nejra: good from bloomberg's european had orders. headquarters. no rest fight. asian equities start the week in the red. jp morgan slashes its forecast for u.s. treasury yields. europe in focus. a key ally of chancellor merkel quits. britain braces for president trump as he touts a big trade deal in the near future. blackstone bets big on an $18.6 billion logistics deal. infineon nearing a purchase.

manus: welcome to "daybreak europe." calls for lower 10 year yields. you have not seen the reduce on 10 year government bond yields since 2014. jp morgan/to their view on rates. 1.7%. two year ratesng as well. they do not want to jump on the bandwagon because of the velocity. tom keene and is in london. the velocity of the move. in terms of duration, they are neutral on this position, but growth would be eviscerated in the united states of america. it would be slashed to 1% in the

second quarter. how does all of this translate? you have morgan stanley talking about a recession risk by 2020. has this traveled too far too fast? oil.ng a bear market in you are seeing shortselling in the oil market rise by 53%. the bears are making their position. by the way, everyone is very gloomy on the oil market. aussie dollar at the moment, the rba, we have had to end a half years of pause. -- two and a half years of pause. sincee not seen this 1983. the markets has to rate cuts by november. frank and templeton say that will be four rate cuts before this cycle is done. we will discuss possible

rate cuts, but also pricing around the fed. does the fed want to fight the markets? funds the only asset class really the have had a torrid month in may. you saw that 10 year bund yields hit a negative rate as well. warningtanley and saying we could see recession in a year, revising its trade war assumption. for u.s. equities, may was the worst month of the year and the worst return for years. we could be on the back foot today judging by s&p futures. the dollar continues weakness we have seen over the past few days. we are seeing green on the screen for equities at fx today. the question is, are they all heading the panic button? blackstone is doubling down on the future of online shopping. they have made a purchase, rather sizable.

u.s. ledger sticks assets, and the deal -- u.s. logistics assets paying $18.7 billion. to see you this morning. this is a monster deal. this is a bet on the future by blackstone. >> exactly. withe deal that we woke up this morning. private equities are super hungry for deals this year. of capital thes past few years and now they have to deploy that cash. competitivea very mood. this is a massive deal. it shows their hunger for real estate, for logistics. two sectors that have been , shopping trends change all over the world.

one of the biggest deals we have seen so far this year across sectors. blackstone, which always has been very aggressive in terms of , wins thes competitive bidding war this time around. thank you to bloomberg's deals reporter. good to have you with us. it's turned back to the trade story. -- let us turn back to the trade story. targetsn has slashed for treasury yields. it sees the u.s. 10 year yield at 1.75% by year-end, down from its previous forecast. warorgan saying the trade will force the fed to cut rates. morgan stanley goes further with chief economist warning a

recession could begin in nine months. raised the 25% and china retaliates as well. what havens work for multi-front trade war? you can join the debate, reach out to us and the team, ib+tv on the bloomberg. joining us to discuss the implication of the trade war, capsule global economist. great to have you with us. what do you make of the call from morgan stanley that we could see a recession within a year if we get tariffs implement it on $300 billion of chinese goods in china retaliates? >> i agree with that assessment. ourave pressure on macroeconomic outlook because of trade tension. the risk is we are heading toward a more inflationary economic scenario. at the same time, higher tariffs -- lead torime,

weaker economic growth. u.s.-china, u.s. and europe, that could have huge implications on a global supply chain and market sentiment. thereiffs are hiked, could well be a case we are heading to recession. it is not our base case at the moment. the world question wakens up to this morning is the veracity of any deal you sign with this administration could be ripped up in a heartbeat because of what the president did with mexico. are we under assuming the propensity of risk to japan and europe in a trade dimension? but nine.ket is .t is not -- is benign markets are kind of underestimating the risks.

they are targeted in selloff at the moment. it is not a broad-based selloff yet. there is a risk things could deteriorate because trump could be erratic. trump could equally find trade deals with china in the next two months or so. the risk is still to the downside at the moment. nejra: who has the most to lose locally if the trade war escalates? >> countries with high trade exposure would be heavily impacted. china will be impacted quite sharply. all the tariffs have been implemented, we estimate and impact of 0.6 percent gdp. for the u.s. it will be 0.2%. if the mexican trade war goes ahead raising the tariff to 25%, that will be hugely impactful. it will probably put mexico into

recession because it is how heavily -- so heavily exposed to the u.s. economy. because of the global supply of asian economies like china, malaysia, south korea as well. outlook if ity does go horribly wrong. we are going to deal with central-bank policy later but i -- down fors on the three weeks in a row. that says to me the market is naive in not assuming more yuan risk. my question as an economist is surely the currency will do all the heavy lifting here if we needed to? my guest yesterday said dollar yuan goes to 7.5 by 2020. will the currency burn the string? see risk for the yuan

if the trade risk escalates. defensee first line of and it could upset tariff rate increase. don't forget that the people's bank of china actually are not team to allow the currency to slide too quickly. they want to maintain a stable currency. that is why the u.n. has not fallen -- the yuan has not fallen as much. nejra: you say trade tensions are likely to become a permanent feature of the economy. will companies -- will economies adjust to that, or will it lead to lower trend growth globally? janet: that will absolute be the case. that is our outlook for the next decade or so. we are seeing a lot of trend growth. i think that will persist. fromu look at the surveys, the american chamber of commerce in china, chinese companies are -- american companies are

operating in china, whether they are keen to relocate, about 40% say they may be considering. action onot have that, they may be considering. ofut 10% were thinking relocating those operations from china to mexico. because these companies are not sure what jurisdiction is going to be protected from all these trade tensions. holdnies are going to be on the capex and that is going to be detrimental. we think trade tension will be a permanent scenario. manus: stay with us. a lot more work to do this morning. let's get you up to speed with your first word news. debra mao is with the team. state visitof the to the u.k., president trump has

weighed into britain's political turmoil. he expressed his admiration for boris johnson saying the former secretary would do a great job running the country. an endorsement from trump is a double-edged sword. after two fatal crashes in five months, boeing faces an uphill struggle to reassure airlines over safety. at the trans port association's annual meeting, there are still doubts a speedy resolution can be reached. the president of emirates addicts the 737 will not fly again until after christmas. >> i would say december would be the time, but i do not believe it is going to happen before that. the global regulators have a difference of opinion as to how they are going to prove their craft can fly anytime soon.

>> france is looking for an overhaul of antitrust rules. they leave says companies vulnerable to u.s. and chinese rivals. he also once the eu to examine so-called killer acquisitions. that is when large foreign tech companies by startups to stifle competition and innovation. is becoming an increasingly expensive lunch date. the charity auction for a meal with the oracle of omaha beat its record with a winning offer of over $4.5 million. the anonymous bidder can bring as many as seven friends. they will eat at the steakhouse in new york. 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. this is bloomberg. thank you so much. coming up, trouble mounts for merkel. the -- step down.

this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." another deal this monday morning. 28 billion dollars in deals announced, this time it is infineon going after cyprus. $23, ae going to pay chip to chip deal. $23.85 at the top end of what we speculated. $23 to $24. infineon has been on the sidelines for nearly five years in terms of deals. what are they going to get? word, isn'the magic

it? $1.5 billion of synergies. as a result of this, margins will be around 19% post-integration. it is a big deal. nejra: it comes in the context of infineon shares having lost almost a third of their value over the past year. the chipmaker has revised its forecast as well amid global economic uncertainty, slowdown in car sales in china. the semiconductor industry is one of those that is quite vulnerable if the trade war is escalating. manus: they have given us a few more lines. justifying the deal, the synergies, there is a revenue line as well. they are going to see revenues up by around 9% post integration. the upward price, this is where the market is going to debate. they are paying a 46% premium over the past 30 days. paiduestion is, have they for a large amount of growth? b.i. has a note out.

they say the possible deal with integration, the buyer focused on power chips, but the target, it is two worlds coming together. perhaps not as synergistic as one might think. challenges, always going to question the pricing, and also, what you have been talking about, it has been trying to recast itself as a provider of chips for vehicles and the growing market of the internet of things. maybe that adds values. maybe it makes synergies more difficult. let's get the bloomberg business flash. here is debra mao in hong kong. >> the french government reportedly wants additional guarantees from fiat as part of its merger with renaud. it is the biggest shareholder in the company and it wants to avoid job cuts and protect the national interest. france wants to combine companies' operational headquarters to be in paris. it also wants a seat on the

board. blackstone doubling down on the future of online shopping. it has agreed to by nearly $19 million of u.s. logistics assets from singapore's glp. in says it is the world's largest private equity real tight -- real estate sale. online shopping grows in popularity, the need for warehouse space to cut delivery time has ballooned. sachs' merchant banking decision is buying capital vision services according to the wall street journal. the deal is valued at $2.7 billion. capital vision manages my eye doctor optometry practices. the purchase could be announced as soon as today. that is your bloomberg business flash. . let's turn our attention back to the core of europe. germany's governing parties trying to pick up the pieces of

their rattled coalition after andrea nahles, leader of the social democrats, stepped down saying she had lost support of her party. this comes after the cdu suffered setbacks in the european election. it could potentially lead to germany -- what could lead germany to an early election. this could not come out a worse time for germany. it is facing a number of headwinds. the last thing it really needs is an early election. how do you look at the german economy this morning? currently, the economic data from germany is still weak. the first quarter results were ok. it exceeded expectation. if you look at the manufacturing indexes, it is still in deep contraction. for example, pmi manufacturing. this is something that is very

undesirable at the moment, political risk and there is still a lot of uncertainty with regards to the top jobs in the european commission, european council, ecb. political risk in the second half of the year could create more volatility in the market. nejra: how much of a prospect in your mind is there that we could see -- at the head of the ecb? will he have to assure he will still have that whatever it takes mindset? the ecbelection of president is very political. it depends on the nationality and the gender of the president of the european council or president of the european commission. it is very hard to say. currently he is a strong contender, but i do not think he comes off as the top favorite of a survey of economists. the governor of the fender central bank could be a top contender.

governor of the bank of france as well. dig a little bit deeper into the inflation story briefly, but german inflation came in below estimates of 1.3%. what does this do to the inflation story around europe? is this going to be a big draw down for the rest of europe? germany is getting crushed on the downside. i think core inflation in europe at the moment is really subdued. it is just around 1%. especially the market-based inflation expectation, it has collapsed to just 1.2%. that is very important for the ecb because basically the inflation expectation impacts

decisions, andng impacts how wages are being set. i think europe could be trapped in a low inflation environment for a long period of time. nejra: you are mentioning those five-year inflation swaps, you can see up precipitous swap over the past couple years. what is your expectation of what we are going to get from the ecb this week? with all the trade war noise that is a very important meeting, too. janet: i think our expectation is for rates other central bank, which is basically expected by the markets already. i think they will probably need to strengthen forward guidance. currently they are not expecting any rate increase this year. especially with the ecb governor changes by the end of the year. they may strengthen that forward guidance further out potentially because data has been weakening. new termsto announced tros.e tl

they may need to sweeten that offer. have gote question we to ask ourselves is this. the five-year forward czar literally cascading downward. has inflation expectation, has inflation become de-anchored? it is going to take more than words to re-anchor inflation. where do you stand? janet: currently, i think it is probably de-anchored. for the past few years inflation target is basically at two. inflation is failing at the -- strongt growth has previously one to two years ago, but it has already weakened. so much challenge on both growth and inflation. they will have to maintain a very dovish tone.

the markets are now pricing in as much is a 7% probability of a rate cut from the ecb in the first quarter of next year. is that fair? >> we still don't think the ecb will cut rates further to negative territory. there is still concern about the impact of negative interest rates to banks. it is still on the agenda whether to review the tiering system. i understand why the market is pricing in that pessimistic scenario. economic growth has to slow. with trade tensions continuing to heighten, that could be the case. our base case is still interest rates remain unchanged for now. they will probably have to strengthen their forward guidance, pushing out rates to be on hold for the future and of things like -- nejra: janet, you stay with us.

coming up, we will talk more central banks from australia to india in the ecb policy makers set to release their latest decisions. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." nejra: here is what you should be watching today. the roads are closed. the giant baby is out. president trump arrives in london for a three-day visit hosted by the queen. the u.s. president's trip to europe continues. the reserve bank of australia is expected to cut rates for the first time since 2016. manus: it has been a long pause. china's president begins a two-day state visit to russia on wednesday. the central bank is in focus on thursday with economists expecting a cut when the reserve

bank of india. the ecb also makes a rate decision. on friday is the end -- that friday is the end of theresa may, the prime minister. she steps down as the leader of the u.k. conservative party. to.a: much to look forward joining us from mumbai is niraj shah. here in london is annmarie hordern. indian equities showing resilience despite president trump terminating india's designation as a developing nation. tell us what is going on. >> good morning. this did not have too much of an impact. the crude price fall is leading to what is happening in equity markets and money markets. while everybody was bracing themselves for some impact because of u.s. markets, we

started about an hour and a half to two hours in trade. we are up 0.5% and holding, which is good. you see this impact in the money markets as well with the ease and the currency markets quite i saw the because of piece -- because of the crude price fall. the fall in the yields gives room to the reserve bank of india to come out with rate activity which could possibly be higher than what economists predict. everybody predicts 25 basis points, maybe just maybe it is higher. -- manus: it would be -- if a central bank did something. niraj shah with the report from mumbai.

annmarie hordern is in london. an american tracking an american. i know this is going to be all over the trump maneuvers. let's talk about market risk. pressure abounds. are you surprised is not heavier? ifwe are seeing a clawback you look at the msci asia-pacific. relatively flat really as the market digests all the news we have seen from friday into the weekend. look to the gmm. eric's -- a mixed picture. the nikkei down 1%. still, china csi is relatively flat. we are seeing a lot of green across the board, broadly focused on the yen. dax trading at a five month high. downmmodities, iron or $100 per ton. iron ore is key to the chinese economy. we have talked about oil. -- we have to talk about oil. brent is nearing a bear market.

it already entered a bear market dropping, from april high it is down 20% wiping out half its rally in the early part of the year. oil has lost more than a 10th of its value in three days. it is clear the market is looking at the demand side of the picture, prolonged trade war. now jitters between mexico and india. clearly ignoring the supply-side concerns that range from caracas and even russia with contaminated oil. an interesting next few weeks. it seems like opec has a big decision ahead of them. likely this could help extend the current deal. embolden is going to the argument about oversupply being quashed. a great bloomberg article this morning. well done. the very latest on the markets. airline executives gathering in seoul. one item on the agenda was the

boeing 737 max 8. two crashes in five months. a worldwide grounding of the plane. it became one of the biggest crises in the plane maker's history and it does not seem like the jet will be back in the sky anytime soon. the president of emirates says it will not happen before the end of this year. would have said december will be the time. i don't believe it's going to happen before that simply because the regulators, the global regulators have a different opinion as to how they are going to approve this aircraft to fly anytime soon. that was the president of emirates speaking to bloomberg. for more, we have stephen engle who joins us from the conference. great work yesterday and today. what would be the overall theme you have been hearing from this gathering?

>> i hate to use the cliche, but it is headwinds. there are a number of different headwinds for the aviation industry, but there are specific ones. the 737 max 8 grounding. when is that aircraft going to get back in the area cowinner the global regulators going to certify that airplane to get back in the air? that is the bigger question. no longer isn't necessarily just the faa mandating. you have the chinese regulator, the first one to ground the plane. you have european regulators. indian regulators. indonesian as well. a number of different regulators need to sign off on that. there is no clear consensus from all the different executives i have spoken to over the past three days here of one that would be. -- when that would be. which hase ajay singh 205 maxes on order, he is more

optimistic. he is hearing it could be as early as july. there is lots of uncertainty. also, rising fuel prices and definitely the trade war. if it escalates, cargo holds are going to be even more empty than they are right now. while they might be optimistic on passenger numbers, at least for right now, cargo is a big concern. that was a long way to answer your question. headwinds on a number of different fronts. 737 max 8 uncertainty, trade war. let's get the bloomberg first word news now. debra mao has it for us in hong kong. >> china's government says it is willing to work with the u.s. and the escalating trade war, but it blames president trump's administration for the collapse in talks. beijing says it will not be

pressured into concessions. china is targeting fedex, giving a hint to companies it may blacklist as unreliable. is seen as retaliation against u.s. curbs of huawei. the trump administration is ready to negotiate with iran pompeo into mike response to iran indicating it would be willing to negotiate if it was not bullied into doing so. despite tensions, u.s. forces are practicing operations in the arabian sea. underestimating the full risk of a trade war to the global economy. morgan stanley's chief economist says a recession could begin in nine months. president trump imposes 25% tariffs and china retaliates. this was followed by a warning from goldman sachs. it lowered its u.s. second-half growth forecast by about 0.5%. france is looking for an

overhaul of the european union antitrust rules. bruno le maire says they leave companies vulnerable to u.s. and chinese rivals. he also wants the eu to examine so-called killer requisitions. that is when large foreign tech companies by startups to stifle competition and innovation. becoming antt is increasingly expensive lunch date. the charity auction for a meal with the oracle of omaha be its record with a winning offer of over $4.5 million. the anonymous bidder can bring seven friends to dine with the investor. they will eat at a steakhouse in new york. 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. this is bloomberg. manus: thank you. banks meet amid

trade war angst. economic data may vindicate trader's gloomy outlook for growth. dani burger has the details. >> tomorrow is packed with central-bank action in eco-data. the day will kick off with an rba rate decision. that is as cash rates drop below the fed by the most since 1983. analysts expect the aussie bank to lower the target by 25 basis points. that same day, euro area inflation will likely see a sharp deceleration because the easter price effects likely to unwind. this busy day is capped by the fed chairman powell. he gives welcoming remarks at a fed conference on policy framework. then we get into thursday. a big rate decision from the ecb. key rates are expected to remain unchanged. the ecb is also planning to launch its third round of tlt ro's.

rba the same day likely to cut rates and finally friday we get jobs for the u.s.. we are expected to see unemployment hold at a 49 year low. that, traders are betting the fed will cut its rate by 0.5% by year-end. look what we are seeing in 10 year yields. drops below the fed funds rate just as we have this busy week setting quite a somber tone. nejra: great work. me pick up on the fed. manus and i were looking at a column this morning that expresses concern about the fed potentially capitulating to markets again. markets which feel entitled to request even looser financial conditions, almost regardless of domestic economic reality. we talk about don't fight the fed. how can the fed fight the

markets right now? markets are very worried about the rising trade tensions. that really dominates investor sentiment. the rise in trade tension, obviously slow growth and high inflation. the fed is facing a difficult situation where growth could be slower or even go into recession while inflation is going to be higher. for us, we still don't think the fed will cut interest rates this year. currently, the financial u.s.tions are good in the and the consumers are still spending. we could see a very strong spending data from the u.s.. .e had a good first quarter gdp there is no need to cut at the moment. if you purely look at economic data. i can understand that -- the concern from the market. the fed probably would not meet market demand at the present

moment because they are quite dovish in terms of forward guidance. there is no need for data to cut. all three trade wars go ahead, it could be bad for global scenario. i would not be surprised if the fed would choose to cut once this year. of this?at do you make jp morgan slashed the growth rate to 1%. that is aggressive. take a look at this. they have also demolished. they have literally eviscerated their rate. 1.7 5% on 10 year notes, two year notes also as well. have they hit the panic button? >> the forecast has changed quite aggressively. i would not be surprised if other banks are going to slash their forecast because there is just so much uncertainty. what we think at the moment is these are downside risks and it may well happen, but thankfully,

the risk we see is that things -- trade tension between the u.s. and mexico may not go ahead. it is still a threat at the moment. also for u.s.-china trade tensions. we may have more clarity at the g20 meeting. year,into an election they may not want to raise tariffs because it will heavily impact consumers. the economy is going well into the elections and i do not think trump will want to risk that. there is still potential positive price, although i acknowledge that the risk is biased to the downside. nejra: we are focusing a lot on jp morgan this morning, but certainly not the only one to revise the forecast. barclays also updating their forecast. seeing 2% as the next. on the 10 year treasury -- the next stop on the 10 year treasury yields.

is that just a sign of herd mentality across the curve? or is it actually reflecting a realistic concern that you as an economist share 30 years out? concern.ly there is moreink there could be curve steepening. further rate cuts are being pressed into the market. if the fed does cut rates, we think there will be curve steepening. what we see at the moment is investors being very nervous , whichhe current growth may not actually be that warranted for me. it is too pessimistic for now. manus: take a look at the breakevens. two, tens, and 30's. negate neeleally kashkari and the reason he is

not there yet. these breakevens are beginning to look quite weak. this would perhaps reduce the risk of near-term fed cuts. is this something we should take a look at? is this just too far out to consider at the moment? obviously the inflation is a key thing the fed looks at. core pce in the headline are weakening. i think the fed will look at cut data and they may well if growth weakens and inflation weakens at the same time. currently, the fed, i think they will probably remain patient for now and give it more benefit of the doubt. what we see is -- if tariffs were to go ahead, that would raise core inflation as well as the currently strong labor market is pushing up wage

growth. i think the fed may be patient and see how it goes. manus: i would love a glass of half-full you have in your hand. you stay with us. more to come on the show. all roads -- well, many roads, i should say, are being closed. extra police on the job. across the skies of london, a giant inflatable baby to welcome president trump. we will discuss all the politics and all the risks right here. this is bloomberg. ♪

pres. trump: i would say brexit is brexit. -- when you use the term hard, i assume that is what you mean. i hope everything happening there goes well. ofel farage is a friend mine. boris is a friend of mine. nigel has had a big victory. he picked up 32% of the vote starting from nothing. i think they are big powers over there. they have done a great job. president is set to land in the u.k. this morning. he says there is an opportunity for a big trade deal in the near future between the u.s. and u.k.. we will see how that works out. trump speaking to reporters before his overnight flight to london. president trump is on a european trip which includes meeting the queen today, sitting down with theresa may tuesday, and commemorating d-day toward the end of the week.

president will also be meeting emmanuel macron on thursday. joining us now, professor of international relations at the london school of economics. welcome, peter. great to have you on the show. we have outlined what president trump's agenda is. what will he be looking to achieve? let's start with the u.k.. peter: this is mostly about atmospherics for trump. he is looking at the ceremony to -- it is an opportunity for him to look presidential. with. three days to work we will see how that goes. on the policy side, i would expect very little in terms of deliverables. we are dealing with a lame-duck prime minister. the queen is going to stay away from all controversy, all policy issues. i think trump himself is very

likely has started doing this already, wondering into domestic politics in the u.k.. manus: her majesty has managed to welcome many leaders and stay out of politics. what is the possibility trump uses this three-day platform to really push his china policy about huawei? do you think he will bring up 5g as an issue? i think he will go for huawei. i would not be surprised if file is down a marker there. but he is dealing with somebody who really cannot respond on that issue. theresa may is in no position to do or say anything at this point. trump tobe a way for stir up the politics inside the u.k. by pressing this button, so i would not be at all surprised, but i think his principal focus

is likely to be brexit and assibly the potential for, he would put it, a very good trade deal with the united states. nejra: he has talked about meeting orest johnson and nigel farage. how likely is it those meetings will happen? >> if it happens, it is going to happen at the ambassador's party. i do not have an invite. i do not know who is on the list . what i would say is for trump, those would be very good meetings. something he would really look forward to. if i am boris, i stay away from those meetings. be last thing boris needs to is another one of donald trump's romances -- bromances. the list is kim jong-un and vladimir putin. i would stay away from it. manus: words of warning from you

there for boris johnson. janet, can i bring it to you? nothing tawdry is economics. -- as economics. we are in for a tough ride. things are getting tough out there as far as the guild curve is concerned. are you concerned about our economy given the flatness of this yield curve? we have not seen that this bad since the financial crisis on the curve. janet: actually, quite worried about the u.k. economy at the moment. the brexit uncertainty is going to be prolonged. the scenariose is are getting more extreme at the moment. we are either heading toward a second referendum or a hard brexit intentionally. there is so much uncertainty. our base case is if we are heading toward hard brexit we

are going to see recession this year. nejra: what is the best donald trump can offer the u.k. in terms of a trade deal? peter: he can talk a good game and he can frame it. he can offer it, but donald trump cannot deliver it. this is something british citizens need to understand. it is the u.s., house of representatives that matters. there will only be a trade deal of speaker nancy pelosi is behind it. as she explained recently, there will be no trade deal if there is a hard border in ireland. anything that threatens to violate the good friday agreement means it is dead on arrival in u.s. congress. manus: it is going to come down to what the house actually says. thank you so much for being with us. great conversation.

words of warning for boris johnson. janet continues her conversation on bloomberg radio at 7:30 a.m.. we are going to ♪

♪ manus: good morning from dubai. i am manus, with nejra cehic in london. this is the ricky rubio and these are today's top stories. china says it will not be pressured into trade concessions. morgan slashes its forecast for u.s. treasury yields, as risks mount. and, in ally of johnson angela merkel quits. britain braces for president trump. and it is a megadeal monday.

buys his cypress semiconductor company for $10 billion. ♪ nejra: good morning. it is just under one hour from the store of cash equity trading. what a tough month it was for global equity. $4 trillion loss, the s&p 500 having its worst may in seven years. and we could see another day in decline for u.s. equities and also in europe, where it is right on the screen. ftse 100 futures are lower by 1/10 of 1%. warnings are mounting about the from goldman, morgan stanley, and we can see the reaction in the bond market. we have been talking about jp morgan all morning. manus: we have indeed.

they have slashed and burned on their view, fun where yields will go by the end of the year. they warn, do not join the great big train. u.s. treasury futures are slightly higher, u.s. treasury yields lower. morgan stanley raised the flag on the prospect of recession by 2020, if the trade tensions escalate. to the wind market, we have seen four weeks of dust to the bond bund market, we lows in the market and there is a 77% probability that will get a cut from the ecb. the curve is the lowest it has been since 2015. do you really want to join the great big bond trade lower in has it done its

think? let us get to yvonne man, she would take us through the rest of the asian markets. after the brutal may, we still have some resilience in asian stocks and asset in general. following what we saw on monday, we have the dollar losing its haven status, boosting em currencies here today. regional pmi's, looking soft but less bad than previous months, and china pmi data on the upside. that is lifting sentiment just a bit. we are pretty much flat when it comes to original stocks, but still seeing pressure from the likes of japan, ending the day. 1% in tokyo. and the next market said to be the the next to lose 2019's gains, south korea. kospi.is up 1.2%, the india also seeing momentum despite the bad gdp print, and

despite president trump putting india on its targeted trade list, terminating its trading status. we are looking ahead to the r.b.i. meeting later this week, poised to cut rates once again, let us get to the boards and show you the assets. we mentioned the dollar, em currencies like the one, the chinese -- the won and the taiwanese dollar doing better today. the bond market rally is easing off a bit, you can see in backup and yields when it comes to australia. china is slightly lower, but 3.27 on your china 10 year yield. oil seems to be catching up with the global growth concerns are again, a slide in fixed income deals as well. nymex crude at 53.12, on the cusp of entering a bear market. manus:. nejra: yvonne man in hong kong, thank you so much. the trade war has

not made america great again, and brings the trump administration for a slump in talks. the u.s. 10 year is now at 1.75% by year end according to this forecast, down from its previous forecast of 2.45. it sees the two-year at 1.40. j.p. morgan says the trade war will hamper u.s. growth. morgan stanley's chief economist also forecasting a recession in nine months if trump raises china's tariffs to 25%. joining me now is luca paolini of pictet asset management. bonds were the one asset class that did not suffer. are you tempted to change relocation in favor of bonds over equities, given what we saw in may? luca: we moved to equities a couple of months ago with the expectation that earnings were a

little bit too high. we are less convinced about bonds. evaluation is very unattractive. we feel the best time now is to cash. cash -- to be long our allocation is to be cautionary on equities but not dilution bonds. manus: good morning. the s&p 500 down 1.6%, second worst month since 1960. are you tempted after that drawdown, or do you think there's a better probability of perhaps a more substantive correction to come? it is difficult because it is all about the trade war. the tweet in the middle of the night can change everything. obviously, now, the news is negative. today it is india, maybe tomorrow, it is australia. the technical indicators do still suggest that the market is not massively oversold,

valuation is not incredibly cheap. so the i think it is too early to call the end for this kind of correction. there may be another better opportunity this year, even if we are strategically bearish on equities because we expect, a recession next year. not now. nejra: is the fed going to capitulate to the market expectations in terms of a cut priced into bond markets and also, perhaps tightening financial conditions if equities continue to decline? luca: i think the fed will cut next year because the recession is expected next year. but this year, i think the fed will wait until there is more evidence. they will not cut rates because there is a trade war, unless you see a significant deterioration of consumer confidence and deterioration in the data. but i think the fed will be patient. it will be patient to cut rates.

next year is a closer call. manus: if we begin to debate as other forecasters have said, by 2020, will there be a fiscal response in the united states if we see the kind of dramatic slowdown that jp morgan are saying this morning, down to 1% by the second quarter? what there be a fiscal response, or are we overly focused on the monetary side? luca: we are overly focus on the federal reserve and the monetary side of things, this has actually been the case the past two years. the reason we are cautious of the u.s. is that when you look at the budget deficit in the u.s., it is the type of deficit you have when the economy is struggling, not growing at their percent. i think there was much more room for monetary easing in a way. but it is an election year in

the u.s., and that complicates things substantially. nejra: you say that bonds are expensive globally but not quite yet are you ready to buy the dip when it comes to u.s. equities. previously, you have been quite. positive on emerging markets, but they had a really bad time in may. with all the selloffs we saw across markets, where are you seeing the best opportunity to add now? luca: i think if you look at the equity markets, year to date, they have been in switzerland mass uprising, they are very defensive. and other market that is very defensive that much, much cheaper for obvious reasons, the u.k. 5%, everyoned of seems to be worried about brexit, the currency is cheap, very defensive. if i have to mention one park and river see the potential, is in the u.k. can ask about europe? we are debating the u.s. policy response, but the european

markets are pricing a 70% probability of a rate cut next year from the ecb. would you agree with that? how do you look at europe as a consequence of that? markets mightthe be wrong. 70% is too high. the european economy is better than what people assume. credit growth of 4%, 10 year high. i really believe the markets, if you look at where bund yields are, think they are too low. i suspect the ecb will wait and see. you need to see a significant deterioration from a cut -- to get a cut from the ecb. nejra: luca paolini, chief strategist at tictoc asset us.gement stays with

coming up, as the ecb leader steps down, could germany be set for a snap election? we talk about that next. this is bloomberg. ♪ we talk about that next. this is bloomberg. ♪

♪ it is 7:13 a.m. in london , 46 minutes away from the start of european trading. this is daybreak europe, i am manus cranny in dubai. nejra: and i am nejra cehic in london. euro stoxx 50 futures are on the back foot, down 6/10 of 1%. the dollar-yen barely moved, but we are seeing a little dollar weakness on the third day, and em currencies on the front foot. manus: where have all the meltdown voices gone? out, four .6% in may, the worst may in 10 years.

10-year yields, a big slash and burn from j.p. morgan. the bear market, you can on most smell it in the air on the oil market. let's get to debra mao with you bloomberg business flash. this company is purchasing cypress semiconductor's for nearly $24 a share, valuing the chipmaker at around 9 billion dollars. designsemiconductors chips for memory chips and processes used to power small and trying to prices. blackstone is doubling down on the future of online shopping and has decided to purchase $19 billion of u.s. logistics assets .rom singapore 'sglp

it will expand the size of its u.s. industrial footprint as online shopping growth and cutlarity and the need to ballooned.ime has this company has decided to move some of their swap trading from london in preparation from exit. 10 banks reportedly took part in switch, as lenders close existing positions in the u.k. and open equipment once in frankfurt. european banks will be unable to spots in london open next year if the u.k. crashes out of the e.u. without a deal. that is your bloomberg business flash. much. thank you very let's get back to our guest host this morning, luca paolini, who joins us around the table for a discussion. a look at the recession risks oilng, as we look at the market, citigroup says everybody gloomy.

. the recession was's are rising globally, and trade asked is perhaps the torchlight about how pressure. does it have to come to bear on the oil market, which literally smells like a bear market, almost? luca: i think we should not forget the oil market was fantastic for months. i think oil was probably overbought. we think the marginal cost of to $40,ng oil is close 45 dollars, so anything above $60 is pretty high. in the same way that you have withstocks and others issues, everything there is any special about the for the price. what was strange was the rally before we got this kind of correction. i think the level around $60 for us is still a relatively high. if there's any particular message from the oil price, we don't get it from anything else. nejra: and what is the message are getting from emerging markets? before, you were positive on

them. emerging markets had a positive time in may. does the selloff in may make them more compelling or is it a warning signal for you? luca: obviously, emerging markets are very vulnerable to a trade war but the valuation case is still there especially on the currency side the currencies are trading 20%, 25% where below where they should trade. we are bullish on china because everybody was bearish, but now everybody seems to accept the view that the chinese. economy is stabilizing so it is difficult to see an upside, unless the market is moving higher. we are more longer-term on emerging markets. there are some parts of the yen that are doing very well, like in russia, for example. manus: yes, things have certainly turned around. cuts. look at rate we have the g10 in australia. is this an incendiary device for

? new round of currency wars if the rba goes, the r.b.i. ies, the ecb with the tros, get the sense that there is a new piece of theater coming to the states year? luca: in a way -- see it are coming to the stage here? luca: they are all finding one, problem, inflation is below their targets. trade is a different case. you have an economy that is looking for an -- that expended for eight or nine years and was very dependent on china. there is a crash in the aussie markets now, so i think the issue here is that inflation is low everywhere, syriza pressure best so the pressure is for central banks to cut rates. i don't see the risk in the way of currency wars. a crash in the aussie markets now, so i think

the pressure is for central banks to cut rates. nejra: luca paolini stays with us. now let's focus on a visitor to europe this week. president trump says there is an opportunity for a very big u.s.-u.k. trade deal in the future. he was speaking ahead of the european trip, which kicks off with a meeting with the queen today. he will sit down with theresa may tomorrow, and join d-day commemorations next week. trump will also be meeting french president and one omicron on thursday -- french president macron on thursday. another big visitor in london today, bloomberg surveillance anchor tom keene is there. tom, we were talking to someone who you know very well in the hour, and he said president trump might take this as an opportunity to meddle in u.k. politics. tom: we have seen that all weakened, no question about it. in the last 48 hours, the

domestic news flow in america, and then the comments he has made about europe, i love that we think trump is europe, is he really in europe or is he here in london for a stage show with the queen, the prime minister, maybe prime minister johnson, who could imagine prime minister nigel farage? but the news flow on this monday morning, to me, it is the news flow over the weekend that reframes the trip. manus: tom, welcome to london. enjoy your time. one thing that struck me as i watched the sunday news shows in the u.k. was this obsession with the risk of a trade deal that might allow american companies into the national health system. our last guest, peter, made it very clear, that trump may be offering this great trade deal, but it is not his gift to offer, it is nancy pelosi. that is an interesting vantage point on it, isn't it? tom: the trade dynamics right they are acorrect,

cacophony. not only domestically with nancy pelosi, but also country to country. just envision, the president went after india as i was leaving, then over the weekend, he went after australia and that was pushed back by the state department. to what i assume, incorrectly from wrong, but i believe we are in trade negotiations right now between the u.k. in america. i didn't know that 24 hours ago, but i think we are there right now. there a fish that is a great point you make. it leaves me, what does president trump really want to achieve here? anything other than the distractions? tom: really important question. i thought the guardian captured this beautifully in an essay. this is something that all of our european and global viewers must understand, it is a fact, he loves the adulation, the pump

and the circumstance. there is no other moment to that approximates that. we saw that with micron on bastille day a few years back. he will be front and center loving it. luca, you have artie said under loved, under owned, and there is an opportunity in the u.k.. spectacle, what matters for this president? there will beng anything for u.k. equities, but i have to say that, and i also believe that a trade deal between the u.k. and the u.s. is not going to happen, but i can easily see a situation where trump can promise and say, we will have zero tariffs on goods in the next two years to get it would be very easy to announce. but i don't really see any

decision, any deal anytime soon. the situation in the uk's also very complicated. nejra: we have a headline coming through from germany. std's michael ross saying that europe needs a functioning german government withspd. nothing groundbreaking, but we do need to bring you that comment. tom: the president trip has dovetailed into the markets move. when i walk into the studios and see the u.s. two-year at 1.91, or the morgan stanley shift we have been talking about, and others making adjustments, this is a president visiting on a business trip/adulation with serious market dislocation going on. it would be a totally different trip if the markets were not moving. nejra: and on that market dislocation with equities and

bond yields where they are now is the market really severely underestimating them the global repercussions of all the? luca: trade moves? luca: yes. it is incredibly difficult. six months ago, we were panicking, then there was a tweet from trump, and everybody was happy. now the situation is much dangerous. the business cycle in the u.s. is very, very close to the end. there are a lot of things put together that points to a difficult situation. but yes, a trade war has the potential to tip the balance. tom: bloomberg reported that kevin hassett resigned at the white house, but this is one guy who clearly understood free trade dynamics. and just in the last 12 hours, he is out the door. you wonder, who will replace him given the cacophony of markets and trade debate at the white house? manus: tom, i think you hit the nail on the head, the question

of whether there is a more hawkish voice in ascendance in the white house. look up, we forgot, there is going to be a handshake this week, with mr. macron. will he sent salvo to europe? will he use the meeting with cron to point to a trade deal with europe? luca: i suspect trump will go after europe in an is coming weeks, that that is difficult to really predict. manus: predicting the unpredictable, that is hopefully what we do as a team. everybody, thank you, tom. welcome to london, thank you so much for joining us here on "daybreak" with nejra. and luca paolini. there is no doubt about it, there is only one story, a readjustment and reassessment of where u.s. interest rates go for the rest of the year from j.p. morgan,. nejra: yes, they are calling for

a 1.75 handle on the 10 year, 1.40 on the two-year, and you have goldman and j.p morgan stanley sounding warnings for trade as well. this is bloomberg.

enda: good morning. welcome to "bloomberg markets: the european open." alongside mattds miller in berlin. matt: prepare for the worst periods germany's ruling coalition hangs in the balance. the cash trade is less than 30 minutes away. ♪