-performing emerging market in asia. still a lot of concern with yields above 3%. stocks we have been watching, we are focusing on tencent in hong kong. it felt about $17 billion or wiped that amount from its value the past couple of sessions ahead of its earnings result. there is trepidation about whether or not the profitability is going to decline when tencent comes through with numbers later today. still a lot of focus on the consumer stocks in malaysia, b.a.t. malaysia up by 10.5%. deutsche bank raising its rating on that stock to a buy and in terms of the corporate scandal suruga sayingn, some of its employees may know about the falsification scandal. the president saying he will not resign. we are looking at that stopping the worst performer in member ranked performance. manus: all might be quiet on the

bund, o.a.t. and treasury, but these are the btp's. anna has the longer-term chart. these are the june futures. you are seeing june futures and the yieldpips explode on the upside. this is all in a story touched on earlier. two partiested the may suggest some kind of a rotating premiership. this is one proposition if they go and form a government. this is how the market is reacting. a couple of backstops in the btp market. deal of the btp market is held by the institutions, the mother -- grandmothers and grandfathers in italy. a lot of debt is held domestically in italy. a second aspect to the story is the ecb is perhaps one of the most substantive holders of

the bond. to what extent is that going to cap the situation in the btp market? do you need to be more concerned about the spread? that is what you are going to talk about. anna? anna: and that was a three-day chart of the spread of btp's over bunds. how of the reporting about they will share the leadership roles in italy and the huffington post reporting, some of it could be backward looking. the "huffington post" stories about seeking forgiveness from the ecb and a way out of the and, it has been dismissed said that it was monday and a lot has changed. we will see how that develops through the day. about global risk because north korea has threatened to walk away from the meeting with president donald if the united states made a "one-sided demand" for the regime to surrender its nuclear

weapons. we go to our government managing editor. what is it the north koreans are thinking twice about now? why is kim jong-un threatening to walk away from the talks with trump? kim is concerned that the americans are just saying you have to give up all your weapons at once before we give you any sanctions relief. kim is saying that is unacceptable. we aren't just going to give away everything and not get anything in return. we want to do this on a step-by-step basis and if trump doesn't want to agree to that, there isn't much point in going ahead with the summit. the tensions have been there for some time, there has been disagreement about the sequencing involved in a denuclearization process. now you are seeing a bubble up ahead of the meeting. we will see how the white house toponds when they wake up see if they can solve its this

and keep the summit on track. thank you very much. let's see if they can keep it on track. daniel ten kate, our asian government editor joining us in the studio. assets withmulti--- us. how do you look at the world at the moment? anna and i were looking at a chart, global risk chart at low levels, there is not much discontent in the world. are we complacent? >> good question. we will know what the benefit -- with the benefit of hindsight. the real challenge has been from an asset allocation perspective. what has happened traditionally is people can have a basket of equities and against that, behold long positions in government on zen u.s. treasuries. something bad happens in the world, equities lose money, but

but -- government bond yields fall and make money on their allocation to stock to bonds. the challenge you have today is we don't believe government bonds are correctly priced or will provide you with any protection when you get a selloff. i think yesterday was one example of that. we started the program talking about global risk because the comments around the korean peninsula, but things seem to be moving more in italy this morning than they have to last couple of days. , thew the spike in btp's yields of btp's. what is your thought process around italy at the moment? this long process of trying to put together a government. should the market be afraid of what we hear are not? pete: a number of points. the selloff in btp's should not be viewed only in the context of

italy, but globally within bond markets. markets globally, particularly in the developed markets, have been manipulated for almost a decade and are mispriced. at some point, you can find a repricing of bond markets. we need to look at what is happening it is -- when you look at italy, most people for the 10-year debt in italy, the right price given political uncertainty. we would say no, it is not the right price. when we look at italian politics, they have been a mess for as long as i can remember. the key for us is the populist parties that are now on the verge of taking power have materially softened their stance with respect to euro membership and the relationship the european union. the base case is no longer that these people are looking to ,xtract italy from the eurozone and therefore there will be some noise but at the end of the day, it is a different type of

political dynamic than we saw during the eurozone crisis. manus: peter, i am toying with whether i go down the fixed-income route or the equity route, but i want to focus -- we talk about btp's, bonds coming u.s. treasuries in a moment, and the repricing going on in the bond market -- what does that mean for bunds, for bubbles? will we see this trajectory continue higher across european rates? view is you will. the challenge is, it is always difficult to pick the timing points and therefore, it is quite difficult to make money from being short bonds given the negative carry and roles one experiences as an investor. our experience is yes, you will see a repricing of bond markets and when we say that, we believe that will happen at the front end and at the long end. not just a european story, it is u.s., the u.k. on

and also europe. anna: peter, thank you. ofer fitzgerald, global head multi-asset at aviva investors. the u.s. market, 3% and beyond, the 10 year yield the highest since 2011. pimco says it will go higher. we talk treasuries next. manus: we have another conversation with the st. louis fed president. clarity, that is all we want. we know what mr. bullard thinks, but a little more on the doubt. ♪

anna: good morning, everybody. 7:21 in europe. this is "bloomberg daybreak: europe."

of thenear the start cash equity session this wednesday. let's look at how markets are shaping up. european futures are losing a little ground at the start of the trading day. u.s. futures are almost entirely flat. we have seen some selling in btp's, a spike up in yield in relation to german bunds. is there nervousness around who will be prime minister in italy, around the policies they are putting together? we have seen reporting from the italian press overnight. we will talk more about the u.s. 10 year yield in a moment. you have the lira in your sites, manus. fors: another record low the lira this morning. if we look at how the fx options volatility really ratcheted higher yesterday. one month volatility jumping about 20%. traded, fourwere

point 85 and five point 00, that shows you to skew in the market. you want to ask yourself, do you want to be a goldman sachs asset manager? this is day two of the erdogan impact from our interview yesterday. another record low on the turkish lira. yes, indeed. he was in london and speaking to guy johnson. let's talk about the u.s. bond market. it is back to 2011 for the bond market and the 10 year treasury yield reached its highest in almost seven years during yesterday's session. this morning, it holds above 3%. without any clear catalyst, it has the attention of investors who will look for -- guidance in the united states. we had the san francisco fed weigh in. weighing -- eitherdistribution has

three or four rate increases as appropriate for this year as a whole, and a few more increases the next few years. i view this to be the right direction for monetary policy. fed, ofaring from the course. peter fitzgerald, global head of multi-assets at aviva investors. still with us on set in london. i have this nice chart -- that is all to do with whether we see the curve invert in the united states. this is inverted by the summer. if we current -- carry on current rates, analysis suggests the spread could turn negative by august or september. the you think that will happen and if it does, does it tell us the same things it used to? comments,our other can we get some guidance from the fed? i think we have had so much titans from the fed in the past number of years, enough is enough.

you need markets to find their own pricing. yields and bond whether they invert, our base case is they don't and you will see rising yield at the two-year year point, the five your point and further out the curve. athink if investors look what is happening in the economy, what is happening to unemployment, what is happening with an unexpected fiscal stimulus, because we did not expect the stimulus of this size in the u.s. at this point in the cycle, we think it is completely to expectscenario four rate hikes this year and four the next. if you think long-term mutual rates in the u.s. of somewhere four, we don't see why rates couldn't go there. peter, it is raining in dubai. this is history at the end of may. the second thing is, would you buy more dollars?

the correlation of dollars to rates, it has turned positive. we have flipped it all around from q1 into q2. do you think the dollar goes higher on rates? pete: at the beginning of the year across our portfolio, we were net short the dollar in reasonable size and we moved from a short position of the dollar in march to a long position. whation you have to ask is is a shorter term move and what is the long-term secular position for the dollar? short term, we see the dollar moving higher. long-term, you have to have real westerns over the fist -- questions over the fiscal imbalance and the deficit that are emerging. anna: thank you so much, peter fitzgerald, global head of multi-assets at aviva investors. we will bring you our exclusive interview with james bullard. manus: that is the end of

"bloomberg daybreak: europe." the european open is next. thunder, they are taking pictures of it. it is raining in dubai. ♪

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guy: good morning, you are watching "bloomberg markets: the european open." we are live from our european headquarters in london. i am guy johnson, alongside matt miller today, back in berlin. morning, guy. equities in japan, hong kong, and china all declining as growth in geopolitics bring back risk aversion across asset classes. the cash trade is less than 30 minutes away. guy: risk