good morning. this is bloomberg daybreak. call me when you are ready. globallisenten to stocks via fears of geopolitics. that is ridiculous. an existential threat. -- i don't did we are facing an existential threat at all. e.u. braces for heavy

tariffs, as the heavy waiver from the u.s. is set to expire. stories throughout cranfield joins us from singapore and in london. philip sure is our guest for the next hour. ♪ manus: james gorman has a message for the markets. this is a baby cappucino -- italy's president say, give -- says, give me a call when you sort it out, whatever administration you put together.

cpiget the eurozone today. this is crude, a little bit slower on the markets this morning. a little bit of value is given up. the chinese was quite robust. the lira is on the move. you have something very interesting. that is not the movie wanted. -- move we wanted. reacting nicely to this containment of what is markets,in global this containment of policy and risk in italy. sming up, these eric -- the insurance manurch

joins us. juliatte: italy's president is ready to appoint a new prime minister. he is waiting on a signal from the populists. ulace. days after the anti-establishment five-star movement and the antigovernment andgue-immigrant lea walked away from forming a coalition government, the president is looking to see whether they are ready to revive it. in spain, the socialists are outing theclose to prime minister in a no-confidence vote tomorrow. bloomberg has also learned the nationalists are planning to take their lead from the catalyst.

a socialist party press officer declined to comment. is bracingn union for a trade offensive from president trump amid a report to the u.s. is imposed to impose tariffs on steel and aluminum from the bloc. he granted a reprieve to the european union, mexico, and canada for further talks to take place. to e.u. is going to try convince secretary ross for extended release. french president macron has said he is optimistic about europe's trading relationship with america. something's depend on me, some others do not. i am doing my best with what i can do.

juliette: the european union is weighing a much stronger warning on the risk of brexit talks collapsing without the deal. that is according to bloomberg sources. says britain needs to show a more detailed view as to how it intends to keep the irish border open by the time european union leaders gather at the end of june. board has taken the most concrete step yet towards vlocker --k the volcker rule, governors voted to significantly reduced compliance costs of financial firms. 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 stories on the go.mberg at top the really coming through in european and u.s. markets boosting asia today. we do have every index moving higher today, except for the indonesian-jakarta index. we had bank indonesia raising rates for a second time in as many weeks. a 10th of is up by 1%. the large-cap stocks in china are leading the recovery. having a look at stocks we are watching. energy stocks is leading the rebound, along with financials. saying hong kong could be worth four dollars 20 per share, a little bit lower than where it is at the moment.

reply answer is up by 9.4% -- 9.4%.ce is up by and goldman sachs has come through with a list of stocks they think you should be buying including a market, spirit maker. the demand from china and supply will boost this stock. there is a 20% target price from yesterday. manus: asian stocks have rebounded, following the gains in the u.s.. the italian president says he is ready to appoint a new permit or but is still waiting to hear from populist leaders about whether they will try again to form a government. a former executive is forced to wait in the wings. the morgan stanley ceo

slapped down soros'suggestion europe is at risk of breaking up. that is ridiculous. we have been dealing with us over 10 or 15 years. the average performance of the economy is much better than the individual performers of citizens in their country, which has given rise to populism. manus: for more on this story, annmarie hordern joins us from rome. we understand -- what is the ho ldup, the contention about the finance minister? is that where the real linchpin of contention is? is where thes

talks broke down on sunday with the controversial finance minister, the one the populists were asking to be appointed. -- mattarella is waiting to see if maybe there will be some other nominee in the government, but not as the commercial finance minister. mattarellahappening, is waiting for whether carlo would be the next one in mine. we're waiting for an announcement from the president's office on whether this direction -- where this direction will go. to bems like it is going a political government led by the populists, or a technocratic government. if it is a technocratic government, it was last to the summer, followed by elections. luigi is the

contentious man, the ex-bank of italy director, close to draghi and the italians, potentially in the frame from a number of markets. the markets have bounced. have both landed on the same chart. put this in context. annmarie: there is two sides to read this chart, which is why i love it as well. the highest in a year, but at probability of leaving the euro is 13%, nowhere near the 17% we saw back in the real european debt crisis in 2011. it tells two sides to be story. -- to the story.

markets are doing better, and we are not out of the woods. credit.is reviewing goldman has lowered their forecast for euro-dollar, credit suisse is renewing and says there is the potential for the ecb to back off their plan for monetary policy by the end of the year. they are putting more pressure on the euro. the markets seem to be bouncing back a bit. the italian papers reported the president is waiting on making an announcement because of the shocks we saw and how big they were on tuesday. typifies the whole thing is when you see merkel saying, europe is a promise of peace, and europe has kept its promise for seven decades, the

longest in history. euro,mmon currency, the is the best guarantee we can have at that. ordern keeps us right in rome. philip, good to see you. do you agree with james gorman, who utterly disagrees that europe is not in an existential crisis? good morning. soros'comments are overdone in you would never get a populist government between the five star and the league. to takernment could try italy out of the euro and the european union. i don't think markets are saying that. markets weret when

really stressed about a breakup of the euro back in 2012, the italian 10 year bonds were yielding about 6%, now they are somewhere around 2.5%. a differented about scale of the problem with the chart you showed earlier, that demonstrates clearly what we have is a recipe for concentration between any italian government and european union authority. don't forget the fundamentals of italy. it is relatively small. you have a big debt-gdp ratio of $130 billion. markets are concerned about fiscal policy, as well as politics. manus: as you read the blog this morning, one factor is china. we'll come back to that.

there seems to be dispute that view for now isc -- this that italy for now is contained. star is stepping back from an impeachment call. it seems as if the rhetoric has shifted throughout the week. they have not said much about their fiscal policy so far, which was always a problem. from the euro was always a style factor in the relation to fiscal policies they were proposing. that is an identity clash. you do get this five-star league government, and whether it is the finance minister they want or someone else, they will try to pursue fiscal policies which will bring them into conflict with the european union. that is when the trouble can start.

seeingthe things we are in the past couple of days is the credit rating agencies are starting to gain an interest of this. bonds in euro are bought by the ecb. byt needs to be downgraded one notch and the ecb cannot buy the bonds any longer. actual will cause damage for italy. in thegoing to be beginning of this saga and there will be a lot more bunds on the road. manus: hold that thought. this chart,ing in the spacing of the banks this week. ago toto go back a year a conversation with one of our last guests. italy was in the midst of bailing out europe, and they created the backstop. we are panicking would be the theention at the start of

week about banks, and we shouldn't, because the backstop is there, nothing to worry about. they have done that, but there is a limited amount they can do. once credit rating agencies put you under negative, you could statusinvestment-grade and the world will be getting rid of italian banks stocks. tremendous weight. it doesn't matter how big the markets are. move in onean direction in such a large amount that can overwhelm anyone. the entirely in corporate structure can go below investment grade and it can be a very serious situation. we saw that the word

santa claus. we haven't seen that since the crisis. we saw the word panic. -- the cnett's since the crisis of 2011. enter the football said it europe has kept the promise of peace since -- angela maerkel said europe has kept the promise of peace since 1945. from thelmost a plea toacto leader of europe stay together. this is desperate. i am not sure common currency is a necessary condition for world peace. certainly in terms of relative calm and peace and financial markets and european economies, there would be simms with

agreement between any new italian government and the european union. mark was talking about italian bonds just now. the italian bond and government bond market is domestic-oriented. many households invest in government bonds. one would hope there would be discipline on this new itinistration and would stop from playing too fast in terms of government spending and taxation. saw with one days market moves can do to global markets. mlviv team. our coming up, bad news for brexit. with the turmoil in italy means for the u.k. prime minister -- what the turmoil in italy means for the u.k. prime minister. this is bloomberg. ♪

9:21 in dubai, one in singapore. singapore. the global panic has abated for now. moody's has their eye on the italian banks. you couldn't see a whole different story depending on the ratings -- could see a whole story depending on the ratings. juliette: the new ceo of deutsche bank says the lender is committed to america, as the firm cuts back in some businesses there. fundamentally, the u.s. is the most important market for us, he says. employees await the outcome of

sweeping job cuts amid large-scale restructuring. google is working on an upgrade to its pixel smartphone mine for october, including a model with edge to edge screen. phonestically acclaimed have yet to make a major sales impact. google sold less iphones than apple last year. manus: juliette in singapore. the italian crisis could mean a whole host of things for a variety of world leaders. what isg understands going on in italy could only strengthen the resolve of the u.k.ates that suffers consequences for brexit.

that is if the u.k. fails to lay out its position in more details month.ils next the current perspective is that the italian turmoil will be britain's loss. >> i wouldn't disagree. there is the perception that italy could contemplate leaving general, they would want to send a signal to other member states that there is no easy way out. you could also argue being a mental of -- being a member of the single currency, italy would face any number of problems. that is if it tries to leave the european union. italy would have a number of incentives to leave the single currency. if you are concerned about the

states economy because of the uncertainty about what is youening with the dynamics, really don't want to cast off a major trading partner and you might be more inclined to get a andhtly easier trade deal not make passing out of the european union more difficult. that is the number one priority. advantageset all the of being in the european union if you are not within the european union. damage to fbi -- to fdi has it done? is it repairable in terms of the u.k.? philip: it is. i am not convinced there has been a big fall from outside britain. manus: if there hasn't been a fall, is it fair to asses?

-- assess? -- assess? a call for investment, isn't there? philip: the uncertainty about the trading arrangement between the u.k. and the european union post-brexit is uncertain. that will be playing on the minds of ceos, how much capital to commit to the united kingdom. i think this is certainly the case with british companies. when i speak to our own clients domestically, it is something they wonder about, how much to expect within great britain and how much outside. you.: thank

he stays with the daybreak team. coming up tonight, the interview with james gbullard. ♪ retail.

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manus: 9:30 a.m. in dubai. dollar-yen, we are seeing a little bit of a movement there. 108.69. are all the risks really ameliorated in the world? that is the question you should be asking. wilbur ross, meeting in paris, in an attempt -- he was vocal about the wto and its

anachronistic processes. vote of confidence for its prime minister. one of its parties is topping the polls, 28.6%. g7, finance and development ministers and central bank governors meeting. the snow is probably gone from there. the market countdown is what we are waking up to. is there concerns over italy's? the bottom -- broader eurozone story. a morgan stanley -- the morgan stanley ceo. >> the fed has been incredibly we are now down to

3.9%. the trend wages are not picking up. a slightly modest inflation of wages. getave taken this long to this far, not far at all. rates are still at historic lows. all the fed is trying to do is get back to a normal rate environment. this is if and when the next crisis occurs, but it is also right to keep the economy and balance. the fed will raise rates for time this year -- four times this year. i don't think the last 24 hours will influence that. >> where do you see the european union in 10 years? >> i am not good at predicting rates or currencies or markets. we don't know what it will be tomorrow morning.

i think earlier this year, we were in the low to percent. we reached 3% a little while ago. i would be surprised if it was above four. yesterday, there doesn't see any move that could see the fed is slowing down. an earlyould be warning sign, but my gut is it is not. manus: the news and comments ahead of u.s.man expansion data. --t will be released today later today. when we look at what gorman just gormanimon talking 4%, saying above 3%.

ratesportant is it that move in a slow, progressive manner? that is, above the 3% level? philip: it depends on where you think a normal level of interest rate is. the fed it seems to think that the long-term equilibrium is just under 3%. the strategy at the moment seems to be fed rates move up gradually towards normal, and then see what happens, as a couple of fed members of the past few weeks have been saying. we reach neutral, we will get into a much more vigorous debate about where we should be going." if you don't think they will reach around 3% until some point we might see some

maturity on the economic cycle by then. maybe you believe this expansion is going to set the economy on fire. then you might think we need farther interest rates. at the moment it is not clear. manus: this shakes confidence. it is a barnstorming chart. the three-month average is the highest since 2001. the consumer, from this chart, is on fire. certainly. manus: philip, please carry on.

hopefully you can see the chart in consumer confidence. philip: very much so. it is encouraging in terms of the pace of consumer spending. this is not a perfect guide. if you match the consumer confidence measures against consumption, this is certainly very encouraging. -- is one reason why we could very well see for interest rate increases in 2018, and possibly a couple more open next year. spending was driving the economy forward and the risk of fiscal policy will add to that, rather than attract from it. there could be a continuation of the fed hikes for a while

longer. manus: we were expecting the core to drop moderately -- call to drop moderately. of what thelinchpin federal reserve thinks is the guiding light. credit today and tomorrow temper oday and -- could t tomorrow temper the four rate hikes seen for 2018? hilip: the measure of inflation objectives is around 2% at the moment. the fed could face a loss of monetary policy strategy of according to what it thinks the labor market is going to do. i think the bigger picture is the economy is growing strongly. productivity is particularly

encouraging. you are likely to see further unemployment, some pressure -- on wages. pressuret degree of which is going to impart determine the extent to which the fed continues to tighten policy. philip, chief economist, thank yo for being with usu. if you are a bloomberg user, interact with the charts. catch up on the television, as well as on tv . the e.u. braces for a trade offensive from the u.s. the deadline approaches from president trump on tariffs.

later, we have the zurich insurance group ceo for an exclusive interview. this is bloomberg. ♪

us: 1:42 a.m. in new york. 9:42 a.m. in downtown dubai. market in the united states? saly.go to juliette juliette: the deutsche bank ceo has said he is committed to america, seeking to dispel rumors to the contrary after several firms have left the region.

he says fundamentally the u.s. is the most important market, and these comments come as employees await the outcome of sweeping job cuts due to restructuring. finance chief at barclays investment bank, one of the firm's most senior female investment executives has left the company. she resigned earlier this month and her duties have temporary -- by therily been taken on finance director she previously reported tale. she joined the london-based bank in 2016 after spending more than two decades of j.p. morgan. jpmorgan. buffett proposed investing more than $3 billion but talksis here, fell apart over the terms and size of the deal.

buffett would have effectively went over his reputation, among capital. bloomberg has been told to google is working on an upgraded pixel smart phone line for october, including a model with a nearly edge to edge screen. it is looking to make a critically acclaimed phone for sales impact. apple's 206s than million iphones last year. manus: fears of a global trade war are mounting. trump and his administration are considering $56 billion of tariffs on chinese imports. i am disappointed, tom. i think we have achieved great trade cooperation around the

globe. there are clearly infractions that need to be corrected, certain industries and countries and different points in time that are not playing overall and it needs to be fixed. the broader global trade is a strength for global economic growth. it has brought prosperity around the globe. is talking about $50 billion worth of tariffs on imports from china. me those tariffs reduce those imports by 20%, that would take 10 billion off of $500 million, a 2% moving trade. will that change everything? is it that important? is punching up to what the administration is correcto do, which is the obvious infractions and inconsistencies in application.

toope they are not a trying instigate a major global trade war rebalancing. i don't think it is in the global interests or in the interest of the united states. the u.s. is 25% of the world global economy. they have a strategy when it comes to the trade negotiations with china? does that apparent lack of strategy concern you? the not privy to what administration is doing. i am not an advisor in any sense, but there are clearly well published points of view by the members of the administration. i would assume there is a strategy that is involved. the strategy response to how the other actors behave. it has to be dynamic when you are talking about these things. tom: who has more to lose from this trade friction? james: it is very hard to talk

about winners in -- and losers when you are talking about the third biggest economy in the world, $4 billion, and the first is an $11 trillion economy. china and the u.s. depend upon each other. it is evil thing. -- it is evolving. fastest growing economy. there is not a clean winner and loser to be had. this is about finding where there are obvious infractions. , open markets, global trade, has been a net positive demonstrably for both china and the united states. gorman, holding forth on global trade. you you listen to james, come down on the side of this is an adult view. evenandscape was not that

and it needs to be righted. is there merit in that? philip: i think there is. it is not so much looking at trade deficits or surplus, which gives you an idea of when the playing field is level. access is market probably a much better indicator. if you take tariffs on cars, areas where it doesn't have a trade treaty, around 2% -- 25%, theariffs are eu's are 10%, a clear givenlity, particularly the strength of the chinese economy over the past 15-20 years. the u.s. ministration has a point. -- administration has a point.

but i agree, it is difficult to know what the u.s. ministration's policy is and where things are going to go. of people have speculated about the chinese going on a bond-buying strike. i see those things as being very extreme and perhaps a little bit un-chinese. will we go through more versions on trade before we find out what the policy is in the u.s.? philip: i think so. if china winds on a bond - - winds on a bond-buying of where theses things are going, the u.s. is playing hardball with various economies.

it helps to have flexibility. the agreement to allow the deals on steel and , there are signs of hope, and with argentina, but we are not there yet, particularly with the european union threatening china. china, theking of nonmanufacturing index, up for the third straight month. despite alltrong the hubris around trade and geopolitics and north korea. china is holding up very well.

manufacturing numbers beat estimates. good good bullwork -- a bulwark to the global economy. philip: it is. more than 50% of chinese gdp is now services. this is an increasingly important part of the chinese economy and global economy. it is encouraging the manufacturing sector is holding up. perhaps if you look at beijing's policy options more generally, what mothers are the chinese authorities going to take to try and reduce credit growth -- what measures are the chinese authorities going to take to try and reduce credit growth, and affect the exchange rate? manus: in terms of the rest of the world, we are looking at europe, inrow for

regard to their relationship with the u.s. and potential tariffs on steel and aluminum. johnson, going to the united states, as opposed to cap in hand over the iranian deal. how penal will it be to the european recovery story if we see's kind of hard or soft caps from the u.s.? philip: it is not helpful. a complete disaster if you look at the economy from a top-down perspective, but the specific sectors involved would find it very hard-going. the economy, the talks could break down and the eu can impose tariffs on the united states. happened between u.s. and china march and april,

how the threats of tariffs really escalated very quickly within the space of the month. if that happened and those threats were carried out, that could affect the global economy. shaw, my guest host for the past 45 minutes. thank you for being with us. let's turn to the european trade story. bracing for donald trump as steel andlines for aluminum tariffs loom. sold leaders are meeting that wilbur ross might extend relief. the chairman for the committee for international trade and european parliament is here. good to see you.

why do we think the americans will be never went to europe tonight -- will be benevolent to europe tonight? >> i don't think there will be an exemption. that we asroblem europeans are not accepting that mr. trump excepts this he impunity -- this impunity of service against europe because we are not subsidizing and have no immunity from the market. there not accepting pressure. we can discuss a want of issues. we have common interests on a , but not under pressure. manus: what kind of pressure are you under?

bernd: punitive tariffs from the united states are not based on any of the -- this is a measure the steelprotect industry in the united states, which is not allowed. everybody accepted the terms to the ut oh. -- to the wto. if you really look to the whole picture, there is not such a big deficit to the united states. really based on the internal political institution of mr. trump and not acceptable for a basis of negotiations. anus: wilbur ross was talking

about the world trade organization. he said, "any trade dispute mechanism that takes many years is wrong." would you agree with that interpretation of the wto? >> not that all. and in such alems big organization with 64 members, there are problems, the -- development is slow. i support president macron creating a peer group for reform. but to accept an international ruling system, a clear independent system -- this is vital.

manus: bernd lange, chairman, thank you for your time this morning. we will talk about containment in the markets in italy it in -- and instantly in spain. ♪ manus: good morning from divine

-- dubai. is ready to appoint a new prime minister but is waiting for signals from populist leaders. meanwhile, spain's prime minister faces calls to resign. don't listen to soros, global stocks bounce back and fears , morganopolitical face stanley's ceo slaps down the eu. ridiculous, i don't think we are facing in existential threat at all. manus: trumps trade offensive.

the eu braces for heavy tariffs on metals as the temporary waiver is set to expire. we will get you the latest abuse. -- views. london, andrew jackson, putting markets in context. a warm welcome to daybreak europe. we are in dubai, london, rome. we have the global picture. do you believe that the italian crisis is an issue in an espresso cup, a storm in a cup. do you believe it is contained? writing,lobal markets

they beat as well. you might be counting down to , but that isrope small compared to the sentiment of relief or evasive across these markets. points, james gorman says a george soros is ridiculous, i don't think the eurozone is in jeopardy. cbi in the united states, let me take you inside the risk. european stocks are little better. you have just seen a nice move. a little more on this relief rally carried through. with we don't often see this, you can see a strengthening. the biggest weekly gain since 2016, up 1.16%.

, a have a couple of things new central bank governor showing his mental. -- mettle. you have top north korean officials on the ground in america so geopolitics and rate, what a beautiful confluence. you got to fill the board. the bigger, i think issue is running into volatility over the next 14 days as we get ready to go to opec. if you look at crude, that's an 8% drop over five sessions. below the 50 day moving average, just the other day. so a lot of pressure coming to bear on oil. this is the emerging markets story you want to keep an eye on. let's get to bond markets. traders andmmodity

meat eating a bond traders. contained?eve it is do you believe that everything happening in italy will not contagion into other bond market? look at that, we are up. futures up by 90 bits at the moment. is it oversold? perhaps more liquidity, perhaps a view on pricing. you are seeing u.s. bonds come back. this is a demonstrable affect. if italy is contained, we can begin to look at other things. jeremy says 4%, james says probably back up your blends are little bit lower. is it cohesive between five-star and the league? we will get to that very

shortly. juliette saly, she bounces up with the first world news. good morning. italy's president is ready to appoint a new prime minister but is a waiting for a signal from populist to denounce him as an enemy of democracy. they say it days after the five-star movement and anti-immigrant league walked away from forming a coalition, they want to see if they are ready to revive its while the head of state, a former imf executive, is being forced to wait. in spain, the socialists are close to lining up the support they need to ask the prime minister in a no-confidence vote. they say, a lot of separatists are highly likely to side with the socialist. has also learned that basque nationalists are planning to take their lead from cap when they make a final decision.

a socialist party press officer declined to comment. the european union is bracing for a trade offensive from president donald trump, i miss a report that the u.s. is poised to place a tariff on steel and aluminum. he granted reprieve to the eu, canada, and mexico until june the first. leadersngs in paris, eu are staging a last-ditch attempt to convince the u.s. commerce secretary for extended relief. macronpresident emmanuel has told bloomberg that he is optimistic about europe's trading related with america. hot -- always very hopeful. i do my best in what i can do. >> that european union is

weighing a much stronger warning on the risk of brexit talks collapsing if the u.k. fails to lay out their position. the block has made clear that britain needs to show a more detailed view of how they plan to keep the irish border open by the time leaders gather in june. theresa may has not produced a firm proposal that the eu regards as necessary to move forward. has taken the most concrete steps towards rolling back the volcker rule, impose to make the banking industry safer. governors kicked off an administrative process, aimed at reducing compliance costs for firms who have long said the old is unnecessary, complex, and impossible to adhere to. global news, 24 hours a day, you

can find more stories on the bloomberg. use a cliche, but what a difference a day makes. have a look at all this green. yesterday it was red. we are starting to see those italian fears abate. green aftern the knocking off their longest losing streak. to have australia closing higher , but have a look at the green in china. also worth noting, we have seen indonesian stocks come off after that rate hike, the second in as many weeks. areng a look at stocks we watching, it has been a rally led by energy players and financial stocks. see kingston financial in hong kong up almost 7%, but in india the ivanka is down.

there has been a probe against their ceo saying they have failed to adhere to their code of conduct. we have goldman sachs coming theugh, amongst others, and quiet show motile will actually due to strong demand from china's middle class and limited supply of their various strong liquor. never too early for a glass of strong liquor. juliette saly with the very latest there. to global markets, it has been polemic. by political risk on one hand, fascinations in ,taly, a president under fire but only if the populist parties revive coalition talks. meanwhile, in spain, the prime minister facing a no-confidence

report. the socialists, the nation's biggest opposition party,. we have seen some big moves throughout the week, this is the state of play. you are not just seeing 10 year government bonds move a little bit. a little bit of a rise in yields. the ladies of europe and the world is standing by. maria, first of all, where are we on this? we expect things to go to a vote, today, tonight? this is someone who has been through everything in spanish politics. this time, it does feel different. it is not up to him and his -- state will depend on the gulf country. country.

we are going to have to wait to see the results. to arday night, i spoke former advisor to the socialist party, and she said right now it comes back to one thing. >> the prime minister and his political experience has often gone for a wait and the approach for rushing in. backfired, as he cannot call for an election as the vote of no-confidence is being processed and his only option is resign. so, he could still technically resign and that could give his government a little bit more time. course, all of this will depend on what the basque party does today. stay with us, let's get to anne-marie.

we have been communicating in check as we do on these critical days. for you, you are looking at the press, the possible combinations and to they might go for. what it might take to form a government. give us the breakdown. >> yeah, what an hour makes in italian politics. basically, if selby agrees to the controversial candidate picked for finance minister to the foreign ministry, and there is another minister brought up to the president that is acceptable, we could see a populist government for me today. if they refuse, there is no political government, and we could see carlo cut the rally sworn in today. if carlo is sworn in, it would be for a limited time, which would mean elections in the fall.

we just heard another line from love republic of -- la republica saying they would also team up with the brothers -- the league brothers of italy. this would it squeeze out of berlin is going is a tally of -- of berlusconi's italia, which would force italy to a right-wing government which would shock the eu. manus: those shocks can be pretty fast and furious. -- rajoy is ousted -- spanishi am looking at bonds this morning.

it is actually down, and looking at 10 year at 153. they are not dropping aggressively, but what is the risk to markets? ?ould a blowout happen > >> when it comes to risk, you just have to look at policy. they talked about raising taxes and a special tax for banks. the biggest? now is that the socialists have said they want to call a snap but we don't know for how long. technically, they could stay until 2020 and the risk is that we would get a weak government. roy had far more seats and he was already struggling to get more done.

the sense of relief for markets is that even if we get a socialist government, this is still very pro-european. there is no debate as to what spain's place should be. manus: thank you very much. andrew, good to see you. a lovely lien on the blog, just to complement what they have been say. italy exiting the euro would be cataclysmic. this is not analysis, just sticking your head in the sand. as the crisis passes, are we sticking our head in the sand? is there an existential threat? i think it is very difficult to say that soros is wrong here. there are no zeros and one in

the scenario here. we are not through the crisis. what we are seeing is a rise in populism, manifesting itself in a number of different ways and an anti-eu sentiment is rising across europe. absolutely writes, the spanish government is not anti-eu, but we have seen that sentiment everywhere in europe, france, italy, spain, the u.k.. i think italy is going through turmoil which could be cataclysmic for markets. i think it is appropriate to use that term. but i think the key is to assign a probability to that. the probability is low is because there is a lot of vested interest and because the impact of italy leaving the eu would be much larger than if say greece were to leave. just to put some numbers, last

ownswe checked, the ecb over $130 billion of italians sovereign bond. that means every citizen within the eurozone owns italian sovereign debt to the tune of about a thousand euros. that is a meaningful amount of risk. that, maybey face they will be more reasonable in their approach towards being on theirmplishes massive debt to gdp ratio. that is quite the warning you have made. there are always going to be a spectrum of opinions. has been a reprieve, that is how i would look at the bond and euro markets over the past 24 hours. do you think people are seeking better opportunities to exit their exposure, better opportunities to exit and get out.

because you have the banks on watch from the agency, and that is perhaps where the biggest risk lies. >> absolutely. before we answer the question of ist will happen forward, it important to recognize that this volatility is because almost no risk was priced into market. that is why we have seen so much volatility, a rate price of this magnitude is only possible given that the election in italy was in march. we have taken this long for a ministry of finance to be presented, and when he decides he does not like the ministry, then we get the reaction. the reaction would not have been so big. seeing aeen retracement over the last 24 hours and i think it is appropriate. slightly, overshot

and i do think people are looking at risk and if the populism goes further. the leagueble that and five-star form an alliance, what does that mean? both of those two parties are what we traditionally think of as fairly extreme. backnk people are looking at what they have got in their portfolios and saying how much risk do i have and recalibrating. let's talk about the recalibration of bond risks. italy is dangerously misunderstood. in your words, the fixed income talk about the potential for a downgrade and what that might mean. i am wondering if you think it could be extreme. review,s been put on

they are currently on the aa to. -- baa2. that's loss would grow to about 14%. downgrade, and here is the issue, could rates blowout to 5.2% in italy? >> could today, yes. willow bay, i don't think that is likely. i do think it takes into account italy's place. it is not a major pivot point if they were about to fall below investment grade, i think that would be a major issue. number,ds like a big certainly i think the ecb would start to think about stepping in and doing something.

we have seen one of the analysts back at base said yesterday morning at seven used to be the number at which the ecb would get interested. it looks like five is more likely to be that case and i think the ecb, they own a lot of italian risk and don't want see it go beyond that five. having been said, it could have a handle on it. bloomberg of our clients has just messaged me on this conversation. he has outlined the four parameters for the omt. never been executed, never been implemented. i'm trying to paraphrase without looking away from the camera. is a relationship between bank balance sheets and sovereign bond holdings. so possibly, touching on two.

bond yields shifts not supported by fundamentals and a yield curve inversion. should we all be off of our omt rubrics? think there is a distinct possibility the italian crisis gets resolved, possibly today. at which point, we will breathe a sigh of relief and yields will go back to levels which do not represent the amount of risk that there is. in my view. keep in mind i am bearish. gives thehink the omt ecb a reasonable amount of power. i think we have to remember they own 340 billion worth of this stuff and i think they will get involved if they have to. manus: absolutely. protecting your assets. it's a colossal amount of money. stay with me. the head of fixed income at hermes stays with us. deutsche bank's new ceo has

said the lender has committed to america, seeking to dispel what he called rumors to the contrary as the form cuts back. banktian sewing said the may retreat from a couple of small business areas, but fundamentally, the u.s. is the most important market. it comes amidst the outcome of sweeping job cuts and large-scale restructuring. . bloomberg has been told that -- at is looking getting a new model. revenue for ast critically acclaimed phone that has yet to make a major impact. it shipped few pixels compared to apple's 216 million iphones. that is your flash. manus: thank you very much. treasury yields have risen as european risk has abated.

traders get some more distraction from geopolitics. gorman, ceo over at morgan stanley spoke frankly to one of my colleagues. so let's recap a conversation with andrew jackson, head of fixed income over at hermes. was fascinating, he basically pooh-poohed as soros. james gorman is at 3%, where is the hermes line in the sand? you cannot go bang in the middle, i want something more robust. gorman says around 3%, diamond says for, where is the hermes score? >> i am a credit guy so it's all about probabilities. i think somewhere between three and four is appropriate. [laughter] having put me on the spot, i'm

not going to go for three and a half, the lower end of three, i think. manus: the lower end of three. i think what is interesting about the market pricing of risk is that we overreach, don't we? we go into the vortex and markets suddenly step back from pricing in another couple of height. -- hikes. again, do you think the market has gotten far too aggressive in going to a baseline of one more hike?-- i think the united states has actually reacted moderately to changes and geopolitics. what we have seen in europe is a very large reaction. overshootarily and but a large reaction, coming off the fact that europe has not widened and seen any distinct

volatility for a. of time. i think the united states passes reasonably well. i don't think the fed is going to deviate from what the market expect. i think they have done a reasonable job of predicting. if you are looking for uncertainty, europe is the place. actually they is world relies on the u.s. economy, the chinese economy, the world cares about both. you've had mr. george soros talking about it this morning. is possible to see europe being cast to one side and not getting the support that it needs. mr. macron went over and made a very public gesture to mr. around iran and got nothing. worried, ando be it's my job to be worried, i'm in fixed income, i think europe is where you should be worried. andrew, great calls from

andrew jackson. head of fixed income at hermes. the european market open is up next.

>> good morning, we are live from our european headquarters. guy johnson is out this week. the cash trade is less than 30 minutes away. ♪ the italian side continues. -- isesident is billy willing to promote a new cabinet. all eyes on the league leader and his next move.