nejra: good morning. i'm nejra cehic. these are the top stories. the mexican peso slams after president trump's lapse the nation with tariffs. the foreign minister travels to washington tomorrow. beijing is readying a plan to restrict exports of rare earth to the u.s. as needed. the chinese sector deteriorated in may. a $1 billion loss. uber reports one of the largest losses, but shares get a boost as sales beat in the first earnings since its ipo.

♪ nejra: welcome to "daybreak europe". 6:00 a.m. in london. let's look at the markets. year,rst weekly drop this the 10-year yield plunged to new lows. where do we find the bottom? the dollar is bid. the yen is bid. and the peso is the worst currency in today's session. oil tumbling. done more than 1%. markets over the latest escalation in the trade war. joining me is a senior economist at -- your take? guest: a little bit nervous. it seems like trump seems trade disputes are a one-size-fits-all solution to form policy --

foreign policy disputes. if i was china or the eu, i would be reluctant to concede because this is a nontrade issue. threatening and talk -- this lowers the chance we get a solution to trade over the next couple years. nejra: we will get back to you in a moment. let's check in on the markets in asia with juliette saly in singapore.. great to have you with us. what are you seeing with asia? juliette: we are seeing weakness, but there has been a little more upside in the last hour of asian trade. i love the line from our mliv team. asian stocks have seen these before in terms of threats. certainly it was a black swan event coming in early asian trade and sending weakness, money into the yen. the nikkei is down over 1%. some other markets holding up quite well. worth pointing out it has been a

terrible month for asian stocks, down 6% on the msci asia-pacific index, on track for the worst monthly loss since october. the stocks impacted by the latest threats regarding tariffs on mexico, a lot of weakness in the japanese carmaker sector and auto-parts makers. listed in time one and says it has 90% capacity coming from plants in mexico, at one point falling 10%. it makes computer storage devices. and clients include alphabet and microsoft and amazon. china will use this as a weapon in the trade war. linus in sydney has been a standout. malaysia's party up giving the company a leg up, saying he wants the company to continue in asia. nejra: thank you so much.

the mexican peso slumped as donald trump vowed to impose a tariff. he said the move will stand until the country stops immigrants from entering illegally. he said they could rise as high as 25% october 1. mexico's president responded, saying, "from the start, i said i don't want confrontation. the foreign minister will visit washington tomorrow. chuck grassley said it is a misuse of tariff authority. pact back inafta focus. mexico accounted for 11% of u.s. steel imports last year, according to a government report. then the oil impact the worst hit, could be the shell plant in texas, a joint venture with mexico's oil company.

today we ask, how far can the msci index fall on trumps tariff announcement? you can join the debate. reach out to us ib+tv on the bloomberg. kallum is still with us. i got your first thoughts in terms of the latest escalation. let's develop your thoughts further. this shows president trump using tariffs almost as a weapon in any negotiation, not necessarily trade deficits. kallum: that's right. the u.s. is the biggest economy in the world. he can take a heavy-handed approach and get away with it. but if you're the eu or china and think you can probably stand up to mr. trump on trade, what's the incentive now to negotiate a deal in good faith on the basis he could come around the corner, there's an issue i don't like. i'm going to reapply tariffs. this one-size-fits-all approach to negotiations at gunpoint

makes this very nervous. and for markets, it's harder than before to say if you get a success on china, you can take the read to the eu and that's it for trade. we might be worried that however long mr. trump is in the white house, trade will be an issue. nejra: also joining us is another. your first reaction to this? underscoresnk it the fact uncertainty will be a dominant feature of global markets and global economies, at a time when central markets are normalizing policy. so, you're faced in a situation where -- policy is behind us, but at the same time you're battling increases in uncertainty and it's not going anywhere. nejra: you pointed to implications this could have to

u.s. and china. we got concerns china is going herbs as a weapon in the trade war. how much further do you see this escalating? kallum: hard to say and it's the key driver in markets. there's a fun correlation between global equities and global trade. the reason why europe is soft, emerging markets is soft, is because they had the confidence knocked out because of trade wars. we have to knock on wood and hope this settles down. if it doesn't, the soft industries could eventually continue. that is what is waiting on the global cycle -- weighing on the global cycle. central banks can worry about domestic demand, consumer spending and the like. but if you have weak demand for export, what can a central bank to about that? nejra: i'm glad you brought that up. morgan stanley put out the

ization.slowbila is that what we could see? guest: i guess if you step back at the start of the year, investors were discounting trade war worries because everyone thought, ok, this is behind us and we'll move on. all of a sudden,may happened, trump tweeted, and you felt this is a tactic. he's trying to get as much a concession from china as possible. as we go further into discussions, that is not really a trade war, but attack or. when it becomes -- but a text war. when it becomes a tech work, the stakes are higher on both sides. it's all about national government. it's no longer about yuan or trade deficit. it's proper text war, -- tech war, ideological differences.

that means regression and that's bad news for global welfare, global productivity, markets, clearly. nejra: productivity, good point. tech war, ideological war. what are the implications of that? has beenhe main driver the chinese upswing. this is unprecedented. it is coming at a time where china is going through a slowdown. this is what markets must factor in. they are trying to stimulate domestic demands through indirect measures. that worked in 2015, 2016. we saw a kick on global trade volumes. this time, those measures don't work as well. it could be trade feeding into confidence. , thatna has to go direct

will stabilize the chinese economy but may not have a kick on global trade. this is a moment where the major driver is completely over. slowbiliz lead to ation. nejra: we have more data showing the manufacturing sector slowing. what's your view on the effectiveness of any future stimulus we get from china and the shape it might take? guest: china is not likely to stimulate to the extent it did after the financial crisis because it would is lesson. just before the trade war kicked in, china was trying to deleverage. graduals will be because it still has significantly large amount of debt to the u.s..

if you look at the monetary policy measures, they are quite small, but given the inefficient , it will the policy where a fiscal policy it's about tax cuts. there is over investment in china and a lot of these investments were made to satisfy external demand. weakening, demand is these investments look excessive so china cannot stimulate as much from the fiscal side. what you're left with is currency. it's increasingly likely that you on will continually -- yuan will be continually used as a policy tool. you will see further depreciation. to what extent tariffs escalate, but even assuming you still have 25% tariffs on the goods, the yuan will still test the level

against the dollar. nejra: yuan can test seven. where do we find a bottom on the 10-year yield? kallum: hard to say, and i'm an economist. i'm definitely paying close attention to the yield curve inversion. it seems this expresses a lot of risk, which is mainly political, trade wars at the top of that list. if things go badly wrong, you could see the western world heading into a slowdown but if political risks go the right way, long-term bond yields rise again because growth will improve on the back of that. one point on china, i'm reluctant to say china will do gradual policy measures. it's a different economy than over here. there's a growth target, which is a political contract with china. as long as there's no inflation problem, it can control financial flight and it has savings. it will impose stimulants to

give the economy afloat. they stay with us for lots more through the hour. equities may show a growing number for 2019, but for many investors, may was the month markets woke up to a flurry of hurt. risk seeped into financial markets. and here is dani burger. dani: you know we have a whole outage, sell in may and go away. maybe it only works for investors from the start of the month. on wall street and beyond, stocks saw the first negative for 2019. for the u.s., more than a 5% decline. the average is a .25% gain. where do investors go? they fled to sovereign bonds. u.s. yields tumbled the most since 2016 in may. new zealand yields fall to fresh

lows. jgb touched three-year lows. a trade war was responsible for a lot of this trauma. they you on his inches -- the yuan is inches away from seven per dollar. they have to adjust far more. in may, havens reigned supreme. king dollar saw its best month in seven. there is debate on how much of a haven that is, but gold and the yen are similar bids. where do we go from there? a lesser economic picture is going to dictate markets. we saw u.s. gdp readings revised down less than expected. yes, a positive, but we have an intensifying trade conflict, including trumps the newly announced tariffs on mexico. they're suggesting a dimmer outlook. nejra: thank you to dani burger. let's get bloomberg first word news with olivia hows in london.

olivia: thanks. benjamin dr. pledge to cut interest rates further. that's to support the nation's economy. since taking office, he cut the benchmark rate 25 basis points, reversing last year's monetary tightening. we'll be looking at the data. not how fast it has receded. maybe will have capacity capitalization. olivia: north korea-esque -- executed. the top -- with president trump that's according to the newspaper in south korea. they said the man who led negotiations was executed in march. kim's former top aide is doing hard labor. italian deputy premier luigi demaio has won the backing of his party in an online vote. this is despite a dissent in

elections. the poll strengthened the five-star leader. some of his lawmakers solheim cup the party and half. insaw him cut the party half. global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: coming up, opening the door. former vice chair says the central bank t could ease monetary policy. we'll discuss that next. this is bloomberg. ♪

nejra: this is bloomberg daybreak: europe. i'm nejra cehic in london. we're seeing a global reaction to the trade war escalation, president trump avowing to impose a 25% tariff on mexican goods until they stop letting people immigrate illegally. crude tumbling, below $56 a

barrel. we're at that level right now. the mexican peso dropped more than 2%, biggest since october. 10-year yields hitting new lows. the 217 handle is where we stand now. how quickly can we get to 2%? s&p futures firmly on the back foot, worst weekly lost since december. let's get bloomberg business flash with olivia hows. olivia: uber reported a quarterly loss of more than $1 billion. that's among the largest of any public company, and more than lyft lost all of last year. they laid out the path for bringing costs down. the cfo said they will cut back on costs and rein in incentives. ups is looking to start sunday deliveries. that's according to the chief executive. in an interview with bloomberg, he said the trade war between u.s. and china could change supply chains permanently. >> the more customers exploring

through the flexibility of our net for -- network, supply-chain changes. once they make those changes, whether we have the trade deal or not, those changes probably don't get reversed. invia: amazon is interested buying foods from t-mobile and sprint. that's according to reuters. the two companies are trying to get approval from the sec for the $25 billion merger. they said they will recommend approval if they build an advanced five g network and pledge not to raise networks prices. that's your bloomberg business flash. nejra: the central bank is prepared to cut rates if it sees mounting risks to u.s. growth. he stresses the economy is in a good place with low unemployment and inflation. >> we're attuned to potential risk. and if we saw a downside risk to the outlook, that would be a

factor that could call for a more accommodative policy. that's definitely something in the risk management area that we would think about. nejra: let's get back to the managing director and a senior communist. -- senior economist. what would be the "it" that would lead to three rate cuts by the fed by the end of 2020, which is what markets are pricing? guest: by the end of 2020, the biggest "if" would be further of escalation in trade war. if you look at this year, it's quite likely, without any if's, we get at least one or two rate hikes from the fed. the reason being, talking about it downside risk materializes, we think the risks are already here. numbers,ok at the gdp

it's quite muted. but the underlying details are even worse. it's quite old-fashioned. you also see reductions imposed. whichnflated gdp numbers, will disappear into two. but also -- in q2. but also, if you look at profit numbers, it's been quite week. that means it's not good news for. -- for capex. they don't have the incentive to expand anymore. consumption has been holding up well, but there is easing, so i guess the economy will slow further and if you look at furthern, it will slow and you can see that in tenure expectations and bond yields. the risks are very much year. i think the fed will have to

take into account these risks and start to ease. nejra: do you agree with that? kallum: probably not. if we get into july, this is the longest post economic upswing in the u.s. we start to look at why the business cycle will turn, but they don't die of old age. they die because excess is built to an extent that it comes to an organic end. growth is slowing, but we just had two years of fiscal stimulus. now we have major political risk. normal. volatility is this no reason for the fed to do anything unless there's clear evidence the economy is going either way in a strong direction. probably the inflation numbers remain soft and growth remains above potential for the rest of this year, in which case a few dovish words here and there to calm markets will be fine. and in the second half of the be considering

whether to raise hike. nejra: if we look forward, given what you just said, the next move is more likely to be a hike than a cut? kallum: i think we're probably likely to be on hold for the foreseeable future. the question of cutting interest rates would not be in response to an expected downturn in the economic cycle. there's no good reason for that. probably, it would be a conclusion by the fed monetary policy is too tight, relative to the growth rate and expected inflation. you might say it would be to compensate for higher rate from last year, but again, i think this is a remote prospect and probably, if the economy starts to soften, i would expect mr. trump to soften up on trade quite a bit. i don't think he wants a soft economy heading into next election. nejra: on inflation, how much at

risk are we at a risk of a deflationary environment in the u.s.? guest: we are far away from that, but certainly inflation numbers are undershooting the fed's target. the bce is around 2%. and for good reason. we're discussing momentum. it has lowered rapidly. deflation is still something we're not expecting for some time. but that does not mean the fed does not really have to wait for inflation to kick in to ease policy. the fed's mandate is quite precise that way. nejra: we bring it up because we always talk about tariffs being inflationary. they could be deflationary. good chat. both stay with us. coming up, as the feds vice-chairman opens the door to a rate cut, how did neel kashkari feel about it all?

we speak to him at 1:30 london time, an interview not to be missed. uber reports one of the largest quarterly losses in any public companies stint since its ipo. this is bloomberg. ♪

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nejra: this is bloomberg daybreak: europe. i'm nejra cehic in london. here's a look at what you should be watching. we get growth data out of italy. the big news will be the response to the eu over the news the block is considering sanctions. the key concern for brussels is italy's debt load. angela merkel welcomes the secretary of state to berlin before mike pompeo heads to the netherlands to meet the dutch president. may,t inflation for expected softer than last month, another morning signal for the biggest economy. talks monetary policy and interest rates at a conference celebrating the 50th anniversary of the journal of money.

today is the last date of the ecb chief economist. he will be succeeded by the irish central bank governor. the mexican peso slumped as donald trump about to impose a -- vowed to impose a 25% tariff on the nation until they stop immigrants from entering the country illegally. they could rise 25% october 1. joining us is bloomberg's anna edgerton, deputy team leader for the u.s. congressional team. great to have you with us. thank you for joining. it's an interesting twist in the global trade war that we're seeing here. what are the implications? anna: certainly right. one thing alarming is that whereas trump had broadcast his previous tariff announcements, indicating he was leaning in this direction, this seemed to come out of nowhere as mexico

and canada were nearing the final stages of the trade agreement that will replace the nafta free trade agreement in place for decades. this is important to trade across the continent and the economy of the united states and mexico. nejra: there's two ways we could take this, one on the implications for nafta, and one on the implications for president trump's next steps for china. what's your views on where this goes in both directions? anna: first on nafta, this is a setback. this comes after the trump administration submitted their draft statement of the u.s. deal, which will be the new nafta. nancy pelosi pushed back on that move, saying it rest her timeline -- rushed her timeline. she hasn't weighed in on the tariffs, but it's definitely seen as a threat. not only mexico and the steps the trump administration wants

to take against central american migrants, but also against democrats, or as trump said, not doing enough to address or security in general. as it relates to the china trade deal, if i'm a chinese trade negotiator looking at the way this has played out, i'm going to see the united states as an untrustworthy negotiating partner. nejra: that is exactly what our guests are saying this hour. thank you to anna edgerton joining us from washington, d.c. great work. joining us in mumbai is naira shop. -- in euros shock. -- is near rochester all -- niraj shah. how are they trading? niraj: pretty good. trade numbers are expecting to start lower. the market seems to be another platform altogether.

trade..5% higher in i must tell you, i would reckon this oil isn't part to what is anticipated to happen in the next policy meet, so expectations from rate action on all ofk of india and that helping the markets. that tells you about what the current yields are and how they have been falling. sentiment. helping hopefully not too badly monday morning. thank you for joining us. seeingnteresting we're such green on the screen because it's a mixed picture, chinese study, the japanese equities taking a hit. let's turn to uber, shares getting a boost after following

the first earnings report. the largest ridesharing company reported sales that beat estimates, but lost $1 billion, among the largest of any public company. the ceo said maintaining an advantage over rivals comes with a cost. >> our platform model allows us to acquire, engage, and retain customers with a cost, as well as efficiency and effectiveness advantage over our rivals, typically model on competitors. these are just getting started as we penetrate into a $12 trillion market. nejra: joining us now is a senior technology and media analyst from bloomberg intelligence. great to have you with us. just talk to the results compared to expectations. we've seen the share price reaction. matt: they gave quite a bit of detail, set some ranges for revenues. they were largely at the top end of that range, and that's where

consensus is, as well. you look at the q1 numbers, it was a huge surprise. nejra: what about the outlook? this is the key thing. does uber say anything that might reassure them? matt: nothing specific. they make most of their revenue from ridesharing. the ridesharing business is actually making a loss of the contribution market level. they're still not making money, and that's what they need to do. they need to demonstrate profit. it's been suffering from concentrate -- competition. the competition is easing. they might have to give less promotional incentive to riders and drivers. they see a rise in qt, the main reason shares went up. nejra: growth booking is a reason for customer spending slowed. also, it lost $1 billion in the quarter. how is it going to grow? matt: apart from getting core

business into profitability, them most popular one is uber eats, going well. the on that, uber freight -- beyond that, uber freight, motors and scooters. and they are investing in autonomous vehicles. they've got money coming into that, $1 billion of extra money. that's longer-term future. but in the next year or two, the need to show you can make money from ridesharing. nejra: on that point, one analyst was saying a key question is how cutting losses should value would impact long-term demand for uber services. that could open a door for analysts to spend time digging into fine-grained metrics. agree with that? matt: markets are incredibly competitive. london, we only have uber right now but lyft is coming.

there's a lot of people coming into the space. you need to spend money to be self visible. until the market's settle down, perhaps a bit of consolidation, there will be promotional spend to make sure they're getting good market share. nejra: great to have you with us. let's get bloomberg first word news with olivia hows. olivia: beijing readied a plan to restrict exports of rare earth to the u.s. as both sides of the trade war dig in for a dispute. the plan can be implemented as soon as the government lands to go ahead. the outlook deteriorated more than expected. factory pmi dropped. the bank of korea left key rate unchanged. this in the face of growing risk to the nation's economy, including tumbling exports and rising china trade tensions. the policy decision wasn't unanimous.

the central banks governor raised concerns the trade war may be prolonged. north korea executed the top negotiator involved in its summit with president trump. that's according to the newspaper in south korea. it says the man who led negotiations at the hanoi meeting was executed in march, four other officials. kim's former top aide is doing hard labor. at the commencement address, she urged graduates to act with integrity and self-control. she real off a list of areas where she clashed with trump. when she called on students to tear down walls, they rose to their feet. global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. nejra? nejra: olivia hows in london, thank you so much. some of the biggest buyers of corporate debt are getting

antsy. more than a decade of cheap money and deteriorating lending founders. as the trade war heats up, top managers at pimco told markets that's the riskiest ever and the area of most concern. things we can look at, the one thing drawing my attention, half of investment grade company bonds are in triple b, the lowest tier. should the fed be getting concerned? kallum: it's certainly a financial stability risk. what you find is the rate of credit growth is a better predictor of economic problems than the stock of debt. what typically matters when it's a problem is the asset side of the economy is doing. and the u.s. economy is doing fine. also the household tech is in pretty good shape, which matters a lot.

this could be one of those things which exacerbates the next downturn. but it probably is not the thing that causes it. nejra: when we talk about credit in the eurozone, i want to get your take on the ecb and the transition mechanism and where you stand on whether yes, ti's one thing to stimulate lending from banks, but if the demand is in there, what's the point? guest: exactly. on the question of credit, the global debt level keeps inching higher. including financial corporate's. it's an issue, globally, for the eurozone. the credit quality keeps deteriorating. what happens so far is the ultra low policies of global central banks have kept zombie companies afloat. say ultralow negative interest rates. when they reverse, there will be pressure on these companies,

especially those with lower credit ratings. we don't have to go that far. for instance, the trade war will likely push a lot of these for quality companies into a lot of trouble. going back to your question it's banks, for instance, a gimmick because on one hand, you are balancing negative -- banks are paying interest rates for the ecb. at the same time, the ecp is paying banks to borrow from it. at the same time, i guess there's a policy to compensate for negative interest rates but are negative interest rates really helping anyone except maybe italian and spanish banks? not really. what's happening is it is constraining the profitability of the banking sector and it was ok because banks were still enjoying an increase in their

asset values because the ecb was buying government bonds and that inflated the asset value of these banks but ecb is no longer buying those bonds so the gains from that side is muted the size of excess revert -- muted. the size of excess reserves has doubled. the pressure has more than doubled. there isn't that much credit demand. negative interest rates address the supply-side, but not the demand side. nejra: on the negative yielding debt, it keeps growing and growing. we all understand implications of low rates on the credit market, but schroeder pointed -- schweta pointed to the trade war. how does that point to concern? kallum: it would lower credit demand, but that points to wider phenomena. policy rates are not easy across the world. this is a misnomer. interest rates are low.

negative interest rates, low policy rates by themselves do not tell you -- it is not. the weak demand for credit in certain parts of the world shows monetary policy is not, either. might be neutral, might be modestly stimulative. the other thing to keep in mind, the more we worry about trade wars, the tighter monetary policy becomes on its own. demand for the savings that go into investment and finance credit is further lowered the equilibrium interest rate. the main implication that fears about political issues like trade wars have fought monetary policymakers is that. in order to keep the economy afloat, they made need to adjust policy rates downward. that's with a transition mechanism is struggling to have an effect. the uncertainty of trade means even the policy rates will low, they are not -- look low, they

are not stimulative. nejra: interesting. they stay with us. coming up, warnings galore. the european commission warns italy. mattel salvini once his coalition partner on the government's strategy. who's in the drivers seat? we discussed next. this is bloomberg. ♪

nejra: let's get a bloomberg business flash with olivia hows in london. olivia: uber reported a quarterly loss of more than $1 billion. that's among the largest of any public company, and more than lyft lost all of last year. the ride-hailing firm laid out the path for bringing costs down. the company's cfo said they will cut back on costs and rein in incentives. ups is looking to start sunday deliveries. that's according to the chief

executive david abney. in an interview with bloomberg, he also said the trade war between u.s. and china could change supply chains permanently. >> the more customers that are exploring through the flexibility of our network, supply-chain changes, that once they make those changes, whether we have the trade deal or not, those changes probably don't get reversed. olivia: amazon is interested in buying boost from t-mobile and sprint. that's according to reuters. the two companies are trying to get approval from the sec for their $25 billion merger. the chairman said he will recommend approval if they build an advanced 5g network and pledge not to raise prices as it is constructed. that's your bloomberg business flash. nejra: thank you. mattel salvini told the party he wants to keep italy's fractional party going.

this comes after his party's big win in sunday's european election. meanwhile, luigi demaio won the backing of activists in an online vote. but the nation's debt issue hangs on. the commission confirmed it will take the first step in a disciplinary process that will put italy at risk of financial penalty. the managing director and a senior economist are still with us. how concerned should we be about this new standoff touring italy and the european commission -- between italy and the european commission? guest: i would not be that worried about the deficit because it hasn't been done before. even if the european commission does do it, we're not talking significant amounts. i would not be worried about that. but i would -- i would continue to be a lot more worried about

because therticular growing fragmentation of growth prospects. theess we can discuss confrontational stance and what the thing might do and whether the italian policymakers might back down. but the most important part is the bottom line. we're looking at wider btp spreads. and as we were saying, we're looking at growing fragmentation in the eurozone, which will put pressure on the ecb and fiscal policy makers. nejra: you mentioned btp spreads. the 10 year yield spread back to where it was when the populace took over. how much higher could we go on this? kallum: we could go much higher and my guess is the pain will be much worse than any of these things that can come from brussels. italy has been the biggest economic risk for europe.

the economic policy is disjointed, to say the least. it is removing regulatory reform, which had been introduced the last decade. that is lowering the potential growth rate and pursuing fiscal policy, which is not only inconsistent with monetary policy, but inconsistent with sustainability, which means italy is a candidate for a debt crisis during the next downturn. the next downturn will expose this inconsistency. the what policy factors in, even if, for a while, the italian government can get away with a bit of nonsense, what happens during the next crisis is if it's not sticking to the budget rules, it will not be a candidate for help from the monetary institutions in the eu. it will have to accept reform, wrenching fiscal adjustment if it gets help. think greece, ireland, portugal, spain. italy is a candidate for the peripheral debt crisis we saw

the last recession. nejra: ok, some pessimism for once. let's turn back to germany. this is also crucially important. using germany is not out of the woods. why? guest: germany is not out of the woods primarily because of the trade war. germany is one of the world's most export oriented economies. that's one. second would be the slow down in china. china is one of germany's biggest trading partners, but impact is not just indirect but direct. the fiscal stimulus in germany, yes, there is a fiscal stimulus of gdp. but if you look at the sort of -- germany is still running a surplus. and it doesn't make sense for an economy that was close to recession to run a budget surplus. so, the fiscal stimulus is missing. monetary policy has diminished. it is weakening. from all sides, germany is not

out of the woods. having said that, we are expecting an increased expansion to the second half of the year because the contemporary factors received. but we have less conviction in that view, largely because of escalating trade wars. nejra: i love nothing better than two economists who disagree. you were shaking your head. kallum: germany is 40% of gdp from exports. they are being hit badly by week local demand, weak global sentiment. but the domestic economy is doing fine. household is doing fine. a fiscal stimulus in germany is not the vote winner and it doesn't make economic sense. the economyimulate to offset weakness in the export oriented sector. all you do is worsen imbalances. the only reason is that it runs a budget surplus, but that on its own is a vote winner.

nejra: what does this mean for the next ecb meeting? guest: for the next ecb meeting, i guess we will be looking for more details because the central bank has announced that. -- hasn't announced that. draghi handed at trade. we're not really expecting anything on that front yet. thankfully, it can get a lot worse from here for the ecb on that front. i guess the ecb will sound quite concerned about growth prospects and try to push for that forward guidance. with markets pricing in low rate increases the next two years, it will take a lot more dovish tone of from the ecb to drive market expectations. nejra: you just said what the markets are doing. as we digest elections, how risky is it we get someone more hawkish to succeed mario draghi? kallum: i think it's a fairly low risk. it will probably be somebody already sitting at the

decision-making table. whether he's already sitting there makes little difference. the economic upswing in the eurozone is three years behind the u.s. you can see that in the unemployment numbers. we're nowhere near full employment. whoever replaces mr. draghi simply follows the same policy path. if we have a crisis, then there's a question, do we have a hawk or a dove? but as data is moving sideways and we worry about inflation, i don't think it matters much for now. nejra: thank you so much this hour. schweta and kallum, great to have you both with us on set. kallum will be continuing the conversation with us on bloomberg radio. coming up, tariff impacts. the peso slumps. president trump slams mexico with tariffs that could rise to 25%. it can be felt from autos to the steel industry.

we look at implications next. this is bloomberg. ♪

nejra: good morning from bloomberg's european headquarters in london, i am nejra cehic. this is "bloomberg daybreak: europe." the mexican peso slumped as president trump slaps the nation with 5% tariffs that could rise further in october. the foreign minister travels to washington tomorrow and market schedule to. beijing is readying a plan to restrict exports of rare earth to the u.s. if needed. china's manufacturing deteriorated more than expected in may. of the largeste quarterly losses of any public company but shares get a boost as sales beat in the ridesharing giant pot first earnings since its ipo.

7:00 in london and let's get to the breaking news. crossing the bloomberg, full-year net income comes in at 291.6 million euros, the estimate was 285.2. a clear beat on the full-year net income. full-year revenue act -- above estimates. light, butcomes in the full-year load factor, missouri seeing a 2020 net .ncome the outlook on 2020 coming in softer than expectations, as well but wizz air very optimistic for the current financial year and macro

conditions are to give market share opportunities. coming up, we speak to the chief executive of wizz air at 8:00 a.m. london time. let's get to data. german april retail sales crossing the bloomberg now. 4% year on year is what we are looking at. falling 2% month on month. some data to fill up the picture of the global economy. , this, as we get a new development on the trade war front with president trump saying he will slap tariffs on mexico. this has more to do with the immigrant situation but my guess saying if you are china looking at this, you will not trust the u.s. as a negotiator. markets have been jolted. futures, u.s. futures heading for the worst weekly -- worst week since the december route. european futures on the back foot. dax found more than 1%. shareswn by .6% and cac

trended lower. this comes as we saw green on the screen in the u.s. and europe yesterday. look at what the bond markets are doing. the 10 year treasury yield plunging. where do we find the bottom? please gone to a 217 handle in this session and futures indicate the bund yield is likely lower. we were at made -- 18 negative point -- basis points yesterday and the bdp yield looking higher. theing us for the rest of hour, the senior portfolio --ager at i want to get the latest on this trade war on the front with mexico. fort shows it will be here some time to come. let's learn to live with it. nejra: we will get more detail on what you are doing in your portfolio based on that. she stays with us.

let's check on the markets in asia. juliette saly has more in singapore. in asia, they are seeing a mixed picture rather than indiscriminate selling. juliette: that's right, and there is an interesting comment from an mliv strategist saying asian equities have seen threats come through in asian trading before but perhaps showing resilience. you have seen some selling in chinese trade and we had weaker outese -- manufacturing pmi of china adding to jitters and money going into the yen on safe haven buying, sending the nikkei down 1.6%. there is buying in india in e.m.'s. by aboutarket was up .2%. we've got to look at the bigger picture and it has been a terrible month for asian equities, losing 6% over the month on the msci asia-pacific index, making it the worst arming market since october. we mentioned money going into

the yen as we had the latest terrorist threat -- tariff threat on mexico. interestingly, some japanese carmakers that have plants in mexico are hit today. the korean won, down by .1%. asia's worst performing currency. we had a be ok rate decision today. -- bok rate decision. one member had a dissenting view and thought they should move. we've got the yield falling so that the yield on the aussie 10-year note, below the rba's cash rate of 1.5%, losing six basis points in the sydney session. nejra: those global bond yields, insync. juliette saly, thank you. slumped as peso has president trump found to impose a 5% tariff on goods from the nation. he said the move would stand until the country stops immigrants from entering the u.s. illegally. tariffset come he added

could rise as high as 25% on october 1. mexico's president said he doesn't want to confrontation. the tariffs and the reprieve for mexican steel and aluminum. mexico accounted for 11% of u.s. steel imports last year, according to a government report. then, the oil impact. worst hit among refiners could be sheltered plant in texas, a joint venture with mexico state oil company. joining us from singapore is bloomberg's senior editor. it is an interesting twist we are seeing here in the trade war front, isn't it? this tweet came out of the blue this morning. somewhere around 7:30 asia time. it wasn't precipitated by anything. we didn't have an indication this was coming. it just came. mid-june, coming in

escalating on the first of the month in july and august, september, and october. you get 25% tariffs on literally everything that mexico exports to the united states, which i don't have to tell you is quite a lot of stuff. this has a lot of impacts across all sectors. i think automotive is one i would particularly watch. there's a lot of auto trade across the border. agriculture is another one. avocados are a good example. this raises a lot of questions in the u.s. there are questions about contamination going forward. you seen that across a lot of trading. you've seen a lot of, where does this leave us with china feeling they can trust the u.s. and take it at its word? you've seen this in markets you wouldn't expect. the u.s. is not thrilled with turkey looking at buying russian military equipment, so you

actually saw speculative trading vis-a-vis the turkish lira based on nothing other than intuition. no reporting suggests anything is coming but you still some movement over there. there has been a broad contamination. worry since the tweet came out. mexico's response so far is diplomatic. they are going to send a senior official to washington tomorrow. they are trying to figure out what in the world is to do with this, and the country's president issued a letter that basically said we want peace. we don't want a trade war. we want straight piece. -- trade peace. we will see where it goes the thunderbolt out of the sky. nejra: watching in china, what will you make of this? that is another key question. for joining us.

today's mliv question, how far can the s&p 500 index fall on trump's mexico tariff announcements. your out to the team on bloomberg. shanti kelemen is still with us. let's get your take on this. we look at futures heading for deep dive on the chart, heading for the worst week since the december route. how far can fall on this latest escalation? corrections, you see 5% to 10% down and we are in that range at the moment. this will depend on what new details come out because we don't know how this fits in with nafta if we are heading -- pressing ahead on the. it could be a negotiation tactic, it could go back to the border wall. we will have to see what news we get today and how this unfolds over the weekend. nejra: the reduced asian equity and added to broad u.s. equities.

is that based on who you think will fare better in a trade war? shanti: based more on economic data. the trade war manners but not worth having an investment strategy around it. china we have seen fairly spotty data. growth is slowing but it is ok and a lot more inflated economy from trade. exports are a lower percentage of gdp than for countries like mexico looking at about 37%. that is pretty high. a lot of big sectors in the u.s. like technology, some aren't even allowed in china. they aren't really impacted. like alphabet or microsoft. nejra: you are getting more from wall street in terms of the impact of the trade war in the u.s. rbc capital markets came out with great work on sectors most affected, least. even specific companies.

i understand you are not building a strategy around the trade war but you've got morgan stanley also saying tariffs are just one piece of globalization and they talk about the company impact. i know you look at specific stocks so how much you bear the impact of this in mind in stock selection? atnti: you have to look earnings for companies because it impacts earnings growth in the same way that tax cuts boosted a lot of u.s. stock. that is important to follow, think about supply chains. for a lot of companies, those will take time to revamp. the longer term risk the u.s. is running if you say to china, we are not selling you anymore, the you want china building their own capability or wouldn't you rather be selling that to them for the next 10 years? it is the thing where you could win in the short-term and yes, there could be pain but in the long term, i'm not sure it is a sensible strategy for any country to say make your own market of this stuff. we don't want to sell it to you. nejra: as a portfolio manager,

it is hard to work out how these things could can out. looking at chinese economic data, we've got evidenced today, perhaps concerns with manufacturing data worse than expected, are you waiting for more confirmation that there is this inflection point in china? shanti: we are. numbers bottomaw out and we've seen things turn positive in recent months like the rate of change of credit growth, automotive sales had an uptick but we had data last night that was worse. so we will wait. we are comfortable to be a little late and really see the stabilization rather than jumping in and having something like we see today happen. nejra: shanti kelemen, senior portfolio manager at courts is staying with us. for many investors commonly was the month markets woke up to a world of pain from a flurry of risksrelated tweets,

seeped into financial markets. here is bloomberg's dani burger with how the month stacked up. adage, sellingld may and go away. this might have only worked for investors who sold at the start of the month. on wall street and globally, stocks clocked their first negative month of 2019. in the u.s., shares fell by more than 5% compared to an average .25% gain for me. to sovereignfled bonds. yields tumbled the most since 2016 in may. in new zealand, lowe's fell to new lows. jgb, bunds felt a three-year lows due to the escalating trade war. it constitute a lot of the drama. the one was just inches away from seven per dollar. in may, havens reigned supreme.

king $'s best month in seven. gold and the n saw similar bids from investors. what do we expect from june? that willc picture dictate markets. yesterday we saw gdp in the u.s. revised down less than expected so that picture looks positive for now, but we have an intensifying trade conflict including those newly announced tariffs on mexico. now recent supports -- reports suggest a bleaker outlook. nejra: dani burger. let's get the first word news with olivia hows in london. olivia: the federal reserve is ready to he's policy if it sees mounting risk to u.s. expansion. that is according to the vice chairman richard clarida. he told the economic love the u.s. is in a good place with low unemployment and muted inflation. we're attuned to potential risks to the outlook and it saw

downside risk to the outlook, that would be a factor that could call for a more accommodative policy so that is definitely something in the risk management area that we would about -- think about. olivia: the philippine central bank governor has pledged to cut interest rates further and lower the reserve ratio to support the nation's economy as inflation pressures ease. since march, he has cut the benchmark rate i 25 basis points, reversing some of last year's monetary tightening. >> we will be looking at the data, at how fast inflation has receded, maybe look at the capacity. korea left bank of its key rate unchanged at 1.75% in the face of glowing risk to the nation's economy including tumbling exports and rising u.s.-china trade tensions. the decision wasn't unanimous

with one member calling for increased. the central banks governor raised concerns the trade war may be prolonged. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. nejra: olivia hows in london, thank you. breaking news on number of crossing the bloomberg. nomura has been committed from the japan post share sale underwriting role. we don't have a lot more information on that right now but we have seen the challenges pile up for nomura, penalized after market information leaked and it has sunk to crisis level valuations as bad news keeps coming. it has been emitted from japan -- omitted from underwriting role. andit flags at pimco metlife are sounding alarms about companies ballooning debt loans after more than a decade of cheap money and deteriorating lending standards. more on this next. this is bloomberg.

♪

>> our first obligation and highest loyalty is to the american citizen. >> more than ever come our way of thinking and actions have to be multilateral rather than unilateral. >> we need to deter any aggression or and threshing a foe. oure don't always act on first impulses, even when there is pressure to make a snap decision. longer will we sacrifice americans interests to any foreign power. you don't do that anymore. >> protectionism and>> trade conflict jeopardize free international trade and the foundations of our prosperity. >> we are reawakening american pride, american confidence, and american greatness. >> tear down walls of ignorance

and narrowmindedness, for nothing as to stay as it is. [applause] president donald trump and german chancellor angela merkel angela merkel speaking during respective commencement speeches yesterday. chancellor merkel addressed harvard graduates while president trump spoke to air force academy graduates in colorado springs. president trump has a lot to do with rockets today. -- markets today. this time, comments around mexico. the issue is more around immigrants but the mexican peso its worst one-day loss since october. crude on the back foot. down at 56 per barrel, more than 1% on wti. implications are not clear-cut but a selloff is today. 10 year yield hitting new 2017 lows, 270 handle. where's the bottom on the 10 year yield? we have idiosyncratic issues in

italy and if we look to the equity markets, s&p futures heading for the first -- worst week since the route. euro stoxx 50 futures firmly on the back foot, down more than 1%. let's get the bloomberg business flash with olivia hows. allianzment to sell to for 250 million pounds. the deal includes potential payments over three european bank. it is expected to be complete in the second half of the year. proceeds will be reinvested in the core business. has reported a loss of $1 billion, the largest of it public company and more than lyft lost in 2018. the company's cfo says they will cut back on promotions and rain in expenses. amazon is interested in buying boost from t-mobile and sprint according to reuters. the companies are trying to get

approval from the fcc over the toy $5 billion merger. the regulator chairman says he will move for approval if boost pledges cannot raise prices while being constructed -- 5g is constructed. nejra: olivia hows in london, thank you. fed richardn of the clarida says the central bank is prepared to cut rates if it sees mounting risks to u.s. growth. he stressed the economy is in a "very good place" with low unemployment and muted inflation. >> we are attuned to potential risks to the outlook and if we saw downside risk to the outlook, that would be a factor that could call for a more accommodative policy. that is definitely something in the risk management area that we would think about. nejra: as the fed deliberates, there are risks from merging for the frothy credit market. after more than decade of cheap money and deteriorating lending

standards. up, toprade war heats money managers at pimco told bloomberg a market is probably the riskiest ever and the area of most concern. shanti kelemen senior portfolio manager at courts is still with us. would you agree with what pimco has been saying about credit? shanti: it has have a strong rally this year and if you look at the spread between a government bond and what you get there isporate bond, not much compensation for taking the extra risk. it is easier for corporate stucco bankrupt for -- that a country, which can print money. we have been thinking about moving to shorter duration corporate bonds, mitigate risk, and we have added to emerging-market hard currency dollar bond because that is an area that doesn't look overpriced. credit quality is worse that leverage isn't quite as high for a lot of those companies and countries. moving to sovereign bond markets.

the 10 year treasury yield hit new 2017 lows. in the treasury market fair -- fed cup pricing overshot itself? nejra: i think it has. we are pricing in to rate cuts this year, which seems far-fetched barring some economic severe slowdown. in what is mainly driving the yield is sentiment. r sentiment has sunk to close to the lows in december. that is what saw people rushing into treasuries, yen going up. it is not really driven by anything fundamental yet. are neutral between bond and equities. you favor the u.s. and u.k. in regions. you have reduced health care in the u.s.. this has been a high conviction for courts for a while. shanti: we've had it in a portfolio since 2016. we've got the u.s. presidential election coming up, we've got 20 different democratic hopefuls

and a lot of them are talking about health care. have seent, we health-care stocks underperform when all those worries come up about her medically changing the regulatory system and accommodation in insurance. the other half, health care is the best-performing sector last year. valuations aren't cheap anymore so we have taken some money out. nejra: shanti kelemen, senior portfolio manager at courts. thank you for joining us on "bloomberg daybreak: europe." the european open is next. matt miller will have a lot to talk about with what is going on in the markets after the muted gains we saw in europeean equities yesterday. we could open significantly lower. s&p 500 futures heading for the worst week since the route. you're a stoxx 50 futures down more than 1%, ftse down and 7%. dax futures taking a hit, down

1.2%. work, tune in to to bloomberg radio live and on dab digital in the london area. i'll join you there from 8:00 a.m. this is bloomberg. ♪

matt: welcome to this is bloomberg. -- bloomberg markets: european open. i'm matt miller. if the cache trade is less than 30 minutes away. ade is less than 30 minutes away. president trump schulz markets with a tweet yet again as he tariffsxico with 5% that could quintuple october. beijing prepares a plan to restrict exports of rare earth materials to the u.s.