future? thatpierre: it will impact eventually. i think we see a large number of buyers willing to buy nonperforming loans in italy. it is performing well. there is no reason why nonperforming exposure should go up from there. did you had your portfolio head of the elections? taylor: we do not hedge it -- it has been reduced to a year and a half to three inrs to give us flexibility terms of being able to buy more debt.

italian debt has risk reward which seems able. longer-term, do you expect if the fear delays the banking impact in italy? jean pierre: we need to take crisis away.ar or we have no fear in italy. let's be clear about it. fear might be internationally, but there is not in italy when you speak to people in the streets or corporate companies. what is important is that we find an environment where we will have more certainty. there will be clarity about what should be the program or valiance ahead of the election.

sure the market will find its footing. how do you explain the volatility or fear in the market? is it because you believe the market is misinterpreting and is it lack of pent-up demand in the market playing out now? jean pierre: i think the market with a lot of liquidity toward a yielding a fact. current level from my point of view is a very good entry level and a good risk reward. once this is done, we can go fundamentals and they are attractive. francine: i know you have to get

meeting with ecb officials are do you have plans to speak with them on the phone to see how the situation can be stabilized? jean pierre: i have not put any call to ecb officials and that should tell you that there is no fear. let's make sure that we look at the fundamentals and we consider the current situation. francine: thank you so much for joining us. that was jean pierre mustier. this is bloomberg. ♪

>> italy's polybius ago -- political crisis and a coalition has thrown into turmoil in time for the election. schrader's dump risk. money pouring out of global equities. taught, -- intense talks. "bloombergome to daybreak." yesterday, i was like we had trading isons and then because all of u.s. is closed. not so much. david: italy is a mess. alix: futures lower. euro-dollar below moderately.

theaw 20% to 25% decline in 2012, 2011 crisis. 158 basis points. that is how much two-year yields in italy have rallied. we see a huge selloff in peripheral debt. you could make the argument that spain and portugal could be worse. they are seeing a 20 to 30 basis point move. david: spain has their own problems. but they went right along with them. worseit could have been cared crude off by over 1%. david: good start to the week. it could have been worse. time warner for the morning brief. a pretty eventful week. tomorrow, a second read on gdp and core pc. incoming spending, and friday is

jobs day. with her how many jobs the u.s. added last month and how much wages picked up. i want to turn to bloomberg first take. the big story is italy. we're joined by marty schenker and sarah ponczek. i want to put up a chart that italy bonds.ld in take a look at what it shows. the white line on the right going vertically, look at what has happened. it is dramatic. toah: it is unprecedented see a move this size. more is going to be political uncertainty in italy and the rest of the eurozone going forward. we will have to see what happens until the fall elections. the move in bonds was one of the biggest. a couple of years ago, the

two-year bond in italy was negative. euro atlso seeing the multi-month close and a stocks falling globally. on the s&pfutures have dipped below the 2700 mark. david: marty, having uncertainty about the government in italy is not new and we have seen that since 1945. marty: 65 governments. david: the question is what it means for your generally. the finance minister's anti-europe. marty: that is where the president said enough was enough. they wouldn't support a government that supported leaving the euro. since emmanuel macron's victory this fundamentally is about the lack of political unity within europe. it has come back to hot the markets today with italy and spain being the forefront. alix: let's take a look at that.

if you look a spanish equities which are off. portuguese equities are off. the 10-year btp yield is up 44 basis points and euro-dollar lower. it could be worse. marty: it could be worse. 20 basis point move in spanish debt could be worse. marty: considering everything else that is going on in the world, this has pushed trade off of the front page. things are not going great in terms of the trump tariff plan in china and nafta being imperiled. it could be worst. in fact, you may get it to be worse. alix: david had to fight to get his headline today. let's take a look at other asset classes. and is the 10 year yield the dollar. that is where you want to be putting your money.

go into the dollar and treasuries. what can we expect from this safe haven? with seen a rotation and trying to get leadership at the s&p taking over. it couldn't hold what is next? sarah: we might see a bit of a continuation. you look at the 10 year yield and it is below 2.8%. a couple of weeks ago we were talking about the yield above 3%. all of the sudden come where the 10 year yield back below 3%. it is in the 2.8% level. maybe some bids into the yen and u.s. bond yields. we will see. what we are seeing right now could really shape up. david: there is a world beyond italy, as difficult as it is to believe today. let's talk about north korea appeared we have the on-again-off-again summit in singapore. this is the latest trump tweet. he tweeted "we have put a great team together for our talks with

north korea. meetings are taking place concerning summit and more. the vice-chairman of north korea heading now to new york. solid response to my letter, thank you." i am not sure who he is thinking, i guess north korea. marty: he is thinking everybody who made this meeting possible. he has not taken back the idea that he had suspended talks. it is interesting we are going ahead with a meeting that he himself called off. we will see where it goes. his latest tweet is now about crooked hillary and the election. alix: oh, my gosh. marty: that was less than 30 seconds ago. david: is what we are seeing a form of negotiation? marty: and even back channels to china. there is some commentary out there that this is a more summit --more plans

planned summit than the one he announced precipitously before. all signs point to a meeting on the 12th and singapore. alix: to wrap this all up, it is about pricing risk. if you try to price risk, it did not work out for you. how does an investor need to look at a market where you have north korea on the sidelines and other political risk in europe? sarah: for a while, people were talking about u.s. and china trade and north korea and then we got to earnings and it fell off the back end. earnings season is coming to a close, and we might seem more focus. marty mentioned a backdoor to china, and that is exactly what the summit is. to investors they say it is really about the u.s.-china train relations. there is a sense that if there is no deal with north korea, there might be higher odds for trade deal with china. the fact that the summit is going forward, investors might take solace from that.

alix: thank you for being with us. george soros almost warning about -- also warning about another crisis. coming up, more and italy's political crisis. panic grips the market. 150 basis points for a rally in the btp. this is bloomberg. ♪

>> this is bloomberg daybreak. i'm taylor riggs. ja be holdings is adding to the

portfolio and it includes panera bread company the company is buying the sandwich chain from break point advisors. terms of the deal were not disclosed. according to a person familiar with the matter, the purchase price is about $2 billion, including debt. nissan will cut vehicle production in north america this summer because of a sales slowdown. the automaker will reduce workers' hours and output as much as 20%. it wants to improve profit in the u.s. rather than sales growth. there is a report that the british government may begin selling part of its remaining stake in royal bank of scotland this week. according to sky news, the sale --ld the delayed by sky market conditions. u.k. owns about 70% and acquired it when it they'll doubt the bank during the financial crisis. that is your "bloomberg business flash.". all about the

italian crisis. to your bond yields over in italy surging the most since the euro came into existence. it is now around a 10 month low. all the populace leaders have been mobilizing for an early election. we spoke with the unicredit ceo who said markets are overreacting. leaving the eurozone is something which is overdone and this is what has prompted the selloff. we should go back to reality. italy were not leave the eurozone. we need to look at that. joining us is dan dimicco, nucor president. today, do you look at it as an opportunity in italy or capitulation? dan: one of the things that

folks look at is they can free write off market prices. that is telling me this is pretty significant. that is the biggest move we have seen in years. will it bubble over? it is hard to say. we should respect the force of the market price moving. inould take the other side saying that it is an overreaction. the starting point was a distorted central bank and impose negative yields. italy weeks ago had a negative two-year. i step back and i say, what are the banks doing? they are down a tremendous amount. yields have spiraled higher very as i read it and get caught up on a situation, it seems to me that as of september this could be more populous oriented. skepticism seems to be there. alix: angela merkel was talking

earlier and reference the italy and the risks there. here is what she had to say. >> we want to work with every government. principles inside the eurozone. there will be difficult questions. when there were elections in greece and the prime minister selected, there were many questions on the table. we came together. alix: that was like, we support you but not if you hurt us. is the conversation of a euro breakup mean you have to have that conversation with clients? dean: it is too early to tell. it exerts its self very quickly and sometimes forcefully. eurozone has proven to be skilled to muddle along. they stated that stayed with it a long time. italy is a different story. it is taped together by the

central bank buying kerry the political world has been there, but we will have to see what happens. that is the question that unicredit headset it is overreaction very we had netherlands and france and germany. every time populous have stepped up, there ultimately driven back. is italy different, or is this more of the same? dean: it is different in the sense that it is large. david: not compared to france and germany? enough, but the economy is one of the more vulnerable ones. the interest rate rise alone is enough to topple the economy for me -- from a fiscal balance. it seems the populist uprising is pretty significant. market prices are telling you this is something we have not seen in quite a while. right, the volatility does

not seem to be there. if you come into the bloomberg, you see euro stock volatility and then you have the three-year, it's higher, but how much volatility can we see pick up? does that create opportunity in the eurozone area? dean: it is an interesting one to look at. you have counterbalancing forces . this is a euro negative risk off , but you have a couple things pushing the dollar down as well. being the massive deficit run by the trump administration. in better place to look terms of reaction is you want to look at the index called the euro bank index which is down 4% today. this is a reminder of the reality that italian banks own a lot of italian debt. there was a doom loop as they used to call it, feedback between weak banks and

essentially being formidable to one another. that is an asset price to pay close attention to it volatility has spiked quite a bit in the last three or four days. alix: you know by is a lot of debt? dean: who? alix: the ecb. and so are banks. us. curnutt is staying with this is bloomberg. ♪

alix: taking a look at markets, it is all about risk off. taking a look at the 10 year, moving higher by eight basis points. money moving into the dollar and treasury yields. joining us is dean curnutt. when you come in today, what do you do? first, we are encouraging clients to dust off hedging plans. hedging has been something that

has been out of favor thomas certainly see the balance of 2017 which saw one of the lowest volatility environments we have seen in 50 years in the s&p 500. during those times, you get a little lazy and forget that risk can occur all at once. we have expertise in helping people use options based hedging. it is time to start looking at ,hings like vix call spreads receiver options on treasuries, which is effectively betting that duration to treasury yields will rally in a risk off, which is what they are doing today. those have been very cheap hedges to own. they have not been affected because the market has been effectively going up. my risk antenna is up. crossare a number of current right now. italy is one and the rising dollar and the threat it imposing to emerging markets is another.

you have to pay close attention. david: you hedge with options when affordable, but what about other sectors? do you come out of consumer discretionary and cyclicals and financials? dean: people argue late cycle and midcycle, let's call it somewhere between mid-and late. we favor cyclicals and specifically energy, which has sold off recently. our chief energy strategist has been advising clients to be long energy. it is an inflation oriented sector to be long during a late cycle. we think cyclicals are ok here. markets get volatile, you want to shift the portfolio home from the higher data to more defensive stocks. david: do you go small-cap versus large-cap? an answer ont have that. sector and size configurations

what happens is you get involved with things like momentum versus growth. there is a lot of factor orientation you have to pay attention to. dean curnutt of marco risk advisors will stay with us. alix: coming up, a deeper look at oil decline. this is bloomberg. ♪

>> this is "bloomberg daybreak.". here is what you have to know. it is risk off in every asset class. futures up 180 points.

where off those lows. s&p futures, watch the 100 day moving, below 2700 very it is a telling equities -- way 700. it is italian equities. that has reverberations among every asset class. taking a look at the bond market in italy, it is brutal. massive falling in the two-year btp, with markets up 153 basis points. you have never seen that, even in the throws of a euro crisis back in 2011. dollar index has been a safe haven as well as treasury below., with 10 years crude also rolling over the risk off, as you might see more oil come on from russia as well as saudi arabia. david: and now news from outside the business world, we turn to taylor riggs.

taylor: shinzo abe says he will meet with president trump before the planned u.s.-north korea summit. he is concerned the u.s. will nuclear disarmament deals that do not address japan's concern about north korean missiles. meanwhile, kim jong-un's right-hand man is headed for free summit talks. president trump called his visit a solid response to my letter. over in italy, populist leaders mobilizing for an early election after losing the chance to have the government. the president has asked former executives to put together an interim cabinet. general election could be held as early as september. the anti-establishment five-star movement calls for a massive protest in rome later this week. agency ise epa's ignoring its own research to relax vehicle emissions requirements. they want to review the epa's

justification for several planned rollbacks. those are a big element in the trump administration's campaign to ease environmental regulations. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg. david: this is a big week for possible tariffs, with a deadline looming for steel and aluminum its engines -- exemptions in time to get something done with nafta. we welcome dan dimicco, nucor score or chairman and ceo and now chairman of emeritus. he is acting as trade advisor to president trump. welcome, it is good to have you with bloomberg. give us a sense of where you think it ought to go. dan: good morning, david. and our position on trade and what direction it should go is

pretty clear and has been all along. the best way to sum it up is that the u.s. can no longer allow the massive one way direction in trade that we have with the world. we cannot afford it anymore. we need the world to start laying by the same roles that they agree to when they joined the wto and got trading status from the united states back in the 1990's. that includes nafta, which was an agreement that made a lot of wereses and none of them delivered. and when in the wrong direction for the u.s. worker and domestic manufacturing. it is a matter of our national interest and our economic security which directly results in whether we have national security or not. .his just needs to be undone free trade does not exist in the world. it is all managed, most of it by

government. we have managed it very badly. a massiveve disconnect between multinational corporate interests and national interests, and that needs to change. david: the way it has worked today, there are unfair trade practices. they appear not to have succeeded from your point of view. that mean, does you're going toward managed trade? we saw something back in the 1980's with japan. quotas and voluntary restraints, is that where we ought to end up as a country? dan: i think it is in our best national interest and the world's national interest for the united states to rebalance our trade situation. if that calls for a managed trade, which the rest of the world practices, nobody practices free trade. they shout it from the rooftops,

but do not practice it. we have to managed trade relationships better than we have in the past. nafta is a good example. you do not go into a trade agreement with two other countries, even though they are friendly countries, and do it in a way that you never revisit it as time goes on to see what has changed and whether it is succeeding and whether the interests of the three parties were. nafta has failed us, and with nobody to blame but ourselves. david: the goal of managed trade is to curtail imports. that is the whole point. what does that do for overall economic growth? most economists will tell you that will keep growth down and will promote growth. thatas was most things most economists have told us have been dead wrong. they are the major proponents of free trade, when we have lived in free-trade mercantilism for years.

the last president and administration to get it right on trade was reagan. unfortunately, everything he did was undone by subsequent administrations, both democratic and republican. trump is the first since reagan to understand that it is not a matter of imports being cut. it is a matter of making sure the trade that takes place is done in a non-predatory, not mercantilistic, balanced, and fairway. -- fair way. the world has developed since world war ii. andg time ago, japanese germany did not need our support, but they still get it. and now china has taken on trade mercantilism and we have a $400 billion annual trade deficit and they steal ip from us every year. alix: speaking of, if you have the u.s. cutting slack and

cutting a deal, you -- do you have any insight as to what the hardliners like yourself think about zte not run over a little bit there? dan: the president unfortunately has a lot of issues to balance. while the so-called trade hardliners are in full support of the president on a number of issues he deals with, whether it be economics or national security or north korea and so should be ae issue bargaining chip here we are concerned -- should not be a bargaining chip, and we are concerned it has become one. i am confident president trump .ive up to his promises and those who support him on trade and trade message and he will deliver on that.

he has a lot of things to deal with. north korea is one of them. david: one of the things we love about you is that you are plainspoken. did you just say the president is making a mistake on zte? dan: i have gone on the record of saying that zte does not deserve any forgiveness on our part. that i don't mean understand what the president might be trying to work out with respect to north korea and the chinese. zte is not just a proven violator of the sanctions of iran, but they have also stolen ip and helped u.s. companies be put out of business. i could care less about the 75,000 jobs in china, we have lost millions and millions of jobs to trainers -- china's trade mercantilism. you. dan dimicco, thank climbing a wall of worry.

the bloomberg could the white line is the united states geopolitical risk score. it climbs versus the yellow line is the s&p and the blue which is bloomberg dollar spot index. finallyare going to start paying attention. dean curnutt is back with us. how do you start hedging here? what will be the fallout and other asset classes if that wall of worry can be no longer the dollar almost behaves as an international vix. a rising dollar is not good for risk assets. it makes sales from the united states into other countries more expensive. it crimps international sales. is a risk for emerging markets. we have seen fragility in places like argentina and turkey. it is broader than those two, which are idiosyncratic issues

themselves. the rising dollar is one area to worry about. populismalked about and it has been something to fade over time. as i said earlier, the force has moved higher in italian bond yields and lower in bank stocks and that is something to watch carefully. is put have tried to do people into hedges that don't consume too much premium during the time you way it. it.you weigh stay focusedlt to on hedging when markets are gliding softly higher. we started to do trades like vix options. you could do trades where you sell an option on the vix to fund a call spread. what are you doing there? you are betting that the vix will go up in the call spread

will pay you nicely if volatility pops as it has today. , you areg the put defraying the cost and that is critical. it keith -- keeps you live during the. period. that is what happens in hedging, the quiet periods are difficult. you are financing a lot of the call. we have made the bet that there is a new floor to the vix. we don't see a return of nine handle vix. we see 13 as a reasonable comfortable level. never say never in markets. we see enough crosscurrents, whether it is negotiations with north korea, china, the iran deal, what is now bubbling in italy. there are enough thing to worry about what we do not see the return of the vix anywhere near the single digits.

we could see something around 12 or 13. selling a 13 strike foot to fund the call spread is a useful way of hedging. we think it will become increasingly important to focus on hedging. touch on commodities. we have seen commodity volatility. you do like energy. if we see crude well over -- roll over, what's the due for energy? dan: we did a lot of institutional accounts. what we are left with as chris presented his lush energy call that thepable feeling u.s. equity markets community is underinvested from a sector allocation standpoint to crude. it takes them a wild to catch up. when they decide to reallocate, it is names like exxon that they

need to buy. we started to recommend things like call spreads. nothing fancy, but things like july call spreads, as a placeholder to start to reallocate to the specter. go,d: before i let you you've had news involving macro risk advisor since we last saw you. it is your charity day. what is it and what happened? dan: once a year we work with clients in conjunction with clients to raise money for causes that we as a team have gotten behind. we supported veterans and children's education. this year, we supported children's health. five charities, and we pick a single day and really try to rally with clients around these thees, and we donate all of stock and option commissions that are generated that day to the five causes we have chosen. we are really proud of it. over the course of the six days, we have raised nearly $2

million. this year we supported five causes. the chief recipient was an incredible organization. this is the only independent children's hospital in new york state treating some of the most complex medically fragile patients. school on they have a site at the hospital because some of the patients are there for a long time. it is an amazing organization. david: we just put up those charities. thank you so much dean curnutt of mesko risk advisors. financial a potential crisis warning pair we take a look at george soros' call on the washington beat. lisa abramowicz joins the conversation on bloomberg surveillance from 9:00 until 10:00. "bloomberg surveillance" can be heard in new york, boston, the bay area, washington, d.c., and all across the united states on

sirius xm radio. live from new york, this is bloomberg. ♪

taylor: this is "bloomberg daybreak."." i'm taylor riggs in the hewlett-packard enterprise green room. coming up, the head of commodities research. ♪ we cover three things on the wall street the. first up, george soros' crisis, warning noble risks are paving the way for a crisis. $2.3 billion comes back to shareholders.

blackstone makes a pitch to be ultra-wealthy hedge funds and avoid paying taxes forever. david: sounds good to me. collins.s is peggy george soros is saying that we may be on the cusp of a great financial crisis. this is not the first time he has warned this. investor made it as an in the early 1990's when he wagered against the pound. he is back again with his somber tone when it comes to europe. he is saying they are in the middle of a crisis, pointing to things like italy and focusing on a refugee crisis and the fact that countries should potentially have a volunteer system in terms of refugees heard they should be able to decide where they go and countries should have more power over they accept. interesting, a marshall plan of an idea for africa he mentioned in his speech in paris, where he

also pointed to that as potentially some of the float into the european union. david: he really is concerned about the breakdown of the atlantic alliance which has been in place since world war ii. he has been an advocate for many years. peggy: he also pointed to brexit as a major problem for the european union and also talked about the fact that he thinks countries within the european union should not have to join the single currency, another hot button issue. we are seeing strikes in italy. the words he says, he is not wrong. there is a crisis. you don't know about a baking -- banking union for the eurozone. whether or not the mark: a price that and is a story. macron and rep. latta: gold the other way. and italy wants out. peggy: he is pointing to some of the populists rise and tying it

to the crisis in europe. alix: let's go to the next topic. weighing in on the sales of the unit. >> the dispute over whether we were material, we would love to continue managing with money going forward. overe also in discussion material. it is not gone yet. alix: do they get to keep the mandates and the money? contest. is an open they are putting themselves forward and making a great pitch or so they hope. one of the most interesting wasgs is that standard life one of the biggest managers. they are going for scale, but

there are some problems going for scale. it is great that you think you can be walmart or amazon, but you have conflict of interest with clients or you are competing against them as they are juggling now. david: the third story, avoiding taxes. blackstone group has an enticing pitch to the ultra wealthy -- investing hedge funds and avoid paying taxes. that is pretty enticing. peggy: it is a complicated product around and is legal. what we are starting to see is a lot more hedge fund managers trying to set up funds to get into these products and private players ares -- defined. it is a strategy for minimizing your tax hit. your money is locked up in an insurance policy. you can potentially take loans,. alix: is netlike long-term

insurance that you can use as a disability or cash or get paid out. is that what it is? david: it is basically saying you will take out a life insurance policies that will be paid to my heirs. but you can make money until you die and there is no tax on it and it goes to your heirs. alix: it's like a hedge fund putting it out there. david: it is saying here is a hedge fund and this is my life insurance policy. peggy: they are short-term traders and heading those bets. it can be beneficial for tax purposes. alix: interesting. david: think about that. peggy collins, great to have you. coming up, u.k. treasury first the bank of and runs -- make of england. more on what i am watching, that. alix: check out tv . watch us online and on our charts and interact with us

directly. this is bloomberg. ♪

david: this is what i am watching. a fascinating story. the financial times reports that in the u.k. isd against going against the bank ofengland over the question how much say the bank of england will have an regulatory issues after brexit. they said we will go along and that will be fine, that the bank of england will have a big say. the eu says not so much. if you are integrated and get to participate in europe, you have to take our rules. as mark is saying, we will not be a will take her. er.tak david: jay powell saying it was so detrimental.

the ft has several sources they quote explicitly saying they are at loggerheads as they put it in real trouble brewing. alix: that is like the u.k. version -- they are not happy. coming up, a risk off feel to the market across the board. wealth management sales will be joining us. andikes the brazilian risking against oil markets. dow jones futures down. it is the selloff and btp's taking the market's attention. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. italy's political crisis

means the prime minister stein stepping a coalition. traders dump risk appeared sell now, ask questions later. money pouring out of debt. where do go to hide? get pumped. saudi arabia and russia are likely to boost oil to offset prices. "bloombergome to daybreak." i'm david westin. what do you have? alix: let's take a quick snapshot of where we are in the market. features are quite .6%. shorten trading week as well as yesterday's light trading. euro-dollar up 6/10 of 1%. where all the euro bulls who are seeing 130.

how much downside are you seeing? do we get that same kind of downside today during this next crisis? talk about the big move. 149 basis point is how much we have added to the two-year yield over in italy as the btp selloff continues. much change as you would've thought. crude down the mosys session by almost 1.5%. time for the morning brief. a shortened but eventful week. tomorrow, a second read on gdp and core growth for the first quarter. on thursday, personal income and spending. on friday, jobs day. we learn how many jobs the u.s. added last month and how much wages came up. italy -- alix: in italy, here is what we hear.

that west never forget are only ever a few short steps away from serious risk of losing the irreplaceable asset of trust. the trust and strength of our country, which aside from petty and a tenable judgment and considering the need to fill our delays is great from economic and civic perspectives. alix: former, bloomberg italian government what do we see in the last 24 hours and what do we need to know ahead of elections in the autumn? market street a sigh of relief when they formed the government because the president vetoed the finance minister but the new government which is , we have a former imf official who will work back with a list of ministers.

this will happen quickly. this is practically dead on meanal because it will parliamentary elections as early as september on it or path against the establishment. alix: does that equate to the league and five-star teaming up? >> the man to watch is the head of the league. he used to be with the sender right alliance. and sunday for a government contract with the five-star movement. so in the election campaign, does he a with five-star? does he go back to berlusconi? that will play key on the establishment movement in europe. lisa erickson now

who is the u.s. bank wealth management and with us here in new york is a michael mckee. that showshart here going back to 1994. and we haven't been close to this high since 1994. what does that tell investors about europe or wrist assets generally? lisa: you see a dormant risk now coming back into the for and it is affecting investor sentiment. riskwe see really is the off move because people are uncertain. is this the beginning of the populist skating more control? is,d: the way the reporting we will probably know the answer not for several months, it appears?

key: there are three impacts of the development in italy. a lot of question of geopolitical development. with this kind of uncertainty, investors hate uncertain team. continue to see more movement in the markets up and down. and a second key impacts is that as this continues to develop, potentially more impact on bond deals as you noted. that we gaintent momentum moving towards wider momentum is going to rachel the fixed income markets. and correspondingly, the equity markets. they are based on relative valuations. and the third against impact is the euro. should there be skepticism over whether the euro and european union can last.

oft is going to up the level risk in investors mind. alix: that is what george soros had to say. the -- alix: we don't have the sound. anyway. he was warning of a potential crisis. this is the boone ten-year spread versus germany spread and we are not seeing the contagion. ?t is only 130 basis points italy has a political crisis which has led to a markets crisis but we have spillover effects now. do they last, that is the question. we don't know whether contagion will make it into the euro crisis and how central banks will respond.

there never but the framework in place for the fiscal union that is needed and a lot of people say this could expose the also haved we backstops in place. european stability mechanism. that could also contain the crisis. the last will depend on how this plays out over the last couple of weeks in italy. how do the parties aligned? if they wind up allies with ther natural allies and head of the five-star movement, their premier candidate said today that we never envisage this is ae euro and

misunderstanding. so if they walk back from the -- if it teams like it could be a long-term problem then you have an issue. what you do credit said as well. that markets are overpricing the risk. italiane have the situation and let's talk about the question of possible contagion. let's bring it back. italian fallout. andave seen spanish portuguese bonds. there will whether be contagion or not? how do you judge that? lisa: and geopolitical involvement, they are difficult to handicap. so as far as watching the development, there are three key things that we are focusing on. in terms of fundamentals, while

-- slownessow lists , at least you have the fundamental base. the reason why you see some spike in yields but not to the level what we saw in 2011 and when some of the heels of the peripheral countries went up by 7% is because we have a stable fundamental base. certainly, sentiment will be important to monitor. a fixedy what we see is more -- is a bit more of a mixed bag. alix: mr. scissors. love that. isn't that his nickname for a while? fieldsup, futures and

dropping as risk reemerges in the market. we take a look at the 10 year. where do you go on a day like today? sebastianthis is bloomberg. ♪

is bloomberg daybreak. ali baba is making a deal that will boost e-commerce ability to ship packages around the globe. the company is a leading investor group that is taking group.nese investor the price is $1.4 billion. and a portfolio that includes banana bread -- includes mirror

bread.- includes panera terms of the deal were not disclosed. the purchase price is $2 billion including debt. and cutting production in north america this summer. nikkei will reduce workers hours at five assembly plants by as much as 20%. earlier, they said they wanted to improve profits rather than sales growth. your bloomberg business flash. alix: i have to bring you this headline. -- greatermmer smash quitterly."

dropping below 2%, a level we haven't seen since the beginning of april. joining us now is more carefully efele.mark ha what do you do on a day like today? for us, it looks a little and what we have seen before about italy leaving the euro but that isn't what the politicians in five-star and leak say right now. alix: is this a day you would want to be buying risk? mark: we are longer-term so i don't want to say that you should be doing any specific thing, you should be sticking to your long-term plan but this makes europe look more interesting today.

david: interesting as in vulnerable? they fought hard for a finance minister who came close to leaving the euro. mark: we've talked about how europe hasn't fixed all of its problems yet. the one thing that is a vacuum out there is the ecb really doesn't want to comment while these politics are in motion. the political picture settles down, i think the ecb will come out with more forceful terms and i doubt mario draghi wants to see the end of his he doesn't want to go out like this. alix: a great point. a a broader market sense, is

day like today when you want to be buying treasuries? do you want to hedge your risk? we are at a neutral stance and we are waiting longer to watch for opportunities. when you have significant market movement like today with significant developments, it is something you want to monitor but the situation is fluid. we wouldn't advise acting right away but continue to monitor what develops. the reason we are advising investors to hold back is because you have two conflicting forces. on one side you have fundamentals looking pretty good , i'm a top-down basis or corporate earnings and that is across the globe. there are differences in absolute levels but you have that intact. on the flip side you have geopolitical developments that are hard to handicap. is a morek side, it difficult environment. we are in an environment here

have moved into monetary tightening and makes the investing backdrop more difficult. david w.: is what we are seeing simply the politics or geopolitics? with the markets not be reacting as strongly as they are? the fundamental picture is, if you look at u.s. growth, the earnings season was fantastic. we knowhe other hand that the central bank is tightening. and it will lead us to appoint where people say, hey, they will choke off the gross. and that is why volatility is back. mid-late cycle where you could get good returns from equity and a great market but

you also have to be preparing yourself for what is the next leg when the central bank tightening starts to grip. alix: no tom rice to me that james bullard overnight talked about being sensitive to the yield curve. here is what he had to say. james: in my view, i don't think the fed has to be so aggressive as to get to an inverted yield curve. than wetion was higher are today, then maybe we would go along with it but we are not in that situation. in andow do you price manage inflation? in thes we move later cycle, we think the 10 year has moved a lot. so we are overweight to 10 year. it has been a great stabilizer for us. bullardink the james

quote is interesting. it shows why he volatility is back. on one hand, you have a new f ed with people saying the u.s. economy can take higher interest rates before it rolls over and we don'trt is saying, want to take this too far, because inflation isn't getting away from us. that is what we see play out in the markets every day right now. w.: lisa erickson, thank you so much for joining us. mark haefele will be staying with us. we discussed the issues plaguing brazil next. this is bloomberg. ♪ this is bloomberg. ♪

david w.: one of the places we have seen this radically is in purcell. it has declined substantially against the dollar as you see from this chart. and the trucker strike is hitting exports hard. losing one third of the market value. still with us is mark haefele. notes, yous in your come off and overweight in the royale, what are you thinking? in theo much volatility currency that they are taking upon his. it isn't just near term but it is moving towards the election in brazil, we have some concerns. that is why we took that off in the portfolio. david w.: what about em, generally? mark: there's certainly a lot to that. the stronger dollar brings up the concerns about the death

picture in em, globally. most importanthe things is that we still see strong earnings growth for em equities with better valuations. we think em equities could do 15% earnings growth this year. overweight we stay in the em equities. alix: it feels like there are two stories playing out. the other story is idiosyncratic. stuff happening in brazil. the strikes. turkey, a battle over monetary policy and mr. code-1 -- and president erdogan. there are opportunities to play some of the idiosyncratic yous from time to time but have a current account deficits

than the current ones have less room to maneuver. in theader macro picture indices, watch out for the countries that have the deficits that don't allow them to move. david w.: what about the united states deficit and what it might do to the dollar? the dollar has been strengthening recently. have deficityou and you have to curl trail -- you have to curtail the dollar? mark: we recognize over the shorter term that the dollar has a lot of momentum into -- moment in part due to some of the america first policy. and you are absolutely right. coming from europe and spending a lot of time in asia, that is what investors are looking at. twin deficits.

the u.s. is going to do well. particularly if they add stimulus at a time of tightening. alix: to think there's a -- they euroth numbers issues? mark: that is why i think longer-term, the story will be the first one and the dollar will be we can -- will be weak again. alix: so what has upside in that? where is some of the upside? you want to play with the euro would we are waiting for a few things. the reason that the dollar probably strengthen was that european growth started to fall some of the concerns about what happened with the u.s. and

china, that weighs heavily on europe because the largest trading partner is china and what is the ecb going to do? think if we see better european growth sources danger european growth with the ecb ,oving towards the tightening that would be a great way to move towards the trends. alix: kim jong-un is sending his right-hand man to the states ahead of the summit. this is bloomberg. ♪ what's a gig of data?

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pay for data one gig at a time. and with millions of wifi hotspots included, you'll pay less for data. it's a new kind of network designed to save you money. click, call or visit a store today. alix: list is "bloomberg and futures are off by 149 points.

.5%.utures off by the damage is being done amid italian equities but it was worse earlier in the day. perhaps some buying? in other asset classes, a similar type of story. zte is taking it on the chin. someone is coming into vile little bit on the margin. came back, very optimistic. buying in the 10 year yields, only down by 10 basis points. you do have some buying, for sure. but more tempered then you would have thought. it wasn't a risk off move. i think we could have a different setup today. it's funny. optimisticis usually

and i am pessimistic. switching roles. david w.: taylor riggs has the first word news. belgian, the federal prosecutor considers a shooting attack that left four people dead a terrorist incident. a man killed two police officers and a man and a nearby vehicle. the attacker was later killed by police. china may buy more american coal in an effort to reduce trade in the trade surplus with the u.s.. according to people familiar with the matter, chinese officials are looking at increasing purchases of coal from west virginia. china urges this months to buy more. and george soros sees another global financial crisis looming. in a speech in paris, he pointed dollar and he warned that

it faces an imminent threat. that is what was first called the destruction of the alliance and -- the alliance of the eu and the u.s. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. david w.: this is a sign that the on-again, off-again summit may be on again. trump got on twitter this morning to say that they have put a great team together to withthe talks in -- talks north korea. the institution director of research. have you today. i don't remember this much drama about whether or not there would be a summit before.

are we watching the negotiations play out? >> negotiations of already begun. questioning ofa what the word denuclearization really means. and in a sense, this was topsy-turvy but better than having these kinds of disagreements surface only in the singapore summit. because you could have had a it hadophic rake down if happened at that time when everyone had met with great expectations and both people ofe -- both sides have a lot investments. so it is better that the negotiations begin now and some of it is by twitter and some of it is by calling summits on and off, that it is all starting to move in a direction that could potentially produce opportunities. david w.: it is reminiscent over

but whatof the table will that table look like? the trump administration started to get rid you have of everything before we do anything. at the other side is -- we are anything to get rid of . where will they be when they go into these negotiations? michael: i'm not going to predict success. but the natural compromise is something along the lines of capping north korean nuclear capability. gaining the ability to produce any more of the longer-range weapons or nuclear weapons. existingg any warheads, at the end of the process which could be years away. i think trump would like to have some of the warheads come out right away. but he will get that wish.

he may be able to persuade north koreans to give up some existing fraction of their weapons. but stopping them from making weapons is the first step. and the iran deal didn't permanently prevent iran from reaching -- from enriching uranium. whereas in this case he would prevent them from enriching uranium, he could say he has done better than any of his predecessors with iran or north korea. david w.: it has never just been north korea and the united states. talk to us about the significance of china? michael: china has the economic pressure. -- it has the military option. we don't have a military option. so i think it is somewhat contrived and not particularly

credible. china houses 90% of north howa's trade and that is the international community can get leverage. china is also the only ally of north korea and the degree to which that alliance means anything fluctuates. but china has the extraordinary amount of leverage and south korea is the number one player of all because they live in the neighborhood and they had half of their population in artillery range. -- and as part out you point out, japan and other members of the talks, i don't think they will play quite a prominent role in the talks this time. in canadauld bring who is a neighbor and neutral party, a party able to have a different approach than the rest. so those are key.

but china and south korea along with united states and north korea who are central in this. david w.: michael, thank you so much for your time. michael e o'hanlon. alix: you just came back from china? how do they look at what is going on between the u.s. and korea and trade? what is the thinking? they are referring focused on their own tremendous growth more than worrying about the united states. they see themselves as leaders in biotech and things. isthere perspective different than that of the united states. but when you come down to this issue, one of the most important is sitting at the table and what shape is and to use some of the language going back to that kissinger error, the all talk about, should we think about the madman nearly

when we talk about the president? but i think that is linkage. linkedthese events are together. and what we see play out in korea is the story of may be how u.s. and china relations work out going forward. so a good result there could bode well for u.s.-china relations globally. david w.: as you pointed out -- depends on that trade. if we moved to the summit coming init release pressure europe? saw the market move after just a few tweets. all markets are watching this because they see the broader language of how the west can engage with china and what china is willing to do to meet some demands. alix: we have seen -- we wrote whether it is

theh korea or iran and initial offering and then we backpedal. how does asia do that? how does china do that? asia don'te in assume that they understand how the united states or this president is negotiating. and that is a good thing. it is they're not going to assume that there is one methodology to deal with things. and they will be pragmatic. the other thing to realize in china is that there are so many leaders and people moving up through government to have been trained at the finest universities in the united states and europe so they have a ofe nuanced understanding thatan -- this side

then the populace. thed w.: i much rather historical precedents there. alix: great to catch up with you. that was mark haefele. coming up, russia and saudi arabia continue moving oil output. david w.: and you can turn on fromradio and listen 7:00-9:00 and lisa abramowicz will join from 9:00-10:00 which is bloomberg surveillance. you can hear it across the united states on serious xm radio. this is bloomberg. ♪

taylor: this is bloomberg daybreak and i am in the hewlett-packard price great room. coming up later today, technology -- ceo. now to the bloomberg business flash. bmthas agreed to buy software. brazil, the oil company tetra vaught is suffering the worst supply in two decades. it caused chairs to fall by more than one third. and the federation is demanding the resignation of the ceo. after $2.3 return billion to managers.

standard life will use money to .uy back stock -- losses after opec and partners say they may boost supply. you can see that here. and ministers from the uae plan to discuss the proposal to boost output. joining us now is ed morse. we booked you before we even knew this was the headline. what is your best case for what opec will do with russia? bring it back but the question is, how much and how soon? russian said again today that they want to do this on a proportional basis. seen this a client for

less permanent reasons. there only a few who can bring oil back. the uae, saudi, kuwait and russia. it may be a lot of screaming at one another in the meeting. alix: with the energy minister in russia, here's what he had to say. saying we always been could have an annual price is in this range now at $55-$60. $55? $67? that $60 was a good number and he is right. depreciateends to with the strong correlation

between the saudi's and the oil. russians can actually get more .evenue at a lower price david w.: you say that many of the countries that are curtailing, have to. i assume you're talking about venezuela. what about iran and iraq? you didn't mention them. ed: i didn't and for good reason. they are not attracting investment from outside. sanctions hurt and even with the lifting of sanctions are not attracting investment so the terms of what they are offering is not attractive. iraq is a different story. they just had elections and whereare a prolonged time they can move production up in terms of their relations with companies. but they won't do anything in the next 90 days.

alix: two stories are emerging from this. one is what we see reflected in stock rice. it will pump production and alleviate these supply glut. but we have a particular type market right now and you have to wind up pumping. camp are you at? i'm in both camps. be sure that if you raise it will go down. on the other hand we have drilling activity taking place. look at kuwait and qa. if they reduce production million over 300

barrels a day. spare capacitys and could do this in multiple ways. iny are bringing on fields the area for quite some time. and in kuwait, they have 600,000 .arrels a day nonetheless, there is a lot of oil there. from thee reduction permian, and the gulf which is rising. yanae see production from -- from guyana. david w.:'s so who is investing? iran, places like that. who is investing down the road? ed: there is a lot of investment

taking place in the u.s. that is not bad in and of itself. we see a resurgence of deepwater. and 300 gulf of mexico barrels a day of production coming out in 2019. -- with the new discovery new production coming on in 2020. and by 2023 and will add another 400,000 barrels a day. so there is a lot of investment. opec talked about the supply gap but that is in opec. countries like venezuela and iran that are seeing production not rolling. and if you look at the rest of down forador, it is

lack of investment. alix: so the conversation for many analysts say you could be upside risk for $100. is the conversation better spent talking about $40? we see the value of tetra state. , it could happen again. it could happen in nigeria. it will last long because opec capacity,t half the it will come back and the u.s., brazilian and canadian production keeps going. rapid economica slowdown so the demand pushed on the oil price won't be there. alix: is the floor $40? or is it $50 or $60? thewe have been saying that and the soft $40

sealing is $75. .e have seen it go above $75 political risk is there. it comes and goes. and now we see low risk on the production.ith david w.: you mentioned to. where is demand right now? demand is being curtailed because of the high price of oil, is that true? did reduce their spread between the demand and the top forecast with the most optimistic demand is two a day. there is a big slug of demand. 30%-30 5% last year which came feedstock.hemical it doesn't come out of a refinery.

it comes out of natural gas liquids. so if you really think about where the demand is and you have --1.8 billion barrels a day $1.8 million barrels a day -- it is a frighteningly close to a $2 million a day number. alix: i can't let you go without asking, how why does this get and when is the problem resolved? ed: it could go up to $25. you run out of capacity. we have a lot of natural gas. we expect that to be discounted in the pricing in the permian and could potentially go to zero just have producers give it away. because the take away for gas is really very big. you can flare the gas.

180 days. not per year but 180 days. side, the production growth has been publicly greater than the take away capacity. and we see that in the spread between the crude in mid land or cushing. alix: did to catch up with you. that was ed morse from citigroup. coming up, more on what i am watching next. and if you have a bloomberg terminal, check out ttc go. you can look at the charts we use during the show. this is bloomberg. ♪ ♪

it is no supplies but what i am watching as the markets. i have a feeling we will have a huge risk off day. weller -- where will the bottom wind of going out? saying all day,

it could've been worse. i want to see how we wind up dealng, we have a risk off that we will be seeing. david w.: how may times have you seen markets overreact and then they have a chance to absorb and bounce back. maybe it isn't so dramatic. alix: but we did have energies take the lead. stepping in for jonathan ferro on bloomberg markets, the open. that does it for "bloomberg daybreak." this is bloomberg. ♪ is bloomberg. ♪

>> from new york city, i am alix steel. this is the countdown to the open.

♪ coming up, the italian routes, two year bond yields of the biggest jump on record. weighingall sentiment on global equities and boosting the demand. crude awakening. oil running for its longest run of losses as opec considers boosting its apply. in the markets -- it's su pply. euro-dollar, 115 is how we trade. do we have the kind of italian situation? the 10 year yield, but crude is rolling over with other risk assets. political upheaval in rome spurring variations across assets, and contemplating with the turmoil in italy.