manus: good morning from dubai. this is "bloomberg: daybreak europe." these are today's top stories. five-star into the league surge in europe -- in opinion polls in italy. the canadian prime minister has a message for donald trump. president moves ahead on china. stocks are in the red from the u.s. to asia. italian bond use spikes in the euro. stories are developing

across the region. we are going to have the very latest, on the ground in rome. reporters are joining us from singapore and london. straight to putting these markets in context. this is in the gtv live. it was an existential threat. year notes, the spread from yesterday. we are seeing the spreads blowing out, taking anything we have seen in the euro zone debt crisis of 2011 or 2012. sauros is saying there is a new global financial crisis. if europe in existential danger? that is a harsh reality. what might italy be forced to

ask the ecb? omt is the new acronym. it comes with rules and rewards. llar yen money -- dola money, going into yen. yen is bid. yields went down. there is the selling of bonds and yields are rising. toe s&p 500 in itself is one keep an eye on. yesterday, the biggest one-day drop since april 24. the market is now repricing for the united states, only one rate hike by the end of the year. reporter is standing by with the latest on the first word news. juliette: it's only may be

ly may be headed toward an election as early as july. does not have an agreement on the cabinet team. the president could be forced to dissolve parliament, leading to elections within 70 days. turkey is prepared to raise interest rates again if inflation accelerates. that is according to money managers who met with the central bank governor and the deputy prime minister yesterday. inflation data will be released on june 4. this could result in introducing capital control. president trump is moving at -- u.s. president donald trump is moving ahead to import billions tariffs may- that be imposed on chinese imports.

a final list could be released on june 15. the canadian prime minister has a message for donald trump on nafta. canada would rather see a trade deal die then accept high-rise demands. trudeau made the comments in an exclusive interview with bloomberg. >> i will stand up for canadian interests. i will only sign a deal that is good for canada. nafta is a bad deal if we have made that clear with a president -- no nafta over a bad deal, we have made that clear with the president. global news 24 hours a day, and at tic toc on twitter, powered by more than 2,700 journalists and analysts in over 120 countries. you can find more on the bloomberg at toc go. we are selling in the markets across asia.

weakness coming through in japan. its longest losing streak for the eighth consecutive session. chinese stocks on quite a long mscig streak ahead of the as we see contagion from europe flow through to investor sentiment. tech players have been under a bit of pressure. tencent is falling below hong kong's $400. chinese mainland investors are selling $81 million worth of shares in tencent. nintendo is rising on plans for new games to come through for its switch consuls and phones -- consoles and phones. 6%,ne bysian

regarding the alleged accusations of bribes being paid. s: italy may be headed toward a snap election as early as july in attempts to form a new government. president left a meeting without an agreement on the cabinet. another failure could force the president to dissolve his own parliament and force elections within 70 days. 500 had its worst day in five weeks. stoxx, down to levels not seen since last july. but the very future of the eurozone is not under threat. george: the harsh reality -- europe needs to do something

drastic to escape it. it needs to reinvent itself. manus: italian tier notes plunged. the nation could leave the common currency -- that is a concern. leads with the fact that the five-star and league between them have 60% ratings. is it is fueled by s refusal to grant them the right for a new government. >> there's no question that there is going to be another took -- election in italy. date beingthe new floated around, or that could extend into the fall. cotarellitioned,

left without announcing cabinet members. he might want to start an interim government -- an interim government. is not just going to be about domestic issues within italy. it is going to be more of a on the eurozone, and a referendum on italy as a call -- as a whole. markets isrisk to whether it becomes an existential risk at the heart of europe. we were talking about contagion. panic has contained itself to the u.s. you are seeing a complete repricing of what is going to happen from the federal reserve in the bond markets. annmarie: i was looking at the fed funds futures yesterday. a june hike was almost certainly

on the table, but there is some doubt creeping into the fed funds futures. this is not just about it delete or europe, this is about -- italy or europe, this is about contagion on the whole. a guest was talking about how janet yellen would factor geopolitical risk into her decision. seeill be interesting to what is happening regarding italian prices and the rest of europe, with european market selloffs and the global market, if that would affect the amount of rate rises in the united states. manus: great to have you. the dot climbs over rome. let's discuss tim hayward on the bonds market, and our mlviv

strategist. welcome. tim, in terms of the marketplace, two year notes ratchet higher. give us the view -- deja vu? are we in an existential crisis? tim: i don't think so. one of theharp call, sharpest since the euro was created. it was three times worse in the crisis, which extended from april to november. very far, but not yet as deep as that. the situation economically is as much as it ever was. the rate of change, inc. lending, is showing their reasons to be optimistic -- there are reasons to be

optimistic. but the market moves yesterday were powerful. manus: one thing we have put together is a liquidity index for the italian government bonds. this defined what went on in the marketplace yesterday. offers blew out, and that blowout you had when the two year opened at the start of lack ofwas due to a liquidity. give me a sense of the market in terms of participants. few there has been very major actors in the bond who have significantly changed their positions. quite similart is to the u.k. in terms of the foreign central bank, domestic central banks, domestic

participants, foreign individuals, etc. there has been a few fast money have -- if they would have position for a negative move in italy, they would have done well. trackingrk, you are the markets in singapore. when we hear the language being used, tie these elements together with the bids this morning. mark: the big issue investors want to understand is the political outcome. this is where it slightly differs from six years ago. the politics seem to be much worse this time around, the threat of another election could increase the size of the populace boat in the parliament -- populist vote in the parliament, unnerving people.

risk that we could have a government in italy not favorable to europe is a much better thing for investors to digest. it will take a few weeks to understand how bad it will be. we need to see more clarity. manus: one thing which came to our viewpoint yesterday was what happened with a number of the deutsche's, credit suisse, i have barclays. this is the heart of the issue, about what is currently a political crisis -- that could liquidity crisis that could really get the banks. rk: banks have to hold a lot bonds as part of their day to day business.

sector, it will hit their balance sheet straightaway or their portfolios. they cannot avoid carrying bonds on the books. they have to put their customers as well.l -- quote their customers as well. quotesill be significant coming from people who deal with them on a regular basis. it is a tricky position to be a market-maker in that kind of a situation, where things are happening quickly and you do not have a clear picture on how to read the markets. italy is still a very large market. it has effects on european markets as well. people need to find themselves. it is a murky picture for anyone doing business in europe. yesterday was straight down the middle.

i have 40 billion euros worth of bonds, short term, lasting three years, the markets are wrong. tim, what should happen from the point of of feel -- view? mario draghi said he would do whatever it takes to save the euro. are we near the point when you think the market needs to hear from the ecb? tim: i don't think so quite yet. the main part of italy, the facet most important is the country cost sovereign market -- country's sovereign market. it is huge. it has added a big swing. europe is growing reasonably well.

we emerge news as from a cold winter is that wages are going well in the public sector and private sector. there is no reason for the european economy to significantly wobble at this time. on that basis, they should be continuing their plan to produce bonds.cease i don't think they should derail from that plan. manu: one of our clients, guests, he said, bear a couple of numbers in mind. 920 3 billion is what the bank has built up over the past four years. they are the biggest loser, 442 billion euros worth of italian etb. spain is marginally behind, at

381 billion euros. shouldn't the ecb make sure these areas don't get out of hand? have made a substantial gains over the years since the market to market losses. classesook at the asset of 2018, it has been the european government bonds. maybe not italy, but the rest of performed extremely well. they have made significant profits over many years. manus: tim, thank you. he stays with us, and our thanks to our cohort on the mliv team. juliette saly standing by. kkr has agreed to buy information technology management provided bmc software. 8.3deal is worth about million dollars, including debt.

from an buy bmc investment group. royce holdings is expecting a sharp rise in the number of dream miners being talks withcause of the maker of its turbines. this comes ahead of mandated inspections at the power unit due to a durability problem. the number of dream miners is isected to -- dreamliners expected to peak at 50 from the current level of 35. fernandez and other officials are being investigated for andgedly taking rides influencing local policy as a result. middlemen to sway government officials on

aviation, allegedly. a spokeswoman says he won't be available until june for comment. nintendo stock is rising amid news that new pokemon products will be released for the switch and smart phones. games were unveiled today that are designed to capitalize on the success of the pokemon go smartphone game. in games go on sale november. bloomberg --your that is your bloomberg business flash. manus: thank you. let's listen to what some of the investors and economists have said about the italian situation over the past 24 hours. >> and delete leaving the eurozone, it is something that is overdone.

>> we are part of a large and deeply integrated economic area, whose development depends on italy. >> we cannot remain within a straitjacket by the monetary union imposed upon it. building a new government will not change the pro european approach of the italian government. calm.are very clients are calm. we are confident. us.s: tim is still with us.ael joins do we get backre

to reality -- at what juncture do we get back to reality, as the unicredit ceo said? do you think this is overdone? >> yes, to some extent the market had been priced to perfection before the election. at theongest parties moment, the leak and the five star, have a different approach to international and industrial policy than in the past. the risk of it delete leaving the euro has been blown out of proportion. this is about the industrial policy of italy, within the eu. manus: what is the risk that the five-star and the league go to the polls, and put a plank of this proposition to the people

of italy? raffaella: it is a small risk because they would lose the election. two thirds of italians do not want to leave europe. needs to be issue cast far wider than the core. if italians are drawn into an issue they do not fully agree with or understand, they reject it. either the northern leak or -- takee or m-five, if they this exit farther than their campaign, they will lose. is this something market participants and observers need to say? demolition going on at the banks. is there some discussion at your

company as to when the worst is done? youeir pre-entry points for in terms of italian government entry pointsthere re for you in terms of the thailand government debt? do you concur that this is overblown and it is not an existential moment? tim: i agree the market moves yesterday where out of -- were out of kilter with the economics. it is purely about the politics. extremes were too the and fast. i would want to understand the it -- the market more than did yesterday before reentering. this is the biggest sovereign bond market in the world. to be really tempted to go back sense ofeeds to get a

the departure, the potential departure from the euro, ex tremely bund like. the divergence between italian bonds and german bonds is stuck. manus: let's we put something to both of you -- let me put something to both of you. this might break tradition. you are suffering from groupthink. trump got elected and the united kingdom voted for brexit. repeat that? you manus: both yourself and tim are locked in your thinking within the group, lost in groupthinking. trump is elected in the united brexit, a have had number of other instances in the

political world. you are not thinking out of the box in terms of tail risks. raffaella: a fair point. but at the ada, we do conduct our own proprietary thinking. we called correctly brexit and trump, as well as daytime election results. in the near term, for market considerations, the measures of the ecb, which will have to step in to support the situation and calm things, will be a strong force to stabilize the market. i urge you to look at the european data. the middle of a soft patch in the eurozone, which plays into the minds of people, because they think the italian economy will go into the thatone in the near term,

this is just a soft patch anyway and things will improve. if i am wrong, and the northern leak and m -- league and the five star want to leave the five star want to leave the euro, the president retail.

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tokyo. yen is up, dollar is down, teh the world.fhtf potentially $50 billion worth of tariffs coming into the united states. is it a global risk off sentiment? ourill put the question to guest very shortly. president trump said he is moving ahead with the imposed tarifffs on chinese imports -- tariffs on chinese imports to curb investment. the white house said final decisions are due to be released

by june 15. nafta negotiations continue. the canadian prime minister said he would rather see nafta die altogether than accept certain hard-line u.s. demands. he spoke with our bloomberg reporter in toronto. >> we continue to believe deeply there is a win opportunity for canada, mexico, and the united states on modernizing nafta. we are continuing to work constructively with the united states and mexico to do that. we know trade is a powerful er to create opportunities and jobs in our economy. there are large segments of the country, we- as a have been working hard to make a

case for trade and demonstrate we can find progressive trade we demonstrate issues like environmental protection, gender equality, workers rights, are integral in creating the success of trade deals that create growth. think it willwill affect the summit if the u.s. slaps tariffs on this canadian deal? >> look at what the actual summit is focused on. of theis a gathering world's most advanced economies to talk about the economic challenges we have in common. the one economic challenge that is shared right across much of the developed world, how do you reassure people on the changes

we are going through in our workplaces, from automation to artificial intelligence to trade deals to globalization, however these factors going to ensure -- are these factors going to ensure the growth we create is fairly shared by everyone? there are ways to look for compromises and understand we but it to a win-win-win, have said very clear that i will stand up for canadian interests and sign a deal that is good for canada. no nafta is better than a bad deal. we have made that clear with the president. manus: has mr. trudeau been on the telephone to the brexiteers? that is what goes through my mind. tim haywood, i was listening to that and thinking, what is the

biggest market risk, tariffs or italy? what do you reckon? neither. how about that? big,er are particularly none more than the other. i know it is one day on, one day off, 50 billion the next, 75 tomorrow, what do you think neither? if neither, what? is a disconnect between the economies of the world that are doing well, emerging from a cold northern hemisphere winter, where growth is picking up again, and markets that are priced to perfection. equity markets is not my speciality, which have become quite expensive. bond markets, which still have

quite low yields, creeping inflation, credit spreads that are the tightest they have been for many years on traditional markets. these are the problems we face, not so much what is going on in italy with the politics, or tariffs, per se. manus: i like the steadfastness. take a look at this, rate hikes in the united states. this is in the gtv library. the probability of three more rate hikes drops away. looking atis only one more rate hike by the end of the year. repricing ofmatic eurodollar futures in terms of what the fed pendant. -- fed can do. we are attributing it in part to italy. correct?ct -- are we

tim: american monetary policy is not set 40 tally in -- italian reasons. monetary process towards -- points toward 2020 as being the first moment for a recession. all of the underlying economic, railroad data points to ongoing growth in the united states. if you want to borrow money, you can. there is a willingness and availability. metrics thederlying fed is paying more attention to. the difference between american interest rates and europe is alsocularly large, and with the u.s. and japan, which has worried people about the puttinghedging when american bonds back into home currencies.

sell equities, buy bonds, and it until the end 0-- of may for that to occur. will they hike more? yes, in the united states, because the economic fundamentals these are met -- deserve it. manus: we heard the voices of containment in terms of global market repercussions yesterday. you have made it very clear, , youthis incident in italy likened it to a pull and a rip ple. explain. tim: in 2018, we have had two instances of market events -- we had to be sure to fix -- the when volatility

spiked in an amazing way. a bloomberg chart showed to be changes in that metric, because -- there was a short volatility in that particular week. we did not have this multiplicative effect of things getting worse further out. there does not seem to be an awful lot of problems outside the two-year and the five-year areas of the bond market. there are not obvious signs the problems are getting worse. emerging-market currencies have weekend a bit and there have been equity declines, but they have not weekend as much as one would expect it given the strength of the dollar -- weake ned as much as one would expect, given the strength of the dollar. manus: tim, you stay with the

daybreak team. banks have been among the worst cases for fears among exposure. there were limited losses and trade yesterday regarding credit. we have a bank analyst joining us now. we spoke to the unicredit ceo. he said he is comfortable with his btp exposure. >> his message was very telling, in a sea of uncertainty. ks, theue is the ban reason why they are so sensitive to what is happening in the bond is because they own around $350 billion of italian sovereign bonds.

around 10% of their total assets. this is a large exposure, and any movement in the bond market is going to affect them. that willtwo things affect italian banks. one is the impact on capital. equity tier one ratio is linked to the market of the bonds. when italian banks are still cleaning out their balance sheet, this impact on capital is not welcome. somehow, the valuation has reflected this impact. there is also a further, more longer term impact, the cost of funding. these banks will have to come back to market again, in a

normal fashion, wholesale funding. this is an ongoing issue. the sovereign situation -- manus: can i ask you -- one of the things the market wants to understand, you talk about the market to market valuation index, btp, the relationship that will have on the capital, but the nonperforming loans, there is this issue within the italian banks. how does this affect the reduction in npl? >> there is some impact and risk. dynamic of the mpl reduction is not connected with a bond market. deal with more longer-term dynamics in the economy.

the issue with the mpl is that renewalre -- one is the of the government guarantee on the less risky part of the s these guarantees were invented by the italian government as a way to kickstart the secondary market for nps. it was pretty successful. 24had multi-capacity, but we stillt, have around 20 billion, instead of the bank of the epm, and all of this securitization in the pipeline. they are not secured yet. we need to have a little bit more certainty about what is going to happen wtih this -- wi th this renewal.

if we do not have a government in place, this is a real issue. manus: that is the real risk in terms of the balance sheet. great analytics, every day, marta bastoni. bloomberg users can interact with all of the charts and everything we show on gtv go. browse the recent features and catch up on the analysis for your own use. , the secretary-general of the ocd is in paris. will he mention the word bazooka? chief of staff to the italian minister of the economy ask 9:00 a.m.. this is bloomberg. ♪ manus: the second day of the

oecd forum in paris. emmanuel macron and wilbur ross will be in attendance. paris,et straight to with angel guria. great to see you this morning. i will get to the economic outlook, but i can't not start with italy. soros warns of an existential crisis in europe. do you agree? angel: no. is verymr. cotorelli well-known and respected and a seasoned economic operator. he will take care of the government. , until theod hands

new elections. on the other hand, they have been dealing with nonperforming loans with the banks. that is being done. they have capitalized the larger banks. we are looking at this sequence of things. the italians are the best in terms of these transitions. manus: we heard from the central bank leader. was, how close it to me losing international trust. when you see the political dongling going on in italy, you feel that undermines the market trust in italy, as we

have seen with the government bond route? took sevendutch months to form a government. the germans took five months. unexpectedratherd results of a number of elections around the world. is the marketing reaction. some would have liked to see different results, but that always happens in a democracy. you have different opinions. it has been a very exemplary leadership of president matarella, who has really tried to instill some sense of process be arder in what seems to rather turbulent time. manus: now, many years ago, we

sat down in london during the crisis. au said the ecb needs to show bazooka, the phrase you used during the interview. angle inical crisis italy is not a financial crisis thus far. should the ecb come to the market and the structure try and intervene? -- and at this juncture try and intervene? angel: we cannot react on fundamental structural policy , to link the ups and downs of the market with the day-to-day political situation. it is changing from one moment to the next. you settle down and take more definitive solutions. ecb has lent an invaluable

service to the creation of the european economies and will continue to do so. manus: did matarella do the right thing i rejection the election bodies' choice of finance minister? and putd democracy another technocrat in place that yields the will of northern europe. giannis is a good friend, but i respectfully disagree with him. this is the difference between someone doing a job, and a real leader. about theconsequences things that normally would have to be rubberstamped. you take a decision.

this is what he did. manus: you have your report coming out a little bit later on, i tonight 30 a.m. -- at 9:30 a.m. people are telling me there is a straight of recovery in europe. -- strength of recovery in europe. give me the top line on the reports. it is not a very great mystery. we are going to show is that growth in the world is scratching the 4% level. probably going to stay around the 4% level next year, which is good news. we were at 4% -- it has taken 10

years to get back to where we were. issues, weelative employmentlebrating in most countries that is better than it was before the crisis. markets are running out of monetary policy and fiscal policy room. let us focus on the question of structural change. and there seems to be some fatigue to structural policies. this is indispensable to underpin recovery. should be a continuing of structural change policies. ands: you have wilbur ross emmanuel macron to talk to during your coffee break. what be saying to secretary ross?

america is ready to impose $50 billion worth of new carrots on chinese imports to the united states. what will you be saying to secretary ross in regards to that conversation? happy they are coming to the oecd, but when it comes to secretary ross, we will have a bilateral with him. we have been saying again and again, there are multilateral solutions, multilateral avenues for solutions. in the case of steel and aluminum, the object of these discussions about tariffs, this , a globald by the g20 forum on still excess capacity. the g20.confirmed in we should give these instances a chance to see if we can deal

with these substances, otherwise you will be dealing only with the question of tariffs as lower cap -- as overcapacity, but not with overcapacity itself, the source of the problem. let's give these multilateral solutions a chance, first. gurria, have a great roundtable there at the oecd. what a wonderful setting, in paris. thank you for your time. tim haywood was listening to that conversation. angel makes the point quite clearly that it is all about structural reform. a great mind, he broadcom to the market -- brought calm to the market. do offerffs

opportunities within the sectors. some countries will do well and other countries will do badly. angel. iwtwith the economic growth is starting to shine through, for workers. a job in many countries, you are now able to get one. there does not seem to be any particular poll -- pull of labor. it is large, well-educated, seeking jobs and unable to find them, that is a change from where we were 10 years ago. manus: tim, thank you for being with us this morning, investment director at gam. it is all about italy. facing an existential crisis, according to angel gurri

a. we are facing a showdown. italy faces a showdown. there is a bond option today in italy. would you buy italian government bonds? ♪

manus: good morning from dubai. i am many -- manus cranny. these are today's top stories. populist onslaught, the country should be set for a snap election as early as july. five-star and lead surge in new opinion polls. contradiction -- conversation, the prime minister tells bloomberg no deal is better than a bad deal as the u.s. president moves ahead with tariffs on china. markets in turmoil. u.s.s are in the red from to asia as investors flee risky now on theused italian debt option.

the worst is over for italy. with many of these stories developing around the world, we have our troops in position. and recording his life in rome -- anne marie is in rome. we have mark cranfield from singapore in london. we have our guest post from vanguard. let's get you did these markets. we are waiting for indonesia to drop their data in terms of are they going to raise rates? we accept -- expect .25%. you are seeing a little pressure in equity markets. trumpism saying he is ready to put $50 billion worth of new tariffs out there. the league and the five-star in of thethey take 60% vote, but that is current polling. our last guest said it would never make it past the polls. you have trump and brexit,

although the data called trump and brexit. bear that in mind. futures are lower in london 11 pips, 500 points dropped off the dow yesterday. futures 20 points lower in german or. gam, tim hayward saying it is contained. let's have a look at your risk radar because i think that gives you a little of reflection. this is dollar-yen, by the end, by the swiss to a certain extent. you are looking at a moderate move. .esterday, we were using panic there was panic when the two-year notes open. breaking news coming in from rbf. we will get back to markets in a second. we were waiting to hear if they

would begin to sell some of their debt, but the cfo has at rbs. as the cfo the question is when will the government begin to divest themselves of those positions in rbs? we are seeing ross mcewan still there, you and stephenson, he goes and in terms of participation on the board. he leaves the board at rbs. that is the cfo. yen is bid, tenure futures are coming back a little. let's look at the bond market. i have squeezed it down in terms of duration. the two-year government bonds in italy. despite what you saw in terms of yield. the yield ratcheting higher yesterday in italy. was the language our

interviewee used. we are seeing the follow-through on that price, yields will be higher. this is two-year government ons in germany. the message from germany, put your house in order italy. you are seeing a drop back in price on the u.s. 2-year note. those are your markets. those are your bonds. juliette saly has your first word news. headede: italy may be toward snap elections as early as july after the latest attempt to form a government saw the premier designate leave a meeting with the president without an agreement on a cabinet team. -- will meet the head of state again today and could force the president to dissolve parliament, leading to elections within 60 to 70 days. turkey is prepared to raise interest rates again if

inflation accelerates according to two money managers at -- who met the central bank governor and the deputy prime minister. sayingted officials as further tightening would depend on may inflation data to be released june 4 and the nation will resort to introducing capital controls. said he isp has moving ahead with plans to impose tariffs on $50 billion of chinese imports and curbing technology.ensitive a final list of targeted imports will be released by june 5 according to the white house and the tariffs will be imposed shortly thereafter. specific thet administration has been about the timing of the duties to take effect. canada's prime minister has a message for donald trump on nafta. trade would rather see a deal died altogether than accept certain hard-line demands. justin trudeau made the comments in interview with bloomberg ahead of the g7 summit that

canada will hold next week. >> i will stand up for canadian interest. i will only sign a deal that is nafta iscanada and no better than a bad deal, and we have made that very clear with the president. manus: global news 24 hours a day, on air and tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. find more stories on the bloomberg at top . no surprise that we are seeing that can agent europe flow-through into asia get again today. the nikkei closing down by 1.6%. has had thetopix longest losing streak since july 2012. every market coming under pressure. australia lower by .5%. financials, bearing the brunt of the selling across the region. specific stocks we have been

watching, there have been a lot of gains in indonesian coal stocks today. winning the rate decision from bank of indonesia. look at the coal stocks in jakarta, up i-24 .5 percent. and analysts know coming through saying you could see a lot of demand for these stocks as china has plans to push coal prices higher. over the weekend heard the new malaysian prime minister was going to scrap the proposed rail link between kuala lumpur and singapore. a lot of stocks were closed yesterday being sold today. nintendo up in tokyo on the back to unveily pokemon new games across the switch consoles and a lot of those phones. manus: thank you, juliette saly in singapore. the markets are up and running. one thing i said in the headlines, we have two-year notes in italy opening down 25

pips, 106.91. look at tenure btp's as well -- 10-year btp's. guest says this is not the next essential crisis. we haven't heard from the ecb and nor should we according to guest. the dead office will issue paper today. five-year bonds, two point 25 billion of 10 year bonds and 2 billion of 2025 floating rate notes. our last outing was 5.5 billion euros worth of bills. only the brave travel and by italy -- buy italy. there are dark clouds over the rome skyline. it has brightened up. maybe that is telling us about today's market action. how are the politics looking? i am also focused on

that bond market. it tests the appetite for italy's that this morning. the 10 year notes will be in focus. the bidding deadline is 10:00 a.m. london time and the next half-hour, we will get the results. yesterday sales managed to cover the lowest ratio since 2010. some people are questioning if there is a bright side? will some use the opportunity to buy in larger sizes than foreign secondary markets? is the worst over for italy's bond markets? this option will give us a little insight into what investors are thinking in italian bonds. manus: it could be. through the opening statements of futures prices under the paper coming into the cash market, looking at two-year yields, they are declining. you might see that little bit of hedging coming through. , it ise interview i had

too soon to step in the market. we have had some polls, i had a conversation that said italy would not their vote themselves out of the euro. the risk is this, we have an early election. good or bad for italy and the markets? it certainly is almost positive there will be an early election. he will go to the president's office again today. yesterday, he failed to leave a cabinet. when he goes today, he will either get a mandate, but in parliament, he will likely parliament -- no vote. it is almost certain italy will face an election. the timing is in question. many say as early as july. we thought it could be september, a local newspaper was saying the president does not want a midsummer election

because he wants the budget to get done. italy has a budget due in september. he wants the summer to be focused on the budget. if there are elections, there will be all politics. not the budget. he is an outlier here. even the democratic party wants election sooner. the problem in july is investors , and even citizens here ask, what will change? july is almost a month away. what would change if elections are in july? one thing is for certain for investors, this is a de facto referendum on italy's place in the eurozone. manus: yep, it sure is. annemarie, great job getting to italy overnight. let's bring into the italian atry, the senior economist vanguard services. i am also joined by my mliv

colleague, mark cranfield. futures are lower, bdp futures, two-year, but we are seeing yields come down two point 83%. today's -- 2.83%. is it a litmus test? i think it is too early to call it that. mark: it is a very short-term test. the auction today will probably go ok. yields are raised in the last week. the domestic buyers in italy will probably support the auction and it is not particularly big. it can be absorbed by the market. and we will probably see some calming down today carried yesterday was an extraordinary day in the bond market. we will likely see a little stability once the auction is out of the way later today. the politics will go on for some time and that is what is bothering investors.

until we get some clarity on who is going to be forming the government in italy and when can we see a proper government? those questions will take some time. today, butt relief there is a larger story playing out in italy. manus: it certainly is. let's take you to our guest in london. good to see you this morning. thatated a chart personifies the risk we had in markets yesterday. ing said it was deja vu. this is the two-year, one-day surge. it was reminiscent of 2011. we moved 140 bips. we are seeing a new global financial business -- crisis re--- agree oran disagree? alexis: the market is worried about a couple of big risks. it how you and credit risks, reflected with future volatility. also, the risk of a potential it

how you an exit from the euro. on both of those, the risk remains low, but clearly, given skeptictions of two parties in italy, there are more risks about both of those. the market is trying to price that in and having a difficult time pricing two very uncertain events. -- was with us yesterday and his big point from an economics point of view was italy was constrained in a straitjacket of the euro. agonyt had 20 years of and the only way out for them was to exit the euro. what is any veracity in being said? rich countryry doing quite well, but it should be doing an awful lot better and the only way to do an awful lot better is to exit the euro. ofxis: we have seen signs

improvement across the eurozone, including italy in recent years. if we think back to the depths of the sovereign debt crisis, italy was in worse shape. it has been a painful adjustment for some countries to become a member of the euro because there is no longer the exchange rate flexibility. adjustment has to happen internally. it has been a tough time and pile on the austerity that was implemented after the financial crisis. i think we are seeing light at the end of the tunnel and that is reflect did if you look at these periphery countries around euro membership, they tend to be more optimistic about the future. inse countries need to hang for a few more years and i don't necessarily think exit is the right outcome. that could be even more painful. -- politicst wonder doesn't give you three years to get your act together.

a five star -- if five star and the league go to the polls with a proposition, the rest of the euro had better hope the audience vote to stay in the euro. i am looking at yen and euro dollar, and then on the cross. we are seeing a pretty nice turnaround. we saw the euro dropped by 2.25%, we are bid this morning. we saw havens bid in asia overnight. we took a foot off the gas for now. euro-yen is the classic macro trade for hedging across all markets. it is bound to get a little relief. if we sensed today is not going to be as bad for the italian bond market, it is not surprising if euro-yen goes higher. it is in a pretty severe downtrend and as soon as more bad news on italy or spain going for their no-confidence vote, euro-yen will probably continue on its downtrend.

the yen is probably the best of the haven currencies. the swiss has lost some value as a haven. people will go back to the yen and it may have relief today, but for now, it is the preferred choice of most read don't forget that japan is the biggest international creditor. when money moves, more moves to japan than any other countries. -- japanese are probably doing that right now. manus: mark, thank you. mark cranfield, or analyst from the mliv team. there is some of yet bloomberg who says, you are the pros. alexis gray from vanguard stays with us. she is part of the professional team that analyzes markets. the former ecb director, general of market operations joins us at 9:30 a.m. u.k. time. he can explain the rules associated with omt. never used, never tested yet. this is bloomberg. ♪

manus: it has just gone 10:20 a.m. here, 7:20 a.m. in london. are seeing a drop in yield in government bonds, rise in price in the cash market. we have a big auction coming to the market today. over the past five days, you can see the exponential move yesterday, reversing that. that offers bringing paper to the market today. are you brave? is liquidity a concern for you? that was the concern yesterday. so, you are seeing quite a move in the short and this morning as we go to the market. euro stoxx 50, turned it around.

up by 1/8 of a percent. let's see the banks as btp's rally. will that give shoring up to the banks that we saw battered yesterday? euro-yen, one for the pros. lost --res, the dow yesterday. sinceggest one-day drop april 24. the market in the u.s. is pricing in one rate hike. does that mean we have containment and no contagion? juliette saly has the latest from singapore. juliette: kkr has agreed to buy information technology management provider bnc profit -- software. the deal is worth about $8.3 billion, including debt. kkr will buy them from an investor group led by golden gate capital insight venture

partners and elliott management. nintendo is bringing together the magnetic appeal of pokemon to smartphones and the switch console in an interlinked gaming experience. pokemon let's go pikachu was unveiled by the kyoto-based videogame maker. they are capitalizing on the success of the smartphone game and solid sales for the switch tablet hype or gaming machine. the two new games go on sale in november. that is your bloomberg business flash. manus: thank you, juliet. moving on from italy, treasuries have gained as investors seek safe haven assets. you have just seen u.s. futures prices on the bonds come back as we saw with the european side. alexis gray is the vanguard asset services. we have just seen this moment of her pre--- reprieve.

that the ecb needs to address the market concerns in the coming weeks. part of that, they should take a more dovish stance on the path of future monetary policy. why? alexis: at the moment with all the volatility in the market, the risk is that starts to seep into the real economy and that is what the ecb needs to address. do they see service slowdown in growth momentum? the growth figures out of the eurozone were already somewhat weaker. that may be thought exacerbated by poor weather, but the second quarter activity numbers haven't rebounded. the ecb needs to make some comment on how markets might be affecting the real economy. back: i suppose that comes to the negative feedback loop, and that takes time. we have seen that time and again

between the actual storm and the reality of data. with that in mind, how much slippage would you expect in rate hikes? we had a guest from credit theye yesterday saying thought the ecb would be able to go for rate hikes before the end of the year. that as a possibility, or how far in the distance is the? doubt we very much will see interest rate hikes in the eurozone this year. tv programll has a in place and has made suggestions they would like to end qb before considering doing anything but interest rates. we need to see the qe program year,up by the end of the unless the economy starts to slow down into the end of the year. the ecb -- the extension of qe is tricky because there is a lack of bonds to purchase. there are constraints because of

t andand issue limits -- issue limits. muchcb doesn't have ammunition left if they need to ramp up next year. -- the the-based case base case, qe ends this year. manus: alexis, thank you. , senior economist at vanguard asset services. she will continue her conversation on bloomberg radio shortly. i want to give you a snapshot of the markets because there is a lovely line from paul dobson on mliv this morning. it italian two-year yields are falling. prices are rising. 66 billion euros was wiped out in the bond market collapse yesterday. there is an auction to take place in italy, 6 billion. i will leave you with a live

shot of rome. she is intrepid. she is on the ground. and marine ho -- horden. this is bloomberg. ♪

matt: welcome to bloomberg markets: the european open. we are live from london. i am matt miller. the cash trade on this important day is less than 30 minutes away. watching italy, roiled by uncertainty the company will -- country will test investor appetite for investor notes. the political crisis sending government debt plunging