nejra: good morning. this is "bloomberg daybreak: europe." italian bond yields climb after the eu is considering a $4 billion penalty for rome over its failure to rein in debt. president trump says the u.s. is not ready to make a deal with china and repeats his threat to further increase tariffs. and alibaba raising $20 billion -- of a hong kong was -- five via a hong kong listing.

manus: welcome. president trump says the u.s. is not ready to make a trade deal with china, and claims beijing is key to get an agreement. he has repeated his threat to further increase tariffs on chinese goods. president trump: as far as china is concerned, they were going to make a deal. i think they probably wished they made the deal they had on the table before they tried to negotiate it. they would like to make a deal. we are not ready to make a deal, and we are taking intensive aliens of dollars of tariffs -- taking in tens of billions of dollars of tariffs. manus: stephen engle joins us from tokyo. trump is in japan. he was on the podium yesterday. has china overshadowed what he called an acceleration over

talks on auto tariffs between japan and the u.s.? stephen: i think it has, as well as north korea. china and north korea really dominated the discussion at the conference yesterday between trump and abe. the negotiations have been delayed until after the july elections. the result much mentioned of the u.s. deficit with japan and the threatened auto tariffs. they were playing nice, showing a solidified team, if you will, and against the backdrop of all these headwinds. -- i don'td that know if it was scripted or off the cuff, but that made news when donald trump said, you know what, we are not ready for a trade deal, and perhaps china probably missed their opportunity to do a deal when there was essentially one on the table. he says many companies are already choosing to leave china

and go elsewhere that are not necessarily tariffe as highd as china. such as vietnam and japan. manus: the underlying comments he made on the podium was, we are accelerating talks on tariffs. i have some cracking markets for you. have a look at this. for a greekago, 40% government bond. look at this, 3%. is that the right price for the most indebted country in europe to be trading at? they are going to the polls, a new democracy, the market likes an idea -- likes the idea. we see this drop in the yield to a record low yesterday, down by 30 basis points. roll it over and you have a look at two divergent traits. iron ore is higher on the singapore contract.

is aally m contract slightly different story, on a were higher this morning. a lovely story this morning. the yuan might be a little bit lower. is going to be stopped in its tracks because of the negative side of tariq -- side effect of the european parliamentary actions. nejra, good morning. nejra: manus, good morning. u.s. stock markets and bond markets closed yesterday for memorial day. we are seeing perhaps a setup for gains. yesterday, european equities gain following the european elections, and we could see a second day of gains. the 10 year yield down by a basis point. a keye dropped to technical level, the 200-week moving average. speculators net short position in highest since november. the euro was steady following

the election yesterday, but today we stayed firmly below 112. that could be due to what we have heard about italy. the european union could launch a deficit procedure in june. the btp yield jumped 12 basis points yesterday. juliette saly in singapore has more. how is it looking? upiette: we are looking ok, by about fortunes of 1% on the msci asia index. to have the yen continuing give back money as we start to see president trump and prime minister abe have what looks to be fairly can viable talks in japan. japanese stocks higher by about 4/10 of 1%. and a lot of buying coming through in china and hong kong in the latter part of the session. have a look at the nifty. it is pretty flat and has been fluctuating from the record highs.

euphoria has passed since the election, and investors are starting to look at the concerns growing over the overall indian economy. nissan is rising the most in 10 months on the back of that fiat renault tie up. there is concern that meson would not like such a deal, but it is looking like it's position has changed in the sense that if this does go through, it is going to give nissan a huge part of what would become one of the largest car entities in the world. we are also seeing strength coming through in chinese stocks linked to alibaba, this on news that alibaba could be moving back home and looking for a listing as well in china. and chinese carmakers are getting a leg up on news that there has been more licenses given to one of the major provinces in guangdong. carmakers in hong kong and mainland china

rising strongly. italians i was saying, bond yields climbing after bloomberg reported the european commission is considering proposing a disciplinary procedure over failure to rein in debt. the move could pave the way for a 3.5 billion euro penalty. in response to the report, the deputy prime minister told italian television, i'm waiting to read a letter from the eu, but the commission should acknowledge that people voted for change and growth. he added that taxes will not be raised. after thets come league's resounding victory in sunday's european parliamentary elections. us is laurence with bnp paribas. we saw a reaction yesterday. would this be an opportunity to buy btp? even if we do get this deficit

procedure, it takes a while. laurence: it does take a while, but you need to have a stomach for volatility. in a way, this is exactly what we thought would happen. there has been a truce of silence between both the commission and the italian government on this obvious gap between what they both think is acceptable for the size of the deficit. we thought it would last until the election results. coming after the day of the election reports seems to underscore that the truce was no more than a truce. the prime the end, minister is going to have to tough talk against the -- talk tough against the commission in the short-term. this kind of war of words between the two is likely to continue for some time. manus: some pretty stunning moves in the bond markets. greece, 40%at this,

eight years ago, 3% yesterday. how soon do greek bonds trade below italy, or is that possible? i suppose it is possible. that's not how anyone is looking at it, i suppose. why is italy trading where it is, why is greece trading where it is? if you look at the spread versus germany, if you look at the absolute yield level, like the absolute yield level in greece, all these yield levels are incredibly low by historical standards. the financing rate is extremely low, negative, and euro land, but also there is liquidity in the market. the fed has said it will stop shrinking its balance sheet. so liquidity is staying. this is the tension in all these markets. on the one hand, you have the fundamentals of the individual market, individual asset.

on the other hand, there is liquidity in the world and investors are looking for a place to put it. nejra: how are you advising investors to trade european sovereigns? what is your favorite trade? beginning ofce the this year, i think we have been saying the markets are going to look for carry. a couple of weeks ago, we thought that perhaps that had gone too far, because as people do seek kerry and yields and carrylity falls -- in yields and volatility is alreadyarry less. we are looking for yields more exposed to volatility, be it in european politics, trade negotiations globally. it is not just enough to have carry anymore. all of these assets will be buying opportunities, but will

they be right yet? probably not. manus: the great debate is who takes over from mario draghi and what the tone and into nation will be in that leader. tonation will be in italy. laurence: i think the market will still be surprised by it. i do not think the market thinks he is the most likely candidate. hear from thes to ecb that this is an institution, it is not about one person. much more than the fed, it is a collegiate body. therefore, whoever sits there in the president's chair, they are not going to drive policy altogether. having said that, you don't want someone in the president's chair who is a hawk, who is nervous about getting too much to

borrowers who might always move in the right direction. manus: florence, thank you very much. laurence mutkin, global head of rate strategy at bnp paribas. next, on to our exclusive interview with huawei's ceo. hear his response, the accusations that his company is built on ip theft and government support. nejra: tune in to bloomberg radio, living your mobile device . ♪

this is "bloomberg: davis lake -- "bloomberg: daybreak europe." their asia stocks go for

biggest advance in two weeks. dollar yuan, the offshore is weakening a bit. the worst month in 11 months. 10 year yields, there is no lower to go on the technicals. we traded lower yesterday on the 10 year bond yield. we hit a 2016 low, got to -14 basis rates. this is the 10 year btp. will be reopening after markets were closed yesterday for memorial day. european equities gained yesterday, and iron ore on the back foot, lower after the rally. it had hit its highest since 2014. wearable dollar-yen trade first, at 105 or 114? you can join the debate on your bloomberg. volatility very much

suppressed at the moment. let's get the bloomberg business flash. volkswagen is reportedly making changes to its battery purchasing plan worth about 50 billion euros, over concerns one of its supply deals might unravel. samsung had agreed to deliver enough that race to power 200,000 cars, but we have learned that differing views have seen them/it to less than a quarter of the original amount. alibaba is considering raising $20 billion via a second listing in hong kong. it would bring china's largest company close to investors in its home country. file a could confidential listing application in hong kong as early as the second half of this year. deutsche bank is considering options, including a capital increase, as part of a wider overhaul. the lender plans to unveil its

options over the next two months, but tapping investors for fresh cash is the least favored option. management is aware it could trigger a backlash in light of deutsche's low stock price. manus: the u.s. cash market reopens today after the memorial day holiday, but the derivatives market has been awake, facing off the wall of worry. investors are now flocking to trade war hedges, but for pure in for a downturn in u.s. lifted equities markets. dani has the data. yesterday we heard trump say he is not ready to make a deal with china over trade concerns, but investors are not waiting. they are jumping into hedges. i want to take you into my terminal. when we look at two of the largest u.s.-listed china etf's, there is demand. the trading of bearish options, you can see it has recently

spiked. the highests is level since 2015, and this is when china devalued the currency. that is how extreme this anxiety is. it is also happening on the u.s. equities as well. when we look at the put call ratio, it has jumped even though the banks has stayed settle. has stayed settled. you can see how much anxiety has been put in these markets. nejra: huawei has been put in the cross hairs of the u.s.-china trade war, but it is denying accusations of ip theft. tom mackenzie spoke with ren zhengfei on the troubles facing the company. it is more likely that the u.s. steals our technology. now we are leading them. when we have a government background, kpmg can on it. american authors audited us.

this unfounded conclusion may not be right. we are leading the u.s. now. if we were lagging behind, trump would not need to make so many efforts to attack us. he attacked us because now we are more danced than them. moment of national crisis, the government came to you and said, we need your cyber skills, we need access to your network because it is for the good of the country, the good of the government, the good of the chinese people, how would you respond? ren: we absolutely would never install any backdoors. we would never do that. we serve human beings. why would we install backdoors? what are the practical steps for denying a request like that in china? >> we have never done that. a german newspaper released an article saying they could not find any backdoors in huawei's systems.

in the u k, huawei was under the world's strictest scrutiny so we can earn trust. under stricter scrutiny, it was as if we took off all our clothes to prove we have nothing to hide. so the u.k. agreed to use our equipment. that was huawei founder and ceo ren zhengfei speaking exclusively with bloomberg's tom mackenzie. you can catch up with the exclusive interview this saturday on bloomberg television's special "connected income tested. -- "connected and contested." let's get back to laurence mutkin. heavybate about trade reverberations, we were dealing with it on a daily basis. i want to dig into the u.s. market at the moment. if i look at december 2020 rates, the market is saying a

100 basis point cut. one needs to happen to invoke that kind of rate cutting and aggression from the fed? is one of those mysteries why the market pricing in such an extreme rate cut to the language of the fed is so much more balanced. i think there are two parts to the answer. the first is to say, what are the potential outcomes for the fed? if they were going to raise rates at all, they might raise five, say, one or two 25 basis point hikes. if they were to see the slowdown in cut rates, we are in recession territory. the market thinks they are going to cut a laid-back to 25 basis points as quickly as they can. -- cut all the way back to 25 basis points as quickly as they can. you would probably still lit up with a negative slope. in a way, the message you are

getting when looking at the isve, it looks like the fed most likely to cut rates as much as used adjusted. what we are talking about is a bimodal distribution, and this happens to be the best the market can do. does that make sense? nejra: it makes sense. the u.s. forward swap suggesting limited inflation growth. if we tie the two thoughts together -- manus was talking also that fed, but trade escalation, how would you trade this in the u.s.? laurence: the thing about trade conflict reducing inflation it is asian -- is it is a short-term phenomenon. the markets are already very spooked that it does not know what can make inflation rise. we still are not getting the inflation we would expect.

will higher wages eventually lead to higher prices? the fact that on top of this you will get some kind of contraction in world growth for a contraction in world trade is long-term not so good for inflation. that's why the inflation forwards you are looking at on these charts are finding it hard -- nejra: would you go against that, is my question. laurence: in the u.s., probably. in euro land, it is not so clear. if you look at the forwards, it is going to be 25 years until the ecb gets inflation back to target. that is not a great endorsement of policy. i think in europe you can see why that may continue. in the u.s., it is easy to balance. how important is this week in terms of issuance? billion of paper to come to the market.

what are we going to be writing about? is it that the markets are perplexed by deficits? if you look at the way the markets have been squeezing because of the recent data, it tells you the markets are -- in the short term. we have already built in some kind of concession knowing the supply is coming up. i think it is always the case that yields look too low at the time the refunding comes. i think in this case as well, it's going to look like the markets want the paper. you said you would not go against the low inflation trade in europe. said it is attractive. that depends on low market volatility and an upward-slipping yield curve. at the risk of saying

i told you so, i'm afraid that is the trade we had on earlier this year. the truth is, with the fed on hold, with this liquidity in the system everywhere, yes, kerry and role is very attractive, and you can't get it in the u.s.. roll, yout carry and end up in the belly of the curve , in the front end of italy, in all these relatively rich in carry parts of the european market. the problem is the volatility is going higher because of trade, because of the european elections, so i don't think the timing is ideal. nejra: laurence mutkin from bnp paribas. coming up, the race to become the european commission's next leaders gather in brussels. ♪

manus: you are looking at a map of the world, the equity markets in:30 in dubai, 6:30 a.m. the united kingdom. you can see the green at the top, push and pull factors going on. the market seems to be more heartened by the japan-u.s. china-u.s.n than the conversation. when you see this relief rally, you ask have we tentatively protracted long discussion between the u.s. and china? but no further escalation. that is the question i have in my mind.

nejra: if you look at u.s. equity markets, u.s. futures last week in equity trading is a long way away. they were closed for memorial day yesterday, but a third weekly decline for u.s. equities. for its thirdg monthly drop in 2019, the and tenure treasury yield moving relentlessly lower. storieshere are other regarding the dollar and what happens next, if you go into escalators -- escalated protracted trade war, does that reduce your growth and rate cuts which causes the dollar to rollover? or is it your haven du jour? keep having the discussion what implications it might have for inflation in the u.s. or elsewhere, or trades you want to put on in terms of that. going back to the 10 year treasury yield, building to its highest since november, a reversal there. let's get first word news from debra mao in hong kong. reportedly you has

considered a penalty -- the eu is reportedly considering a 3.5 billion euro that would mark an escalation of the budget battle with brussels. the deputy prime minister says he will push back against eu demands with his next budget. he has the upper hand in the government after resounding victory in european elections. the merger with reynolds -- thirdt could make the largest automaker. it is proposed as a friendly proposal as automakers are scrambling for scale to tackle the shift to electrification and autonomous driving. in electoral success can be a double-edged sword, and austria ther surging to victory, chancellor was ousted after a general election in september. his opponents are hoping out of

power the conservative wonder can will not be -- wunderkin will not be as successful. the chinese governments first banks seizure in more than two decades has started to spook investors. cite serious credit risks. monthe banks at a four low, known as the tomorrow group is reportedly being probed by chinese officials. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ very much,k you debra mao in hong kong. the dust is starting to settle on the elections to the european parliament, and the focus switches to negotiations over who will get the eu top jobs. the danish top chief is eyeing the presidency.

the liberals gain seats in the parliament. at stake is not just the mostrship, but the bloc's powerful economic job, and the top contenders for draghi's job, is the door open? the runners for the top political appointments start in brussels. the race for the top eu job, good morning. >> good morning. about this yesterday, the political fragmentation to the election, and if you look at the results in principle on paper, the german christian aligned to closely

angela merkel, should take the lead to be the next mission president. based on our reporting, it is not clear he will get the majority, after they lost so many seats sunday. it will definitely become clear today where european leaders need to agree on a shortlist candidate, and they do not agree on the system by which he should be elected. angela merkel says it should reflect the election, but emmanuel macron has made it clear there should be bigger competition. macron said last week he should be at the least considered to be the european commission job. it has repercussions on the european central bank too. talk about the next ecb president as well. the bloomberg website has a great tracker showing the survey of economists and who is ahead.

very entertaining and based on the latest bloomberg survey. do the european elections change anything about who might be the next ecb president? it does, and we have seen through the year the french and germans, when it comes to the surveys we do, competing for that job. they have made it clear they aspirations,pean and this is why the commission and that political game matters, because in principle there should be a balance between country, nationality, gender. if you get a frenchman at the top, that will have to be balanced by a more hawkish voice. although we know it has been difficult for the germans to make a case for the central will the political game shape the conversation because at the least there should be

some balance between those two nationalities. nejra: thank you so much maria and brussels. a catastrophic night of european elections left the tories and the labour party suffering at the hands of the brexit extremes in the u.k. secretary jeremy hunt warns that a no deal brexit would be political suicide for the conservative party. jeremy corbyn is backing a referendum on any deal before the u.k. is to leave, increasing the chances of a messy no deal split. still with us is laurence mutkin , global head of g10 strategy, bnp paribas. we did see some reaction in the pound post-european election. how at bnp paribas are you expressing a no deal risk? laurence: it must be said the no deal risk although growing, i guess what you would say is the risks are polarizing. as the clock runs down between a no deal exit and a situation

where nothing can be agreed. i wonder if we ought to think about the prospect of article 50. we are running out of time, the eu will not extend. the clock ticks down and there is no majority to anything. what does it mean? trading reasonably with the pound, and the bond markets, almost never anything a do because until we find greater certainty, we know the bank of england is stuck on hold. every time the market tries to price in rate hikes and by the bank of england, we have to take them out as uncertainty builds again. somethingicle 50 is that has not been widely talked about, what could cause them to get to that point? facewould be flying in the of democracy, some would say. laurence: it is a timing

problem. in a way, the revocation is something nobody wants, it seems as if it keeps happening in the u.k. in the brexit negotiations, you get something nobody wants. is it flying in the face of democracy? it is a question or why you have the revocation. elected representatives cannot agreed to leave with or without a deal, what else is there? argument thatn everyone can use but it does not stop something happening. it is not our essential case, if it happens, how big would the market reaction be? markets, and bond there would be an enormous repricing. nejra: you say it has been hard to trade the bond market around this. the gilt curve since the financial crisis, something is

happening here. are you choosing to do anything curve, or how are you playing this in the bond market? laurence: here is the situation for the gilt curve, if you look at the u.k. economy, it does not look at that unlike the u.s. economy, we have low unemployment, and low inflation. the bank of england has scarcely knew rates over the last two years, the rates are basically still at rock bottom. this get out of jail clause in the bank of england's view of how it should set policy am a there is an awful lot of risk in the economy and downside risk to growth, then we can take longer to get back to the inflation .arget

that has compressed the yield and liquidity. how can we express that might end? we can express it through money market curbs, steepness, and short at the long end. all those make sense when levels are low enough, because they look like they have an option payout. either nothing happens or the move is aggressive. that is how we have been doing and how we will do it in the future. manus: what is the positioning like across the curve? real brexit storm as ang, gilt did act global defensive mechanism. in terms of ownership and positioning in our market in the domestic u.k. market, how does it look? investorsi think most have a short position on one form or another, particularly inflation breaking high. , i would notdded say people are short, but shorter than they would like to hopingreaking inflation, in the end the trade will pay

off. markets, other core making trading bunds, any relative trades of that sort? laurence: we like oat's versus bunds. there is a weird thing around 0% yield level in 10 years. when yields fall below zero as yield has, there tends .o be a speed bump because some people do not want to own a negative yield, as the bond goes from 10 basis points to -10 basis points, sellers come out and we have seen that a bit in bunds. helped germany recently in the short-term term. now it is harder to see france pressing on here. on yourou touched inflation outlook for the united states, one thing that caught our attention for the 50 year

and five year, the european central bank has a huge amount of work to do in terms of invoking the spirit of inflation . what does need to happen from a policy response from the ecb and the back half of the year to reinvigorate as these break even? laurence: it is the right question because it is so hard to see what the ecb is supposed to be giving us. ecb we know is we have an that was dovish at the last central bank meeting, but the action they provided was if nothingo say improves we will come back to you in september. that is not really good enough. this upcoming meeting we might get more detail, but the fact that growth data has picked up a bit might mean the central bank on the side of not

giving us much. i think that will disappoint the market. what the inflation market is telling us in europe is that we do not really believe the ecb either does not have the tools or is not willing to use them to get inflation back up, not a good place to be. manus: it depends on where you sit on the board at ecb. stay with us, laurence mutkin, global head of g10 strategy, bnp paribas. we have much more to come on bloomberg. we speak to a member of the house of lords, former u.k. transport secretary, do not miss the interview, 9:30 u.k. time. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i am manus cranny in dubai. inra: i am nejra cehic

london. swiss trading numbers, you see a beat on the quarter on quarter coming in at 0.6% versus the estimate of 0.3%. they year on year a beat -- on frenchaking lines radio, this is critically eyertant, especially in the of the discontent in france. ult, it mustena be guaranteed. they have a significant holding, and get in the game in this. capital is diversified but about the jobs. ore is pacing ahead, $100 is where we are trading. a concern of global shortage, a

buy call from goldman sachs, it cash.ut reducing rio tinto, and signs from brazil that a key mine may be off-line. aprediction for kleins -- prediction for declines. >> good morning, i think you hit the point talking about supply and demand in the market. blogger jack smith put it well when he said it is the genesis of the market catching up to the fact that too much too littlehaping supply. inhad the dam disaster january, a devastating disaster and there are questions if the mine will come back online. we have australia cyclone troubles. and china, record steel production in china.

supply and demand side, it can part 10, but bloomberg intelligence put out a statement saying this is speculative and less so fundamental. a contrarian view. nejra: what does that mean for the miners? 100% risk on for the miners. you saw them higher in australia, and we see rio open in london, you will see it spike . australia, it was up the most in leveling -- and 11 years, rio tinto. supply and demand will hit on the open today. tintog your money on rio over the others, from goldman. let's get the bloomberg business flash from debra mao in hong kong. debra: volkswagen is reportedly

making changes to its that are he purchasing plan worth 50 billion euros, over concerns that one of the supply deals might unravel. samsung had agreed to deliver enough batteries to power 200,000 cars, that we have learned it differing views have ed to ae amount slash quarter of the original amount. alibaba is considering raising $20 billion on a second listing in hong kong. the e-commerce giant is working on the plans offering, burning china's largest company closer to investors in its home country. alibaba has confidential listing in hong kong as early as the second half of this year. deutsche bank is reportedly considering options including a capital increase as part of a wider overhaul. investors for fresh cash, that is the least favorite option. management is aware it could trigger a backlash and lower the

stock price. that is your bloomberg business flash. manus: thank you, debra mao there. in the united states they have approached levels we have not seen since october, 2017 after meaningful -- after a lack of meaningful progress in a trade talks. -- there is a raft of u.s. data in core pce due later this week. laurence mutkin, global head of g10 strategy, bnp paribas. we are seeing momentum, this wave of money moving to treasuries, and breaking below the 200 day average. iss is where the market beginning to say, are we moving into a new leg lower in treasuries? i look at the data and see the shorts are beginning to pile back in here.

who is right, fast money or smart money? andence: i think fast money smart money must be the same. the reason the treasury market manages to defy gravity is because in a funny way we are looking through the lens of other markets, and everything that is risk off is good for treasuries, and everything that means yields will go down is good for treasuries. we have this weird thing going back a week and a half when a trade talks started to look less promising, and initially -- was that two weeks ago? -- if the stock market was week, the fed would cut rates, that pulled the fron down, and the fed is looking more dovish, so the curve flattened and the back comes down again. now we are in a situation where we need help from the fed and it

will not give it. everything is good always for treasury yields. what is happening with european yields aree bund making lows, relative to the rest of the world the treasury yield looks quite high. one way or another you get to a sucking point where everything is good for treasuries until we reach a level where it cannot carry it all. nejra: makes sense. it sounds as though you feel there is more momentum in that yield even if it might reverse due to the technicals we have pointed at through the show. let's talk about below the service, at bnp paribas, you are talking about the next position, and the flows in the treasury market, and that composition chinese from -- international reserve to a more in europe and japan. what indications does this have

for treasuries and of the dollar? laurence: this is interesting stuff. nejra: that is why i brought it up. laurence: it used to be the u.s. had a big deficit with china, and the chinese central bank was applying itself with dollars in the treasury market, and that is a stable situation. as the trade has come more into balance between the u.s. and china, the people funding the u.s. deficit are european investors, and they are not central banks but private sector. that means they have a wider range of assets to buy real estate, equity, whatever, and it has to be in treasury bonds. at the moment what is happening with the treasury market, in terms of the deficit, is supported by investors who might go somewhere else to read in terms of where might they go and why they might go there, for example, look at the european growth, there might be more incentive to reinvest in europe instead of moving it to the u.s. obviously that would take away

support for the dollar and the treasury market. a big pickup in european growth, or outside the u.s., would cause problems for the yield going higher and the dollar going lower. manus: does the resolution of trade and cause -- trade angst caused the whipsaw ability out there? laurence: yes, but resolution is a big word. it seems as you get tensions up , it does not seem it is in anyone's interest to call a complete truce and say it is over. it is not like trade belligerence is playing badly in the u.s. politically as far as we can tell on either side of the aisle. as you move toward something where you might get -- where the administration might want to show wins, it is not obvious they will keep quiet altogether on trade. nejra: great to have you with us

this hour, laurence mutkin global head of g10 strategy, bnp paribas, he will be continuing our conversation on radio. coming up, we will talk more about alibaba. this is bloomberg. ♪

manus: good morning from dubai. manus cranny with nejra cehic. the eu isreports considering a $4 billion penalty for rome over its failure. delaying a deal, president trump says the u.s. is not ready to make a deal with china, and repeats his threat to further increase tariffs. merger talk, finance minister of combination is a great opportunity for renault, and the french state would retain a 7.5% holding in the

entity. nejra: welcome to "bloomberg daybreak: europe." we are under now are from cash trading in europe. following european elections it look like gains could carry through to today. the u.k. back online, closed yesterday. ftse futures up. u.s. stock markets were closed yesterday for memorial day, but those futures on the front foot as well. we have seen a global equities in 2019,a global drop and three weeks of decline for u.s. equities, we could see a it of green on the screen today. profligacy does cost? way, thishas their

bloomberg story rattled the market, and it continues this morning. dropping today. where will this spread against bunds blowout to? you could see 300 basis points as it drops aggressively. $131treasury markets, billion to come to the market, you've got the shorter end of the curve on the market today. it is whether you believe those are too cheap. let's get your asian market wrap with juliette saly in singapore. seeing a thirde session of gains in asia, the in chineseboosted stocks. stocks affiliated with alibaba rising on reports that alibaba could look to hong kong for in china ando list

the u.s. the yen on the back foot as prime minister abe and president trump seemed to make progress, according to president trump in their relationship, although we know no trade deal will be pushed through in that short visit. india pretty flat, fluctuating from record highs. concerns looking to surrounding the indian economy. let's look at assets we are watching. stabilizing somewhat after strength coming through in the currency, that -- it is is likely to move in lockstep as .he trade continues, up 0.4%

we are watching a pullback in singapore iron ore contract, .hich yesterday surged by 5% you can expect prices to remain at levels of $100 a time, a drawdown -- $100 a ton. manus: thank you very much a juliette saly. alibaba is considering raising $20 billion for a second listing in hong kong. the e-commerce giant is working with advisors on a planned offering for the second half of 2019. bringing the company closer to investors at home, and trade tensions escalate. president trump says the u.s. is not ready to make a trade deal with china the claims beijing is keen to get an agreement. he repeated his threat to further increase tariffs on chinese goods. as china trump: as far is concerned, they want to make a deal and wish they made the

deal they had on the table before they try to renegotiate. they would like to make a deal, we are not ready to make a deal, and we are taking tens of billions of dollars in tariffs and that number could go up substantially easily. manus: joining us now lucy macdonald, managing director, cio global equities, allianz global investors. always. see you as you say the probability of a resolution is getting lower. have you made or are you about to embark on any tactical changes? you look at it through the prism of tech. basically the confidence around the base case for a resolution is lower, and the of a worse outcome has risen. on balance that means we are

looking at companies that we are investing in or looking to invest in at a higher risk premium. their operations will be affected by this, and the longer it goes on the more is at risk of some affect -- of some effect. it comes to a short-term resolution, but the confidence around it is lower. nejra: your confidence may be lower, you talk about the probability of a worse outcome rising. we have seen the three weeks of u.s. equities and global equities going toward the first monthly drop of 2019. hedge funds have been buying the the dips as u.s. stocks have dropped off. with your conversations with investors, do you sense of complacency in the equity market? lucy: not a huge amount. our feeling is having had the

big balance we have had, and taking some profits makes sense. because our expectation is we will have moderate returns in equities and more volatility. looking back over the last year, that is what we have had, a flat overall return with a lot of toatility, 20% from one end the other. that we think makes sense because we are coming to the end of this big boost of liquidity, growth is flattening out, and valuations on late cycles at the high end. a big return in equity markets is difficult to defend. higherity should be goods of the uncertainty about liquidity and trade. what do you worry more about, the u.s. or china? i am looking at the drawdown in chinese equities, this is american depositary receipts,

down 50% in may. .he worst months since 2008 we can speculate whether there is more to come or not, but do you think there will be more volatility on the u.s. side or chinese side? lucy: the chinese market is more volatile. we will see more there. andu.s. market is broader steeper, so there are places within the u.s. market which are less effected by this. when you look at what is holding fewell over the last concerns about trade, it tends the brunt -- the bond a proxy type. they are multinationals, but that is where the shift and flight to quality has gone. the trade wars have

escalated and we have seen a selloff over the past three weeks, how much has been sentiment driven, and how much dispersion have you seen that allows you as a stock picker to take opportunities? lucy: there is a huge dispersion now, between quality growth in the value and of markets. that is across the board. , andave seen bond markets quality growth stocks drop further. at the same time value and cyclicals are shifted down. if you are of a contrarian nature, you would be looking to do the opposite to that. , if we get aterm markets, thatin is where you will see more of a balance. are,er, for where we

looking for growth and quality in the long-term, you do not want to spend too much time on balance, and be more careful with valuation going forward. cycles, and some areas you would naturally want to invest, they are looking more expensive. if you say it is more on the american side, in what sense are you shifting things around in europe at the moment on the value versus growth side? hugely, but the companies we are investing in whatever isperform going on in the market, they are looking for companies with structural growth and driven by non-cyclical. not shifting too much come about on the margin i think some of our stocks long-term are looking

more expensive. we are taking a bit of money out of those and looking to see whether there are areas which have been sold down along with the value selloff, which have gotten -- have possibly been sold unfairly. areas of which have beinging quality despite in areas which have been sold off, those are more interesting rather than putting more behind bond proxies or growth companies, which have been beat up. nejra: we will pick up on some of those themes. lucy macdonald, managing director, cio global equities, allianz global investors staying with us for the rest of the show. mao in hongra kong. debra: the biggest parties and u.k. have faced the rath of

voters. -- the wrath of voters. brexit party came on top with 30% of the vote, but the liberal democrats saw its share of votes skyrocket, coming in second. in brussels, the first woman to lead the european commission, the liberal eu antitrust chief has made a name for itself by taking on u.s. tech giants, as you leaders are holding a summit to kick off discussions on who will be the bloc's next chief. also at stake, who will lead the ecb? it will affect policymaking for the next decade. austria, the day after surging to victory in european elections, the chancellor was ousted.

his opponents are hoping that out of power the conservative wunderkin will not be as successful. he has started his campaign to take back the chancellery. the french finance minister says a great opportunity for renault, and that the state would retain a 7.5% stake in the new entity. they will study what it calls the from a proposal as auto manufacturers are scrambling to tokle the expensive shift electrification and autonomous driving. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ nejra: debra mao and hong kong, thank you. let's stick with the renault- fiat story. greg, give us an update on what we have heard so far. so the french finance

minister was on the radio and he said he thinks it is a great deal, this is what is needed, car companies have to bulk up to deal with the challenges of the future and invest massively in the new car technologies coming on board from autonomous cars, electric cars. pretty much a green light rum the french government. -- pretty much a green light from the french government. thank you for being with us, greg, our team leader in paris. coming up, italian bond yields climbed after the eu -- after the bloomberg scoop on the potential find from the eu. there is a new budget storm on the way, we discuss. this is bloomberg. ♪

manus: it is 7:17 in london as the city wakes up and comes back from the bank holiday. it is "bloomberg daybreak: europe" that is what you are waking up to. i am manus cranny in dubai. nejra: i am nejra cehic. i wonder how many people staggered in with hangovers. [laughter] that's check in on the market, equity pictures and the u.s. on the front foot. and bond markets look like they could be in the green after three weeks of declines. the 10 year yield rake through the 200 week moving average. after we had china come out and say it would be expensive the short yuan, some traders say it is worth it. , wes: we are checking in

have italian government bonds. the cost of profligacy, 3.5 billion euros, prices dropping on the futures. euro stocks 50 has relief. is the u.s.-japan story trumping the u.s.-china story? abovere, will it stay $100? bag, they have the dexterity. iron ore in singapore is above $100. it looks like it is fit to stay there. join the mliv team, we are all there. 105 or 114?en, on trade wars, do you make it 105? flash,et your business debra mao is with us in hong

kong. debra: volkswagen's report of the making changes to its worthy purchasing plan about 50 billion euros over concerns one of its supply deals might unravel. samsung had agreed to deliver enough batteries to power 200,000 cars, but we learned different views have seen the price amount flash to a quarter of the original amount. alibaba is considering raising $20 billion for a second listing in hong kong, the e-commerce giant is working with financial advisors on the plan offering that would bring china's largest company closer to investors in its home country. alibaba could file a confidential listing in hong kong as early as the second half of this year. deutsche bank has reportedly considered options including a capital increase as part of a wider overall. it plans to unveil options in the next two months, but tapping

investors for cash is the least david option. .t could induce a backlash that is your bloomberg business flash. mao, thank you so much. let's get an update on european bond markets. yields climbed yesterday after bloomberg reported the european commission is considering disciplinary action over the failure to rein in debt. following a big win in the european elections, the result is said to be a mandate to oppose austerity. if the eu sends a new letter to italy, the government will reply saying the era of uncertainty and unemployment is over, and the 10 year yields fallen to a record low after the prime minister called a snap election. the governing party suffered a crushing defeat in the european vote. still with us, lucy macdonald, managing director, cio global

equities, allianz global investors. we were talking to our previous guest, laurence mutkin, global head of g10 strategy, bnp paribas about the moves in the last couple of days. let's talk about equity markets, your space. you were saying there might be areas sold down and europe were companies are improving quality, and that is where you want to pick opportunities. where might you see those opportunities, geographically or in sectors? , if: clearly in the u.k. -- can find companies which because of the location, because of the sector, and possibly because of perceived impact from trade wars, that is quite interesting. clearly, you have to make sure what you are investing in is mispriced and does not have the potential impact of those things.

but there are companies who have been sold down because of perceived concerns, partly because their business is more global and diversified than the market perceives, or they are in areas within china that are not in the forefront of the trade tensions. i think that is an area i would be interested in looking rather than riding momentum on either growth or bond proxies. notes i was looking at this morning, 78% of u.s. companies beat their earnings in q1. only 56% of european companies beat them. bank of america and merrill say expected earnings drop in the second half of the year, 5%. are we going to see earnings under pressure in the back half in europe because of the myriad of issues, not least china? lucy: i think earnings could

half,ize in the second and growth by the time we get there might be looking better. we are coming off of a low base at the moment with pmi's quite weak. scope for mores optimism in the second half of the year. it is really emanating from china. that is because of the amount of stimulus they have been putting in. although we are not positive about growth, i think it is not necessarily the case we get more downward impact on earnings in the second half. nejra: interesting. we have also been following the renault-fiat story. when we spoke before, you do not have an interest in carmakers, but when you said

there are companies that have sold off because of the trade war risk, i am guessing with carmakers it is more than perceived, but is that the main reason why you are not interested in carmakers, or is it something more fundamental? the industry, the returns in the industry. do not make interesting enough returns. if you want to invest, they cannot cover their own investments. although some consolidation is happening now, they need quite a lot more. it would need a lot for us to become more interesting, but that is one area where you can see the value, but it is hard to see were you have the growth and quality. manus: one of the major things we look at its dividend and buybacks. we have accounted for quite a number of buybacks in the reporting season. ort have you made of that,

where will you see more of that in the second half? lucy: we are expecting buybacks to continue. less of a driver in the u.s. than they have been, because it is more stretched. i think dividends are more interesting at the moment actually after what has happened, and certainly for those investors who are more interested in income than dividends, i think there is a high rest associated now -- high risk associated now. and we are at a stage were able be interesting to see how these investors respond to further dividend cuts. it is our expectation there should be cuts, manus: lucy macdonald, managing

director, cio global equities, allianz global investors, our guest host this morning. that is it for us, i will leave of thethe capable hands market open. that is next. this is bloomberg. ♪

good morning and welcome to bloomberg markets, the european open. we are live from our european headquarters in london. host 2: welcome back. the u.k. and the u.s. play catch-up from public holidays. shares edgend asian higher. ♪ anna: europe's next l