anna: good morning from bloomberg's european headquarters in the city of london. zurich.'m live in this is bloomberg daybreak and these are the top stories. u.s. tariffs stroke fears about global trade war but the top economic advisor says the blame lies elsewhere. >>

blame nafta. anna: stocks rise in asia as investors react positively to the strong u.s. jobs report. perhaps more joel for turkey. -- more trouble for turkey. very good morning, everybody. it's bright and early here in london. you have been watching the spacex launch. up from thee going canaveral in florida. you are in xeric. tell us more. -- you are in zurich, austria. tell us more. manus: we will bring more to you tomorrow morning.

are lots of nations here. mine has a middle east feel to it. we are getting at the opinion on global markets. hopefully, the interview will take place. middle east and daybreak europe. this is the rally that we are seeing in the asian equity session. by 1.1%.fic up the market, battered and bruised from the political turmoil. markets focusing last week in the u.s. session and to the asian session. refocusing on the positive. the economic growth engine, focusing there. i found that quite fascinating. less appetite for safe havens, the yen, the dollar. we see a stronger new zealand dollar.

the pound, the euro all a little bit stronger. res to complete the picture in terms of the market snapshot. suggesting that will be a little bit ster. we should point out, seems to have come up a little bit since our or so ago. of the biguse one indices. james clapper joins programming. that's a 5:30 p.m. u.k. time. manus? you missed a fairly volatile week, anna. good choice in terms of vacation time. china says it will an all trade agreements with the u.s. if the trump administration pushes ahead with tariffs.

wilburning came after ross went to beijing for talks and as president trump prepares for a showdown at the g7 summit in canada. don't blame trump. blame china, blame europe, blame nafta, blame those who don't want reciprocal trading. is responding to several decades of trade abuses here. >> donald trump lawyers say the president's authority to influence investigation into his actions is brought if not a limited. rudy giuliani said such action would be dangerous. pardoning himself would be

unthinkable and it would lead to probably an immediate impeachment. the house and senate would be under tremendous pressure. president trump has no need to do that. the u.s. has warned north korea that it will lease -- lesson sanctions only when it denuclearization. they met ahead of next week's potential summit. tough stance.est must maintain a we must remain vigilant. we will continue to implement all human security council resolutions on north korea. only meets when they show steps to getting causation. denuclearization. three days after being sworn

in,pproval will be saw thisek ft of prime minister giuseppe conti , a law professor with no political experience. the five-star movement and the anti-immigrant league currently hold a majority. says russia is using from spies toted wage a covert war on western countries. putin'svladimir government considers nonmilitary methods of attack more powerful than warfare. global news, 24 hours a day on air and at tictoc on twitter -- twitter. you can find more stories on the bloomberg at top .

le check in on market action in asia. we have japan leading equity gains. tif,te a u.s./china trade deutsche bank says never mind the trade sanctions. why chinese stocks. hong kong shares are set for the best run in three weeks. let's check on some movers across the region. bio techs are going down. kong, chinese solar stocks are sinking after the government unveiled new policies. in tokyo, up for a third day. you had goldman's bullish outlook. stock to buy.he

thank you very much. the president of united states headed for a showdown with american allies. says allhina commitments are off if he imposes tariffs. larry kudlow struck a defiant tone. he said other parties are to blame. let's get to correspondent who is live for us in beijing. how is china on its trade talks with the u.s. changing? i think we saw over the weekend frustration from the chinese side boiling up to the surface. that the it very clear negotiations they have been having with the u.s., vertically focused on imports of

agriculture and energy, will not be implemented if the u.s. goes ahead with its threat on tariffs. we had secretary ross talking to his counterparts trying to hammer out some of these details. after that agreement, president trump came out and said this deal probably won't work. they came here with the president having said that and also having recounted those greater tariffs. cheer -- clearly, the chinese are angry. ,hat was articulated particularly in the state media. they said the u.s. i was capricious and unpredictable. anna: -- manus: let's talk about china might respond if trump imposes tariffs. >> china has made clear it would

retaliate with its own tariffs and with a concern when you talk to the likes of the american chamber of commerce and its members. it's that you will see unofficial measures as well. the revenue streams and profits derived from the chinese market. that's a concern. chinese officials have been working out other measures andnd market opening reduction tactics on goods been imported from the u.s.. the focus does switch to the u.s. side and whether or not on june the 15th, when they plan to publish his list of items, whether not they come on and indeed do that. we will look for the chinese response. china has been quite clear on how it will push back. thank you for a much.

our guest joins us. happy monday to you. larry kudlow is saying don't blame trump. away from the blame game, what is it in the market you are watching for at the mo? a lot of people are very focused on the straight story. some describe it is a real game changer. are the real market movements that you are watching for? >> it is a lot of noise in the skirmishes that we are hearing about. the messages is rapidly evolving with expectations leading to something that is ultimately a strong enough force to threaten global trade linkages or whether, as you say, it's going to be diluted and ultimately be a policy which doesn't impact overall economic conditions. you can see the way the markets trade is in line with expectations evolving around

that. because of the g7 meeting later this week, things come into not useou are right to the word blame and to dial down the heat around this. inter-linkages in the global trading network. the markets are taking it very much in stride this morning. yeah, they are. seeing the yuan backing away. that's one of those litmus test in term of global trade. it feels the markets are more focused on the possibility of a kim jong-un, and donald trump rapprochement. that america point never considers that canada is a national security threat. you have to say, that is irony at its best.

>> you hear a lot of rhetoric from both sides. tit-for-tat in the all starts that this again unwelcome momentum is very important. that said, it's something of a slow burner. issues like the situation the korean peninsula and the situation in the italian political situation, they have more immediate interact -- -- on on markets area markets. bring we are beginning to -- anna: we are beginning to bring our viewers pictures of the spacex launch. it seems the eu and china have set the date to have a conversation about trade.

july in beijing. i have this chart that shows the trade balance between china and eu. the trades to have relationship the same direction with europe as it does the united states. arethink the eu and china working together? the interlinked as between all these economies, there are pros and cons. china is running these enormous trade surpluses with the eu and to a large degree, consumers in the u.s. and the eu are benefiting from the cheapest of the goods and other things that are being imported. and fragilemplex chains. at the moment, the eu and china feel like they are on one side of the debate because of the sterling is coming

from the u.s. at the moment. while there were always the scope to try to moderate these relationships, there are difficulties in changing to rapidly which is what we are seeing at the moment. manus: stay with us. he stays with anna and our's -- and myself. we have the jobs reports with renewed optimism that the world's largest economies cranking it up. is there anything standing in the way? we discuss. this is bloomberg. ♪

anna: good morning, everybody. this is "bloomber daybreak: europe." singapore, 1:18 in the afternoon.

a strong rally taking place in asia. let's get a bloomberg business flash. bayer is planning to raise money to help purchase monsanto. investors will be able to buy two new shares for every 23 held. 22%'s a discount of about to bayer's closing price. microsoft has decided to purchase github. they chose to sell the company rather than go public. they were last valued at $2 billion in 2015. a spokesperson declined to comment.

unicredit is considering a merger. according to the financial times, the italian lenders ceo has been developing the idea for several months. anyfrench bank denied it and callsunicred were unanswered. airbus's newest aircraft has moved the u.s. borders. that the has learned affiliates of singapore airlines opted for the 787.

that's your bloomberg business flash. the latest on the market. the shape of the yield curve in the united states might be the most excittopic and fixed income this week. after a mid-may pause, the flirt -- the curve flattened. the phenomenon that dominated for more than a month has roared back to life. it's locked and loaded for the market. john, when you look at the yield curve, we came back to 40 basis points. we touched that level three times. does it hold? which ubs what he has the boys and girls who are simmering away sweating at this point in time? we are hairs breath away from inversion. data murray -- they don't worry

that much at ubs? basis points is reasonably substantial. in u.s. raten hiking cycle's for the yield curve to flatten. we are concerned -- we are surprised how much people focus on it, frank in late -- frankly. as long as u.s. longer data yields are so far above their equivalents in the core eurozone or in the u.k.. we don't think we've seen the end of the flattening by any stretch of the imagination. there does come a point where if the fed seems to be over tightening in due course where inversion could be much more ominous signal that the moment ais is nothing more than fairly typical and ordered the flattening in a rate hike. anna: tell me more of what this

does to the fed. inversion, he of said, that's my job to make sure that doesn't happen. fed is using that kind of language around it. does it send the same signal? for us it says that for the front end of the market, short in yields are pretty much where they are going to go. -- short in the yields are pretty much where they are going to go. yields are pretty much where they are going to go. if they seem to be tightening into an economy that is slowing down the new yield curve will invert but we are not there yet and we think they are following an appropriate path.

one of the things that the mliv team picked up was duration. a big move in 30 year bonds on friday. those liquidated on the longer and were ahead of the curve. is there a feeling that is more precedent? -- prescient? in the u.s., we do think going for the short in yields to move a little higher and for the .hole curve to go on flattening we think 10 year yields are close to fair value. we don't think they ultimately go above 3%. the very long end, if two yearsare rising -- if two are rising in 30 years are going

nowhere, 10 years could fall little bit. about theed interplay's between strong data and fiscal stimulus. longer version on the other. -- longer aversion on the other. signs on tooa: any much fiscal stimulus? this is 1844 you can find this in our library. the unemployment rate coming down. too much this -- too much fiscal stimulus? the timing was unusual. infecting -- injecting stimulus to a economy that was already growing strongly. if that stimulus acts on top of

the system, it could turbocharge the cycle and see it ultimately overheat which is the point at which the fed has to over tighten to deal with inflation rate in amex. two deal with inflationary dynamics. it has to come back down again. before we finish on this one, will wages data for you a good thing? is it just not strong enough? getting there. again, we can have comparisons with other markets. in the u.k. we have a problem. in the u.s., it is responding. it will keep the fed on track, i think. anna: thank you so much. he stays with us.

up next, talking about europe. a new phase of european risk. he will have the latest on italy's new government. an update form rome. -- from rome. ♪

manus: live pictures of tokyo there. ins just gone 7:30 a.m. here zero. zurich. end.p in the the dollar itself is working around the world. a nice risk on indicator. in with nejra cehic. as you say, the demand is wilting and risk is on if you look at equity markets in asia.

you can see some pretty broad-based gains across the region. it seems asian markets are reacting slightly belatedly to the jobs data. see this risk on playing out in the fx space as well. the aussie dollar is outperforming. the yen underperforming. the nikkei outperforming u.s. stocks. aussie/yen on this chart. we have seen the relentless curve flattening continue after that jobs data on friday. when it comes to the 210 spread,

we are really not far off 40 basis points. we are 42 at the moment. go below that, or he going even more flattening. at what point does the fed feel it needs to do something about it. there is comments coming through from policymakers already. moving on to oil, looking at where we are, we are holding below $66 a barrel. week belowish the its 50 day moving average. a bit of a bearish signal. anna: thank you very much. lots to look ahead to in terms of the inflation story. let's look at what is going on the periphery of the euro. government is going

to face the houses of parliament in the few days. the anti-establishment five-star movement and the anti-immigrant league currently hold a majority in both houses. join us is kevin. onceest on this story? as we look ahead to these two votes this week. kevin: the government is expected to win. the majority is then so it could be close but that's not really the question. the question is what happens now. the new government has a strong program and they want to challenge the european union and spend more money. the hard part is starting right now. in terms of over the what was the message

there? the biggest concern is spain versus italy as far as fiscal restraint. the message was mostly internal, domestic, which is whoing with the migrants have been coming to italy. he said they should get ready to pack their bags and he wants to perhaps hundreds of thousands back from italy. this rattled people quite a bit. the government will be trying to take fairly strong measures on this. play outwill internationally remains to be seen. anna: thank you very much on the update in the italian political stream. us -- johnstill with wraith still with us.

this is italy and spain. it shows the way we spiked up towards the middle of last week. the risk for us. how elevated is risk for you? given how much volatility there has been recently where we are not forming strong opinions right now at these levels, there hasn't been a lot of liquidity and it's going to take time for things to settle down. sanguineill reasonably about the outlook. growink europe is going to quite strongly and things will stay on course. recent events have reminded us how close to the surface some of the ongoing problems that underpinned the eurozone are. it certainly made us wake up again to some of the worries

that sadly, we have seen repeatedly over recent years. spreads won't go back where they came from but equally we hope that the worst of this and the panic is behind us now. manus: hopefully the worst of the panic is behind us but the one thing that is very, very real is that doom loop we have between banks and sovereigns. it really came back into its own last week. end, we haven't broken that doom loop. real concern of markets last week, wasn't it? john: it's a reminder of ultimately how close the surface of the unresolved structural faults in the eurozone remain. mast by what the ucb has been doing -- ecb has been doing.

obviously, it diminishes discontent within economies. it also improves fiscal circumstances. they can stay on track with the ecb can stay in control. some of these concerns should alleviate a new. everything is mutual and up in the air just a few short months after ecb is going to stop bond purchases is an additional concern. anna: do they stand beside and watch the they do something that's going to engage the go into program? what are they going to be looking at? it makes the decision they will face of the next couple of months much harder. they won't wants to be seen as continuing bond purchases purely to address this flip -- this fresh flareup.

it starts to bring up issues on whether qe is economical. they are watching the economy. they a watg the data. we've seen pmi's continue to soften. things are accelerate and become more robust, the ecb will be more confident in stopping its bonds purchases. we will hope that these episodes resolve themselves and that something they would see is not their job. manus: the debates will rage on fiscal responsibility versus budget. i was quite surprised, we have come back to our one year

average in terms of fx volume. i find that quite remarkable that we have recovered so quickly from such tumult. that is still in place? it tak also, the way the italian political situation is played out so far suggest that even though we will have to be wary of the fact that there is a government in place that is less willing to play by the eu rules, ultimately the market at the moment is assuming that economic that theirl mean intentions to stir things up and pushed back against the the level is limited. things can change and we saw how

rapidly the markets can start to unravel. at the moment, there's an that things will remain roughly on track as we move forward. let's get to where we stand on the u.k. story. a real reassessment of where the bank of england goes. once your assessment? -- what is your assessment? we talk about trade concerns in the eurozone concerns that we do think there are wider problems in the u.k.. alonge been concerned all that the economy isn't really re-accelerating and doesn't merit rate hikes. the one we saw november we thought was unnecessary. the bank of england is more willing to attribute it to bad weather than we are. we think there's something more

fundamental. growth isn't going to re-accelerate in our views so rate hikes won't transpire and in that environment, short again -- short in yields will remain low. yields will remain low. how far away as of the central rate hike? after carney goes back to canada? forecasts are based on an orderly exit from the eu. see that, given how low unemployment is and how robust and stable the global economy is, there is space for the u.k. to do better. we need clarity that transition will happen and that at the end of that.

thet the end of that time, u.k. will move to a new relationship. anna: thank you very much.he stt longer on the program. the joyride for the world's's airlines may be coming to an end. warnings that the sector may have already hit a peak. what is driving the gloomy outlook? >> we had forecasts on fuel price and cost estimates that we have to realize, the fuel prices higher than we had forecast. -- arebor costs aren't continuing to increase. labor and infrastructure costs.

we have revised our expectations down to $33.8 billion for the year. 4% of our revenue and that's not a big margin. that's based on $70 a barrel. there's lots of factors that can be argued. is it not a conservative enough forecast looking ahead to 2019? >> we should be cautious about forecasts on all prices. able to forecast prices we would not be sitting in these chairs. we have revised our forecast from 38% to 33.8%. from $38 billion to $33.8 billion.

the reason for that is when we look at with the airlines have years, theye to 10 have increased their resilience because we have restructured. we have reduced costs. we have increased market presence. shock hasce to improved. >> do you think global airlines are strong enough to resist a downturn? >> the results are good. the resilience is improving. resistance to shock is probably better than 10 years ago. after, it depends on the level of shock in the level of the downturn but we are reasonably that we are more solid

and resilient than 10 years ago. we think we are able to cope with the downturn. if it's not a disaster, of course. remember, bloomberg users can interact with all the charts that we have shown you in the program. tv . all the charts we have pulled up. can click on them and use them in your own analysis. a surprise rate hike hasn't rescued the turkish lira. re watchinghe inflation data. we will discuss emerging markets and what the story is there. don't miss our interview with bulgaria's deputy metro center -- deputy minister of the economy. areat 9:30 a.m. u.k. time

-- that is at 9:30 a.m. u.k. time. ♪

manus: it's a live shot of new york on this beautiful monday morning. politicalit more instability in europe and in spain. let's get your bloomberg business flash. sophie: bayer is planning to raise money to help purchase monsanto. this cap's nearly two years of antitrust reviews. investors will be able to buy two new shares for every share held at a price of 81 euros.

this is a discount of 22%. acquiret has agreed to the code repository companthey could announce the ds soon as today. prefer to sell the company rather than going public. valued at $2 billion in 2016. unicredit is considering a europeanth another company. supposedly the idea has been developing for several months. would not bank discuss the potential merger. redit werenic

unanswered. boeing's efforts to undermine sales of airbus have moved into india. a market seen as crucial for extending sales of the plane into asia. bloomberg has learned that the indian a fairly -- indian affiliates have opted for the 787. this follows other companies scrapping orders and picking going instead. satellite,launched a marking his 11th mission of the year. the rocket carried a payload from florida. the company is targeting roughly 30 missions in total this year of from a record 18 in 2017. "solo"ice receipts for fell 65% from its debut weekend

making it likely to be the first ever star wars money -- star wars movie to lose money. it was below the $30 million projected by box office research sites. that's your bloomberg business flash. anna: a diverse set of business news stories there. let's look at emerging now. we are going to get inflation data out a little bit later today. what will be the response of the central bank after a nearly 20% selloff in the lira versus the dollar? in china, banks are scrambling to deleverage. john wraith is still with us.

from your perspective, the dollar is a big factor in this. for some time we've talked about what the strength in the doctor -- the dollar would be an enormous headache for emerging markets. .his morning we see rally is all this fit together? -- does all this fit together? data yes, the near-term giving reassurance about the wider global recovery in the underlying problems which over recent weeks have led to save haven demand for u.s. dollars in the spillover that has for emerging markets. i think the wider focus on e -- trade tensions is important as well. be 10 reactions and many unintended directions and that inevitably will not be good news for emerging markets.

there is a lot to be concerned about but at the same time, things are proceeding as expected. conscript is for a number of central banks, doesn't it? the turkish central bank took an emergency move last week. they might the necessarily want to have to raise rates but it's a defensive play and that's almost a big loop that we are starting on. john: that's one of the dangers. you have the collateral damage happening too much more vulnerable economies than the ones which are initiating some of the action. that is a classic response for emerging markets. in times of economic threats to vulnerability, they have had to raise rates to try to protect their currency. it's a unwelcome decision but one that may be forced on them. with that in mind, if

those risks percolate in american markets -- in emerging mextent does that cap u.s. yields below 3%? all of those. we have different views on some of these markets and we think, for example, core eurozone yields will head higher but that's more about the ecb heading back on stimulus. concerns in the wider global economy will lead to save haven demand. -- safe haven demand. you said earlier on that -- what is a strategy at this point? u.s. treasuries

outperformed against your eurozone assuming are underlying views remain on track. gilt yields and treasury yields don't go far but they can rise as ecb starts buying the debt. thank you very much. anna: they give very much. manus: that's what happens when you have no clock in front of you, and up. -- clock in front of you, and not. anna.front of you, anna: thank you very much to john wraith. thank you for putting up with the delays on international broadcasting. turning up the tension. president trump is scheduled to

meet g7 leaders in quebec at the end of this week amid new steel and aluminum levies. it will bring you the latest from beijing. the chinese have had back. this is bloomberg. ♪ retail.

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

this is "bloomberg markets: european ope --"bloomberg daybreak: europe." anna: these are today's top stories. tariffs stoke fears of a global trade war. the president's top economic advisor remains defiant. >> don't blame trump, when china, -- blame china, blame europe, blame nafta. manus: risk over? stocks rise in asia as investors react to friday's strong u.s. jobs report and the formation of two new governments in southern

europe. more trouble for turkey as moody's places the nation's rating on review. today's data forced further action. manus: warm welcome to "bloomberg daybreak: europe." it is 8:00 a.m. in downtown zurich. we are looking at the market and the risk off paranoia seems to have wilted. that is the choice of phrase on the bloomberg. are you risk on as you look at the european equity futures? you see rising equity markets. looking at the dividend yield, a lovely chart. the dividend yield for europe has become more attractive relative to bunds.

we have not seen the 50 year this attractive since 2016. every tariff in the market rs you an opportunity. anna is back refreshed and ready to rock with our risk radar. good morning, anna. anna: i was away for a week and apparently a lot of stuff happens. italian policies to deal with while i was away. let's talk about what is going on recently in the equity section. there is an upside to the start of the eurn equity day. the msci asia-pacific has been up, despite tensions over trade and the chinese telling trump if he slaps more tariffs on chinese products, all bets are off in terms of the agreement done on traits of our. -- of trades that so far. is what report, that the focuses of the market. that has been seen as a positive

for equities in risk assets, what that tells us about how likely the fed is to continue along it half of rate hikes -- along path of rate hikes. this is testimony to the risk on market mood we are staying at the moment. investors getting away from the safe havens that are the yen and the u.s. dollar and getting into other currencies, the aussie dollar, the kiwi, the pound in the euro higher this morning. better ins showing terms of the positive equity markets story as well. -- just modestly higher. manus: i like the modest word. let's look at the bond markets. you see yields writers so slightly, prices dropping -- you see yields rising so slightly, prices dropped. you look at the proposition from the new prime minister. they seem fiscally in line

versus italy, who may challenge the status quo in europe. is your risk. the frenetic buying of the bonds taking yields lower last week seems to be shortening in terms of that. . we do not believe you will see a spike about the percent in terms of the u.s. rate. it may cause spillover into the emerging markets and a cap in u.s. treasuries. let's get the first word news with sophie kamaruddin. will voidina says it all trade agreements the u.s. if the trump administration pushes ahead with tariffs. it came after the commerce secretary flew to china to talk abtrade talks, and as they prepare for the g7 summit in

canada. the u.s. has warned north korea they will relieve sanctions when they move toward denuclearization. james mattis met counterparts from south korea and ahead of next week's potential summit. he expects a rocky road ahead and insist the wests mus remain -- tha insists the west must remain firm. receive korea will relief only when it demonstrates a verifiable and irreversible step toward denuclearization. new populist's government is prepared for one more hurdle before trying to overhaul the european union rules and the established order. a confidence vote in both houses of parliament. approval will be sought this week for the 18 member cabinet of the new prime minister, a lot less the -- a law professor with

no political experience. parties hold a majority in both houses. a u.k. lawmaker has said that russia is using tactics inherited from soviet union spies to wage a covert war on western countries . according to conservative bob seeley, putin's government continued -- considers this more powerful than conventional warfare. he is deploying social media and his television news channel as a weapon. global news 24 hours a day on air and tictoc on twitter, and powered by 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . it is risk on in the asian session. focusing on the pit -- the positives with japan leading the gains. we are seeing chinese stocks

rise on the mainland as well as in hong kong. deutsche bank says never mind the trade tensions. shares in hong kong are set for the best run in three weeks with tencent driving the bulk of the gains. checking on the stock movers, in seoul, we have a biological company sliding. kong, chinese solar players are seeking the government's policies. toyota is up for a third day. the u.s. car sales came in better than expected. we had goldman with a bullish outlook for the car maker, iy that. isoyota to by based on its cost-cutting. -- to buy. that is based on its cost-cutting. manus: breaking news on a few new stories.

could there be a merger? they were talking about barclays. the society general reaches the pact to resolve libor. and libya. these are issues they are trying to square away with the department of justice. let me read you from the statement. i is fully covered by the positi -- it is fully covered by the provision. of records.stment ibor. the much more fascinating story is there is going to be a day, if it is not barclays, standard charter, never before in the past 10 years have there been so many european m&a banking

stories making the loop. anna: banking m&a seems to be something of a scene at the moment. let's talk about the buyer's attempts to take over monsanto. it is coming to a close, it seems. they are now targeting june 7. company's remain the name. the positive contributions will start in 2 they see that contribution in double-digit percents. synergies at the adjusted level with an annual contribution of $1.2 billion. it is in -- it has been two years and the making. last week, they got the u.s. authority to sign off on something. they have been under antitrust review for two years. we have heard over the weekend moneytheir plans to raise

in shares and bonds sales, enacting the final acts of this monsanto story ove at bayer. manus: just a little bit of news coming through. presidente have the who has resigned. this is coming from en plus. the president there has resigned. it is unprecedented and unforeseen challenges. that line coming through. there are also a couple other lines coming through in terms of this. -- as we get have more clarity on those, we will bring you those. let's talk about the president of the united states. mr. trump has headed for a showdown with his allies at the g7 meeting in quebec.

that as china says altman is are off if he imposes tariffs. the secretary-general says being intent onc could the global economy. >> we wesing on 4%. this of course has the potential of slowing down the recovery on the levelpinges of confidence. chinalet's get to our pondent, tom mackenzie. good morning. how is china's stocks that? how are all these trade talks changing? what we saw over the weekend was a hardening of the position from china borne of frustrations that they can't seem to get a grip on the u.s. trade strategy.

they get one agreement and then there is backtracking from the administration. the visit by commerce secretary ross was a case in point, because it goes back on the agreement in may when the u.s. and china says we have a vague agreement around china increasing its force of energy and agricultuthis weekend was me down to hammer out the details. but after that agreement, we have the president coming out and saying this deal probably would not stand up to scrutiny d and will not -- to scrutiny and would not last. that put some noses out of joint here in china. they want to know who is in on these discussions. is it wilbur ross, secretary mnuchin, who said the trades were on hold? or is it like kaiser -- is it leitheiser? they say they will not initiate these deals if the threat of tariffs hangover them. manus: if you go by the

theisernts set, leig was the man involved with the bitrade agreements. let's hone in on china. itump renegotiate its, is an absolute given that china responds in kind in equal measure? reporter: i think you will be very surprised if they didn't. they have been quite clear about this ever since trump was inaugurated. they said they would retaliate and respond. should the u.s. administration do this, we could be looking at this happening in the next couple of weeks when they present that list of chinese imports that would be subject to tariffs, you would expect to see china to retaliate in all likelihood. if that doesn't happen, we know officials here will be working up a package of measures they hope what ameliorate or persuade

the trump administration. they are saying they would increase coal imports from the u.s.. they sat down with the government of alaska to talk about it. some of those may be put on ice if the tariffs are put in place. it sounds that china is ready to roll those out to calm the tensions. when you to look at what the response will be from washington. anna: the focus of those talks will be around energy and agriculture. tom mackenzie, china correspondent. us, the head of market analysis at law next europe -- at monex europe. they talk about how they open with a grand gesture and the rhetoric is dialed back a bit. you give us an evocative image in your note. you talk about how trump speaks loudly but drops the stick when offered candy. with that sense, nothing to worry about when you see china and trade falling out?

markets are higher this morning. guest: i would say there is nothing to worry about. what we have seen is the administration seems more thanw. it is important to note these have a lot of leverage. i think there is probably a lot of opportunity, given that the talks are ongoing. there has not been unilateral withdrawal from nafta, and there could be headline wrapping incentives from china and the other parties that would probably be enough to take trump into the midterms. ranko, good morning to you. interesting in your notes, you --te that trump was handed in terms of this, you still don't see him pulling out. he pulled out of the paris accord. he has inflicted tariffs on his

closest order neighbor and called them a national security risk. why do you think he wouldn't just unilaterally pull? guest: i think first the strength of the trade relationships. relationship with the unitedial states, but close to it. you have a very integrated supply chain, particularly in the automotive industry and a lot of others. fromlateral withdrawal nafta would have extraordinary consequences for the u.s. economy and i think there are enough people in the menstruation know that -- in the administration who know that. the eu trade representative had been talking about how a rules-based system is under threat. do you see that? guest: definitely. i think the risk is collapsed by accident.

stopping an appointment of wto judges, the continued rhetoric, the threats that have been carried through. there is the risk that things will escalate. i think that is a real danger. unintentional u.s. withdrawal from nafta and the tariffs are a response. the next thing you know, we are in a protectionist framework. anna: thank you very much. he stays with us on the program. coming up, how likely is a merger between creditors, and how will the political turmoil play in the talks? we had to rome -- we head to rome for an update. manus: you don't want to miss our exclusive coverage. we have it from the bulgarian deputy minister for the economy, he joins the bloomberg team at around 9:30 u.k. time. this is bloomberg. ♪

anna: good morning. "bloomberg daybreak: europe." 8:20 and zurich -- in zurich. let's hear what is going on in the banking sector. two ofwould combine europe's largest financial institutions, according to the financial times. the ceo has been developing the idea for several months. there have been rejections of this story from certain quarters. our reporter is in rome. what has unicredit been saying about any tie up or m&a plans? seemser: this contradictory to what they have been saying all along. very much, they said we were focused on our own plan, organic

growth, no m&a. they have been on a very long project to reform the bank, to cut down on its bad debt, to improve its cncome ratio. this seems really contradictory to what they have been saying throughout. socgen.et's talk about how have they responded to this report? these stories are bubbling and brewing. barclays, standard charter, here we are today with socgen and unicredit. reporter: they have denied it directly, saying no such talks are going on or taking place. it is portrayed as something that have been talking about for months and months. i guess if they are doing that, they are keeping their cards close to the vest. you would think some of that would leak out. i think the logic of

cross-border merging and the the ceo being french, he used to work at socgen, there are reasons why you would think it would work. but as far as the banks -- what the banks have said and away they have portrayed their programs going forward, there has not been anything specifically about making that kind of tie up. but there are certainly some sense in making a bigger champion to compete with the u.s., for instance. much. ross, thank you so that is ross larson in rome with .he latest speculation from we have two new governments in place in spain and italy. we have investors redefining their perspective of risk in the region. let's start with the banking story.

quick group ranked return over the last month. it is not broken. italy,ks got better in all of their exposures in italy. last week was a real awakening of the fact that the doom loop is not broken between sovereign risk and banks. it may not be broken, but we are not talking about a return to a crisis period. we actually sought yields fall quite sharply -- we saw yields fall quite sharply. italian yields are still heavily elevated. what is going to manage the most is the fiscal policy of the incoming governments. we know that the agenda has been set, and it will elevate quality economy. the italian

the question is, will they follow through? will it be a motley socialist policy that does not completely go there. anna: this chart shows the european peripheral risk in spanish and italian yield bonds coming down after the spikes we saw earlier in the week. in terms of where we go next in italy, i was reading analysis from ing that said the degrees to which market discipline details policies will be key in disseminating w italy goes next. guest: that is the big question. the budget is drawn in autumn, so the question is will the budget be what they promise the electorate? aboutk we heard comments financial markets teaching the rules. it just depends. anna: it is that kind of interaction support for populist parties?

guest: i think we have seen italian yields not go back to business as usual levels. there is the potential that once the global policy is announced, it will be unsustainable. when that happens, that is when you will start to see a telling in yields spike again, central banks come under pressure, and the questions of the doom loop. manus: ranko, thank you. he is the head of market analysis at monex europe. my favorite phrase this morning is wilting. futures are set for a higher open. we are waiting for the turkish data to come. it is far from over in emerging markets. stocks are opening higher. i am glad you are back. i hope you had a lovely week. anna: no neurotic market risk, so it was a nice week. i heard you were busy with italian policies. apologies for that.

that is it for us. "bloomberg markets: european open" is next. bloomberg radio can be found on your mobile device. this is bloomber♪

guy: monday morning. good morning. live from our european headquarters in london. i am guy johnson alongside matt miller in berlin. matt: it is a pleasure to have you back. asian stocks gaining with the dollar and yen higher. cash trade in less than 30 minutes. guy: asian stocks rallying despite mounting train --