>> good morning. i am irritated hits with manus cranny -- mary kay hit -- i am nejra cehic with manus cranny. james bullard says the fed may need to cut in. if the stocks follow the u.s. lower after the faangs are slammed on an average up -- anti-jump rope. anti-trump probe. and as the oil price found bottom? we hear from the world's largest independent energy trader on the outlook of production and opec. >> probably expects them to --

you know? it is easier easiest thing to do. they want a reason, which is understandable. manus: it is "bloomberg daybreak: europe." we bring you a vicious repricing in the fed funds futures. have a look at this. a demolition derby took place. what the fed might do by the end of the year. this is january 2020. that fund futures. says it has been vicious and perhaps a bit overdone. another says he was the fed funds go to zero over the next 18 months. the fed will cut three times in the ensuing course.

that is of course all to do with recession risk in the united states of america. a thick at old and wti. bonds mightthe way, be the best game in town, but gold is not bad either. gold up 1.2%. sinceggest two-day gain october. crude is down for four days in a row. we will hear a little bit more from inhaler, talking about -- ian taylor. al-falih doubles down on doing whatever it takes to stabilize that market. more throughout the next 48 hours. good morning. thea: it is all about repricing and the fed up the moment. to year yields having their biggest drop since 2008. we might get to 190.

we are up six basis points. above .2.r yield up we are seeing stabilization in the bond market and maybe equities, too. we saw a loss of 25% on the s&p 500. the nasdaq falling to present with concerns around antitrust probes. those bear focus in market. we dropped 7% from the april record. perhaps there is concern we have a lot further to fall to match what happened in the fourth quarter of 2018. dollar weakness is what we saw yesterday around the fed. let's check in on the markets in asia. yvonne man inamed --yvonne man is in hong kong. to see you.t it is the bond market that continues to be the top story. meandering. we are we lacking that catalyst for markets to get that list higher. t higher.

china, the large-cap down close to 1%. japan marginally lower. aussie stocks getting a little bit of a lift after the rba decision to cut rates for the first time in 2.5 years. no surprise. here is how your aussie assets are doing at the moment. we initially saw its bike hire. maybe perhaps this rate cut was priced in and we saw it come back down. not a lot of drama when it comes to market. the 10 year on the aussie. the yields not doing a whole lot either. there was a lack of guidance some say in that policy statement. later on this afternoon, evening time in sydney, that is when solo will be speak -- so low -- will be speaking. we mayjames bullard says need to counter downside risks. could seeire said he

rates going to zero over the next 18 months if the economy softens. referring to the president's threat, he said when the trump tweet went out, i went net flat and bought a bunch of treasuries. saysio of guggenheim things are getting really overbought and there is a vicious spike doubt in yields that is likely to be reversed in the near term. livee fed meeting in june for a rate cut? we are all there. tv on your bloomberg. joining us for the hour is a multi-asset portfolio manager at newton investment management. we have a range of views on where the bond market goes next. what is your view? paul: the fed is much more sensitive, and to the equity markets, then it has been historically. to the end of the year, we will

o rate cuts.g -- tw that is looking to happen. coming into this year, we were expecting rate rises so that is quite a difference to where we were last year, so we think that is probably likely to happen to try and ensure the economy continues to be very stable. i think that will probably work. when we look at the underlying data, wage growth is fairly strong, especially when you break it down. 5% to 6% per annum. people at the bottom end tend to spend every extra dollar they earn. people at the top tend to save. that should keep the economy going but that does not tell us what will happen in the capital markets. manus: good morning to you. it has been a fairly vicious repricing. we will talk about that positioning in a moment. recession risk or not -- factory slump. european manufacturing is lower.

u.s. manufacturing is under pressure. german manufacturing is under pressure. where is your recession-o-meter? paul: a lot of the manufacturing industries, just over 50% are now in negative territory or the low 50. certainly, weaker. that should not be any surprise to anybody given what is going on with the trade tariffs and the concerns businesses have on whether they are likely to continue to expand capacity. nejra: your highest conviction is around housing demand of u.s. house builders. is this to be with a combination of your outlook for consumers but also where your rates are right now? paul: if you look at homeownership rates in the united states and in the u.k., we're going from 6% to 9%, 70% down to 61%. certainly, as you see rates come down, that reduces finance in cost in the united -- financing

costs in the united states. under 100 basis point. that is making it more affordable for people to go out and buy houses. when you take population dynamics and look at the demographics, millennials have not got in the housing market yet. they are in shared accommodation. moveis when you want to out into the suburbs and have a bigger house when you get married and have kids. we expect stronger demand for housing. manus: there is no doubt about that. the mortgaging in the u.s. is quite a phenomena, although 20 cities are seeing their prices fall. quite steepening. talks about, a vicious repricing in terms of yields on the downside here it cut, ited continues to could -- is the downside. cut, ited continues to seems to have begun.

does it go higher? do you agree with that particular proposition? paul: look, we have had a vicious repricing. reality is, when you look around the world for investment for people, we are trying to increase the regrowth of our clients and there is not much to get positive about in bond markets, so we are trying to find areas to try and generate returns. one of the areas we are keen on is the asset area. we'll assets protect you from returns. you get a pickup from what we see in terms of the yield on bond markets. i also have a fairly low sensitivity to the economic cycle. they are trying to generate some form of inflation. assets protect -- real assets protect you from low returns and inflation.

nejra: you have some exposure but you would rather hold cash for the duration. when it comes to the equity market, why would you buy call options rather than profiting in a different way? ways toere's two protect the portfolio. one is to remain invested. the other way is to cash up and callll options -- buy options. when you look at the weakness of the volatility curve, it is more expensive to buy put options. keep that cash in cash equivalents. options, project results on the downside, but you also remain in the upside, so you have the upside participation without having a downside to incur losses for investors. it is a far more sensible way to protect the portfolio. you have a lot of cash available. maybe it is a selloff in the bond market. high-yield market. maybe it is a selloff in the emerging markets and it gives you that optionality to get

invested at some point in the future. we can have a coffee together. 93% investment. multi-asset portfolio manager at newton investment management, paul flood. first word news with annabel, with the team in hong kong. thanks. president trump attended a big trade deal with the u.k., calling on britain to throw off the shackles of e.u. membership. another signal of his design to get on with the bilateral trade deal. he has long been critical of the government's approach to brexit. he suggested nigel farage being put in charge of negotiations. italian prime minister threatened to resign if the partners in his populist coalition do not stop squabbling. he is demanding they get to work on new polls. a former law professor --

premiers argue on everything from taxes and immigration to infrastructure projects. won herhancellor has government some breathing space. her junior coalition partner agreed to remain on board. the departure followed the party's for results in european elections. if they leave the coalition, it would force merkel to govern alone, seeking an ally or snap elections. australia has cut interest rates for the first time in almost three years. the move is to guard against a darkening global backdrop and an attempt to revive inflation and economic growth at home. this adds philip lowe -- this is his first adjustment. the cash rate was cut by a quarter point to 1.25%. china is tightening its control of the internet ahead of the 30th anniversary of the crackdown in tiananmen square. users of wechat and weibo have

been blocked from using the profiles. mike pompeo says china continues to abuse human rights wherever it serves its interests. 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. droulers inelle hong kong. waiting in the u.s. president urges the u.k. to break free from the e.u. and promises a trade deal. will talk about the special relationship. we have a special relationship, haven't we? manus: we had indeed. i am not sure if we can call it just as good as theirs. if you'ree -- traveling to work, bloomberg radio. you name. dab digital radio in the london area. this is bloomberg. ♪ ♪

manus: this is "bloomberg daybreak: europe." i am manus cranny in dubai. nejra: i am nejra cehic in london. u.s. president donald trump has once again weighed in on domestic politics. he called on the u.k. to throw off the shackles of european union membership and right a free-trade deal with the u.s. trump tweeted that a big trade deal is possible once the shackles are off. for more, anna edwards joins us now. great to have you with us. what does he mean by trade deal? trump does not have the jurisdiction over this. there's lots to be said about the jurisdiction. the u.k. tonable have the jurisdiction to do a trade deal. the problem is, expectations might run higher than what can

be achieved. there are limited expectations as to what can be done. at them in around in average, many of them are talking about nontariff barriers and there might be room to maneuver. thorny issues is which part of the u.k. economy are included. the ambassador said all of the u.k. is on the table. theresa may liaison friday. they were forced to say the nhs will not be part of it. will notral standards be reduced as a result of any kind of trade deal. this does throw up many issues and may's office seems to be acknowledging that. it will be thrown into the conversation today. manus: many people are saying it is very much about the royal theater in the pageantry. today is perhaps a bit more about business and politics. what is the political risk today? all abouted, it was

the royal pageantry. i am not sure you ever get pulled off by the queen, but certainly, she had a point to make. very mindful of the 70th anniversary of the d-day landing. she was talking about the institutions and adhering to those, sticking to those in the spirit of cooperation. this of course towards the president. some of the messaging perhaps behind what we saw at buckingham palace. we move on to the business agenda. trump will be meeting a lot of business leaders, those kind of big businesses in the u.k. as well as bring u.s. big banks with him. will he meet boris johnson and nigel farage? how long before we start talking about huawei and security issues? all of that will be on the agenda. protesters will be gathering in some member we understand today, so that is something that no doubt liles president -- riles president trump. we look for that protest activity. jeremy corbyn is going to be

addressing that rally. manus: ok. look forward to the coverage. up at 7:30s picks it london time. atti-asset portfolio manager noonan investment management. he is still with us. you will get into the weeds about maybe the u.k. in a moment. you can retail sales fall the most on record. crumbling by 2.75%. the biggest drop since 1995. is the edifice of consumer cracking underly brexit strain/. paul: -- strength? paul: -- brexit strain? paul: a break of the consumer leaders towards a recession. -- leads us towards a recession. under a lot of pressure. with all the brexit news, the headlines being negative all the

time, that has an impact on consumer sentiment. looking at the underlying data and which growth data, people at the bottom are getting paid more . in the u k, that is because of the low end wage growth. it is driven by minimum wage was in the united kingdom. you are seeing some very strong wage growth at the bottom end. the question is, does that lead companies to look at productivity gains? certainly, when we look at the data going into the brexit at the end of march, a lot of companies cut production so that may well have an impact on people marched sentiment and hours that have been working. nejra: a lot of people say -- yesterday, there were opportunities in the u.k. equity market because it is so unloved as a result of brexit at the moment. are you seeing opportunities in specific sectors because of that? certainly, risk. when we look at valuations

across the globe. international investors. , just notal trade something they need to worry about so they would rather not have to explain that, and we're certainly's eating that in the data. a lot of international investors leading to opportunities, but of course, dependent on your view on brexit and the impact that has on companies, you have to wonder whether that is currently priced in. for us, we have been adding to u.k. domestic banks. we look at, you know, 5.6 times. the banks are very much cleaned of thecoming out financial crisis now. much more orientated towards mortgage books. when you look at mortgage books, 40% to 45%.tv's you have to see quite significant correction in the housing market to make a real impact on those ratios, so we like the u.k. banking sector. we have not gone deep into that space, but we have certainly

been adding more tactically. looking at the share prices more recently, the move towards brexit and other conservative leaders, that has put pressure on the u.k. sectors and in the u.k. equity market as well. manus: semi's calls from you, -- some nice calls from you, paul. how big a repricing could the gilt markets -- put together a paper for the u.s. and the u.k.. we have a lovely story out for more of asset management. this will rerate whether we crash out. if we crash out, there will be a huge the rating upwards on gilt yields. if we stay in, we could be heard by the need for perhaps a little bit more debt to make the deal work. so there could be a repricing in the gilts. we are going to lose-lose on gilts. what do you make of that proposition? paul: this is something i have written about a number of times over the last couple of years. you know, if we crash out of

europe and we see a big impact in the currency, we will clear that went upwards pressure on inflation. is targetingank inflation and that could lead to higher bond yields. when you look around the world, you have got to remember the u.k. inflation rate is being quite high, so since the crisis, you would have wiped out over 30% of your real wealth in sterling to the impact of inflation, so to me, on the other side of that, if we go to good trade deal -- get a good trade deal, the economy is good and the central bank will be pushed into increasing interest rates again. either way, it was post-brexit, we are going to see increases in the interest rates in the u.k. nejra: you have some interesting thoughts. i noticed the one thing you like is green coat u.k. nd investment fund.

is this u.k. specific? paul: to us, it is a general renewable strategy. that came around in 2006. one of the things we have been looking at within that earth matters theme is a decarbonization. to determine eyes, we have to -- z you need to push renewables. many of which went bust coming through the financial crisis, but really caught and on early to the operational assets. these are assets that you get paid subsidies depending on how much wind is generated. very low sensitivity to the economic cycle. 50% to 60% of the revenues come from government subsidies.

six times the return that you get on a government bond. 50% the 60% of the revenues come effectively from the same place. we do not turn the lights and that he did not just because we're going to a recession. very sensitive to the economic cycle. attractive opportunity. of capital,manager i like to allocate capital into areas where there is a demand for capital, not supply of capital. the maneuverable face, they pointed this out. to be carbonized the world power systems, we need to spend $50 trillion over the next 20 years to 30 years building out renewable energy so they will continue to remain a demand for capital to build that out, and then when you look at the bond market, as manus was suggesting, there has been a huge supply of capital to the bond market, not just because of qe, quantitative easing, but also because of regulation. nejra: thank you so much, paul

flood. this to get your thoughts morning. you stay with us. coming up, $137 billion was erased from the market value of faangs yesterday. we will bring you more on that story, next. this is bloomberg. ♪ mberg. ♪

♪ there are fish this is daybreak" and i am nejra cehic in london. manus: i am manus cranny in dubai. we have gotten a call after call after call. jp morgan and all the other houses talking about the risks of refreshing. but obviously, nobody listened to this analyst. he basically double down. he says, we do whatever it takes to stabilize this market. and think it will be fascinating to see what he says in russia about the oil market in the next couple of days. nejra: grade-point. i agree, it seems the same the oil market did not hear what he

had to say or they are distracted by other things. it is hard to extrapolate what is meant by the fact that we are on the brink of a bear market at the moment. is it simply to do with. the recession worries and demand worries, because there could be other coins on the side, including what he said about supporting the price, what the saudi oil minister said. manus: we will hear a little bit from him shortly. just to reflect that, he said when you look at the front end of the curve, it is not screaming to him that demand is about to fall off a cliff. that, i suppose, is a critical term.in the near but the demand side, there is a jury still out on where we are on the global recession risk. nejra: and if he says it demand is about to fall off a cliff why do we see the relentless falls lower? got continuedas june. june.

manus: and we are talking about college of funding, the saudi oil minister. when the cartel meets later this he says thet month, solid demand. he spoke as grizzly to bloomberg. that he spoke exclusively to bloomberg. >> the flows and financial flows are obviously negative, trade wars and all the rest of it, and understandably. if you look at their brand spreads, it is pretty good still. demand has risen. there are one or two done facts, but it looks good. i think it is too early to prevent the recovery of price. as you said, it is a very exceptional time where positioning macro flows and also

systemic trading has all been in a relative direction. >> so you see demand growth holding? there is lots of concern about ,he trade war in china and now mexico. china on the rose 6% is still big growth. and obviously, some of that will be oil. i think we are not totally negative on the fundamentals of this moment in time. but obviously, they have to be careful about that. >> how much do you see demand year-on-year. >> obviously, that is what we're looking at. we have always been looking at numbers slightly below than everybody else, but we are still above the minimum. you think that will still happen. it has honestly come off a little bit. annmarie: given the supply-side tehran,, ranging from

caracas, even the russians contaminated oil. ian: which is quite make, but away. annmarie: many thought opec would have to increase production. what do you think opec should do in a few weeks when the meat in vienna -- when they meet in vienna? ian: i think we expect them to roll. there are going to make the decision late, which is understandable. and we are also expecting more u.s. exports in the second half of the year of their private get going, but i think their role at this moment of time is most likely. annmarie: yes, in the second part of the year, we have three pipelines out of the permian, so a lot of u.s. shale. ian: we could see a lift. it will go up, does it go up by

300 or 400 or by more? is certainly goes up and i think that is one of the negative -- we expect demand to go up by enough to compensate for that, obviously, but that is one of the key things we will have to look at very carefully going forward. vitol: that was the chairman, ian taylor, speaking exclusively to annmarie hordern. let's check the markets with our correspondence. dani berger has the latest. and also niraj shah. indian shares slumping today with a little bit of strength in the rupee. how much of this is due to the drop in crude prices? niraj: manus, all of it, i would reckon. good morning to you. holiday. tomorrow is a next thursday we will be talking about policy. but today's session is looking best for what the equity

markets are doing currently. so a third of a percent lower. but the currency as you pointed out is strengthening in trade and in a large portion, due to the crude price fall have been seeing. will show you the next chart between the crude and the rupee i think the rupee will be cheering that,. what the rba does in a meeting on thursday will be an important reading on these markets as well -- what the r.b.i. does. nejra: niraj, thank you so much. dani, there has been a breather in the treasury. dani: yes, the two-year yields bouncing back from the 2017 low. but we are seeing signs that this is profit taking in large part. in my terminal, you can see how some of this is japanese funds. when you look at the difference between what two-year yields and

jgb's are doing right now, is this see in white that jgb's have fallen. this is the jgb 10-year yields, the lowest since august, 2016, as we get the move higher in u.s. yields. so it might be japanese funds moving out of treasuries and back into the local markets. another chart as an worry would say, we have to talk about oil. niraj saying that the market is not listening to khalid al-falih, his assurance that the saudis will do whatever it takes to stabilize the markets. but will investors listen to the technicals? the u.s. crude approaching a bear market, it has now gone past 30 rsi which is oversold. so investors who care about the technicals, where true -- who are trend followers, might look at this and say that it is time to buy the dip in oil. dani, a combination of

technicals and the forbes, i love it. the fed is meeting in june. are they right for a rate cut? upn the debate and catch with us on mliv . let's get the first word news with annabelle droulers in hong kong. annabelle: the fed and the reserve bank may need to cut interest rates to counter downside risk from the trade war, according to the st. louis fed president. the fomc voting member also talked about the need to inflation. his comments marked the first time a fed official has publicly suggested the need for a cut since central-bank put rates on hold in january. the prime minister of this country has learnt to resign if the members of the coalition do squabbling. the former law professor has acted as a mediator in government.

his two deputy premiers argue on everything from taxes and immigration, to infrastructure. german chancellor angela merkel has won her government some breathing space. she has agreed to remain on board despite the turbulent chief.tion of its the departure follows the party poor result in the european elections. coalition,leaves the the government could call a snap election. australia has cut interest rates for the first time in almost three years, to guard against a darkening global backdrop and an attempt to revive inflation and economic growth at home. firstserve bank governors adjustment since taking the helm in 2016. 1.25%.h rate was cut to china is tightening its control of internet ahead of the 30th anniversary of the crackdown and

tournament square. some websites have been blocked from changing their profiles. the u.s. secretary of state says china continues to abuse wherever it serves its interest. global news, 24 hours a day, on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. manus? manus: anabel, thank you very much for the roundup. technology and the giants, they has seen their stock prices battered on the sense that washington is turning up the heat. congress is planning a bipartisan investigation into competition in the tech industry. and would have known that the federal trade commission will take responsibility for andtrust probes of facebook the justice department will open an investigation into google. let us speak to our next guest joining us from singapore. good to see you again, derek. why the shift? is there a pendulum shift in washington?

guest: i think there is. one of the things we have been watching and have been watching for a month now is escalating rhetoric about whether or not the u.s. tech giants should face increasing scrutiny over their dominant market position. we just have not seen that happen too much up until today. you saw the moves in those tech giants today, it was clearly thus it can't some in the market by surprise and he saw some pretty big falls as a result of that. what you are gearing up for now is months and months of scrutiny both on the federal and administrative level and also on the congressional level. this is bipartisan. you have had calls from both sides of the aisle to do something. remember, president trump is not really thrilled with how conservatives, he says, are treated on facebook. and democrats like elizabeth warren want to break up the tech giants. so there is political pressure on both sides. but i think this is a larger

issue toward dominant market thoseon and what all of players are looking at there. nejra: to that point, what would be the worst case scenario here? would it be a force breakup? derek: that would be the worst-case scenario. you can go done a pretty big rabbit hole speculating on that, but it gets into, hey, you bought something, now you have to sell it. isn't this a nice little market niche you have going here? a shame if something happened to it. things like that. these companies may be looking to settle for a fine or get this removed entirely. in the u.s., it is anything. there has not been this level of scrutiny on them in quite some time. but companies like google have faced threats like this from european regulators. so there is an established playbook that the tech giants can draw from. if you are looking for an increased -- you are looking for

an increased lobbying on capital expenditures, look for staffing in rushing to policy shops there. while this is not at all related to the china stuff, i think it bears some mention that as a there is a u.s.-china sort of technological dominance struggle going on right now, that this is the u.s. looking at its own. so maybe there is a way to play some of that stuff if you are one of the tech giants looking for safety. derek.thank you so much, that was bloomberg's derek will bank in singapore. paul is still with us. a threat in a regulation crackdown like this, does it deter you from wanting to invest in big tech long-term? paul: we have been underweight big tech for quite a while now, certainly underweight the faangs . they have been much more keen on protecting people's privacy. using a lot of that data from

their customers to generate new leads, provide advertising, and i think the lucrative burden has been building for a while. this is a story that has been going on the last six months. -- manus: excuse me. paul: certainly the increase of buying into the tech market, there is the cost of capital, and the valuations. manus: we often talk about that we have to differentiate between the emerging markets and we have do that with tech as well. this trade war has morphed into a tech war essentially. these see that escalating? is that a double reason not to be part of let's say hard tech versus soft tech? paul: certainly, there is a huge , if you think about the trade war, it is not just about the

trade, it is also about who is the leader in the future, the global leader in the tech space? that chinese have been building a lot of that, spent a lot of money doing that. they have been investing heavily in engineering capability, educating their workforces. they put more engineers through university than in the u.k. puts through university in total. so there has been a huge investment. they are at the forefront of technology and that is part of these trade wars. the u.s. wants to be a leader in the technology space. nejra: i am glad that manus brought up the trade war. because semiconductors are very vulnerable with that escalation. yesterday, we were talking about esfiniion purchasing technologies in that deal. sdid that solidify and confirm the positive view you have already? paul: unfortunately for us, that fromtakes away infiniion

the space that many were looking to. wasou know, infineon down. suggesting that investors don't particularly like this deal. manus: all, thank you so much for sharing that with us. continues a conversation with us on the bloomberg radio at 7:30 a.m. u.k. time. nejra, let us get a sense of what will be on the slate today. we have top newsmakers joining bloomberg. joins theob diamond house. stay tuned for that. nejra: and don't miss the energy panel moderated by our own annmarie hordern in st. petersburg. we will be hearing from oil ministers and executives, including khalid al-falih and bob dudley. you can cuts that on the mark to

be this friday. to into bloomberg radio live on your mobile device or on dab digital radio in the london area. this is bloomberg. ♪

♪ manus: this is bloomberg daybreak: europe, i am manus cranny in a dubai. nejra: and i am nejra cehic into by. the au may propose a wednesday start procedure regarding italy debt. we saw 10-year btp yields drop along with a lot of other global yields. manus: yes, everybody is racing to make sense of what is happening in italy. there is growing conviction also that the u.s. fed may lower rate in the coming months. short data paper has tumbled in the last weeks. how long will this go on, and

what does it mean for credit issuance. joining me now is the debt capital markets had, henrik bank globalutsche co-head syndicate. about the market. we have seen aggressive repricing. we heard from scott maynard that marketricing in the bond has been vicious, aggressive, and perhaps overdone. can i get your take on this pricing in the market? the markets are now pushing for two rate cuts by the end of the year. henrik: that is exactly right. theink you need to put in context, though, which is we had a huge rally since january which has led to credit conditions being some of the best we have seen for years even without any quantitative easing. what you are seeing now is really just a natural reaction to that extreme tightening as investors are a lot more

cautious about what will happen in either the trade war rhetoric or in the global economy in the second half of the year. nejra: what does this mean for the primary markets and that issuance? henrik: in short, it means that the fantastic issuer conditions we have had will be lot more difficult in the second half. i think investors now really invest,be paid to unlike back in april, where every deal just one out the door as soon as you posted on screens. now, investors are asking for much more of a premium in order to come to a primary bond transaction. manus: let us talk about the risk and the premiums. pimco, wee cio of caught up with him last week, he is warning on credit risk. take a listen. >> across different areas of the market, but by far the area of most concern for us is the credit market, specifically related to corporate credit

risk. it is an area where we have had a decade of very low yields, in an area where we are getting a lot more concerned about fundamentals. manus: they are concerned about fundamentals. are you? henrik: that is actually a great quote you put on, it is very topical and it is how a lot of investors are thinking about the market. what drives the market is really demand.l, supply and obviously, the underlying credit fundamentals as well. the reason you have seen the selloff now is that investors by and large are worried that a global recession could come as a result of the trade rhetoric. and therefore, it would undermine the economic fundamentals and cause corporate credit to struggle, particularly something that has been highlighted as the bbb category of low investment grade. so far, in results, we are not seeing that. there is a lag effect of potential tariffs and so on, so

you could start seeing it come in by the end of the year. but right now, i think what is driving markets is technicals rather than any concerns around fundamentals. with one exception, on the high-yield side where we have seen a decompression. riskier companies see more of a dramatic selloff and that is clearly where the first signs of the fundamental recession would be. nejra: interesting. you are talking about. a differentiation you are starting to see in ig and high-yield. what about the gap between u.s. and european credit spreads, it bit.een narrowing a what do you see in terms of what investors are saying and doing in these two different market? henrik: for the gap was driven to a large extent by ecb kiwi, most -- ecb quantitative easing most of last year, and it caused narrow.ts to i think people now view the two economies as relatively similar. obviously, the fed has much more room to cut rates and stimulate

the economy. the ecb has less policy room because rates here are very low already. generally, we see a preference euros, having for to do with the relative swap rates that they are able to get in their home currency. so we continue to see a lot of demand for investment grade euros in particular. they are worried about fundamentals and wanting to get paid for the risk. the markets are functioning, and they are open for issuers at the right price. manus: just to pick up on that come up markets are functioning and open for the right price, what is liquidity like? i want to understand what liquidity is like in the secondary market. has that dissipated in the past month, where we have seen this shakedown? henrik: i think that is the one thing that i am actually most worried about.

when a new fundamental credit recession does happen, the effect that will have on the markets. the best way to illustrate it is last year, when there was almost a lockup of markets. secondary was extremely illiqui d. and even bonds, investment grade bonds which should be liquid were not trading. how do you fix that investors are going to be more cautious, they will want to be paid more as we going to potential economic disruption, and i think it is has -- it is exacerbated by the types of investors we have seen -- eds and daily liquidity funds -- etfs and daily liquidity funds play a much bigger role. i have been able to dampen the shocks. i think one of the reasons you're seeing this volatility in this quarter is because of that. nejra: thank you so much, henrik

johnsson. cohead oft global capital markets and syndicate, thank you. the u.s. rate cut may be coming soon. we carry on the conversation next. this is bloomberg. ♪

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♪ manus: good morning from dubai. i am manus, with nejra cehic in london. 2017 lows for u.s. 10-year yields. james bullard says of the fed may need to cut soon. asia stocks follow the u.s. lower after [sirens faangser are slammed. and the italian prime minister content threatens to resign if the coalition cannot work together. and can oil find a bottom? we hear exclusively from vitol

group, the world's largest independent energy trader on opec. >> we expect them to. that is the easiest thing to do. they will make the decision very late, which is understandable. ♪ nejra: the day, everyone. we have headlines coming through from shell. big oil is a focus, we have a strategy update and financial outlook for 2025. shell is on track to deliver on 2020 commitments, so basically, we're going through this to see if there is any material change to the strategy outlook. you will remember, you and i spoke to the cfo and we were talking about major oil companies meeting to demonstrate they can maintain share

buybacks, increase production and still investor growth. she told us that shall can do it all -- and still invest to grow. l canold us that shel do it all. manus: the organic cash outflow -- they say an average of $30 billion of. betweent balancing act what you can give to shareholders, you're free cash flow, and that your capex. between 21-25 on the average capex. nejra: absolutely, we are having a look here. i am seeing an average of $30 through 2025.ear so this is what we have got so far. you know what, we have an expert

right next to me on set who react to this, he leads our european oil coverage. talk us through what you are seeing so far, your first take on it. james: it seems like a very confident rich. there has been speculation that they might slow share buybacks to allow dividends to build, but the cfo as they said before, that they can do it all. they are talking up their investments in power, $30 billion in, it is pretty strong. they are sticking to their guns here. manus: it will be interesting to hear what they will say today. james, a good day to you. this is about reassuring the market that they have the right strategy and the right mix of business. we will hear from bp and chevron, but they are strongly

positioned for the future of energy. this is the top line of the news release. so what do you really want to hear from bombarding when we interviewed him in just an hour's time? james: an interesting question about this is whether shell needs to do a big shale acquisition. they talk about their investment in power, but they are still fundamentally an oil company. bp made a big acquisition in shale, so there have been rumors that shall might be interested in making acquisitions there. some analysts. and fully was a bit light. so that is one area that people want to hear more about, about their growth plans for oil and their presence in the u.s., and whether or not they think they can go forth with their existing resource base or they need a big acquisition. nejra: also, the pressure that bp came under from shareholders in terms of the transition to a carbon-neutral economy. i understood from one of your colleagues that shell has gone

further than most in laying out plans for an energy transition. are they still committed to oil investments, that will be my question as well. james: absolutely, and how will the capex divided between renewables, power, and oil and gas. they have made strong commitments about emissions and controlling even the emissions of the customers who buy their fuel. how will they implement about especially when we get into 2020, when these targets will start to get really tight and they will face challenges. nejra: james harrison, heelys our european oil coverage. thank you so much for giving us the context. we will keep an eye on the oil majors, particularly with what has been going on with the oil price, on the cusp of a bear market. let us look at how futures are set up. we saw weakness in the market yesterday in the u.s., particularly the nasdaq, dropping 2% at one point on the potential of antitrust concerns

faangs.he and we are in the red in a lot of these futures markets. even though we have seen civilization in the bond market, equity markets are not quite taking heart yet. manus: yes, james bullard really did take a flamethrower to the one market yesterday, sparking a real huge move in futures and the two-year rate. it has been a vicious repricing, he aspects the market to be slightly overbought, and if anything, what you might see is a restatement of what has happened to the twos and the tens. perhaps there is more to come if the fed goes into rate-cutting futures the fed funds are aggressively repricing we inflationon european data today. down from one .7%, to 1.4%.

in the market is pricing in six best six basis points of a rate cut from the ecb next year. man has the asia sweep for you from hong kong. yvonne: hey there, manus. as nejra mentioned, equities are not catching up with the bond market, which is screaming for more rate cuts. we have been kind of handling. volumes are low when it comes to equity traders here today. we end the day in tokyo flat, kospi also flat, china slightly lower by 1% for your csi 300, and the sensex as well as we look to the r.b.i. decision to cut rates on thursday. so we did see a bit of a lift when it comes to aussie shares, asi 300 about .25% up. but there is not a lot of

catalyst to lift the equity markets higher. there is a dovish tilt when it comes to market reaction down under, we mentioned the aussie shares. the bank stocks may be liking the decision to cut rates for the first time in 2.5 years. the aussie dollar had an initial spike higher than came back lower. there was a lack of guidance, some say, in that, policy statement not a clear signal come.ore rate cuts are to the aussie 10 year yield by one basis point at 1.50. on eyes will be on philip lowe when he makes the speech in a couple of hours, on any kind of indication of what the rba could do next. nejra: fascinating stuff. yvonne man in hong kong, thank you so much. rateeds jim bullard said cuts may be needed to counter downside risks from an escalating trade war. one billionaire said he could see rate going to zero over the

next 18 months if the economy soft and's referring to the president's threat last month to increase tariffs on china. he said i bought a bunch of treasuries. the cio of guggenheim partners cautions on the bond rally. he says things are getting overboard and a vicious spike down in yields is likely to be reversed in the near-term. joining me to discuss all things fed is that hsbc global chief economist, janet henry. i saw commentary on twitter today. bullard has been the first to crack here about talking about a rate cut. others are saying that he is just a dove. but what struck me is that the fed restrictions on the u.s. economy are small, but the effects through the global financial markets may be larger. is the fed going to start paying more attention to, financial

markets rather than the economy? pwcjanet: i think the fed has always paid attention to global development and so much of the discussion over the last three or five months has been inflation. i think the fed is setting the appropriate policy, the have to look at inflation. it is uncertain whether the inflation trade up will shift. the second is financial conditions, and the third one is the labor markets. right way the trade wars out is through an impact of financial markets and you get a tightening of financial conditions domestically and globally, then absolutely, could influence fed policy. manus: if we only knew which way these trade spats would go, we would all be a lot richer and better off. i would probably be out of a job. [laughter] softbank is looking at $1.2 trillion gain on a 2016 deal where they sell alibaba stocks. , a pre-taxrade profit that they will book, 1.2 trillion.

this is the compact they entered back in 2016. afterholding in alibaba the trade goes through. fear not, they are not pulling on record on alibaba. this chart shows the two-year, the 30-year and the 10 year break evens. mr. bullard says this provides some assurance in the case of a sharp of than expected downturn. my question to you is an economist, are we now u nanchored? our inflation expectations in the united states of america de anchored? janet: i think it is too early to say that. last year we saw this complete collapse in inflation expectations and it upsets the market when the fed governor actually said the balance sheet

was on autopilot. then, he backtracked and i think there was a realization, as you say, that in fish in a traditions would come down sharply. relationships are constantly changing labor market behavior, global influences on inflation, they will be very alert to the risk. but when the fed sets policy, yes, they have to pay attention to global development, but also pay attention to their own domestic economy. so yes, all the risks are skewed to further downside surprises in global growth, on certain outlets for inflation, and the markets fully priced in, it would appear 75 basis points of rate cuts by early 2020 perhaps the market has now gone too far, . perhaps the fed still will pay attention to what is happening in the u.s. labor market to see whether it eventually might get a little bit more domestic inflation coming through in this uncertain world. nejra: with a relentless move lower that we have seen in bond yields in may and with the

destabilization of the two-year the 30 year yield at 2.55, some economists have started to overcapacity to the market and change their views and say that we are going to get a rate cut. mind.organ springs to what is your expectation now with what we are seeing it may of what we could get from a rate cut cycle? janet: good question. we have long been forecasting rate cuts. at one time, we were the uber-dove and now we have been overtaken by the markets. we know that in any u.s. recession, on average, the fed cuts rates by 500 basis points, but now they can't do that without taking rates seriously negative. so once the fed starts cutting, and it is on the onset of a recession, typically, they go the long way to i suppose some of the debate at the moment is

whether they will be preemptive, take out some kind of insurance about more of a downturn in growth, or are we sliding into a recession and therefore we need a full rate cutting cycle and maybe take rates slightly negative or further towards zero? that would be normal in a recessionary backdrop. manus: it is interesting, we have had one or two guests say that one recession comes to the u.s., they come aggressively and quite fast. cutseracity of rate might have less impact this time around, that seems to be one mode. qe, if much closer to we go towards a dramatic slowdown? would we see more of those two things? think -- at least they could cut rates quite a long way especially of this is a mild downturn that we

get. stagnation or a very gradual contraction, rate cuts might be enough. but in this is a more severe downturn, perhaps because these trade tensions continue to deteriorate and have a much more global impact, then a resumption qe would be better. you could call it the people's qe but ultimately, it is the central bank providing the resources that a democratically elected government could use for taxation are spending purposes to try to support the economy. in a severe downturn, i think that is absolutely the future course of action. manus: janet, stay with us, we have much more to do. janet henry, hsbc global chief economist. let us go to our team in hong kong for the latest word news. >> italian prime minister giuseppe conti has threatened to hisgn if the partners in

populist coalition don't stop squabbling. he is demanding they get to work on the policies to help the country. the former law professor has acted as a mediator. his two deputy premiers argue on everything, from taxes and immigration, to infrastructure projects. german chancellor angela merkel some breathing space to her bout government by agreeing to remain on board despite the resignation of its chief. leaves the coalition, it would force the government of merkel to govern alone and seek new allies or call a snap election. starting to control the internet ahead of the 30th anniversary of the crackdown on tournament square. we checked and weibo have been blocked from changing profiles. mikesecretary of state pompeo says china continues to

abuse human rights whenever it serves its interests. global news, 24 hours a day, on air and at tic-toc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. manus? manus: anabel, thank you very much for that roundup. london could be seeing day a three-day visit by u.s. president on a trump, once again, he has weighed in on the political front, calling on off the to throw shackles of european membership and to strike a trade deal with the u.s.. we are joined by the news director to talk about this. trump has been all over the must've politics before he even got on the plane. what is the essence of this message? does he want a hard brexit? the few what a political trumpian agenda? guest: is certainly seems that way, manus.

e.u.,ump is no fun of the he has locked onto them over the issue of trade, and of course, britain separated away from the e.u. is slightly easier prey. like saying that they want access to the health service for americans companies, and access to the for market for american farmers. these are controversial issues in the u.k.. so mr. trump is pushing for britain to go it alone and start this big free trade talk but he is talking about, but we can see from the negotiations with other entities around the world, how fraught those can be. now to theng that is british public and the british government compared to what it was at the beginning of the brexit process remains to be seen. >> we get a sense sometimes that trump has his favorite u.k.

politicians, maybe. let us talk about the leadership race. >> we have got so many lending -- we havest as many almost as many in the democratic leadership race in the u.s., almost as many lining up enough auditory race. but trump hinted that boris johnson is his favorite. he said he would be fantastic as negotiator. the other bogeyman is nigel farage, then you brexit party which -- then you present party -- the leader of the new brexit party. mr. trump will spend some time meeting with these new characters. mrs. may has a press conference this afternoon with mr. trump, that could be very awkward if he endorses mr. johnson as her successor or perhaps backs mr. for raj, who is a from a

completely different party. nejra: awkwardness as ever. thank you for joining us, david merritt. coming up, rates are going down down under. australia cuts. we discuss that next. this is bloomberg. ♪

♪ manus: 7:23 in london, the market is set to open in about 30 minutes time. ," i amdaybreak europe manus cranny in the by. nejra: and i am nejra cehic in london. australia has the word rates by a quarter point to a record low 1.25%. the move is to guard against a darkening global backdrop and an

attempt to reduce inflation -- revise inflation and economic growth at home. central-bank policy with hsbc global chief economist janet henry. a question in regards to australia, the start of a rate cutting cycle? janet: it is the start of a cycle on our forecast. we expect one more. this was the most while flood interest rate cut ever, they turned as soon as the labor market showed a sign of softening. obviously, they have the impact of the tax cuts to assess, but to start with, the rba typically moves a couple of times, then, it might reassess as to whether it will be enough, just 50 basis points of easing. called it as an domestic affair for the rate cuts than it is a global affair. is what juncture do we move

when talking about the pbo see and rate cuts. the pbo see, we expect both monetary and fiscal easing dust on the pboc. our economists suggest that the china stimulus could offset a degree of fiscal easing. we think primarily, increasing the of and ability of funds, a cut, butof the reserve if morning to be delivered, the prospect of rate cuts could come back on the table, but we are not forecasting them at the moment. nejra: we just moved on to the pbo see and with australia, it was not just a global backdrop. on trade, talk about why the u.s.-china gdp has not been .ifting water trade pwcjanet: the gdp figures in the

first quarter of this year took a lot of people by surprise. gdpially, the headline was very good. japan's gdp was my favorite, it 3.5%, with every other thing contracting. but the domestic picture has not been supporting world trade globally. jennett, thank you so much for being our guest host this morning. hsbc global chief economist, come back and give us more detail. it is day two of donald trump's journey in the u.k.. anna edwards is finally in downing street. anna? was again, i am in downing street. the activity of yesterday's are much focused around the pocket and the circumstance and today is much more about the business will.

president trump me to boris johnson and nigel farage, how much will we be talking about huawei. so much on. the trade deals between the u.s. and u.k.. this is bloomberg. ♪

♪ welcome toning, "bloomberg markets:. the european open." president trump continues his state visit to the u.k., and we are live at 10 downing street. i'm anna edwards alongside matt miller in berlin. are powering down your tech positions, a rout in the sector sinks nasdaq shares. stocks in asia fluctuate. the cash trade is less than 30 minutes away. ♪ >> downward