anna: good morning from bloomberg's european headquarters. this is bloomberg daybreak: europe and these are today's top stories. asian stocks climb for the first day this week. is otherwise index for the worst first half since 2010 as trade tensions continue to escalate. emily's brand-new prime minister reaches a deal in his very first summit. more problems for deutsche bank. how will investors interpret the news today.

anna: good morning everybody. it is 6:00 here in london. 7:00 in paris or berlin. we are up by three quarters of 1% on the asia-pacific. is the first day this week we can say that to get what a tough week it has been. the yuan has been down for 10 straight days. will we see an inversion in the currency markets? that is the top in the markets at the moment. the euro has dropped by 7/10 of 1% against the u.s. dollar. eu leaders coming on a deal about migration. we do not have all the details. leaders managing to come to something that looks like consensus and that is a real achievement. s&p futures suggest we will be start -- hi here the start of the u.s. trading day.

the inflation story, it will be going higher for a third week. emerging markets have been a big part of the story this week. nejra: you have seen the emerging market index dropped 18% from a bull market peak. it is rebounding ever so slightly from a 10 month low. maybe we shouldn't be talking an em selloff completely when it comes to equities. blink china because if you take a look, china stocks have been underperforming. the shanghai composite has dropped into a bear market recently. we talked a lot about that. the pressure on the yuan. 18s chart goes back to june when president donald trump seemed poised to escalate the trade war by pledging tariffs on an additional $200 billion in chinese exports. on tuesday in dropped 3.5%. china thaty the -- has been dropping even more.

hasemerging markets index been the s&p 500 over this time span since june 18 because of gains in peruvian and turkish stocks. when it's a look under the lid and see what is really happening in china. anna: a lot of moving parts this week. we had a profile -- high-profile interview with the prime minister of greece. -- the former -- you are a bloomberg customer, you can influence the conversation by clicking on the ask a guest a question that in on the bottom of the screen on the tv function. he will be joining the surveillance team at 10:00. let's get a first word news update. juliette: italy's new prime minister has negotiated a package of measures that the --

at the eu summit to send the flow of migrants into europe. muscles, member states agreed to increase border security. they will speed up the processing of applicants. leaders also agreed to a key italian demand to overhaul rules for distributing migrants when a gateway country is overwhelmed. can't prime minister theresa may has accused the european union of putting the safety of its citizens at risk by blocking of brexit deal on security. may told her fellow leaders that britain wants to play a major role in european security after it leaves the block. flexible eu rules. -- cited flexible eu rules -- in flexible eu rules.

with overall payout still at record levels. the four largest u.s. lenders that they will distribute more than $110 billion to dividends and stop by let -- stock buybacks. the company responded that it had made significant investment to improve its capital planning capabilities as well as controls in infrastructure. a white man in his late 30's is in custody after a rampage at a newspaper office. for journalists were killed after a man armed with smoke grenades and a shotgun entered the offices at the capital gazette. local police called it a targeted attack in which the gunman looks for his victims. u.k. confidence took a turn for the worse in june as businesses and consumers became more pessimistic an economic outlook,

according to a report. business optimism drop to the lowest level this year. the decline was driven by concerns about the strength of the wider economy with brexit and trade tensions highlighted as areas of worry. david rubenstein says he sees a cautious investment climate but no signs of an attending recession and a long-term trade war. the economy is in pretty good shape for this year and next year. something unexpected could come along and change that. i tariff war would not be wonderful. i don't think that will happen. negotiations will ultimately resolve this. right now, this cycle maybe longer than anything we have seen since 2001. we might be the longest cycle ever of economic growth. on for -- could go another year or so.

i can't find the an economist who say we are going into a recession in 2018. they just don't see that. juliette: global news 24 hours a day powered by more than 2700 journalists in more than 120 countries. you can find more stories at top . nejra: it is a solid into the trading week. it has been a terrible quarter. the asia-pacific index is down over 4% over the quarter. that is its worst return in about three years. the worst start to a half for years since 2010. you can see the u.k. their flat on the close. the chinese markets are where you are seeing the strength coming through today. csi 300 up 1.7%. must have a look at some of the stocks we are watching. sharp shares soaring in tokyo. shareked away from a

scale and it seems like investors approve of that. industrial yet, up by 9.3%. and a list flowing the consensus when your target place for the prime it -- payment. you are seeing a little bit of weakness in this japanese stock, the worst performer in japan. fallen to the lowest since october 11 after a downgrade from s&p c. thank you so much for us. we have breaking news that we want to bring to you. starting a share buyback of up to $5 billion. separately reinstated a goldman. nejra: this is interesting because it is not a surprise. talking about spinning off this unit is something we have been talking to the management about many times. maybe the timing of this is a bit of a surprise. heard, the parties said

it will not take action before the third half of 2019. the announcement does not take place until then. we'll keep an eye on novartis. the eu leaders came together on issues from trade and defense immigration. a late-night d.l. salt leaders about an unwavering response. it was what angela merkel said after the deal was reached. >> overall i think we have a cheese -- achieved a good outcome, having signed off the common wording. we will have to wait and see what they will prioritize. i'm optimistic that we can continue working on this together even if we have a lot in front of us in terms of having to bridge the different perspectives. here's what the u.k. prime minister said after a deal

was reached. conclusionto the around what the united kingdom had been encouraging for some time. on countriesction of origin so we can ensure that people are having to pay -- make these very dangerous journeys, traveling many miles at the hands of people smugglers and making the dangerous trips across the mediterranean where we see people dying. the decisions on migration were important. anna: for more on the european leaders summit, let's get to our reporter. it was a long night in brussels. thank you for joining us this morning. the italian government putting up a fight. what did you leaders agree in eu leaders agree in the end? >> a very contentious night. the focus point was the italian government. the italian prime minister said he would veto the entire summit

if they didn't get a comprehensive migration deal. this is what we have. european leaders have agreed to , when holding centers migrants get to europe, they will be screened and that it -- vetting and authorities will have to determine whether they qualify for asylum. if not, they will be sent back to their countries of origin. a lot of countries argued some cannot stay ints europe. secondly, there is this point, distribution quotas are going to have to be shared more equally if the country feels it is overwhelmed. this was key for the italians to get. they have it on the document. the issue is that we don't know in practical terms how this comes into effect.

bids of this agreement are going to be voluntary. we don't know which countries are doing what. this is a voluntary deal. we are not sure of that. or how this applies in practical terms. we don't know those details. they jumped on this idea that european leaders got to an agreement. it looks like they might not thisat one point, but sends a positive message to markets. up thehey are setting voluntary market centers for we don't know where that is going to happen yet. the italian prime minister saying that italy is no longer alone on immigration. does that mean that the german chancellor did not get what she wanted? will shel be able -- be able to survive given the pressure she is under it home? payment to the-- summit under a lot of pressure. unapologetic about her decision to let one million

refugees enter germany. she says this is a gesture of european values. line thatoing to be a says european leaders will agree to also take measures to curb immigration in europe. there might be some new bilateral deals that she can present as a win at home. she left for the council at 4:30 in the morning. she is trying hard to get a deal. point, her bavarian allies have put her under a lot of pressure. stage, given how difficult global politics are, it would be not the most smart decision to destabilize the german government and try to bring angela merkel down. to look at to have those bilateral deals. if we get any see

further information on bilateral deals germany may have done in wrestles. -- brussels. joining us here on set and wanted to join about london, scott teal. great to have you with us. we will get further into the a mood settingm perspective, this is the move we saw in the europe as a result of this deal. we don't know how or when this is going to be a fermented. the italiant, with government being so contentious, and as divided as the continent has been on migration, it tells us something positive that some agreement has been reached. especially if the italians were threatening to veto. in terms of the background music, are you are you more comfortable with the eurozone as a construct? >> it calms nerves. it is a very human issue. the migrant issue is a human

issue. it is center in the change in the italian government. it is central and angela merkel's policies. a resolution on this very human issue in the summer months migration tends to be stronger is a calming factor for the european union. it makes investors less concerned about political noise, about divisions within europe. that would make the euro traded higher. nejra: i want to ask what this means for bunds. i have a chart showing the tenure yield for bulletins -- bunds. we are red 32 basis points. do yields have to go higher from your? >> the other chart would be the same relationship from her reverie markets. respects, investors are not being compensated by the yields in europe for the volatility we have seen. if we look at data day --

day-to-day volatility, it is down 10 basis point today. the yield is about the same as the u.s. treasury, i don't think investors are getting compensated for that kind of volatility. the bond market is reflecting the guidance by the ecb. the concept of the rates will not go up until draghi leaves. ande is also the trade wars the issues around eu integration margin really. keep that risk-free rate lower. areau complex of the euro looks very low relative to the volatility we have seen. anna: partly because of this trade dispute. what about this b2b market at the moment? is still pretty elevated. because of the political turmoil that we saw after the election. should it be higher? >> there is a confluence of many factors. the qe program is coming to an end.

it is like waiting for the bus, the longer you wait the closer it gets. whether it is going to end soon or if the impact is going to be significant, there's a huge amount of buying that the ecb is not going to be doing despite the reinvestment program. that is the backdrop that we have are higher volatility. a lot of the italian political issues have been resolved in some respects. we don't know what the fiscal policy is going to be. we don't know what the policy about borrowing and eu membership is going to be. they said some positive things but they have not come clear with the policy. if we had a 300 spread at the 120 andf concerns and the beginning, it seems fair at 2%. we don't have a big position because they have to but a lot. they yelled at about 280. the idea that they have repriced

dramatically, there is a lot of uncertainty inherent in the italian political situation. nejra: you don't have a possession on btp's. what about the german bunds curve? of thehe very front end market, that is tied to the repo rate. if the rates are not going to move until the middle of next year at the earliest, even the you get very low, you get negative rates for the front-end of germany, the five-year sector susceptible to the selloff. the rate is locked down for the next year and a half. the longer and of the curve is going to be reflecting on risk sentiment and the u.s. treasury. on the trade issues. the view is that the curve should steepen. the front is not moving because the policy rate is fixed for the next year and a half. thiel staysteal --

with us. bloomberg business flash with juliette saly. juliette: thank you. some existing investors are said to of raised $4.7 billion after the company president the low end. the beijing-based smartphone maker prices shares at 17 hong kong dollars each. they are the very to make them tech listing in hong kong after they changed the rules to allow bounders to keep outside voting rights. has failed the first public stress test of its combined test. the federal reserve faulted the company's internal result -- infrastructure. only onebank was the of 18 domestic and foreign banks receive an objection. they responded that its u.s. business had made significant

investments to improve its capital planning infrastructure. a strode has awarded a contract for a ninth suffering forgets to the u.k. system. constructed will be in south australia and start service before 2030. shares climbed in london while those of the unsuccessful italian better slumped. president trump has taken part in the groundbreaking ceremony for foxconn's new wisconsin factory. trump said the project will contribute $3.4 billion annually wisconsin's economy and create 15,000 jobs. estimate and company the jobs at 13,000. that is your bloomberg business flash. anna: thank you so much.

in ands likely to step defend the u.s. should it fatwa key psychological level. that is according to traders and analysts. the shanghai composite dented a bear market earlier this week. the u.n. suffered 11 days of losses. china will have to take action to protect the economy. >> what is going to happen in china down the road is that the chinese leadership will have to introduce proactive measures to jump start the economy. i think we need fit skull -- fiscal support. we will see a more accommodating monetary policy. we are expecting to rounds of reductions later this year. teal, a fixed income is still with us. 67 is the magic number that everyone is talking about. is that the line in the sand for you? >> i don't have a particular level in mind.

the chinese government has allowed the you want to cheapen relatively sharply. yuan to cheapen relatively sharply. even relative to south africa are emerging-market currencies. they are trying to balance allowing the economy to become more competitive. the comments about reserve ratio requirement cuts is something we will see again. the key for them is to balance the stimulus to the economy but also not to trigger outflows. this is the balance. i don't know what the particular level might be. for us within blackrock, we look anna: managing that balance and. do you think this is something with the pboc is having to stand away from the crowd urges they want to go with the flow? reasons toots of allow the currency to cheapen.

there are reasons to not do so. someone said that this is not a very deliberative mode to weaken the currency. this is just reflective of lower growth. these are all very interrelated. to suggest that the chinese government does not understand the movement of the currency would be misleading. they obviously want to be part of the cheapening that other currencies have had to the u.s. dollar. anna: but no more than that. >> exactly. they don't want to spark any outflows. in toade issues are tied emerging-market weakness. they allowing to cheapen as much as they think is possible to stimulate the economy but not trigger outflows. it is hard to say what level

would be the anti-flame. nejra: i was showing a chart that was showing the emerging markets selloff inequities in that it had been much more intense in china than in other parts of emerging markets. with what we have had trade tensions and also some of the data coming out of china, does your view on china, has that changed at all? that view around china is the economy seems to be swelling. if you look at the internal data within china, it does not hit the government growth target. where the growth trajectory is. the currencywing, is cheapening. it is not a disaster by any means. what is happening in emerging markets is much more related to the concerns about trade. china, one of of our colleagues was saying that emphasis is only good

for enceinte china. >> chinese government bonds are becoming part of the index as we go forward in time and are becoming more liquid. the become more accessible for international investors. this is a market we are keen on being invested with. after -- you have to understand chinese bonds. policy is set differently than in europe or the u.s.. they have a growth target they are trying to manufacture. investors have to think about interest rates in a slightly different way than you would in the u.s.. nejra: thank you very much. our guest stays with us. let's tell you what else is coming up today. the first u.s. china ai technology summit kicks off in california. leadersbring technology together for discussions about artificial intelligence. morning, we this

will get inflation numbers from the 19 country euro area for june. inflation,ing with we will get key data out of the united states. economists expect personal spending to have increased in may for a third month. pressure on deutsche bank. the german lender veil covers public stress tests of its u.s. business. we will discuss why. it is important to divide these tests and to do. we will be talking about where the banking sector is from here. u.s. banks are being allowed to pay out record dividends. nejra: we saw that goldman and morgan stanley were very much in focus. we will talk more about that coming up. this is bloomberg. ♪ two, down, back up!

our phones are more than just phones. they're pocket-sized personal trainers. last minute gift finders. [phone voice] destination ahead. and discoverers of new places. it's the internet in your hand. that's why xfinity mobile can be included with xfinity internet which could save you $400 or more a year. it's a new kind of network designed to save you money. click, call, or visit a store today. anna: it is 6:30 here in london.

7:30 in berlin. the euro trading higher after the eu summit that when on into the night. 1650 is where we trade. let's go to bloomberg first word news. juliette: italy's new prime minister has negotiated a package of measures at the eu summit to stem the flow of migrants into europe and to spread the burden of handling arrivals. during talks in brussels that continued beyond 4:30 this morning, member states agreed to increase border security, said polling centers, and speed up the processing of applicants.

leaders agreed a key italian about to overhaul rules distributing migrants with a gateway countries overwhelmed. has accused the european union of putting the safety of its citizens at risk by blocking up brexit deal on security. may told her fellow leaders that britain wants to play a major role in european security after it leaves the block. she cited non-flexible eu rules. police in maryland say a white man in his late 30's is in custody after a rampage at a newspaper office. for journalists and another member of staff were killed after a man armed with smoke grenades and a shotgun and are the offices of the capital gazette. local police called in a targeted attack in which the government look for his victims. looked for his

victims. businesses and consumers became more pessimistic on the economic outlook. business optimism drops to the lowest level this year in the u.k.. this was driven by concerns about the writer economy with brexit and trade tensions. says he sees an cautious investment climate but no signs of impending recession and a long-term trade wars. no long-term trade wars. >> the economy is in good shape for this year and next year. something unexpected could come along. a tariff war would not be wonderful. ultimately we will resolve this. that is my hope. this cycle may be longer than anything we have seen since 2001. we might be the longest cycle

lever of economic growth that it could go on for another year or two. i talked to a lot of leading economists and i can't find any of them to say, we are to recession in 2018. they just don't see that. global news 24 hours a day powered by more than 2700 journalists in more than 120 countries. checking in our markets in asia, it is a much brighter picture to round out the week. in china, look at that strong momentum coming through in the csi 300. the shanghai composite also rebounding from that two-year low. estoril is market is fairly flat. is one of the worst carter's we have seen in three years and the worst start which rating half year since 2010. i want to show you what we have been watching in terms of the chinese yuan.

looking at that 6.7 level as a line in the sand. you can see the pboc intervene. that is highlighted on this chart. we saw china have a weaker fix today. you are seeing the offshore and onshore start to rebound a little today. the offshore rates snapping that 11 day loss. waitingeurope, we are for a lot of central-bank decisions. turkeys inflation could be a sore point. we are starting to see expectations that inflation in the second half can accelerate to as much as three times the official target of 5%. putting a lot more pressure on the central bank to act. line isey blue ryan -- that 17.7% and expected to remain at that level by the end of the year. a lot of challenges for the central bank to add in the face of the president's distaste for higher interest rates.

is friday, everyone has had very little sleep watching the world cup, a little bit of trivia for you at the pump. -- pub. cup was the u.s. world where you had the most amount of people at the stadium watching those games. nejra: that's one measure of the audience. the atmosphere in the stadium. i'm number five now. i was number one yesterday. nejra: you are beating those who know a lot about the ball. -- football. let's talk about banking. deutsche bank's u.s. unit was the only one of 18 banks to receive an objection. the company responded, saying they made significant improvements towards their capital capabilities. we're talking about these u.s.

banking sector, including the u.s. units of various european banks. our guest joins us now in london. how is this going to impact deutsche bank? they did not fail across the board. 35 banks all caps. this is about internal risk model control. you can imagine, if you are looking at deutsche bank, it has been in flux. shrinkinglinking -- u.s. rates and focusing on europe. the legacy unit has failed twice as well. youou are sitting there, are thinking, should we become more aggressive and get out of this problem? it's not like they can reinvent themselves. we know that turkey is reasonably tough anyway. it is a multi-year low. well below 10 now.

the 81 traded bad. this is not about solvency. this is about visibility. anna: what does it mean for dividends? this is about bringing money back into europe to make those payouts. deutsche bank has quite a bit of liquidity. >> this is not about them paying dividends. you look at consensus for revenue, it has come down 5%. we know that they are struggling to meet their cost target. this is not something that we were expecting. they can with capital. this is another indication of how tough it is. see some are going to fairly substantial payouts from some of the banks that did find and passed with flying colors. >> it'll be interesting to see. europe, banks are not at 100% pay out yet.

shares are not interested in a bank that is not growing. world,y groups of this we will be interested to see if they can maintain the story there. the banks trade back -- back of it because of the u.s. curve flattening. the numbers seen it -- seen and line. nejra: thank you so much to jonathan tice. year, thankshe face a tax overhaul and say that is the reason for banks to rally. they have under pressure from a flattening yield curve. is still with us. thean really benefit to yield curve over in the u.s.. i was interested to see that alan greenspan did an interview with one of our bloomberg colleagues in new york. he watches the 530 curve and says he is not concerned by that flattening because it can be good for. are you concerned about the

yield curve flattening? as an look at a chart discuss this. cup finalt the world in pasadena and the atmosphere was very positive. juliette saly will be very pleased that you have something to contribute. >> the yield curve, the common view is that a flattening suggests that economic activity is going to trail off. flattening yield curve would suggest the economy is going to slow. the issue we are dealing with is that we had a big rise in the front end of the u.s. yield deliveredesult of rate hikes and forecasted rate hikes. remainingo or three this year. our view on the yield curve is a function in a change of monetary policy.

economic conditions in the u.s. look very strong. the fed is trying to slow those down to keep inflation in check with a record low label market. labor market it it is not about this view around the economy slowing. anna: is it still about loose policy elsewhere? said, the short and has moved on you as rate hikes but the tenure has not moved because of this policy and other parts of the world. >> i think that is right. it is the supply demand dynamic. rates have adjusted higher in the u.s. in the long and of the market. if you are an lci investor that has to match long-term liabilities and insurance, these rates are attractive. 2.3 percent note, plus the spread for corporate is humans, this is an attractive yield.

the long and meets supply demand amounts. nejra: you look at the 10 year, that yield has been coming down with all of the trade tensions. are we more likely to go to 2.5 than three? >> the hard thing with this trade policy is that it is very unclear what the administration's actual position is. whether this is a negotiating tactic to try to solicit more concessions out of china or whatever. we don't really know. the market is naturally uncertain, concern leads to risk free rate string better. that is what we have seen. the risk nothing in the fundamentals that has shifted. there is nothing in the apology projections. the fed has said that trade is important to the u.s. they don't know what the policy is going to be. ofhink it is a function concerns and uncertainty. passed, i think treasury yields continue to ride.

i think it is more likely we see 3%. nejra: you still think it will go higher despite the lid being put on for now because of trade tensions. the fed has been talking about where it thinks the neutral rate is and what happens next after we get the neutral rate. he says that maybe the fed is confused. this chart talks about unemployment being below every fed officials estimates of the natural rate of unemployment unemployment. how much tightening do you think we will see from the fed as these unemployment levels processed? >> the fed dots are much higher than the market predictions. have 50-70 five basis point spread between where the market assumes the rate to be in when of that assumes the terminal rate will be. the near-term investment implication is that the fed is, the bar for changing their policy is extremely high right now. they need to get the policy more

to neutral than excess -- assess the economic situation. i think it is premature to debate whether we are going to go past what we have artie baked into the next two years. we need to see how the economy develops and how that rate hike impacts the inflation trajectory. we can debate what the terminal ratio should be. it seems like it should be market isn what the currently pricing. of the next year and a half, the fed is really going to be on autopilot. that chart is showing what difficulties that that has had with economic models not panning out as they expect. are you encouraged by jerome powell who says he is going to look more at what is in front of him? >> i think it is a function of the financial crisis. it is fading into the distance and he is taking a very proactive you looking at economic developments.

he has done a terrific job in the transition and the transparency that he has put forth with increased numbers of meetings going forward. i think that the fed is doing the right bring -- thing here. i want to come back to my original point that the bar for changing policy is very high. we talk about the impact for trade but we don't know what that is going to be. the fed cannot react to something they are not sure of. anna: what is the red flag that goes up on trade? where will we see this first? >> this is a very important question. what are the trade policies going to be and what is the factual impact on the economy? we can't tell. wee we know that they are, can make reasonable assumptions about the impact on economic growth. and then the fed can integrate that into their models. without knowing what the policies are, it is impossible. nejra: thank you very much.

our guest stays with us on the program. bloomberg users can interact with all the charts we have been using. our library a stuffed with lots of charge. charts. you can use them in your own research. coming up, emerging-market woes. what can federal banks do to help their struggling currencies? this is bloomberg. ♪

nejra: 6:48 in london. 1:48 in the morning in new york. futures are not going to look gorgeous at the open but still slightly higher. of 3/10 of a percent after we saw the index game yesterday. asian stocks higher today as well. let's get the bloomberg business flash. some existing investors are sent left raised

$4.7 billion after the companies hong kong ipo priced at the low end of the markets range. the beijing-based struck from -- smartphone banker prices shares at 17. nevada commences share buyback of $5 billion by the end of 2019. a review has included that a 100% spin off is in the best interest of shareholders and consistent with the company's strategy of focusing on medicine. it is expected to be incorporated. is planning to give more bridgwater staff ownership as the firm moves towards the next phase of its decade-long succession plan. the partnership changes will give staff a greater say in governance and management as the

68-year-old founder works through a succession plan after some false starts. >> we are going from a company in which i led the company in this way, now we are going to that needs broader and more formalized partnership. awarded: australia has a contract for nine anti-submarine frigates. the british designed warships will be constructed by asi shipbuilding in australia. london whiled in both of the unsuccessful italian bidder slumped. nejra: thank you. emerging-market currencies are looking uglier by the day. find ave struggled to floor amid trade tensions and dollar strength.

central banks have been under pressure to curb. today we explore emerging markets. scott tealnow is from blackwater -- blackrock. thank you for joining us with your analysis. we have seen fx and emerging markets under pressure. what are some of the trends we have seen so far this year? markets, if they behave themselves they would be in much less trouble than they are now. there he -- there are idiosyncratic oh risks that are driving risks in different directions. there are external shocks. they are all coming together. if you look at the group dynamics, threat is low.

if you look at individual markets, there was a completely different story of several ,ations fighting high inflation the political uncertainty, and even the stronger economies like india are suffering now. it is pretty brutal. at this moment, we will have to see how it pans out. anna: one country that has been suffering is argentina. i have a chart showing double-digit decline. have higher rates exacerbated economies was? -- woes? >> absolutely. for are facing a huge -- several years, there has been a dichotomy between the fiscal policy and monetary policy and that has created a macro and palace. now they have to cut inflation by 10 percentage points.

that means aligning fiscal policy with monetary policy and being very hawkish about it. that it is a must to get that. one thing to say about urgency , it is a- argentina country that is going to give you a deal for 99 years. if you believe the country will honor its commitment, that is your pension pot. 9.5% moving on 10% now. some investors will be interested in this. a small portion of the portfolio for that risk. the economy itself is really shaky. anna: emerging markets from your perspective, we talk about the idiosyncratic risk. i was reading a blogger was talking about this, it looks like it is too late to sell but to really to buy.

would you stand? >> we have had countries who have a lot of external buying recall with -- requirements. turkey is one of those. south africa. argentina. suffered fromlly this vulnerability. that has been a factor of higher u.s. rates and a stronger u.s. dollar. the backdrop has been negative for emerging markets in the sense that the policy of rate hikes and the strength of the dollar has infected these countries with these external vulnerabilities. i do believe a lot of the trade and theys are concerns are being priced into emerging markets. you have this combination of fundamentals, idiosyncratic issues, political, plus this vulnerability. had a 6% fall in both the hard currency and in local markets.

i would suggest that in the hard higher yieldsts, for emerging markets currencies that you would have or treasuries. it starts to look attractive to us. it nejra: is an interesting asset class. nejra:this is a -- it is in it -- it is an interesting asset class. you say that you are compensated for risk across the spectrum or would you be very selective? >> i think you need to be a little bit selective. countries with a higher vulnerabilities have underperformed where some other countries have not. for emerging-market investors, this will be the time to look at some of the higher beta countries. certain amount of risk but there has been a dramatic repricing. countries like turkey,

argentina, mexico. have this fundamental repricing but then there is an added layer, like mexico and nafta. there is tremendous opportunities in emerging markets. anna: thank you very much to both of you. thank you very much for your insight. the former greek finance minister joins the bloomberg surveillance team to discuss the eu summit and it's taken our exclusive interview. you can influence the conversation, what would you like to ask yanis varoufakis? and i will show you where the button is. ask the questec question -- guest a question is the but you want to press.

he is waiting for your question. after a long line of negotiations, the eu reaches a deal on immigration. we go to brussels next. 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.

>> good morning from bloomberg's european headquarters. anna: this is bloomberg daybreak: europe. here are today's top stories. asia stocks climb. the index poised for the worst first half as trade tensions continue to escalate. a united eu boosts the euro. italy's new prime minister reaches a deal. >> more problems for deutsche bank. its u.s. army fails to pass a stress test. u.s. branch fails to pass a stress test.

nejra: let's see how the european equity markets will open. judging by futures we could see a list on the ftse 100, dax, and cac 40, ending the week on a high. also for emerging-market equities, rebounding from a 10 month low today. futures pointing higher across the spectrum in western europe as we are seeing. u.s. futures edged higher. the s&p 500 up 0.4%. anna: that is a positive backdrop. let's talk about where the has come from. this is the picture on the asian equity market. we are higher, by 8/10 of a percent on the msci asia-pacific. this is the first time we have said that this week that we are positive in this stage of the

trading day. losing 2% of its value, and we see it down again for a 12 day. traders talking about whether there may be intervention from chinese authorities. we will watch for that. the euro going higher by 0.6%. 11642 is where we trade for the euro, jumping as leaders reach a deal for -- with giuseppe conde. we do not know where voluntary migrant centers are going to be located. we will wait to get the details. it.italians did not veto perhaps that is being seen as a positive. s&p futures higher. a risk on backdrop. that has not been the case all week. have talked about how emerging-market equities have dropped from the bull market peak.

they are rebounding from a 10 month low today. let's talk about fixed income. it fits with this risk on picture we are seeing. the 10 year treasury yield is up two basis points. we might see, we are a mixed picture when it comes to the futures. futures,of the bund they are moving lower, which suggests we could see yields move higher. whether these cash markets get underway, that's happening about now, but it takes a while for those prices and yields to update. it seems like we will see a little bit of a divergence when it comes to the btp. a different picture in terms of what happens in the core and periphery. overall it is that risk on picture responding in the bond markets. anna: that italian 10 year bond futures opening higher, it seems as if what is moving the euro,

giving comfort to the markets around european unity also giving comfort to the btp markets, so that is of interest. although the spread of italian yields over german does remain elevated since the election. the aftermath of the election of the italian prime minister. what does the former greek finance minister make of the deal we have in brussels last night? he will be joining bloomberg surveillance to discuss the eu ,ummit, the migration issue also an exclusive interview we -- and what he sees in front of the greek economy. let's get a first word news update. italy's new prime minister has negotiated a packet of measures. handling the burden of migrant arrivals. during talks in brussels by

continued be 4:30 this morning, member states agreed to increase border security, set up holding centers, and speed up the process of applicants. a keys also agreed to italian demand to overhaul rules for distributing migrants. theresa may has accused the european union of putting the safety of its 500 million citizens at risk by blocking a brexit deal on security. during a working dinner at the eu summit, theresa may told her fellow leaders written wants to play a major role in european security after it leaves the block. may cited inflexible rules that prevent third party countries from taking part in information sharing. >> i have been stressing we want a deal that is going to work for the u.k. and our european partners. together, we can

forward each other's prosperity and security. we will be publishing our white paper shortly. am -- negotiations are intensifying their after. juliette: a stress test forced wall street banks to rein in cashions for pumping out to shareholders, but with overall payouts at record levels. lenders say they will this tribute more than $110 billion through dividends and stock buybacks. deutsche bank's u.s. unit was the only one of 18 domestic and foreign banks to receive an objection. the company responded had made significant investments to improve its capital planning capabilities as well as control and infrastructure. in the u.s., police in maryland say a man in his 30's is in custody after a rampage at a youth -- a newspaper office. members of staff were killed after a man armed with a shotgun entered the offices of the

capital gazette. police called it a targeted attack in which the gunman looked for his victims. the carlyler of group david rubenstein says he sees no signs of an impending recession and no long-term trade war. is in good shape this year and next year. for something unexpected to come along, that could change. if we went into a tariff war, that would not be wonderful. i think negotiations ultimately will resolve this. this cycle may be longer than anything we have seen since 2001. we might be the longest cycle ever. it could go on for another year or two. a lot of the leading economists -- i can't find any of them who say we are going into recession in 2018. they do not see that. global news, 24 hours a day on air and @tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries.

you can find more stories on the bloomberg at top . you can see quite a lot of green in piece chinese markets. we have got to look at the bigger picture. the quarter has been bad for asian equities, down 4%. australia closing the session down 0.2%. the nikkei higher 0.1%. it is china rebounding. the shanghai composite answering bear market territory. we have been watching sharp after canceling a share sale. it seems investors approve of that. reaching a deal with fetus in thessenkrupp- the union. it has downgraded the stock,

falling the lowest since october. the eu came together on issues from trade to immigration. a late-night deal, here is what emmanuel macron said in brussels. just the word to say after nine hours of talks and work a deal has been reached and it is good news for france. it is the fruit of combined work and it is european cooperation that won as opposed to a national decision that would have been neither efficient nor lasting. anna: after hours of conversation well into the morning, here are the words of angela merkel. >> overall i think we have achieved after it intensive discussions on the most challenging topic for the european union, a good outcome, having signed off a common wording. we will have to wait and see

what the austrian chancellorship will prioritize. i am optimistic we can continue working on this together even if we have a lot in front of us in terms of having to bridge perspectives. anna: for more on the eu leader summit, let's get to maria. good to have you. give us the details on what the eu leaders managed to agree on migration. -- which know where countries will say yes to voluntary migrant shelters. >> a very long night and a contentious night in brussels. a sticking point, the italian governments. said he would veto the summit if he did not get that deal. you pointed out european leaders have agreed to set up controlled migration centers. they are calling them centers, not cap's. -- camps.

those who qualify for asylum may get to stay in europe. those who don't will be sent back. a key line for the italian government is, if a country feels it is overwhelmed by migrants, more nations are going to have to agree to distribute the quota. the point is we do not know how this is going to play out. there are a lot of countries arguing it is voluntary. we do not know what countries are going to take who wear. -- where. many questioned marks. is this deal enough for angela merkel to be able to sell back at home? angela merkel came into this summit under massive pressure. she left yesterday at 4:30 in the morning. she said it was a positive deal, unapologetic about her decision to let migrants into germany. now germany does have something to protect back home, especially

by having more over -- control over who is allowed to stay, you could limit -- argue it would limit secondary movement is a germany. angela merkel will have something to present back home. anna: let's talk about brexit. we heard from theresa may after she was -- i do not know if any of you are distracted by the football, but perhaps. the conversation moved to brexit. a contentious point. she wants more progress. the irish called for more progress. >> exactly. all those major divisions in your cabinet are not helping. theresa may had criticism of her own. she said she wants to keep security between the u.s. and the european union, that the european union is not being

flexible enough, that was the criticism. nothing has changed. we are not expecting any announcements today. staying up late for us, really appreciate that, maria. head of fxnow is the commodities and rates at j.p. morgan private bank. good to see you. i want to take you to a chart showing the migration fear index. what this tracks is the amount of times the world migration and fear appear in newspapers. it measures that across all articles and shows this has steepened more in germany than france. when you look at how you react to this from an investment perspective, is this going to be expressed in the euro or the bond markets as well? mainly in the fx markets first. that is through the political risk premium we have seen added into the euro. if you think about what we have

had over the last few weeks, we had the italian elections, which saw political risk being added back into the eurozone. we saw a resolution, that came out of the price. rallied, and that is the back of the markets overseeing. if we get a resolution, does it take away that risk? to get in the background, we have brexit in the market is nervous. do we see countries like italy pushing towards a similar outcome or moving away from the european union? that is adding to that pressure on the euro. we would see a reaction in the credit market as well. ultimately, the initial reaction has been reflected in this euro-dollar as well. eurozone'srms of the ability to function, are you

comforted? you think it is positive, what we have heard? we have seen the euro reacting, moving higher. we have also seen the italian bond market, futures reacting to this. i think investors are a little bit confidence. -- comforted. meenal: there is uncertainty still to come through. angela merkel has to go back to germany and see how this plays. it is not a clear sign that this is the end of the road for the nervousness and the stress we have seen and the politics around in europe. it takes away some of that initial fear leading into this summit. the main countries in the european summit break away from each other. a little bit of consolidation and cooperation is obviously going to make them a lot more comfortable. we are seeing that through the bonds and the fx market.

nejra: we have talked about angela merkel having to sell this deal back in germany. angela merkel's position is at risk. this is something the market sees as low probability, but high-impact if it happens. how do you price or position for the? -- for that? meenal: what you will see him a volatility market is people -- as uncertainty starts to increase and it looks like pressure might be rising, you will see people buying optionality and trying to buy volatility to protect themselves. if you look at the market reaction, it has not normalized back to where we were before. even if you are looking at euro-dollar, you are not seeing a move back toward that 120 level yet. there is a lot of nervousness around the situation. but also thinking about euro -- europe as a whole.

have been question marks around the european economy. ultimately, we will likely see people buying volatility rather than moving out of a core european position. you, the head of fx, commodities, and rates at j.p. morgan private bank. let's get a bloomberg business flash. australia has awarded a 26 billion u.s. dollar contract to nine anti-submarine frigates. the british designed warships will be constructed by asc shipbuilding and start service for 2030. shares climbed in london while those of the italian better slumped. novartis is to spin off its alcon business and commence a share buyback of up to $5 billion. a strategic review by novartis concluded a spin off is in the

best interests of shareholders and consistent with the company's strategy of focusing on medicine. alcon is expected to be incorporated in switzerland. ray dalio is planning to give more ownership as the firm moves toward the next phase of its decade-long succession plan. the partnership changes will give a greater say in governance and management as the bridgewater founder works through a succession plan. >> we are going from a company in which -- i led the company this way, and now we are going broaderhing that needs and more formalized partnership. juliette: that is your bloomberg business flash. nejra: thanks very much. -- xiaomi and investors

are said to have raised money end. pricing at the lower where is the deal now? >> the deal has just priced in san francisco. the company and the bankers price it. all we know -- what we know right now is that the deal will , whichcated to investors include george soros fund, capital group, we're waiting for this to start trading in july 9. >> what happens next? >> it will start trading on the ninth and meanwhile there is a week where retail investors will get to know. previously we have heard the retail description is not doing as well as they expected.

getting amay be larger chunk than what they expected. much.thank you so now, is it time to worry when it comes to emerging markets? em equities have dropped 18% from the bull market peak, the same degree during the euro area debt crisis. investors are $2.2 trillion poorer than they were six months ago. fx commodities and rates at j.p. morgan private bank is still with us. when you look at the emerging market space, over the past quarter we have seen stocks, we ite seen bonds hit, when comes to fx, it looks like central banks can't do much to stem those routes. meenal: a perfect storm is building for emerging-market currencies. you have the dollar starting to rally on the back of these question marks around the story

of global growth. that has been positive for the dollar. you have the fed continuing to hike and having a hawkish policy. increases him dialogue and escalation of trade rhetoric. that creates a difficult environment. what we have seen in the past is those countries that have large current-account deficits have fared badly. what is becoming concerning is this is growing out of not just the current-account deficit countries and large budget deficit, it also countries that have costly fundamentals. that is around this broader story around, it could get worse from a trade escalation perspective, and how will that impact the global growth story? anna: that throws of the opportunities. i've got this chart, the weakness we are seeing in emerging-market currencies. when it comes down to country by

country, what are the individual circumstances in the fundamentals? that's where the opportunities are. things have gone too far. meenal: exactly. you have to pull it back to the base case scenarios. how much of this is noise and how much is a change in the story? our base case remains the same. we think the dollar is on a weakening trend. we believe in the story of --bal growth we are seeing at the european economic data is starting to improve. we are seeing strong data from asian countries this week as well. markets. help em you can see those are the positive fundamentals doing a little bit better. on the trade front we think a lot of this is -- will lead to a compromise in the end. the uncertainty is likely to maintain in the short-term. there is back and forth we are

having before we get to where the administration in the u.s. wants us to be, which is a more fair trade situation. nejra: we have got to talk about china. since june 18, the chinese equities underperformed other parts of the msci emerging markets index space. you could say china is in some white playing catch-up -- some way playing catch-up. is that the argument here? is there something to be confirmed -- concerned about? meenal: data has been softer in china. we have the pmi's next week, which are going to be important, seeing if this is a shorter-term impact. that has been a contributor for why you have seen selloff in chinese currency. there is a lot of talk in the markets now about whether the currency will be used as a policy tool in debates around

trade. we do not think that is the case at this point. that does not mean the market will not continue to price that in. ultimately, the base case remains the same. we see easing from the pboc over the last few weeks, the reduction. it is natural you see the currency depreciate. we do not think it is changing the fundamental story. the pmi's next week are a very important indicator. anna: can i ask you about commodities? copper on correction, and this applies to other metals as well. chart that shows that. where do you expect this to go? this is all hanging on the trade war, i suppose. is a lot of noise around commodities because as you have mentioned, the trade war conversations that are

happening, but we remain prostitution on commodities -- positive on commodities in general. we think it is a good time for commodities if you see this as a late cycle in the u.s. environment. as capital expenditures are about to pick up. we believe the market is under -- under allocated for commodities. in the short-term you could see overcorrection with the uncertainty around the trade escalation. applied,e more tariffs not a lot have actually been applied yet. if you see that coming through you could see commodities coming under pressure in the near-term. nejra: commodities can circle back to commodities -- to china as well. traders are not panicking at about the u.s. slump. do you see a level where the pboc intervenes?

meenal: if you are looking at how the pboc has been acting, they have been weaker. they are comfortable with allowing currency depreciation. the trend has been they are not fighting at this point. i do not think they are closed to intervening at these levels. you need to see further weakness from here and ultimately it has to be in a disorderly manner as well. us,: thanks for joining head of fx, commodities, and rates at j.p. morgan. stay tuned for more on bloomberg radio. the italian 10 year bond futures ticks.up 37 text -- the other side weaker as you would expect. markets take comfort from what we have seen -- heard overnight from brussels. nejra: the euro gaining as well. on that note, coming up, the

former greek finance minister john -- joins the bloomberg surveillance team. go to tv and ask them a question. that's it for "bloomberg daybreak europe." ♪

morning and welcome to "the european open." cash trade is less than 30 minutes away. holding back the bears. asian stocks are set for their first gain this week as trade tensions simmer. europe looks set to follow suit. europe united. the single currency gets a boost after italy's prime minister secures a deal on immigration at his first leaders summit.