>> good morning from the city of london. with manusehic cranny live from dubai. warning signs. asian equities slump following wall street. the treasury curve inverts further and new zealand yields at record lows. trade back and forth. a report says beijing could restrict rare earth exports to the u.s. and washington avoids labeling china a fx manipulator again. -- center-right candidate the bloc's top job at the political risk rose in europe. we are live in brussels. ♪

manus: welcome to daybreak europe. warning signs from the bond market. it is wagging every west market. 10-year paper versus three-month notes. t-bills, this is the most inverted since 2007. jamie dimon is getting worse. he says trade wars are no longer just a skirmish. j.p. morgan lowered their view on the 10-year note. you see pressure on the short end of the curve and on the medium end of the curve. going down in terms of yield, and that is the crux of the matter. is the bond market telling you something more prescient perhaps than the confidence data in the united states. there lies the point. he swaps market is now pricing in three rate cuts by the end of 2020. let's have a look at some of our markets. i bring to you the oil market

along with the korean won. the oil market down 1%. notemorgan have a cracking out this morning. risks of confrontation with iran, the u.s., south korea, undervalued. john bolton is here in the region. the market should be at $70. korean won a little bit lighter. we go toward the korean central bank meeting. what will the language be? nejra: good morning. you showed the three-month 10 year yield curve. what is interesting, it is steepening a little bit today. theyat point, bmi saying are not sure exactly what the criteria for persistently lowering inflation and the fed rate cut would be. they do see it as a matter of time before we get that, and that would show the curve steepening again. and by drop in january that technical signal, we could have further to fall.

s&p futures on the back foot following losses in the u.s. benchmark yesterday. equities were lower as well. risk off across assets. we could see another day of declines. theency fairly subdued but yen slightly big. in singapore has more. that drop in global bond years -- global bond yields reverberating through asia. juliette: earlier today, we saw the yield on australia's 10-year note fall below 1.5% for the first time in four years. kiwi yields falling to record lows and of course, we are seeing that money into bonds and out of equities today. by 1.2%.i down the cost be index, one of the worst performers, now at january lows. they are saying this is really the index to watch because it is bearing the brunt of the u.s.-china trade war.

the asx 200 in late trades down by 0.7%. closed lower by 0.7%. let's have a look at stocks. it looks like the trade war stepping up to that rare earth material play. state media indicating that this could be china's weapon of choice. a huge spike in rare earth minors in hong kong and china. session, the biggest rare earth producer outside of china, it has risen the most in a year, all -- up almost 14%. watching nissan-mitsubishi in the wake of fiat renault merging. shares up 1%. nissan renault saying their board did discuss the fiat proposal. juliette saly in singapore. stocks in asia have declined after a selloff on wall street

after investors gauged warning signals in the bond market. haven buying has driven a 10 year treasury yield to the lowest since december of 2017 as trade talks between the u.s. and china have stalled. the bond rally has further inverted -- further inverted a part of the yield curve. joining us now is the european head of global markets research at mufg. rate to have you with us this morning. whatuld ask ourselves precipitated the latest drop in bond yields. how quickly could we get to 2% on the 10 year yields? >> momentum is in that direction. and probably won't take a whole lot. what looks very clear to us is that investors are becoming increasingly convinced that we have seen the peak in the corporate earnings cycle and therefore equity valuations are being questioned at this point in time even other there haven't been any notions of near-term

deterioration in the broader macro backdrop. it is very clear that, i think, from a valuation perspective, equity markets are no longer being viewed as an attractive asset. i think that is forcing investors into that kind of safe haven play of fixed income. a big story, if you look at inflation expectations, market-based measures of inflation, we are seeing a continued considerable drop. i think given where we are in the monetary cycle with the fed, investors from that are increasingly convinced the next move will be a cut. manus: with that in mind, we have the swaps market. the market is now pricing in three rate cuts by the end of 2020. given expectations on inflation or the lack thereof, is it justified to expect -- do you think the swaps market is right, three cuts by the end of 2020?

>> i would say it is a dangerous game to play to kind of ignore what the pricing and bond markets are telling you. they tend to be pretty correct. the last time when the two-year has been this much below the fed funds rate come on every occasion when back through the cycles, with this extent of yields below fed funds on a two-year, a rate cut has followed. whether or not we get three by course a lot20, of of scenarios have to play out in one particular direction to justify that, but based on the balance of risks, based on what i have just said a moment ago in terms of the peak in the corporate earnings cycle, perhaps equity prices looking a little bit elevated. ofre is every prospect another equity price correction and if that becomes severe like , andd in q4 of last year

holds, then i think the prospects of two rate cuts in 2020 is very feasible. nejra: it is interesting how you are making that connection between the equity markets and the bond markets. sort of feeding back, getting into this loop between equity and bond markets. on the rate cut, as i was saying at the top, capital markets saying it is only a matter of time before policymakers signal the cut, and for them, that would enforce the view that the curve would steepen again. could the other parts of the curve deep and if we do get anymore signals from the fed? >> i think steepening on communication, what you will get is relatively little. ofhink, really, for the kind curve to start to move notably, you would actually have to see the fed cutting and then the markets becoming convinced that there could be a series of cuts

to follow. manus: the consequence of all of this, the two year paper being below the fed's funds and ensuring momentum toward the fed to actually cut, what does that do to the dollar? if i look at the dollar, i will just pop in on my screen here and clean it up. we are on track for the fourth straight month of gains. is this the moment where you check out of hotel california? clearly, what is priced in the u.s. yield curve, the prospects for the dollar in terms of advancing are pretty limited. of course, it is all about timing and how the cycles start to pan out. generally, what tends to happen in the early phases of a downturn, which tends to be seen first in the united states and elsewhere, than the fed responds

first, the dollar tends to weaken at that kind of first port. then, as the kind of downturn spreads further afield, then perhaps the dollar can strengthen back again. that is not playing out at the moment, of course, given what you have said about what is priced into the curve. i think the backdrop to that is, in part, the u.s.-china uncertainty and what that could do in particular to global growth. perhaps one of the differences in this cycle is the integration of the chinese economy into the global economy means that what happens in china is far more important for the global story rather than just what happens in the united states. nejra: that feeds perfectly into my next question about the bank of australia. are we going to start to see a race to the bottom of global central banks, the new zealand

yield also hitting record lows today and you are seeing a lot of strategists call for that race to the bottom. derek: i think in australia we will get a cut at the beginning of june. again, are we into a series of rate cuts from australia, new zealand? again, it is down to china, how severe it will be, the downturn, and how big an escalation in the trade conflict. still open to debate. i think the risks are beginning to shift. i think the chinese economy is slowing. the stimulus is starting to limit the degree of slowdown. i think we are into a phase where global central banks are moving toward rate cuts obviously. let's hope there are a few more things up their sleeves other than rate cuts. let's get you up to speed now with your first word news. the very latest from our hong

kong studio. >> the trumpet ministration has again refrained -- refrained from labeling china a currency manipulator, leaving a campaign promise unfulfilled but avoiding further escalation in the trade war. itstreasury also updated watchlist with five new nations including italy, ireland, and vietnam. beijing could be gearing up to use its dominance of rare-earth's in a trade war the u.s. according to commentary in china, including hints from the state planning agency. president xi zhongpin visited a rare earth plant earlier this month, fueling speculation that the strategic material could be weaponized. opinion overes of who should lead the european union are starting to become apparent. lots of names have been bandied about for the key political position of european commission president.

the center-right's official candidate is failed to gain traction, opening the door for a compromise choice like michel barnier. >> my priority is to have the most qualified people, those who share this european project are the most qualified and will make europe as strong as possible. i am not like those who only want someone who will overshadow the heads of states governments. we need strong leaders with strong experience and strong legitimacy. >> global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra: debra mao in hong kong. thank you very much. coming up, we are live from pimco's company headquarters in california. watch our exclusive interviews with top executives. exclusive conversation with the dim co-ceo and the cio. where to next and the great bond story.

that is 7:00 p.m. london time. ♪

manus: it is bloomberg daybreak: europe. i'm manus cranny in dubai. nejra: i'm nejra cehic in london. the risk off picture we are seeing today. selloff in the u.s. yesterday translating to a selloff in asia today. the msci pacific index down 0.6% as global bond yields continue to fall. the 10 year aussie yield below the rba cash rate. the 10 year yield in the u.s. at a 2017 low. how quickly before we get to 2%? manus: there's not much difference. bund future's rallying the highest level since 2016. if you want haven-itis, you have it. the dollar tix higher for a

third day, the biggest three-day gain in more than a month despite a drop in the short end of the curve. equity futures trading at a two month low -- 2.5 month low, excuse me. as our guest host just said, it could be that these equity markets rerate. he can be at the peak of the corporate earnings cycle for the moment. we are on the mliv blog. is the trade war risk premium about to jump? is it about to get very, very real? that is the conversation. join us there. let's get you a little bit of the business flash. debra mao in hong kong. debra: jp morgan's trading revenue fell 4-5 percent during the first two months of the second quarter. the next month could dramatically change that according to chief executive jamie dimon. had a banking comfort to new

york, he criticized competitor wells fargo, saying it was irresponsible for ceo tim sloan to leave without a succession plan in place. netflix plans to reconsider its entire investment in georgia if a law restricting abortion takes effect. streaming company makes some of its big budget shows there including stranger things and ozark. expectedegislation is to become law in 2020 if it survives legal challenges. it has some of the most generous film and tv subsidies in the u.s. the relentless slide in number a shares have headed to uncharted territory. the lowest since 2012, within a hair's breath of the all-time low set during the european debt crisis of 2011. it has dropped nearly 17% this year after reporting its first annual loss in a decade. let's get to some

breaking news. we have had news of this renault fiat chrysler merger, questions about whether it can happen. renault's message to nissan is that the fiat deal is good for all of us. reports to the nikkei saying that nissan says it is tentatively not against the renault fiat merger. we are also tracking the trade story. aijing is gearing up for dominance of rare-earth in its counter to the trade war with the u.s. the nation's rare earth stocks -- let's get to bloombergs asian managing editor. rate to have you with us. china weaponizing its rare earth stocks. about 70% of the u.s. rare-earth scum from china, so they have a huge part of the market here.

in that sense, it could very well be one of the big weapons they have after the u.s. took action against huawei. was hintedhing that at strongly today, using language that essentially amounts to don't say i didn't warn you. they pulled this out before major conflict with india, vietnam. that's why the market is taking this so seriously right now. what about the u.s. fxring china from the manipulator? that would have been a very demonstrable ratcheting back against china? do you take heart from that? it is certainly a sign this -- that talks are still on the table. both sides don't want to escalate things too much. there is no real reason for the u.s. to do that. china only needs one of the criteria.

the u.s. tends to use it. no real penalties involved if they were in fact to do that. certainly the current environment, that would have been a significant ratcheting up of tensions. right now, everything we are seeing a sort of rhetoric on both sides. we are not seeing action yet. a lot of things in state run media, a lot of statements from the u.s., at all seems to be pointing toward a potential meeting between trump and xi jinping in japan next month. manus: thank you so much for the latest on the trade wars. the weaponization. derek, the european head of global markets, research at msg. what do you make of the u.s. not using fx manipulator tags for china? derek: i guess it makes sense. if you just look at the facts and where china's current account surplus was, it peaked

at around 10%. it had been pretty much eradicated. ,f you look at the fx reserves from 4 trillion down to 3 trillion. chinagumentation of breaching two of the three criteria, it is just not there in the evidence. therefore, i think this is consistent with the facts. if it had named china, and obviously would have added it to the current tensions and perhaps the obvious conclusion was that wasn't necessary at the moment. nejra: you were saying you do expect some dollar weakness, but you also said that fears of devaluation as limiting appetites for dollars selling. derek: obviously, we are very close to getting to that seven threshold. considering the

dollar are conscious of the fact -- certainly in dollar em space, that would be a clear move to dollar strength versus em currency. we go back to this kind of big one global macro that can have reverberations across all markets, and that includes fx. if we were to break above seven, i think that would give a bid to the dollar generally. manus: you earlier question whether we have hired to run in u.s. stocks. we have this moment of calm in chinese equities. the csi hasn't moved much. of the u.s.'s topping out, i wonder, is there a or aggressive move to come on the chinese equity story on the

downside if that perhaps as your ?ase case scenario in the u.s. derek: going back to november, december time, having met repeat itself would add further reverberations. pushedson we are further is that the japanese yen in current financial market conditions and risks is still -- the currency we would choose. if you look at it on a year-to-date performance, quarter to date, month to date, wheneriod of risk aversion you have equity market price corrections, the japanese consistently comes out as the number one performing currency. nejra: how far could we go on dollar-yen? could we get to 100? and by when? from: we have gone to --

112 to 109 not by a whole lot. the potential for the yield -- any marketto correction in the range of 10%, 105 or below that becomes feasible later in the year. nejra: great to have you with us, derek halpenny, head of global markets research at mufg. the european union top job as political risks grow in europe. we will be live in brussels. manus: you don't want to miss our exclusive interviews. morgan stanley's chairman and ceo james gorman will be joining us on bloomberg tv and on radio, live at 8:00 a.m. hong kong time. viewhe share jamie dimon's

that we are now moving beyond a skirmish in these trade wars? that is the risk as we see money pour into bonds, into bunds, and there is a repricing of global risk. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." nejra: let's take a look at what you should be watching today. get data out of italy, including manufacturing, consumer confidence, and economic sentiment, both expected to weaken slightly as the eu is considering sanctions to tamperfailure its debt note. also, don't miss our interview with the ecb vice president, at midday. whatn the evening, this is

you want to keep an ion on, a contentious issue -- the europa league final. chelsea squaring off against arsenal. we will talk more about that in a second. let's check in on your india equities. stocks snapping three days of gains, a little bit of ponds, you think? >> you could argue that is the case. a bit of a pullback. nothing too dramatic. we are not even seeing that kind of movement within the specific indices. the region's index is less than 1.5% lower. it happened in yesterday's session as well. thought you asians in india have rocketed to a level which, in

certain parameters, you have not seen them before -- the valuations in india have rocketed to a level which, in certain grandmothers, you have not seen them before. caution or consolidation might be warranted, i reckon, manus, nej ra. nejra: caution always warranted. let's turn to another story. long before the ethiopian airlines plane crash in march 2019, and highlight for the carrier told management more pilot for the carrier told management more training was needed. these new developments emerging about the timeline of the fatal ethiopian airlines crash. what did we learn? >> really devastating news, that crash. this is more insight into what went on behind the scenes. bloomberg reviewed these pilots

from the pilot to his senior managers -- these documents from the pilot to his senior managers. what he was signaling is they knew that training for better communication, for crew members to avert what happened in october with the lions aerojet. while the crash did not play out like the pilot predicted, he was able to accurately first the eseeiple -- accurately for multiple things that happened. theypian airlines says cannot comment right now, but their pilot did get the training boeing. by the faa and but these communications and to another layer of these competing narratives about what really happened and who is most to blame. this particular individual reported 400 pages. it is hard to ignore that

report. what is the latest in the stages of the 737 max 8 investigation? >> it is still grounded, but just yesterday, boeing told one of their key buyers in india, a budget carrier, that they will be back flying in july. it seems like it bullish timeline into what you are hearing from regulators this week. from european regulators saying they really show the extent that they want to independently reviewed the before they allow the planes to go in the region, so maybe there could be more grounded in europe. not rushlators will indonesia, a huge market for the 737, saying it might dark the jets for the rest of the year. wantems these regulators to have an independent review of themselves, not just the faa stamp of approval. manus: annmarie, thank you very

much. let's get your first word news. debra mao is with the team in hong kong. the trump administration has again refrain from labeling china a currency manipulator. this leaves one of his campaign promises unfulfilled, but avoids further escalation. the treasury also ablated its blocked list -- updated its block list with five new nations. dating could be using its dominance of rare earth in its trade war with the u.s., according to commentary with china, including hints from the state planning agency. president xi jinping visited a rare earth plant this month. speculation the strategic material could be weaponize. angela merkel has given up on her heir apparent and is now digging her heels in.

she has reportedly become determined to stay in power until her term ends in 2021. airhas decided the apparent is not up for the job. has dismissedel these reports as nonsense. the speaker of the house of commons says parliament will not stand aside and let the country tumble out of the eu without a deal. john brickhouse comments some contenders to 60 theresa may have promised to force a hard brexit. but jeremy hunt says trying to leave with no deal would be political suicide. this is bloomberg. nejra? nejra: debra mao in hong kong, thank you. eu leaders have gathered in brussels to discuss the bloc's next top jobs.

the contact before president of the commission could open up a major risk. the center-right official candidate has failed to gain traction. french president emmanuel macron made his priorities for the job clear. >> my priority is to have the most qualified people, those who share this european project are the most qualified and can make europe as strong as possible. i am not like those who only want someone who would overshadow the head of state of governments. we need someone with strong experience and strong legitimacy. from brussels us is bloomberg reporter maria tadeo. leaders did not agree on a name for commission president. is the issue here that some of the candidates for the commission president could be being used as pawns for the other issue of who is going to lead the ecb?

maria: very much. it is clear as day that emmanuel macron and angela merkel do not see eye to eye on this. merkel made it clear that she thanks the next president should be -- europeans would have a bigger say. she does not think that we should just come up with some obscure candidate who did not even run in the election and make him commission president. the opposite side to this, and very vocal, with emmanuel macron , he thinks the best candidate should get the job. the issue here is very much that angela merkel is still not onlling to give up him. the issue is this is the whole package. they will have to clarify who becomes commissioner present before they can focus on the european central bank.

the problem here is that mario draghi needs to leave the european central bank by the and of october. the question is, does it open the door to perhaps a more aggressive pu.. -- pull. that load is all that we care about, isn't it? maria: that's right. he said he does not like the idea of financial penalties on a country like italy, but this is a story that is very much on the ground, flaring up again. it has to do with the election on sunday. the election by a lot, and that balance of power has really changed the coalition. this, so thees need, is he has a mandate to cut taxes across the board. this is problematic, and we understand a letter will be sent to the italian government to once again clarify their fiscal -- their the ground

fiscal stance. on the ground, many italian officials will tell you the rest of the country is losing its voice. the europeanead of parliament told me yesterday -- let's take a quick look. >> if we want to achieve good agreements with european union, it is possible to reach an agreement, but we need to talk. to the people, the country is isolated. maria: that was the head of the european parliament. a problem here is that at this stage, selfie need -- salvini has no intent to engage with brussels, and he has made some heavy promises in his campaign. nejra: thank you for joining us, maria tadeo from brussels. the european head of global iskets research at musg

still with us. let's start with italy and the d spread. how much widening to be need to see for it to be in a concern for the euro-dollar at the moment? >> the correlation comes and goes, but to directly answer that question, i would say a range of 250 to 300 is not particularly concerning. but if you get more than 300 basis points on the spread, i think have asked -- i think fx starts to take more notice, and that's when the correlation with the euro-dollar could tighten for sure. those stories are linked in a way in terms of what happens with the debt and yields in italy. vitamin is viewed as less favorable for the orthodox. the biggest beneficiary of those unorthodox policy measures, qe,

has been italy. the two of those are very importantly linked. certainly, if he becomes the candidate that could take over from draghi, that could have implications for yields in italy on top of the direct conflict between brussels and rome. manus: it could also have a rollback into euro-dollar. have a look at the volatility. what caught my eye here is that we are about 150 basis points below the one your average. my question to you is, if you ,ee a spike in italian yields do you think vol is underpricing some shift in europe? >> no, i think the big macro story on vol is the fact that central banks have moved to the sidelines in their view of being supportive of limiting a turn

hiring volatility because of equity market correction that spreads across markets. that could change at any moment. in terms of european-specific issues, yes. italy escalating is certainly one of those, but again, i think when you look at italy and you 's, ihese moves in btp think for real volatility to come in, investors are going to have to start questioning and bringing back existential risk. is italy but coming a major problem that we need to question the solubility of the euro? that's when it comes to serious and when volatility picks up. i don't see that we are at that juncture yet, but that kind of if the italyyears,

issue continues to go in the same direction, we could come to that point in the future. nejra: we were talking earlier about this race to the bottom in terms of global yields and central-bank rate cutting. where do you stand on europe on that front? i have one chart showing european economic confidence improving. this is only one data point, but what is the underlying and forward-looking data in europe telling you about how europe fits into that picture of the race to the bottom? >> i think if you go back a couple of months, there was germany on the brink of recession. people were rubbishing the idea that they were to bring factors at play. -- temporary factors at play. but then we see she one and the q1 and the data was pretty good. the demands were very positive for germany.

private household consumption was up 1.2% quarter on quarter, which was a significant jump. and inventories were a big drag on german growth, taking 0.6% 23.growth in q4 and the inventory outlook is improving. the confidence measures you have mentioned, we are seeing civilization, is not a turnaround. -- stabilization, if not a turnaround. ultimately, the macro story here -- has certainly improved relative to a couple months ago. manus: it appears to have turned a corner. derek, stay with us. bloomberg, a conversation with the former ecb president. you don't want to miss that.

nejra: and there is plenty more to come. outlookive at pimco's from the company headquarters in newport beach, california. do not miss our exclusive conversation with him co-ceo manny roman. that starts at 7:00 p.m. london time. ♪

manus: this is "bloomberg daybreak: europe." nejra: this is a big week. first, the europa league final between -- and chelsea. but none of them have made it to the top three most valuable clubs in the world, according to

the football valuation report. real madrid has overtaken manchester united at the top, and barcelona has slipped to four. bayern munich has taken the third position. the performance has also allowed the spanish side to grow their commercial revenue at over double the rate of man united. the head ofow is global markets research at mufg. we have a chelsea fan and an arsenal fan in the house. financelk football first. when its planes the movement at the very top of the kpmg ranking? -- what explains the movement at the very top of the kpmg ranking? >> real madrid was the winner of the competition for three years in a row, and what we know is it firstly gives them revenue per fixture when you move into the

later rounds of up to 30 million euros. when you get to the knockout stages, it can be a big boost to your quarterly income. secondly, the sponsors who look to put their money and football clubs are much more likely to target the clubs you are doing well in that competition. whenexplains why manchester united have not performed well, real madrid had over in terms of the present value of the club the lead looks at. just noting also on the english clubs, we should also mention that this valuation comes in dollars. that has weighed on some of the english clubs. finally, we have seen barcelona has slipped down to fourth place in the league. that is really because they have let their wage costs kind of spiraling little bit. they have not spent much on players. players, inthe terms of salaries, has gone up quite a lot. give us the score for

tonight. >> 3-0 chelsea. manus: derek? >> that is completely unrealistic. 2-1 arsenal. manus: we don't want you to be traumatized. how sustainable are these valuations that you see on the board in front of you? what does it say to you as an with a finance background? >> it tells you how important it is to perform well in the

champions league, something arsenal is not doing well at the moment. one question i had was in terms of the debt sustainability. like, where does this come into play in terms of measuring these clubs, and how important of a metric is that? >> it's interesting that you say that, but this league does not really factor into the debt side of it. values oflooks at the the players and the potential future revenue streams. as you mentioned, a lot of clubs are indebted for taking money from big financial backers like the chelsea's of the world. but it does not take into account the debt. investors would look at that if they are looking at investing into a football club. manus: gentlemen, thank you very much. joe, great reporting on the state of play and valuations in the football game. let me bring you headlines from abu dhabi, where john bolton is

sitting down with his allies in the uae. i almost certainly behind the attacks, mr. bolton said. our reporters are at the roundtable. that is the latest from john bolton. mr. bolton says iran was behind those vessels. the was a trifecta investigation between the u.s., the uae, and france. naval mines were used to attack the ships in the gulf. that is the latest in the ,uilding case against iran whereas the uae minister of foreign affairs is saying, we want to the escalate. let's get back to derek on some of the big topics. the one currency we have not touched upon and the one story we have not gone heavy on is brexit. where is your stance at the moment? the markets seem to be galloping towards the prospect of another election, that the tories may

even get themselves to that point. is that part of your thinking? derek: yeah, i think we are heading in a binary way to potentially no deal or a second referendum. i would lean more towards a second referendum. i think the eu election results, if you tally up the pro-remain or pro-second referendum and leave out the tories and labour, because we are not clear on what they are thinking, really you are left with a very clear majority in favor of a second referendum. so when a new prime minister is chosen, they are going to have a choice -- are his or her mp's going to be happy to go down the direction of a general election? if they are not, what is the only viable way out of this? i think it could be a deal put back to the people in a second referendum. nejra: would your preference be

to buy sterling against the euro, the dollar, the yen, or something else? derek: volatility is going to start picking up again. i think some further selloff is possible in the meantime. and, of course, a second referendum you could view as, it's time to buy. it depends on, number one, who the prime minister becomes, and number two, the deal that they put to the people versus a choice to remain. i am hearing that boris johnson is considering this, that he thinks a deal could get through in a second referendum. we can't rule that out. we need to see what the deal is. not a clear-cut buy sterling on the idea that we are going to remain because of a second referendum. great to have you with us this morning. coming up, the 10 year treasury yield hitting a low.

and there are concerns around global growth. wind, and how much, does the fed cut? ♪

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manus: this is "bloomberg daybreak: europe." asia equities slump following wall street as bond markets flash caution. the treasury curve inverts further. trump's topresident security adviser says iran was behind the goaltender attack. .rade back and forth reports say beijing could restrict rare earth exports to the u.s. washington avoids labeling china an fx manipulator once again. notthe lead candidate does

gather the support of eu leaders for the bloc's top job. we are live in brussels. nejra: good morning, everyone. just past 7:00 a.m. in london, so we are just under an hour from the start of cash equity trading in europe. we are seeing the 10 year jgb a gilts hitting -10 basis points, matching the lowest in 2016. how much our global equity markets taking their cue to what bond markets have been doing over the past few days? dropped a s&p 500 tense of a percent in yesterday's session. dayres pointing to another of declines, also showing the same trajectory in europe. cac lower by at least 5/10 of a percent.

, derek in the last hour suggesting that this is part of the corporate earnings cycle peaking and investors seeking alternatives to equities, driving yields lower. many things to discuss in these bond market moves. manus: yes, indeed. the australians that managed to get below their interest rates, so we are looking at the prospect of the zero interest rates all around. what does it take to break 300 basis points on the spread? reflecting back on what derek had to say, we are not facing an existential risk between italy and the rest of europe. we might be at a loggerhead, but we are not at existential risk levels. the u.s. treasury, however, could get to 2% because of this inversion. the bond market tends to be perhaps a little more president

in its recession risk than the rest of us are. by the way, the houses in 20 cities of the united states yesterday cascaded lower. juliette saly standing by in asia. juliette: have a look at that yield on the 10 year note in japan, as we just saw, falling to -.1, matching the lowest levels since 2016. they are at negative interest rates, but this has been the story. you see bonds going into equities, the nikkei closing out weaker by 1.2%. nissan,been focusing on which have been rising, also saying it is mulling over the ult ceo. we are seeing chinese rare material stock rise today, on the back of state media perhaps suggesting it could be used as a weapon in the trade war.

and australia closed weaker by .5%. half of 1%. the yield on the australian 10-year note falling below one and a half percent for the first time in four years, currently down five basis points. yields on new zealand's 10-year note falling to a record low. we have been watching what has been happening in the korean won and the korean markets really of the the brunt uncertainty in the u.s.-china relationship. down 6/10 of 1%, 193 .90 to the dollar. 3.90 to the dollar. manus: u.s. national security adviser john bolton said iran was almost certainly behind the attack on the ships near the persian gulf. joining us to put context around

this is our north africa and middle east executive editor. john bolton is up the road in abu dhabi. this word almost is very broad. >> it is, isn't it? the americans have said they think iran is behind this. ip,n bolton have a little qu who else do you think did it, nepal? he is certainly driving home the point that they are blaming the iranians for this, and staying presentinghat he is as a hawkish line in the u.s. administration. however, let's remember president trump has said he is not looking for a war against the iranians. the iranians have also tried to wrap things down, saying they are not looking for a war. we should see how far bolton is willing to push hawkishness in this position. nejra: great to have you with

us. i don't want to speculate, but what is your best assessment on the next step and the response we could get as well? bolton is here in the uae clearly because he is trying to talk to one of the major players in all this. the uae are the two main countries the u.s. considers its natural allies in the effort to contain and move against iran. the uae is itself has kind of expressed some concern about this drive towards war. they are supportive of the increased pressure on iran to try to contain iran, but they are not necessarily keen on pushing towards actual fighting. i think that's why bolton is here, to talk to these major allies of his, and whether that bolton convincing the uae or the uae convincing he is, we will see, but

clearly making the case saying iran has already taken violent action. manus: the hawks will put it out as the u.s. building a coalition for something bigger, and you look at the conversation with me last week that was all about the escalating -- de-escalating. let's talk about stocks. they are dropping in asia, and they have declined after a large selloff. investors trying to gauge the warning signs from the bond markets. haven buying has driven 10 yield government -- 10 year government bond yields to the lowest point since 2017. that is after talks between the u.s. and china have stalled. the bond rally has further inverted part of the yield curve . let's watch for its history of signaling recessions. is head of investment strategy at blackrock. it's almost like we have done a

360. we are the most inverted since 2007 on this part of the curve. how much of a danger sign is that for you? do you trust the bond boys and girls more than the equity women and men? takei do think we have to the curve inversion with a bit salt,inch of because the drivers behind it are very related to risk off sentiment, related to a need for income. if you look at our in-house indicator around where it is heading towards, things are still looking ok. it is slowing, but still growing, with bright spots specifically in the u.s., but also in parts of the emerging markets. it does pay to be cautious, but --also does pay

let's not get too scared trying to curb inversion. nejra: that said, you know investors have been de-risking, so how powerful have this slows been in fixed incomes, specifically u.s. government bonds, because we are asking how quickly the treasury yields can get to 2%. wei: absolutely. if you look at the last few weeks of income, it is largely into u.s. government bonds. early this year, first quarter, beginning of second quarter, inflows into fixed income had been evenly spread out between emerging markets and u.s. government bonds. it appears there has been a sudden refocusing and to haven at this -- into safe haven assets with fixed income. and we are seeing a reversal in your today trends. to day trends.

we see them reversing somewhat. what is interesting to note is, given the recent market corrections, some investors are looking for bargains, opportunities, even in spaces where one would not have expected, such as european equities. manus: european equities has seen money flow out for 61 of the 63 weeks. yesterday, i was cautioned against presuming a drop in earnings in europe. when you share that view? are we perhaps a little overly has a mystic on the outlook -- overly pessimistic for the outlook on europe? in lowe u.s. is growing single digits and europe is roughly flat. it would appear the earnings momentum supports the relative sentiments. is what is important to note

we are seeing so much outflow from european equities. so far this year, accelerating from the outflow last year. one must wonder how much further there is to go up. european equities or 20% of the global asset benchmark. clients come into us to look for opportunities to select specific indices to go back into europe. they are saying, we are not going over rate we just want to bridge are underweight -- overweight, we just want to bridge our underweight. nejra: what strategies work at the moment? wei: one to have a two-pronged approach. portfolio hand, build

resilience, looking at hedges that would specifically work in a trade tensions rising environment. the u.s. government bond has as a hedge. gold as well as a diversifier. identifying hand, parts of the markets that you have high convictions in, and use the market corrections to add to that exposure. isharesei li, head of and ema investment strategy at blackrock. markets in dubai and abu dhabi opening slightly lower, but investor attention will be on saudi arabia. s stocksthe kingdom' have been included in the msci index for the first time. investors are expecting billions of dollars to flow into the stocks that were chosen, but will the rally continue?

joining us from to buy is simone foxman. -- from dubai is simone foxman. with investorsd to cause them to buy or sell after this rally? >> this is a long time coming. the saudi stock market is $35 billion. market indexging comes into a new market, that index is responsible for $1.8 trillion worth of benchmarked assets. we should see about $6 billion of its mark assets essentially go to these new stocks -- of benchmarked assets essentially go to these new stocks. once you see the supply-demand trade end, do investors stick around, and do active investors get in on the action? we have debated this, saudi relative to the rest of

the eem markets looks relatively expensive. the question is, what is the next push to get you into the market? is it the active money follows the passive? >> certainly some analysts are suggesting this, but the question is complicated i some of the volatility that we have seen. .he iran headlines this morning and generally, oil prices, these sorts of things. stock look at the saudi market volatility, you have seen a recent spike that has not been asked significant as the spike in volatility since the incident in the fall. i think it is a real driving force for investors long-term -- i think the driving force for investors long-term is going to be fundamentals. maybe share price has to fall off a little bit. but also, do active investors see the long-term value in companies that have been indicated as part of the msci index?

nejra: simone, thank you for joining us. li withth us is wei blackrock. how much demand to you see, and how do you see this involving in the etf's you look at in terms of this saudi inclusion? wei: we have recently launched a saudi etf in response to greater demand an international adoption of the market. we are starting to see investors becoming more interested in this , and more motion as well, in terms of the flow we have seen into this particular etf. i would also observed that geopolitical uncertainty, market dampened they have initial momentum going into this exposure. or as markets, page, it is a long-term process, not just --

-- comets calm of age of age, it is a long-term process, not immediate. manus: emerging-market btp's lost a billion last week, $2.7 billion the week before. this is the first time we have seen money flow out of e.m.'s since july of 2015 in this kind of scale. the disruption is what, china, global growth? what is the driving force behind the shift in gears? wei: i think the fact that china has been perceived to be in the center of the ongoing trade tension, trade war, has sentiment dampened towards emerging markets, and it is cooperated by the fact that, while we see outflow from emerging markets, more broadly we are seeing outflows from chinese exposure as well.

when it comes to emerging market investing, one has to adopt a more long-term and strategic -- looking at growth potential and more broadly, if you look ahead at the central bank environment being a lot more accommodating, we do think that this is still a .ood place it offers interesting entry point options. manus: wei li, thank you so much. stay with us. coming up on the show, this is a series of conversations at pimco . we are going to take a look at all the markets from the company's headquarters in california. catch our interview with the top team. nejra: do not miss our exclusive conversation with manny roman and dina person -- dan iversen after 7:00 p.m. london time. what an interesting day.

kiwi hits record lows. this is bloomberg. ♪

london.:21 a.m. in 38 minutes until you reassess the risk between escalation between china and the united states on rare earths. would china pull the plug? also reassessing where equity markets could go with bond yields hitting new lows. for now, let's get the bloomberg business news flash. debra: jpmorgan's training revenue fell 4% to 5% in the first two months of the second

quarter, but next month could dramatically change that, according to jamie dimon. at a banking conference, he also criticized wells fargo. he said it was a responsible for the ceo to leave without a succession plan in place. reconsider itso entire investment in georgia, if a law restricting abortion takes affect. the company makes some of its big-budget shows there, including "stranger things." it is set to become law in 2020 it survives legal challenges. georgia has become a popular hub for production. it has some of the most generous subsidies in the u.s. the slide in gomorrah chairs is headed toward unprecedented territory, moving to its lowest in 2012, within a hair of its all-time low in 2011. japan's largest broker has

dropped nearly 17% this year after reporting its first annual loss in a decade. nejra. nejra: debra mao, thank you. eu leaders have gathered to next tophe bloc's job. differences were immediately clear between angela merkel and emmanuel macron. it could open up a major risk for the front runner, the 's officialt candidate who has failed to gain traction. emmanuel macron made his priorities clear. >> my priority is to have the most qualified people. those who share this european project are the most qualified. >> i am not like those who would only want someone who would not overshadow the head of state or governments. strong leaders with strong experience and legitimacy. let's get back to wei li. where the line is being drawn is all these implications leading

to a more hawkish ecb chief. i am looking at a 10 year bond yield that -17 basis points. earlier, you were talking about how there have been powerful flows into u.s. government bonds . has that been matched by flows into bbunds as well? has not. a lot of it has been going into the u.s. rather than europe, also because of the relative yield you see not matched in europe. what we have seen in europe, there is -- it is quite interesting, investors are dipping their toes back into the equity space, having gone out of it for part of this year and last year. one link that has been mentioned isew times in terms of why looking at how low german

government bonds are yielding at this point, and how much pessimistic growth outlook that wonder,, and one has to does that justify the actual growth expectation, or is that under-shorting? if it is too pessimistic, maybe we have seen the worst am i and that is behind some of the tentative lows back into european equities. -- seen the worst, and that is behind some of the tentative flows back into european equities. manus: maybe that is the reason why we have seen the flow into bunds rather than this repression in equity ownership. we are not exactly at a tragic stage. the consumer confidence numbers were not that bad yesterday. in terms of consumer sentiments, it cooperates with our expectations that the broader picture is still

reasonably ok, but it is definitely growing. yes, indeed, there are, when it comes to emerging in european equities in assets, political risk to always consider, if you look at what is going on in what transpired in the european parliamentary election. quo, ratherstatus than revolution. it suggests that the antiestablishment sentiment is always been a bubbling underneath the surface, and that is also why for europe we see it being structurally underweight because of these structural headwinds. manus: as our last guest says come are we had an existential risk level? wei li, thank you for sharing the flow of money with us, the head of ishares bme a strategy

at blackrock. when you are traveling to work, tune in to bloomberg live on your mobile device. we will continue to discuss bond yields. ♪

nejra: good morning, we are live from our european headquarters. i am anna edwards alongside matt miller in frankfurt. : today, markets say the warning bell has run. features follow asia deep into the red, setting the stage for deep losses at the open. the cash trade is less than 30 minutes away. ♪ matt: bonds boom