>> good morning from bloomberg headquarters. i am matt miller. this is "bloomberg daybreak." risk rising. italy pulls a government together. investors rise and reprice and price again. tariff tit-for-tat. eu said it would take steps to retaliate against u.s. metals tariffs. mexico and canada respond as well. but you don't. shares -- deutsche dumped. a list of problem banks and it faces criminal charges in australia. we are on the ground across

europe as the stories developed. inoline connan is an -- is madrid and rome for the latest medical of elements in those deciliters political developments -- latest medical developments in those situs. -- in those sagas. welcome again to "bloomberg daybreak." take a look at the risk radar. there is a lot of interesting moves to pay attention to. there's so much happening beyond italy, spain and the metal tariffs. the bank of japan has reduced its bond buying in the surprise. dropping. yen expect us -- investors expecting it to rise. u.s. dollar gaining strength against the yen.

could take that as a risk-on sign that people don't need the safe haven. you didn't see asian stocks rising with that. you also see the u.s. treasury yield rising here. it is a red arrow but we put that because the price is falling. investors don't feel like they needed the safety of the u.s. debt. that could also be a risk on sign. you see a big gain in nickel. , there are real supply concerns in the metals market, even beyond the tariff issues. nickel was soaring, reaching in shanghai, the highest prices we have seen in 3.5 years. it is not rising quite as much in london but still a big arrow. going to give you an interview with u.k. chancellor, philip hammond at 4:00 p.m. u.k. time.

that is one you do not want to miss. we spoke to jim bullard overnight. we will bring you sound from that. listen to bloomberg business flash out of singapore. juliette: matt, thank you. america's closest allies will impose tariffs. duties ons announced steel and aluminum on grounds of national security. the eu says it will retaliate immediately. mix cohasset donald trump is -- mexico has said donald trump has "shot himself in the foot." >> canada could be considered a national security threat to the united states is inconceivable. juliette: the white house says it expects a north korean allegation to visit washington

today to deliver a letter from kim jong-un. donald trump will lead a delegation after several weeks of tumultuous the policy. any decision on whether the summit will go forward on june 12. here in singapore may be announced. >> a difficult challenge. make no mistake about it, there remains a great deal of work to do. we made progress here, as well in the otheress venues the conversations were taking place. we had all the time we needed today. juliette: global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . checking in on the market here in asia.

a little bit mixed as we way all these trade tensions. matt was talking about that unexpected move from the boj to cut bonds for the first time since february. outperformingtock on better-than-expected export. chinese stocks fluctuating. msci conclusion day -- inclusion day. it is all about ceos and banks today. shares falling the most in five years after their ceo resigned. i will drawback to you, matt. matt: we do have some big breaking news pit we told you that deutsche bank shares fell to the lowest level of all time yesterday on concern that the fed now considers them a problem bank. s&p has now cut deutsche bank long-term credit rating to

triple b plus from a minus. standard & poor's cutting deutsche points just cutting deutsche banks -- cutting deutsche bank's rating. we will keep you updated through the morning. we have coverage out of frankfurt. we have coverage out of berlin. we will continue to be all over deutsche bank because this is very big news. it has been a concern for investors. now a big concern for regulators in the u.s. never a dull moment for european politics. in italy the populists have formed a coalition after all. -- is duey can't say to be sworn in as prime minister alongside his cabinet this afternoon. just as italy finally forms a government, spain is likely to lose its more conventional prime minister. arianna roy faces a test mario

the roy faces a vote of no-confidence. on the ground. maria tadeo is in madrid. emery, let's start with you. take me through the latest in this saga. >> after three months, i times asked about it, we do have a government here in rome. incredible scoop our -- by our bloomberg colleagues. they were the one who broke this yesterday. the one we need to focus on is the finance minister. that is going to a man who is currently at a university in rome, economics. what the financial community has been talking about and this is been making the rounds on twitter was an article you wrote last year.

i would like to share with you some of his thoughts. many are publicly talking about the fact he called for a debate on europe. he says he will call for unconditionally leading the euro is a cure for all ills are not right. another is the european central bank president when he says the euro is irreversible. he is someone everyone is going to be focused on today, especially in the business investment community. the eurosceptic that the plan b of exiting will move over to foreign affairs and then someone desk somewhat of an establishment pick. he is going to be the foreign minister. he worked for european affairs. he is a bit more will know in the international community and he is more of an establishment pick. these are the names we are going to be talking about over the next six to 12 months, however long this government last. matt: annemarie, thank you so much. she will be there all day.

she has been there all week. maria, you have been in madrid all morning. --t can mario on a record mari on overly do. i can tell you that i was in parliament all day yesterday. lawmakers just absolutely shocked by the decision but at come to terms with the idea that rajoy will be pushed out of the office there is no room for resignation. he will resign. he will most likely be replaced by pedro sanchez.

matt: interesting watching that. we watched that yesterday. how are the markets reacting? they did not seem terribly concerned. this is going to provide a real problem for the way government operates there. for growth and businesses which face more uncertainty. maria: that is right. that is why the ibex certified -- it just fell due out the afternoon did there were questions we don't have an answer for and that is how long is he going to stay in office. this is going to be a short-term administration. then we go to new elections. yesterday, he gave himself known new deadline that he could be in power until 2020. one time he said we are going to have to raise taxes. he specifically mentioned banks.

all of this to pay for pensions. we have to keep in mind business is very weak government. he is going to have to turn to the left. but havingut deals come decisions here, they are very frustrated. they are not going to make life easy for him. matt: thank you very much, maria tadeo. they will be there covering those developing stories all day long here. joining us now is jeremy stretch . todayg so much going on it really around the world. let's start with a focus here in europe. no one seems concerned about spain, but it has to be a significant change to deal with. jeremy: it is a change but because we have had political uncertainty in spain, and we have had difficulties into

elections, i think markets are generally of the view that we are not talking about such a significant change as we are talking about a government coming in. are relatively relaxed. that is the difference between italy and spain in this context because the crisis was about the pushback against the whole european project spain, -- project. spain, economics will continue. matt: how do you see the italian situation? is it a good thing that they have a government in place? is it a bad thing because it is a populist combination? let's face it, there are still a lot of eurosceptics that are going to be ruling the roost in rome. jeremy: if you scroll back to

the price of election, this is the government you're going to have, in most instances you would argue this would've been a negative for the economy. we are where we are. we aren't quite in the scenario that we feared we might've been in in terms of earlier in the week. we could of initially had into the pushback from the president and that would've been a much big greater challenge -- a much greater challenge. how long is this government going to last? that is the issue that markets are mindful of. we talking about the scope very disparate groups. how long is is, this government going to last? how much of a change is it going to be a to make? matt: that is a good question to ask. how weak theia say government is going to be. what do you think is more important to keep an eye on for investors?

is the trade story a bigger deal than maybe we think? the eu didn't really come to the table with anything that donald trump wanted. jeremy: if you think about politics in europe, we are seeing a significant sea change. -- see exchange. -- see change. politically, europe is in a relatively weak. -- week. growingomy has been despite what has been happening in terms of political dynamics. the threat to the trade regime, is that going to be more of a concern. the question is, is this trade spat going to undermine any expected recovery in the second half of the year? matt: we have a lot to go through.

this is not a lazy friday morning. you are going to see some big moves in asset prices. we already have seen overnight and some surprising once. jeremy stretch stays with us. want to recap what is going on with deutsche bank. the banks credit rating has been just the bank's credit rating has been slashed -- the banks credit rating has been slashed. christian sewing tries to reinvent europe's largest investment bank. he comes one day after u.s. relators have put deutsche bank's operations on a list of problem banks. not only the fed but the fcic -- fdic. whether they be financial or managerial. the firm and frank for it said it is overhauling the operations, the issue. they said there are no concerns

about its financial stability. investors are clearly not free of concerns. check out the shares over the past five years now come to an all-time low. let's go back to singapore for the bloomberg business flash. ceoette: matt, samsonite has stepped down after concerns about accounting prices this -- accounting practices. he will be replaced by the cfo. -- betweenshort sell indian entities. the company has refuted claims. it shares have jumped today in hong kong trading. pushing tohs consumer finance has even bigger aim then investors might have imagined. david solomon has said in a

presentation that personal loans are just the start with expansion opportunities to express market brand and mortgages, and insurance. the consumer bank started in 2015, it has attracted 1.5 billion -- one million customers. general motors has said the softbank vision fund is billion. $2.25 the deal adds to a collection of long-term bids that softbank is making through the nearly $100 billion fund. many of them in the area of automation and artificial intelligence. >> we are not looking to raise capital. we are in a position where we are prepared to fund this opportunity. what we did find it -- at softbank is a partner with a very line division -- lined vision.

matt: juliette, thank you very much. some of the headlines you've got to keep your head wrapped around . america's closest allies will impose tit-for-tat penalties after view is confirmed it would leave he tariffs. wilbur ross announced duties on steel and aluminum from the european union, canada and mexico saying they were be opposed on national security grounds. the eu said it will retaliate immediately. mexico promises to slap tariffs on a range of american goods including cheese. more, callum kanaan joins us from paris where she has been covering the issue all week long at the oecd meetings. eu italianw will the against the euro tariffs -- the u.s. tariffs?

matt.ne: we are, the eu has warned in march that 2.8 billion euros of american goods including harley-davidson motorcycles. likenly also products peanut water and -- peanut butter and jean-claude juncker tong the first president react after this announcement yesterday afternoon. he said today was a bad day for global trade. this was bad news. union measures were unacceptable. [indiscernible] this could take months or even years. canada and mexico are also putting retaliation measures. canada said the television would said --r for dollar --

including aluminum but also ketchup, mustard, playing cards and mexico is retaliating mostly with food products including apples, grapes or american cheese. .att: i was watching us today jean-claude junkers saying during his speech, i am lost when it comes to donald trump. i thought was pretty fascinating to hear from the head of the european commission. is there anyway then that we can expect to avoid an escalation war?into a global trade caroline: it seems like it is going to be very difficult to avoid an escalation. this will dominate the talks at the g7 in canada. the g7 finance ministers already taking place today.

said it is amaire most impossible to avoid a trade war with the u.s. right now after this announcement. this last-minute over the past couple of days didn't bear any fruit. i spoke to the w teal director desk wto director who said it is difficult to avoid a domino effect. we would not be in the situation we are now. given this is what the situation is, i have been encouraging countries to think carefully before we embark in a trade war. because once you get down that road, it is more difficult to backtrack and reverse course. presidentthe french has been calling for w teal reforms over the past couple of days.

some of the strongest -- these measures from the u.s. are not only illegal but also a mistake because we are dividing and bringing economic and trade nationalism. nationalism leads to war this is will -- this is what happened in the 1930's. matt: hopefully there is no war out of this one. caroline, thanks so much. jeremy stretch is here with us. let me first ask about the trade issue. we will talk about the currency effects. does it make sense what is going on. the wto is not efficient. wto mechanism is a very slow-moving animal. it may be moving down that path

to expect any resolution is going to be our from speedy. in that context, it is fascinating that mr. mnuchin will probably be fighting himself rather uncomfortable in that finance ministers meeting today because he is there to defend the interests of the u.s. hembed he is going to find is going to see himself in a majority of one in terms of defending this particular process. alyssa grub -- all of us who grew up studying economics would've understood. to start to reverse stuff, put has negative connotations in terms of growth trajectories. when you start to talk about tariffs, you're also talking about price increases. the impact at the consumer level . that is interesting point when it comes to context of the u.s., how quickly will some of these price changes start to be's fed

down to the consumer. matt: what is interesting is everybody in economics learned about the benefit of free trade. it is still kind of an open question whether it is beneficial to have the strong currency should the u.s. be pushing for strong dollar? how do you see it playing out in markets? jeremy: is go along the principle of making america great again, well then, if you are trying to enhance manufacturing exports, you want a strong currency. in the trump vernacular, anything is regarded as weak is not on the agenda. that is a real juxtaposition. they would like to have a competitive currency, not one which is falling but one that is competitive. they are going to be issues. when you think about the issues we are seeing ins terms of some of the structural pressures, we will see likely cheaper dollar.

that will help the export sector. u.s. doesn't want to seem to be -- matt: yet present rates but deficits that are ballooning. you think the latter is want to take presidents. >> we know what the fed is going to do. ramp is going to wrap up its tightening profile beyond what we are assuming, then i think that is all really that's already discounted by the -- already discounted by the markets. they talked about the symmetrical nature of the inflation target. they are going to tolerate inflation running a little bit above trend. so you then get back to the other baseline scenario that if we're going to see inflation eking out in the u.s., then it implies inside a fiscal position. matt: what about the other side of the trade? an interesting seesaw for the ecb.

there got decent growth, inflation sharper than expected. on the other hand, they've got blowing out spreads and concerns about italy, portugal, etc. been peripheral pressure. we are getting close to the end date or the end of the profile in terms of bond buying strategy. when we start to take summit ecb out of the equation, you are going to see further pressure on some of the yield markets. the ecb had to tread very carefully. growth is above trend. inflation is very close to target. ecb arethe hawks in going to become a little more vociferous. best us to get the market to discuss -- that gets the markets to discuss policies. if we think the fed is relatively discounted, that is -- moving more

aggressively and matt: very interesting stuff. jeremy stretch is going to stick with is here. -- with us here. ♪

matt: coming on 6:30 in london. 2:30 in the afternoon in tokyo. looking at the palace and a weaker yen against a stronger dollar here. 10909 -- one a 9.09. -- 109.09. we will continue to talk about that story but i want to get back to the fed. continuing to signal its intent to normalize rates but st. louis federal reserve president james bullard is repeating his morning of the world's most influential central bank should go slowly or not at all.

bullet, guess bullard explains his concerns during an interview with bloomberg daybreak asia. from relatively rapid gdp growth and strong isor markets into inflation a factor that used to be important and used to be of empirical relevance, but now you look at it today and over the last decade or more, it really doesn't work that way. i am not sure that faster gdp growth itself is going to indicate that inflation is going to move up any faster than it has in the past. so i'm not sure we are really there yet. if you look at dow's fed trimming, it is about 1.8%. sounds like core pce. we have been doing a lot of normalization even before inflation really back to target,

much less got above target and got into a situation where we had to tamp down on inflation. i really think we are in a pretty good position right now where we are with the policy rate and where we are with you normalization policy. we could play it by ear and see how that data coming in here. >> one of your colleagues of the past two years gave a speech today in new york and she said the fed is going to do gradual policykes, accommodative to neutral policy to something modestly above neutral. is there a risk and that? -- in that? is that what the fed is going to do? i have been arguing that we are already at neutral today. if we start going up from here, into agoing to turn situation where inflation has not made it all the way back to target yet. if you look at the tip space

expected inflation and make an adjustment to get it translated into pc inflation, the markets are really saying that they don't see enough inflationary pressure to get pce inflation back to 2%. even over a period over five years. inflation expectations are still weak here for us to be moving into restricted mode and what we should do is stay where we are and let inflation expectations we censor on our 2% inflation target. that will set us up much better for prolonging the expansion from where it is today. matt: that was james bullet speaking exclusively to our fed expert, kathleen hays. is fed's next rate decision june 13. still with us

here. 190,000.up wages up. things look pretty solid in the u.s. economy for three rate hikes. what the take from jim bullard's comments. jeremy: that puts him in a withe bit out of lockstep the baseline fed assumptions hit it makes that -- it makes sense. duration of the cycle, it makes sense to persist with that gradual tightening policy. it is going to be very much a gradual one because if it are very concerned about making sure they don't tip the economy over into something far slower and far less manageable. the inability percent of banks

to understand how the colts curve is working in the current environment. that's how the phillips curve is working in the current environment. -- how the phillips curve is working in the current environment. i think the fed our time to find their way through that by taking the time to find the latitude for the next downturn does come. matt: 2.6% is better than a stick in the eye. we have been hovering around those levels for a while. if you look at the dots. do you feel like the terminal rate makes sense at the end of next year to be somewhere around 3.5%? jeremy: that may be a little high. another tocting

hikes this year and another three. jeremy: -- matt: does that put you in line? jeremy: it is a very close one thing between two more and three. it does come down to the termination of the data in the very short term on whether we are going to see any signs of the impact of the fiscal measures and the tax cuts really having a definitive boost to the economy and taking us toward that 3% threshold. sodon't think we get there that is why we are comfortable with 2%. we don't expect the wage level to really grow exponentially to create the necessity for the federal reserve to ramp up to more hikes. echo how does the diversions with the fed policy with that of the ecb affect currencies on the side? what do you expect the see the euro and yen?

jeremy: i think policy is relevant. we have a market that has discounted -- greater degrees of variance, so if we are going to see the bond buying come to an end in europe. we start to see a questioning of whether draghi is want to maintain that keeping rates well beyond the ending of bond buying at current levels. that is one to be an issue in the context of the euro. the retreat we have seen in the euro on political risks tends to provide an opportunity for monetary policy and also from a trading standpoint to encourage a euro that goes higher. in the context of the boj, i'm surprised by the immediate reaction to these measures from the boj. the yen will be stronger than the market is assuming come as the boj aggressively walks back from their -- matt: today's move provides an

opportunity to get in dara:. just to get in there. -- to get in there. jeremy: there's interest in terms of the selloff we have seen. matt: on the cb, is it a big meeting, the next one? do we expect to find out if the ecb is want and it's bond buying purchase program? jeremy: the meeting is in june. the general on is one where we have the updated forecast. that gives an intellectual changing dynamics. we are getting close to that september deadline in terms of bond buying strategy. we have the ecb symposium later in june. there are three key events in the ecb calendar. it gives us opportunities for the cb to robach and give us greater clarity on the bond buying.

the -- the ecb would like to see more information of a rebound that may be more inflationary pressure to influence their decision. matt: it is him was like covering -- i did the dryer financial version. jeremy: the parallels are relatively tough to draw but you keep up. matt: jeremy, you are going to stick with us. , there is a lot going on today. you've got forming a government in italy. the toppling of a government in spain. the trade issues, the boj issues . china's begin view, more than 200 mainland stocks have made their debut on the msci emerging markets index. the move opens up the world's second-biggest equity market to

investors. we are joined by jean-luc. why would foreign investors want to buy the shares? have we been holding them back? guest: china is the world's second-biggest economy. it is growing 7% each year. if you're an investor in you want some exposure to the growth , you've got a lot more options. we are talking about companies like multi-, the world's biggest liquor maker. it is the preferred drink here in china. makers biggest supplants they but the german robot maker, cougar. you cannot find it exposure offshore. matt: as far as china's concerned, why haven't they

opened up this market earlier? have they been pushing forward? is this a question of msci agreeing that it is time? john: china has been pushing. before the msci approved or agreed to the inclusion last year, they rejected it three years in a row. the biggest question was, how easily and how much access could foreign investors have to the local market? , couple of local regulations involving how long a company could suspend trading of its shares? the chinese have made changes that have answered a lot of questions and concerns that the msci had for its clients. the chinese are very interested. they want foreign investors in. they feel like more institutional money will make the market less volatile. matt: thank you very much. just one more of the many developing stories we are watching.

bloomberg's executive, jean-luc covering that in for an story for investors looking to get some more international diversity. bloomberg users can interact with the charts shown on bloomberg television. type g tv . catch up on key analysis. we will bring you our exclusive interview with philip hammond later on today. watch, another one to 4:50 p.m. u.k. time. this is bloomberg. ♪

matt: welcome back to "bloomberg daybreak: europe." there is a shot of my hometown, berlin, right now and germany rocked by this deutsche bank

continuing fall. remember a lot of domestic retail investors own deutsche bank. thatrday we had concern on fed has noted deutsche bank is one of the problem businesses to watch in the u.s. we see standard & poor's cutting deutsche bank long-term credit rating to triple b plus down from a minus. you can see the shares plummeting, one more problem for a bank that has seem to have had a revolving door issue as far as leaders. we will continue to cover that story. let's see what else we are covering. there is so much going on. let's get a bloomberg business flash out of singapore. juliette: matt, let's continue with deutsche bank. its credit rating has been cut by s&p global ratings by one notch to triple b plus from a

minus. the downgrade is a blow to the new ceo as he tries to reinvigorate europe's largest investment bank. comes a day after reports that u.s. relators had put its operations on a list of problem banks. samsonite ceo has stepped down after concerns about accounting practices and corporate governance since shares plunging. he will be replaced by the cfo. last week the short seller question transactions between samsonite and indian entities. the company has refuted the claims. its shares have jumped in hong kong trading after reviewing trading for the first time in a week. goldman sachs pushing to consumer finance has he bigger ames them consumers might have imagined. the presentation that personal loans are just a start with expansion opportunities for its markets brand and auto loans and

insurance. the consumer bank started in 2016, they have attracted many customers and gathered $22 billion of deposits. general motors has said the softbank vision fund is investing $2.25 billion in its car unit. the deal as to collection of long-term bets. many of them in the area of automation and artificial intelligence. google we are not looking to raise capital. we are in a position where we are prepared to fund this opportunity but what we did find at softbank is a partner with a very aligned vision. juliette: that is your bloomberg business flash. matt? matt: thank you very much. juliette saly with your headlines.

let's get back to deutsche bank as she said. the banks credit rating has been from --just slashed slashed from a minus to chip will be plus. phil to record lows after u.s. regulators added it to a group of troubled lenders that they monitor. for more, we're joined by jeffrey smith. walk us through what is going on with this bank. there has been trouble for so long but now the shares are coming down to a level that we haven't seen since we first started keeping track in 1992. alone,he last 24 hours there's been a quite vicious trigger in the selloff. all this news about the fed putting it on its troubled list. really sort of expected, the

downgrade from standard & poor's which is the last a great rating that it had. it could have the effect of locking in higher funding costs and costing a lot of clients. it is already shrinking itself, retreating out of this is this continually cutting headcount and is not to believe there is a brain drain going on here. does the deutsche bank of the future look like. what is this global bond trading behemoth turning into now? geoffrey: it is hard to see a deutsche bank that looks like anything like it as the past 25 years. not being the one that's not wanting to be the kind of bank that it has been. the decline has been ongoing for

a long time. you think, what could it possibly do to keep going in the future. from a strategic plan, it is difficult to say. can't ring they themselves to cut their investment bank very heavily. they are afraid of not being up to generate revenues in the future. on the other hand, it ties up enormous amount of capital. matt: that is an excellent way to put it. a big conundrum. thank you so much for joining us. geoffrey smith on this developing story. we will continue to cover it for you. after the incredible plummet in the shares yesterday, we watch the shares and the debt today. , not going to ask

you specifically about the woes at deutsche bank but you've got not only the credit rating cut here, you had credit rating cuts for italian banks yesterday. european banks are trading well below book value still. over bye italy taking populist regime and the toppling woesain, do these ranking really add to concerns to the currency? >> they do weigh on it. we have seen banks in the u.s. being recapitalized, being reinvigorated whereas in europe, banks have been undercapitalized. we are still seeing? 's in terms of their performance. marks in terms of their performance. if you could snap a want and all these banking problems in

europe, the euro would be relatively higher. it is a catalyst just away on just tos performance -- weigh on the euros performance. matt: interest turned around and going down, trading 11575. -- 115.75. you have been with me for an hour and we haven't discussed brexit. that has to be a first. .eremy, thank you for your time i appreciate you guest hosting with me. now, america's closest allies, we have been discussing will impose tit-for-tat penalties as the u.s. confirmed it will be leaving tariffs. wilbur ross will announce -- saying they were being imposed on national security grounds. here is a sample of the reaction to the american action from world leaders and policymakers. >> let me be clear, these

tariffs are totally unacceptable. canada has been the united states's most steadfast ally. >> whatever they do in terms of trade actions today, will be counted by similar action from mexico. an openill keep on dialogue to try to reach a interest ofthe mexico and trading partners. >> -- as we had liberalized goods, these imbalances would be cut in half for the united states, for the u.k. it happens to be the case as well. matt: joining us, james nixon. eco-101talking about

earlier. the first thing you learn is the global trade is good for everybody. has donald trump not taken this course? james: that would be the case. trade is good for the american people. thoses will hurt countries that are trading those materials but it will have a big impact on american consumers by putting up the price and steel imported into the united states. matt: the white house and trump supporters will argue that the u.s. has gotten a raw deal in the global trade regime for decades now and that the wto just doesn't work if you have a dispute. the recent airbus dispute took 15 years for the wto to decide. if that were the case and i would love to your case on whether it is -- what would a country do in order to alleviate concerns? james: the answer is the only

solution to all of these issues is multilateral actions and working together. chinan make a case that may be accused of flooding the market. not a situation where the economy response to prices. it doesn't strike me that imposing tariffs unilaterally across the board is a solution to tackle what is essentially a chinese problem. matt: does seem to be a concern to trump that import tariffs for cars from the u.s. are 10%. james: that is true. they are that for a reason. you have to step back and there would be other negotiations and they were offsetting tariffs and setups that were put in place for that reason.

caseg said that, it is the for both canada and the you -- and the eu for win-win solutions. they don't seem to be of interest to the u.s.. matt: appreciate your time today. ♪

matt: good morning from bloomberg's european headquarters in the city of london, i am matt miller. this is bloomberg daybreak: europe and these are the top stories. deutsche's downgrade, s&p cuts the rating to triple b plus a fed hasr reports the added it to a list of problem banks. shares start the day at record low. rising risk. italy finally pulled together a populist government has spain's conventional one falls apart. investors reprice and price again. terrorist tit-for-tat. the eu said it will take steps to retaliate against u.s. metals tariffs. canada and mexico without a response with their own duties.

we are on the ground across europe as stories develop. we are in paris as the eu prepares its response. our reporters join us from mad read and rome for the latest political -- madrid and rome for the latest on political risk in those countries. let's take a look. an hour from the start of the cash trade where futures are indicating will go. we are seeing slight gains across the board, stronger for backs.n ftse and some green arrows in the asian trade overnight and some risk on signals as well. let's look at the bond futures and see. investors are selling off

treasuries, for example. let's see what they are doing with italian bond futures. spanish bond futures will be interesting. future, trading down right now. investors are selling out of the perceived safety of german government debt. they have been buying into it to the extent the yield was compressed to zero point 24% at one point a couple of days ago. that is a risk on sign for the market. here is the euro btp future, buying that and u.s. bond futures are getting sold. u.s. yields are rising, another risk on sign. we see the yen also following this morning. bebe investors will interested in picking up shares, but there is so much going on today, from italy to spain, to u.s. tariffs the bank of japan.

whatre not sure exactly could happen and we could see some gains or losses as far as what we see at the open of trading. plus, you have the deutsche bank story and we have more breaking news on this developing story. fedceo has comments on the noting the troubled business and the usn -- u.s. and having its rating cut. he is saying standard and trust for deutsche succeeds with required changes so there is to bework that needs done. he has made that clear before, but is saying to a memo it -- in a memo to staff that with the ratings cut, still expects the bank to succeed. a little juxtaposition there. the bank is trading up 2.2% in trade gate versus the close

yesterday, but remember, yesterday was the book -- lowest close in deutsche bank stairs -- shares since we started keep record in 1992. get a bit of a bounce this morning. let's get more of the international and world headlines. the first word news with juliette saly in singapore. juliette: italy's populist five-star movement and league arty are set for power with goal for fiscal expansion that poses a challenge to european rules. in asis due to be sworn prime minister along with his cabinet today. the cabinet was put together after almost three months of negotiations, which saw five-star and the anti-immigrant league threaten early elections. willca's closest allies impose tit-for-tat penalties after the u.s. confirmed tariffs

against them. onbur ross announced duties steel and aluminum from the european union, canada, and mexico on grounds of national security. the eu says it will retaliate immediately. mexico has said donald trump has "shot himself in the foot," while canada says the tariffs are an affront to the long-standing security partnership. mariano rajoy is heading for defeat in a vote of no-confidence. the vote will be today and opposition parties have joined forces against him. a socialist have the backing of two antiestablishment groups and one catalan party. the prime minister says he won't resign. deutsche bank's credit rating has been cut by s&p global ratings by one notch to triple b plus from a minus. as hewngrade is a blow

tries to reinvigorate europe's largest investment bank. it comes a day after reports have put it on a list of problem banks. shares closed at a record low. global news 24 hours a day, on air and tic toc on twitter, powered by more than 2700 journalists and analysts in more .han 120 countries you can find more stories on the bloomberg at top . juliette, thanks for that. let's get back to the deutsche bank story. the credit rating has been slashed one notch from a minus to triple b class. the shares were at a record low yesterday after reports u.s. regulators added it to a group of trouble lenders they monitor. we have just seen a memo from the ceo, the new ceo, to his staff saying that the news flow isn't good, but that they have financial strength at a group level beyond doubt. this is one of the things deutsche bank has been making clear.

they are not in financial straits. for more, we are joined by asia finance editor russell ward. clearly the news flow here is bad, but deutsche bank continues to make the case it is financially sound. could that change? well, like with any rating downgrade, that brings into play the risk that an institution's funding costs are going to rise. that is a possibility in this case with deutsche bank, despite reassurances the bank's funding situation is sound. does seem to be piling up for deutsche bank. another thing overnight that folks in europe might be interested in was down in australia. deutsche bank was named in a where in alle charges were made along with

down banks underwriting there. the news is piling up for deutsche bank on all fronts, really. did sayristian sewing in his memo the funding plan for the year is well advanced and at favorable rates. he did say that because investors are concerned there financing cost will go up. what kind of bank is this turning into? the ceo going to do with what was once a global bonds trading powerhouse and has fallen dramatically from those highs? well, the bank -- he is trying to retreat from those global ambitions. he has said he will cut 7000 than 90,000 staff. that is a big chunk of staff that will have to leave the bank. , what motivated them to cut

the rating was that they see this deeper restructuring taking time and while acknowledging tough decisions are being made, it will take a long time for the bank to turn around and they referred to sustained underperformance compared to banks that have successfully restructured since the global financial crisis. so it is really the length of time of turning the ship around that s&p is concerned about. for: russell, thank you joining us. russell ward, finance editor out of asia. for deutsche bank, the story developing. we will continue to bring you breaking headlines, but the ceo christian sewing sending out a memo after the actions by the fed and standard and forest trying to reassure his staff as he shrinks the bank.

for europeanmoment politics. in italy, the populists have formed a coalition. professor with no political experience is due to be sworn in as prime minister along with his cabinet this afternoon. forms a populist government, spain is likely to lose its conventional prime , facing, mariano rajoy a vote of no-confidence today. opposition forces have joint -- parties have joined forces against him and are likely to prevail at replacing him. we are joined by annemarie hordern in rome. maria, let's start with you because this story is developing still. is there any chance he can save his job in what looks like a sure defeat? well, he is headed for

defeat. the key here will be five lawmakers. and that leaves rajoy no options. rajoy willterms that be voted out of office if not president. no prime minister has ever been unseated by parliament, but still, i want to show you the front page. rajoy shouldng resign. and wes still time should not have a government that is weekend unstable. again, talking to sources, there is no chance of that. ahoy will be defeated and likely. more matt: take us through the latest in rome. we haven't even had conte sworn

in yet, but we know who will be in his government. annemarie: that is correct. he will be sworn in at 4:00 p.m. local time. a 20 minutes walk from where i am. here are the takeaways. this crucial role, the one vetoed by the president will go to a gentleman who is an economics professor in rome. not too much known about him. what is circulating on twitter is the article he wrote last year where he publicly called for a debate on the euro and italy's placing europe. he has also criticized the monetary system and how it allows countries such as germany to run high external surpluses. secondly, we should point out there is an establishment pick in this government. was thed under monte, under the-- general

commission carried he is known outside of italy and it is also -- and is also someone who would balance the government that is mostly populist driven. the main challenges coming ahead is after the vote of confidence in parliament, they'll campaigned on different agendas. wants to cut taxes and focus on immigration, while -- wants to focus more on economics. ready have a debt to gdp of over 130%. they will soon realize they don't have enough money for all of this, and how they get along and get these agendas to the public, that is going to be the biggest challenge ahead. matt: maria, let me ask how the markets are reacting to what is going on in spain? well, there are two big unknowns that could be a source of uncertainty. we don't know how the new government or how long they want

to stay in office. remember, sanchez said i am going to leave a short time administration and then we go to new elections. yesterday, he gave himself no deadline. technically, he could stay in office and till 2020, but this will be a very weak government. 85 seats in parliament. second, we have to look at policy. the socialists at one point said we will have to raise taxes and talked about creating a tax for banks. making them pay for pensions. two big unknowns. how long does he plan to stay in office and what kind of new measures will we get? matt: thanks very much for that. maria in madrid covering that story. annemarie joining us out of rome. onset in london, the global investment strategist at principal global investors. thank you for your time this morning. what a morning. you wake up and the u.s. has

slapped tariffs on the eu, mexico, and canada. italy has a populist government that was on-again off-again and rajoy is being toppled after 20 years in spain. how do you feel with -- deal with this as i an investor? >> the market is being buffeted by various factors and as one situation is resolved, you get the tariff issue. the important thing at this stage is to try not to trade -- you have to focus on the fundamentals. almost impossible to try and predict politics at this stage. italy, the u.s., very difficult. there is so much uncertainty. you have to focus on the underlying economics. matt: how does this change the picture in europe, considering what is happening in italy? anothergetting yet government that, regardless of whether or not they have a finance minister who appeases the president, really is a

eurosceptic government at its heart. isma: absolutely and that one of the reasons why you may see the market rallying the next few days. ultimately, there has to be some type of premium priced into italy at this state, given the euro skepticism we have seen. the five-star movement, although they had shown they have more antipathy against the euro than markets had anticipated. matt: does the euro get price down, as well? does the ecb have to actually extend quantitative easing ?ecause of this especially odd at a time when inflation is finally getting up to target and both -- growth is fairly stable. seema: when it comes to the ecb, they are not going to react specifically to italy and if we do have some kind of external n the ecbcertainty, the

is only going to be routing to the economics. if inflation is picking up, they are on par to finish tapering by the end of the year. when it comes to the euro, forecasts will be changing the next couple of weeks. the short positions for the dollar were unraveling and at some point, the euro would start strengthening. even what we have seen, it may mean that euro weakness continues a bit longer. matt: thanks very much for your time. it is great to get your input. seema shah is global investment strategist at principal global investors. let's get to juliette saly with your business flash. juliette: deutsche bank's credit rating has been cut by s&p global rating stood triple b plus from a minus. the downgrade is a blow to the new ceo as he tries to reinvigorate europe's largest

investment bank. it comes the day after reports on a listators put it of problem banks. shares closed at a record low. goldman sachs pushed into consumer finance has bigger aims than investors may have imagined. president david solomon said in a presentation that personal expansion possible opportunities for its market brand in mortgages to credit cards, auto loans, and insurance. startede consumer bank in 2016, it attracted one and a half million customers, made over $3 billion in loans and gather $22 billion of digital -- deposits. that is your bloomberg business flash. matt: juliette, thank you. america's closest allies will impose tit-for-tat penalties after the u.s. confirms tariffs against them. wilbur ross announced duties of steel and aluminum from the european union, canada, and mexico, saying they were being composed on national security -- imposed on national security

grounds. reciprocateit will immediately. canada says washington's decision is baffling. for more, we're joined from paris. is the eu going to retaliate against these tariffs? caroline: it came almost immediately after the announcement. , the euude juncker commission president, saying this was a bad day for global trade and the measures from donald trump were unacceptable. march,ies announced in 100 products, 2.8 billion euros worth of product should be impacted by new duties as a retaliation from the eu. this includes bourbon, whiskey, butey-davidson motorcycles, also cranberries, tobacco, orange juice and peanut butter. duties comingsome

into effect as soon as june 20. that is what the eu said, and then there would be a longer whiche, part of the wto, is obviously going to try and defend the interest of the eu. trigger the wto dispute as soon as today and more measures could come into effect over the next few months and few years. to be ablee expect to avoid an escalation into a global trade war? we justis it possible move one and two, or does it have to build up after that? whether: it depends on we are seeing last-minute and the secretary wilbur ross is actually going to china over the weekend, who have also threatened to retaliate after terrorists.

the german economy minister was about half the radio an hour ago saying it is in everyone's interest to avoid escalation, but these tariffs are a big mistake. this will dominate the discussions at the g7 finance ministers meeting in vancouver starting in canada today, and the french finance minister said ahead of these discussions at the g7 that it is almost impossible not to invoke a trade war with the u.s.. we will have to see how these retaliation measures are implemented. director told me yesterday he was advising wto buters to avoid escalation, it was hard to avoid the domino effect. matt: caroline, thank you. caroline connan, covering this in paris where she has been all week for the wto meetings between wilbur ross and his

counterparts in europe. very interesting headline coming across as caroline was talking. er, who is the minister for economic energy and close advisor to angela merkel has said the eu may seek to answer the u.s. working with mexico and so the three of them retaliating together as one group. investment global strategist at principal global investors is still with us. i want to ask the same question i asked caroline. and we avoid global trade war is that what we are looking at? difficult.ill be in fairness, you cannot predict what will happen. there may be a turnaround at some point. in april, we thought this would escalate and it has happened. from the sound of it, retaliation is going to be coming through. the impact in growth may not be that significant.

it looks like they are trying to do politically rich -- strategic retaliation, so focusing on areas that hit u.s. politics given we are approaching midterms. matt: what do investors do in a situation like this? you have to look for certain companies that may be about the trade war? do you have to look for a safe haven? seema: maybe the thing to do is look for companies or sectors that have most domestic exposure. expectmple, you would small caps outperform large caps given they are more focused on the internal. -- weu.s. treasuries thought they had been above 3% for the majority of the year and pushing through to 3.20. i think that is at risk now. if you have global growth downgrades on the back this and we could see yields hovering around the 3% level and lower. matt: is there a winner and

loser here? is europe on its back foot when it comes to these tariffs? seema: i think they are slightly . specific countries like germany would be the major losers, but as bad ay are not in position as countries like canada and mexico, who are the key closest u.s. trade allies. emerging markets have been buffeted continuously this year and they would be the key losers from this given u.s. dollar, of. rates and now signs protectionism, which will be focused that china. trade chain, it will spread to southeast asia. matt: long emerging markets has been a popular trade lately. long distressed debt, triple c bonds has been a popular trade and pay off quite well this year. do those things have to turnaround now? seema: investors have to have a

little bit of caution. at the beginning of this year, there was so much potential for but every single geopolitical crisis that has come up this year has affected emerging markets. now, the fundamentals for e.m. are still pretty decent. strong growth later in the cycle suggesting the expansion can go the same time,t sentiment, when you are looking at how much caution will be entering the markets, you have to take a moment and think, which country will be better off? look at the ones with less financing problems and those are the ones which are not too exposed to the oil price increase. matt: thank you so much for your time. so much to cover. is a great to get your thoughts on this. , global investment strategist at principal global investors. quickly, we want to recap what is happening at deutsche bank. so much negative news flow that the ceo has put out a memo to

just that.onfirming assuring them that the bank is still financially sound. saying hisewing funding plan for the year is well advanced and at favorable rates. he says that because he has to be concerned their funding costs will go up because standard has cut their debt rating from a- to bbb+. at the same time, deutsche bank has been put -- been put on a list of trouble businesses in the u.s.. that brought shares to a record low yesterday. trading at 9.16. we see shares rising at the open on trade game versus the close last night after such a big drop. maybe some people think it is time to go in and bottom tick deutsche bank here. saying the company has

financial strength that a group level that is beyond doubt. stock at the that open. we will watch it how spanish debt. so much going on. the european open is up next.

matt: good morning. welcome to "bloomberg markets: the european open." we are live from london. i am that miller. -- matt miller, guy johnson is off. what a week. there is some much going on. the cash trade kicks off in less than 30 minutes. deutsche's downgrade. after closing at a record low yesterday, we will bring you the latest on europe's largest investment ain't and standard cuts its