>> good morning from dubai. i am manus cranny, and this is "bloomberg daybreak: europe." these are today's top stories. back to the polls, populists are mobilizing. an attempt to build a technocratic government. our early elections in the cards? advancing treasuries rally. a crisis in italy demands a haven for assets. screen shift, suppliers are down in tokyo following a report that apple will use next-generation screens for all of its new models in 2019.

warm welcome to "bloomberg daybreak: europe." let's get straight to your risk radar. we have a risk off sentiment in the market. yields, the market has shifted. , 10 year yields below 2.9%. there is a stance, morgan stanley has a note out that we have our -- we are mispricing global risk. dollar-yen, money going into yen. this is critically important. you are seeing the yen rally against all major currencies this morning. 1.8%.llar had rallied

we are back to negative for the yen. the yen is climbing as we go to the end of the month. the break point is around one await .50. sincengest losing streak february. the 50 day average, we are heading towards it of $66. goldman sachs, they doubt the calculus on production costs. they have done an about-face. lovely story from the bird, opec is too smart to turn lipservice into policy. let's have a look at the risks from italy. from italy, from spain, where do you put your money? you put it in swiss francs. together, them italian, german spread seeing a few moves. spain-german spread, no doubt about it, the winter is the

two-year government bond yields blowing up. beginning to look at nomination risk? field the populist vote by letting a torch under it? the greek people were defied in 2015. he tore up the vote of 2015. within 20 days he would sign on the line with everything europe would give him. are we fighting redenomination risks? let's get the first word news with juliette saly. embattledspain's government has nominated a new head of the central bank. they are backing a fiscal conservative. will go beforer

a parliamentary committee today to make the case to the new bank of spain governor before the appointment becomes official and can be ratified. the bank of england has denied a report that there is a rift between the central bank and the u.k. treasury. at is after the financial times reported institutions are at loggerheads over the future of regulations after brexit. financial stability. concerns will give away regulatory control after the eu rejected the uk's original proposal. asia's new prime minister -- malaysia's new prime minister said he will cancel high need railway to singapore. the move signals a return to rocky ties between the two countries. the decision deals a setback to

rail companies in asia, including those from china and japan. the russian billionaire owner of chelsea the ballclub has reportedly he come an israeli citizen. that comes one month after the and delayed his visa, diplomatic tension between london and moscow. withoutravel to britain a visa and can stay for six months. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . asia, we markets in are seeing selling coming through across the region. asian stocks falling with japan down for a seventh consecutive session. the nikkei off by 0.9%. the yen is higher.

where have that impact you do have a number of markets closing, including singapore, malaysia, and thailand. vietnam is recovering. having a look at stocks we are watching in the region, we are seeing softbank under pressure. thatd the news yesterday the talks with softbank are off. swift moody says it may rate softbank as an investment firm rather than a tech company. , up 15%. we are seeing a rebound in vietnam stocks. and injured bear market territory yesterday. manus: thank you very much, juliette saly. let's get back to italy's

populist leaders. they are mobilizing for an earlier election. as the disconnect between the pro-and anti-eu forces seems to be increasing, the country may go to the polls this september according to a senior government official. byormer imf director picked meet the headld of state as early as today. let's get to our man on the ground. good to see you as ever. -- a has a new president new delegate. what is his role between now and the election? what will his message be? is it to the rest of europe and the bond market? >> yes, he will be trying to calm things down.

as you mentioned he is strict on budget matters. his main role is likely to be preparing italy for new elections. they could come as early as september. there is a set -- there is a chance of early 2019. he will keep things he -- he will keep a watch on things until the vote happens. they have called for demonstrations, i was reading a story in which someone referred to a moment of a mussolini 1922, rampaging on the streets of rome. is that what we are looking for? or is this about objecting to history? kevin: not really rampaging on the streets of rome, however, the president of italy is seen as a figure of stability very much respected.

this has traditionally been the case. now that the populist parties are reacting against him, calling for demonstrations in the streets, this is new territory in italy. manus: as you say, perhaps rampaging is over embellishment. thank you very tracking the story every day for us. in the studio i am joined by the global head of strategy solutions. good to see you this morning. we are divided by distance, but not by sentiment. have a look at this chart? are we miss pricing or italian risk? morgan stanley suggests markets are a little too quiet. how do you see it? i ultimately agree that volatility has been suppressed for the last two months and a few years.

this has been the collateral ,amage of quantitative easing and the hunt for yield. volatility has become a source for income through systematic or structural product. i do believe when it comes to engaging incb are the program. for volatility to increase, but i do not think that is a crash scenario is likely to occur in this environment. manus: i scanned through the notes, no new crisis, it will create medium-term volatility. you say it will be contained, is that your assessment? kokou: yes, we see a 5% probability for a redenomination risk worth where things will get out of control and you could see

the spread as high as 1000 basis points. this is clearly quite a tale risk scenario. manus: put together the spread, spain, italy germany, these of the stories we have been writing the most about. given what you have said, are we near the zenith? see a near-term of 240 basis points is the level people have spoken about in terms of spread. would you be brave and step into the spreads?

kokou: i think it is an interesting situation because there is clearly a lot of volatility. ultimately, the path of least resistance for the spread is a bcp,ion of who owns the and what the pain threshold is to hold these positions having a situation where we see spreads widening is clearly a possibility. we do not see things going out of control because the ecb put out that a lot of investors are aware of, but that being said, a liquidity crisis is clearly a risk in the terms of secondary markets. this has been one of the key concerns for investors. as volatility increases, you have less liquidity provided by banks, for example, and you have

markets that can dislocate than can remain solvent. back tohat takes me reassuring global markets, we are fit and proper for global investment. that is the real risk. that trickles down into the banks. -- one of the biggest drops in a number of years, to what extent do you play the banks? to what extent do you play the bank debt story if you are worried about liquidity? you used the word liquidity a couple of times. kokou: it is well-known that italian banks own, and some of , where it you have

marked market or negative market, it could have an impact on capital, and therefore you get a negative feedback loop. particularly if the risk of downgrade is imminent. there will be a correlation between the volatility of banks equity and the spreads. this is what we are seeing today when it comes to european equity or bank equity. they have been suppressed for a while. i think we are seeing a normalization of the risk premium versus the broad market. manus: i was looking at some of the fx positioning on the euro. the fast money had gone long, but long and wrong. we are back to net short.

would you take any short positions on the euro? creates ank that ecb flow on the euro for the moment? interestingis an point. the reason they have longed of the euro and short the dollar, the eurozone. the current surplus you see in the eurozone versus the u.s., and then there is a lot of argument in terms of interest rate differential. beenis stage, the euro has a currency like the yen because of negative interest rate in the eurozone. this is why it has a negative correlation, the euro tends to go up when equity goes down. when you have eurozone crisis risk, the euro turns into a positively correlated asset with respect to the euro zone. a lot of the trade we are seeing today, options are playing the euro downside with stocks downside as well. there is a lot of attractiveness

in terms of hybrid options. i do see the euro-dollar put option or volatility equally as vol andive because bo lowcts -- the simple volatility over the past few months. the euro-dollar, euro stocks equity or bank equity, they are attractive combination of assets to play a tale risk scenario through derivatives. manus: stay with us. kokou agbo-bioua, global head of flow strategy and solutions, societe generale stays with the team. coming up, crude slides. it is the longest losing streak since february. we talk about the reasons next. and the turkish lira rallies after the central bank move, but is it enough to stabilize the currency? this is bloomberg. ♪

manus: 9:19 here in dubai. interesting story here. , butongest losing streak look at brent. .t is trading higher, 0.4% the trade, the spread, that is what you want to focus on. juliette saly has her eyes on every market. how are you doing? every single one, thank you. the u.s. is signaling a willingness to talk to the european union to try to reach a settlement on illegal subsidies to airbus. that is according to a pillar person familiar with the matter. it is a shift in washington's thinking, which has threatened billions of dollars in ataliatory tariffs following

wto decision on airbus. and airbus spokeswoman said they would welcome a proposal to discuss a settlement without preconditions. have fallenpan after a report that apple has decided to use different screens for its iphone models next year. identified's industry officials report, in high-endlay apple phones. -- suffering its worst rout in 20 years. the state run oil company has seen $34 billion from its stock price since the strike started last week. over a week, truckers have paralyzed much of the country, voicing businesses to shut down

and sending brazilians in a search for gas for their cars. billionaire and french businessman has died at the age of 93. he inherited in aviation empire from his father who designed planes in world war i, and expanded into real estate auction houses in the media. staunchly conservative, he rebuffed efforts from president mr. on that is your bloomberg business flash. saly there with the latest. wti has been falling. the longest losing streak since february, chopping below its 50 day moving average. russia is considering easing the curbs on production.

when you look at this, we are going towards this 50 day moving average. geopolitics has been the bid. here we are with the offer which has been a return to supply. to what extent will the market return or lash back on oil? kokou: i think this is a place where you have to look at the headlines and the news flow. have the shell gas that all of a sudden can come back online because these levels make shell gas in the u.s. more attractive. the second is geopolitical risk spectrum. if one were to assume the deale east or the iran would be a clear view in terms are notg no deal, we

seeing any solution short-term, you will be wrong. things have changed weekly when it comes to north korea. stage, the volatility at risk premium is quite high, but the path of least resistance is for a compression of a risk premium. interesting, we have about faced on trade. is there any market link within societe generale at all that iran?could about-face on kokou: i think it will be a challenge and the political risk , to try to come up with models. one of the things that is possible is to break down the drivers of the old price, and

try to obtain what is most driven by fundamentals as opposed to things that cannot be modeled. one of the things we see is that the global economy is growing, and there ought to be demand for energy, and that should create an upward trajectory for the oil price for the premium in terms of geopolitical risk is what is more difficult to value. the uncertainty around prediction has gone higher. reading a lovely piece, if we take the oil story as the geopolitical player at the moment, and we look at the rhetoric around global growth, let me read this to you. there is a caution against complacency from economists, and it may have gone overboard in their belief of synchronized mobile upswing. have the markets, equity

markets, have they gone overboard on global upswing? oil, butcs is pushing demand as well has been part of it, the balancing side of that trade, hasn't it? kokou: absolutely. distinctiona quick between the drivers. there is monetary policy on one side, but you have to realize when it comes to equity, in the u.s., the dynamic of share backed -- buybacks, it has been the performance of equity markets over the past 10 to 15 years. at this stage, one of the key calls is to call for an end of the cycle in 2020. one of the things we are seeing today, we are in the late stage of a long and protracted business cycle. rings could clearly turn in the next 12 to 18 months. manus: stay with us, kokou

agbo-bioua, global head of flow strategy and solutions, societe generale. more to come on u.s. rates and apple. ♪

manus: live shot of tokyo. it is 2:30 in the afternoon there. that is the emperor's palace. the yen was at negative four for most of the month. you are seeing a real turnaround. are we pricing political risk correctly? that is the question for morgan stanley and societe generale. l on theou play vo upside. let's check in on these markets. have --ie, i think you >> we will get to that in a

moment. let's kick it off in asia. let's start in japan, japanese stocks sliding for a seventh a in a row. in hong seng as well is kong, are down. most southeast asian stocks are closed today. risk off sentiment as you said andriggered by politics, this deadlock in italy. the 10 year yield is falling the low 2.9% for the first time this session. you should also note that we should have more volume as the u.s. and u.k. markets open. let's look at the cost of protecting against what is happening in italy. if you look at last week, the it rose 40 basis points, the most since the debt crisis. this has been a disconnect between the pro-and anti-european forces in italy.

the new prime minister is putting together a cabinet and is ready to meet the head of state. meanwhile, there are populist leaders pushing for an early election, and urging the citizens to mobilize and get out and protest. it will be extinct to see how the market does at the end of this week. and one more for you, morgan stanley is saying italy's problems are mispriced in volatility. you can see the euro stock volatility index versus the euro dollar. what you can see is they are at the lowest levels in 10 years. the equities are declining somewhat, but it remains below crisis highs. morgan stanley thinks it is a little too quiet and not likely to last. manus: thank you very much. you want to know how to trade int vol go back to tv

terms of learning how to play the vol trade. let's talk about the fed, they should slow policy normalization. according to james bullard speaking in tokyo. >> we are almost at this longer federal funds rate right now. argument why you may not have to do too much more to normalize monetary policy. from themes bullard federal talking in japan. his comments, head of inflation data due thursday, and the payrolls, they drive markets. kokou agbo-bioua, global head of

flow strategy and solutions, societe generale, do you agree with bullard, should they slow down? kokou: it depends on how fast the economy is growing. on the assumption of growth potential of the economy, i think one of the key things is to realize that trump is in a launching this $1 trillion tax reform, and if you add it to the deficit, you are running a lot of momentum to the economy, and potentially more inflation. ofs is why the flattening the u.s. yield curve is something that we find interesting, because there are a lot of drivers for that steepening to occur. at the supply in the u.s. government, and the fed balance sheet is going to shrink overtime. looking aterms of

the shape of the yield curve, and you think steepening comes in the third quarter, would you bet against the numbers in? kokou: i think there are a lot of ways to bet against the numbers and using derivatives. you can think about conditional steepening through swap options, or curve caps which limit your downside. i think the important element is that the qe by the bank of japan and the ecb is being recycled in u.s. treasuries. now, if you look at the treasuries from a japanese investor taking into account the basis swap for example, treasuries are no longer that japanese orrom asian investors because of the cross currency element. they could be a tipping point later this year with the fed reduces its balance sheet at a faster pace, and the dynamic

changes towards a steepening of the curve. is in theif that medium-term, i want you to look at this. 10year papers come back, days ago do you think it could go to 4% or 3.5%? i do not think that conversation is over. the two-year paper has turned bullish for the first time in a year. that screams to me at the short end risk parameters, people are reassessing them. what does it say to you. -- what does it say to you? consistentink it is with the amount of tightening that is required to get back to the neutral level of interest rates. i think it is also a question of the timing of the recession in the u.s. our view is you will see a

towardsng before we get the end of the cycle. in a way you get the 10 year selling off, and as you hit a recession, you get the two-year curve rallying, going down in the near term. for that to occur, you need to see evidence that the u.s. is clearly slowing, and this is something we expect to see in 2019, early 2020. at this stage, i'm left evidence of a strong economy in the u.s. and inflation is moving slightly higher than what is priced today. mind, weth that in ,ave another decent 18 months

the flip-flopping between gains and losses. earning expectations are high. do you want to be long american equities relative to credit, relative to rates? how do you want to play your exposure? how do i play the upside with what you just said and equity story and the derivative that does not cost too much? kokou: i think there are four stages. you have the debt crisis, the deleveraging, the core recovery, and the re-leveraging phase. currently in the cycle in the u.s., so this is a point where equity does well because corporate's are really leveraging their balance sheet boosting on equities, where is credit is an underperformer. one strategy is to buy equity and sell co-option on credit. you could take advantage of an upswing in late stage or late

cycle in equities, and benefiting from the fact that credit will start to underperform at this stage. this is one example of a strategy that makes sense in our review. ok, kokou agbo-bioua, global head of flow strategy and solutions, societe generale, always good value for money. one of the corporate stories on pickloomberg, you begin to up where the main story flow is on the readership. a report that apple will begin using next generation screens for all of its models next year. joining us from tokyo is our stock reporter. did to see you this morning. if this is true, what does it mean for asia's supply chain? is there a restriction in terms of the supply chain? >> right.

as you can see from the market is not readyan's for a move like this because it has been a key supplier on oled screens for apple, and it has been working for a while. the technology they have is not at the level where they can led screens for apple. if this is true, there are two ways it can pan out. if algae displayed joins, and lgrts supplying -- if displays joins, and start supplying, we need to see if the company is ready to join, and we need to see how things develop from here. it is one local media report at this point. what is the realistic

possibility that is happening? if there are three new phones next year, we have seen it being , or twice this year. how realistic is this? in terms of delivery and actually happening? min: i think a lot of people are wondering how real this possibility is, but markets expectations for apple to go oled with iphones next year is low. maybe things will change going forward, but right now expectations are low for this strategy to pan out. there are two issues, one is capacity. will samsung be the sole d screens.f ole samsung needs the oled screens

for its own phones. if lg is ready to join the supply chain for oled screens for apple is also a question. one more important issue is how olednd has been for apple phone which has been week so far. manus: we will keep an i on how -- we will keep an eye on this. thank you very much for being with us. a reminder, if you are a bloomberg user, you get stories as well. you get to play with the charts. you can catch up and analyze, and use them at your own behest. coming up, the turkish lira rallies, but has the central bank done enough to stop further

slides? this is bloomberg. ♪

manus: it is 9:45 in downtown dubai. andre coming back reassessing geopolitics, reassessing italy. asian stocks fell. japan fell for the seventh a in a row. the seventhl for day in a row. juliette: the u.s. has signaled to begin talks with the european union to try to reach a settlement over illegal subsidies handled to airbus. that is according to a person familiar with the matter. it indicates a possible shift in washington's position which has threatened to impose aliens of

dollars in retaliatory products -- tariffs. spokeswoman said it would welcome a proposal to discuss the settlement without any preconditions. the u.k. government reportedly may begin selling part of its remaining stake in the royal bank of scotland as soon as this week. sky news said the sale could be delayed by market conditions, and the ability -- a spokesman for rbs declined to comment. is suffering its worst rout in 20 years as a truck latin wreaks havoc in the america's largest economy. it has seen $34 billion a raised from its price since the trucker strike last week. for over a week, truckers have paralyzed much of the country or

sing businesses to shut down and sending brazilians in a search for gas to fuel their cars. the unit french businessman has died -- alien air conservative he fought up restructuring efforts by president xi rock. that is your bloomberg business flash. manus: the turkish lira has rallied after two days of decline. works toal bank centralize monetary policy. from next month, it's benchmark the one week purchased rate. for more on this story, we have our global emerging markets editor.

i will not use my big brother voice, but i will say day two of the big rally, it is rowling 1.5%. it was the biggest rally in the world yesterday. what has gone on here? turkey had a confused rate structure, and investors and traders have asked for clarity with some kind of revamp of the structure for some time. crisiswould like, the that we saw last week has pushed them in this direction and force them to take this action. we have the clarity that the investor community has asked for. erdogan sang i am going to step in, and the next rhetoric is imo a going to get back to orthodoxy. realignment in terms of rates and sympathy occasion? there was no further rate hike.

is that the next shoe to drop? possibly, but you used the word orthodoxy, this is a return to rates orthodoxy. wasaps that is what erdogan referring to. if you throw in the fact that some elements in the market has got this,ogan let the central bank have a little more say in what goes on. increases,ee rate but it would be a brave man to say this is the run-up to the election. , globalokou agbo-bioua head of flow strategy and solutions, societe generale is in london. listening to what was just said, how brave are you? thehis is a beginning of

justifiable rally in the lira. kokou: i think this is a situation where the independence of the central bank is going to be a key element that investors will be watching, because clearly erdogan has created fears that this would no longer be the case, and orthodoxy of the central bank, or the monetary policy could be at risk. yield,he level of the there are levels where investors are looking to step in and look for carry trades. the levels are looking attractive. --us: rallysaw the lira considerably, but the u.s. and the u.k. were closed. how much do you think today will be the litmus test for whether these measures yesterday really are effective? kokou: this is a good point.

clearly, one of the things we are seeing with the eurozone battling with the italian uncertainty, the willingness for investors to look for alternative and diversify their portfolio. depending on the class-action today pans out, we could see positive momentum or a decrease hasncertainty that erdogan priced into the lira valuation. manus: if i look at the other side of the world, i am going to try to globalize this conversation, i have turkey with its circumstances, then i look hand,zil, strikes on my as you look at the emerging-market world, is a very different for you? just put it in context for us. kokou: i think the key element

when it comes to emerging obviously, you cannot put all of these countries in the same basket. the predominant driver of the past few weeks has been the dollar, and the risk of it strengthening or faster paced in terms of hiking in the u.s. in termsted a meltdown of emerging-market assets. the important point to bear in mind is the positioning, and we d in had an extended perio emerging markets, because developing markets are not providing enough yield. investors are looking at the --atility of this market to the differentiation is going to be the keyword going forward. returning to turkey for a moment, did turkey get lucky toward the end of last week as

we saw u.s. interest yields falling, and helping the emerging-market universe in general, and that coincided with the action that the turkish authorities took? you think that was an element of happy timing here? kokou: absolutely, there was clearly a slowdown in which the 10 year yield has been increasing, and have brought some stability. you have to remember that the breakdown in the equity bond correlation has been the key driver in the volatility rally in february. this is a situation where the yield went up, and equities went down. you have bonds and equity falling at the same time, and we are back in a more normal environment tween the rates and the risky asset correlation where you are having bond yield be hitting in the u.s. as a safe haven, and avoiding investors

losing were putting all of their money in the same basket. clearly, we have to see if that momentum continues. our house of view is that the business cycle is mature, and there are a lot of elements for the yield in the u.s. to push sustainable3% and manner and the next six months because of the dead balance sheets and them massive amount of fiscal stimulus u.s. is rallying today. , what call it 3.25% merging market currencies of the past month, you can manipulate the data however you want, i just want to paint the picture. is that mean a little more selling? how do i play exposure to the fx side? we talked about volatility in

europe. i lever my exposure in markets in the currency side? do you want to be in bonds or equities? kokou: this is a good point. key element is liquidity. strengthens, and you have yield higher in the u.s., there will be a question of liquidity and how an investor pairs out the positions. you have more selling and with thebility to deal exit of investors, and this has been the concern with emerging markets over the past few years, and something to worry about. much. thank you so emerging markets, and to my guest host, kokou

in london. he is the global head of flow strategy and solutions, societe generale. we are going to talk about the populist rising in italy. ♪

manus: good morning from dubai, i am manus cranny and this is bloomberg daybreak rolling europe. these are today's top stories. back to the polls. populists mobilize, even as the aesident attempts to build technocrat government. our early elections on the cards? the yen advances, treasuries rally as the ongoing crisis in italy spurs haven demand. 10 year yields drop but 1 -- beneath 10.9 for the first time in a month. the bullard break, the st. louis fed president says the central bank should slow the pace of rate hikes in order -- credibility.

it has just gone 7:00 a.m. in london. 10:00 a.m. in downtown dubai. this is the state of play on the equity markets. the question is, are you pricing a target risk correctly? is there a bigger, more systemic issue to consider? in the the question market. morgan stanley says italy's woes are mispriced. government bond yields ratcheting higher, volatility around markets in terms of stocks in europe, bonds in enoughare not pricing aggressive market moves. let's look at the risk radar. futures are set for a lower open. , that is a haven assets of choice. or is it swiss?

do you want to have yen or swiss in your back pocket? two year government bond yields are rising, the government has gone long of a year. does that have more to do with the fed, or more to do with the risk off sentiment in the market? nymex crude is down, a little run of bad luck on the oil market. you are seeing a drop on nymex. moving average is $66 and change. that is a critical level. let's talk about the bond markets where the action is. two year government bond yields in italy are important. that is what we had been looking for. to year yield up 119 basis points. this dropping by 18 pips morning. the two-year yield a rallied 119 points. are we done there? optionality onuy

the bond market. you have seen the biggest spike in bond yields in italy since 2012. bunds are a little lower, angela merkel saying you've got to stick to the rules. country. a vote in his he put a referendum to one side and within seven days, he was signing on the dotted line. futures in germany are up, the position it is important here. bearish two-year notes. are they exhausted? net short hedge fund positions have flipped to net long. those are your markets. juliette saly is standing by with your first word news. the fed should slow its pace of policy normalization to help realign price expectations around 2% and maintain the credibility at its

inflation target. that is according to the president of the st. louis federal reserve bank. james bullard spoke in tokyo today. >> we are almost at this longer -- federal funds rate right now. so this is one argument about why you may not have to do too much more in the u.s. to normalize monetary policy. juliette: spain's embattled government has nominated -- to head the country's central bank, bass -- backing a fiscal conservative for the job that includes a saying european monetary policy. go before a parliamentary committee today to make the case for the newsbank -- bank of spain governor before it can be ratified. the bank of england has denied a report that there is a rift between the central bank and the

u.k. treasury after the financial times reported the institutions are at loggerheads over the future of london. the boe's deputy government for financial stability has fallen out with the treasury over concerns it will give away regulatory control after the eu rejected the you k's original proposal. new prime minister has said he will cancel a proposed multibillion-dollar high-speed railway linked to singapore. a move also signals a return to rocky ties between the two countries that characterized his first stint in power from 1981 to 2003. it feels a setback to construction and rail companies in asia, including those from china and japan that -- of russian billionaire owner chelsea football club has become a here is written -- israeli citizen a month after the u.k.

renewing his visa amid diplomatic tension between london and moscow. israeli passport holders can travel to britain without a visa and can stay as long as six months. 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 . in asia, most stocks are weaker. we didn't have wall street giving us a lead, but the political standoff in italy weighing into risk aversion sentiment. the yen higher, japanese stocks lower for a seventh consecutive session. selling coming through in china, but there has been a rebound in vietnamese stocks, which entered their market territory yesterday and australia's market closing higher .1% thanks to buying in the big four banks. stocks we are watching. to its lowesting

level since listing in 2014. this is on a report apple's going to go to the next generation for its iphone screens of technology. coming seeing sunac under pressure on consent about tightening and default worries in china. to the upside, the lithium provider galaxy resources of almost 14% on the close in sydney after signing a pact with south korea's giant cosco to sell a package of tenements in argentina reaping about $218 million. the tone today is generally risk off. saly, ok, juliette putting the risk off mooting context. breaking news across the terminal from standard life. they promise you this. they are considering a substantial return of capital and that is what they are doing. 1.70 5 billion pounds to be returned to shareholders. this is a surplus within the

group. i take your consciousness back to earlier in the standard life aberdeen, weighing a return on capital. this is tied to phoenix groups holdings, the insurance business they sold and the asset manager closed to that deal a number of weeks ago. the phraseology, actively progressing the firm's intentions. they received -- in cash from the dealer, as well as a 20% stake in phoenix. hime speak, we are harrying on the phone to see if he will join us. standard life, down 6.5%. there you go. you are in for a little boon from the executives at standard life aberdeen. let's talk about the populist swagger in italy. the populist leaders are

mobilizing for an earlier election, even as the premier puts together a cabinet that -- he will present that to the head of state. news on italian government bonds. over the past two days, a significant move higher. on monday. 40 pips the euro declined as well, down .2%, the weakest against the dollar in seven months. the markets were shaken. kevin costello is our western european economy editor in rome. this is volume at a political level. is question is, the premier going to report back to the president today. what do you think his message is going to be? kevin: he will have a list of ministers to present to arela.ella -- mtar -- will most likely not get a vote of confidence in

parliament. elections will be as early as september. manus: what about financial markets? i just showed the two-year government bond yields really spiting. first --en one of the worst months in a number of years. what these think financial markets will make of the -- do y think financial markets will make of itou? they will be unsettled. you have seen a roller coaster ride. they was a respite a few days ago, but things are down again. markets are pretty worried about what will happen in italy and possibly vis-a-vis the european union and brussels. manus: indeed, and let's see. we have had the many german -- repulse from angela merkel in terms of the set of rules to be adhered to. kevin costelloe, keeping us up-to-date on the latest machinations within our western european economy in rome.

let's turn to our guest cohost -- guest host. good to see you this morning. welcome to the show. how much sleep are you losing , somehe italian crisis saying turning into a european crisis. where are we at nutmeg? to lastu look back year, european political risk was priced out of equities and european markets. now, it will come back quickly. it wouldn't take much for italy to be downgraded and the ecb can no longer by italian debt. we are in a whole different ballgame carried our greatest issue at the moment is the latest move, five-star movement us the lead to say this is versus brussels, germans, it has empowered them to go further and pushed against the eu. manus: with that in mind, do you think we got more room to go on the spreads?

we're almost at 240 basis points italy over germany. a similar story for spain. in terms of these spreads, let me clean up the chart. you to have a dirty chart carried how much more of a blowout is there to come in spreads? shaun: quite a lot. it will be interesting to see what we get from the ratings agencies. put intotion can't place their spending plans. italy is on debt watch, so it will be interesting to see where the next move comes from rating agencies. if we get a downgrade, the spread could go higher. there can be a relief rally because the news over the next four months until an election, there is not going to be too much move on the fiscal side. , its: my guess this morning is not a solvency crisis, not the kind of crisis you had would you agree,

because there is not much politicaletween a crisis turning into a solvency crisis? i have seen that firsthand. shaun: it wouldn't take much. it no longer has access from the ecb buying the debt. the italian fiscal position has improved, but the spending plans being put in place is a massive increase in the deficit and who will fund that? where is that marginal by going to come from italian debt? you can see spreads go up quickly from here. s in the european equities story? very -- about the growth story, the tailwinds, the good news story in europe and that that would come to bear later in the year. to that end, he felt the ecb might make some moves earlier than we anticipated and that is good news.

would you be shaken in any european calls this morning? shaun: we have been unconvinced by the recovery in store -- recovery story in europe. we saw soft data come through, but the hard data didn't follow through. we have seen a european disappointment on data this year. we have been underweight european equities and since the french election, european stocks have underperformed jack's -- japan stocks. i am not convinced the european story is here. strong compared to other regions, so we are unconvinced and with political risk being priced into markets, i think it is a good place to be underweight european equities this morning. manus: you stay with me, shaun port, cio of nutmeg saving and investment. you heard it from the federal reserve bank of st. louis, mr. was james bullard

about the central bank's policy. that is next. ♪

manus: risks are rising in the entire in government bond market. 7:17 in london, eight: to set -- 8:17 in the italian market. i want you to focus on the european government bond yield. we have breached the 1% level. we have risen by 10 basis points market play. with that in mind, what happens next if there is a downgrade? that is the question in the marketplace. if there is a downgrade, what would that do to the ecb's ability to buy the bond market? bond markets are in focus. return of capital is equitably in focus. that is the breaking on from standard life aberdeen. they have a surplus of capital.

ceo martino the gilbert -- we will get to martin in a moment. let's get your business flash. juliette saly standing by. the u.s. has signaled a willingness to begin talks with the european union to reach a settlement over illegal state subsidies handed to airbus, according to a person familiar. it indicates a possible shift in washington's position, which has threatened to impose billions of dollars in retaliatory tariffs against eu products following a decision on aid received by airbus. airbus spokeswoman said it would welcome a proposal to settle without preconditions. sharp in japan displaying have fallen after a report apple has decided to use -- screens for all new models next year. south korea's electronic times sites unidentified up industry

officials for its report. samsung's display has been the soul supplier for use in apple phones. a representative from samsung display declined to comment. that is your bloomberg business flash. manus: juliette, thank you. we will not get to the co-ceo of standard life aberdeen. they have planned to return capital to shareholders, 1.70 5 billion. martin goldberg -- martin gilbert, always ready. good news for shareholders this morning? margin: i hope so. i hope they think it is good news. we certainly do. manus: can we expect more? you say you have a surplus of capital within the group. is this step one of a bigger move? shaun: no, i don't think so. martin: this is what we think at this point in time should be returned to shareholders because

we have such a surplus of capital. needld say that we still to talk to regulators about and make sure they are happy, but on our figures, we are pretty happy that we have provisioned so we can return this to shareholders. other people are going to say look, this could have been money set aside. i know you have just done the standard life aberdeen trading, creating this company, but does this say you are not interested in acquisitions? you are returning capital, you don't want to do anymore acquisitions? we have a bigin: job to do over the next two years, really integrating these two businesses. so far, it has gone very well but there is still a lot of heavy lifting to be done on the

technology side and a lot of the savings comes from those sort of efficiencies in an absent management -- and apps -- asset management merger. m&a transaction at this point in time. yous: i know we spoke to days ago and you were of the lloydsat the money from -- this goes back to february -- the money from lloyds was going to go out the door. going."se he used "is any update? look, look -- martin: we're still in dialogue with there is something of a dispute over whether we were in material competition. we would love to continue managing the money going forward.

overe also in discussion this material competition. so, it's not gone yet. martin, making up the balance sheet, you have got to market to get the balance in that is going out the door. how is the marketing going for funds at the moment? how competitive is the market? martin: the market is very competitive at the moment. and in terms of fees terms of passive becoming a bigger share of the cake. positioned in the field of alternatives, property, bonds. t awayare seeing the shif from the two companies that merged being perceived as one product company, to a much more diverse businesses than they

were in the past. manus: since we spoke you last, the world has changed. here we are, staring down political risk again in italy. morgan stanley says we are underpricing italian risk in the markets. would you agree or disagree? martin: i would probably agree, thebear in mind the risk at moment is nothing like it was during the financial crisis. i do agree, but also, it is not as big a risk as it was in the past. manus: would you being courage and as you walk on to the trading floor -- you are one of those co-ceos that walks out onto the floor and talks to your peers -- would you be encouraging them are asking what protection they are buying? you want to buy some volatility

protection? as you sit and look at your bloomberg, how do you look at risk at the moment? martin: well i do look at my bloomberg, that is the good news. i am a great believer in long-term investing and i am hoping for the long-term. i would not be encouraging anyone to do anything that was not for the long-term. manus: martin, i will let you go after this because i know you have been good to speak to us. what would change your perception of risk? you said this is not what it was. this risk is not what it was a number of years ago. martin, what would change your mind and say risk is re-escalating and you really should be warned. martin: i think it is asset price risk. basically, the one thing that worries me. that has worried me a number of years and we are in a pretty recovery where i

think every country in the world is growing. risks that iold worry about. acid price and complacency, basically. -- asset price and complacency, really. manus: over at deutsche bank, topline for mr. saving at deutsche bank? what ishe has to do best for the long-term and not worry about the short-term. ok, never focus on the short-term. martin, thank you for being with us. is the ceonse, that that talks to markets. martin gilbert, co-ceo at saturday -- standard aberdeen life. this is what you would call a risk off scenario. yields are rising, the rejection

of a formation of the government. what is next in the italian story? a crisis or containment? that is the question for markets. we await to see the response in the euro and italian government bonds. this is bloomberg. ♪

matt: welcome to "bloomberg markets: the european open." we are live from london. guy johnson is off today and the cash trade is less than 30 minutes away. italy gets a new prime minister, but for how long? the populists call for protests and the country, ready for the possibility of an election. risk off as the markets in