to make a deal badly. i think mexico wants to make a deal badly. alix: president trump says progress was made with mexico, but the country has to step up. china injects 5 billion u.n. into its economy -- 5 billion yuan into its economy. rates,ia and india cut putting pressure on mario draghi . fiat drives away from a deal. the car company withdraws its leaving thenault, french government in adverse conditions. david: welcome to this "bloomberg daybreak." we are watching as president trump has been with president macron and their respective wives. this is overlooking normandy beach, commemorating the 75th anniversary of the invasion on d-day. there's a fly from world war ii aircraft. they are bringing to a close this commemoration.

alix: all of this in preparation for a bilateral that will take place with president trump and president macron later today. beautiful shot there. david: this is live, i'm told. they've been overlooking this for some time, watching the flyover now. alix: in the markets, we are also taking a look at european banks. the latest is that commerzbank and ing are now talking for a tie up. the governments have been talking to each other after commerzbank and deutsche bank make any headway. david: and where does that leave unicredit?

it appears germany is really interested in ing. alix: we are going to hit banks as well. we have the ecb decision later on this morning, front and center for the overall market. equity futures still a little stronger as we head into that meeting. euro-dollar is what we want to watch. it is a broadly weaker dollar story. the euro and the yen on the rally. into thebuying come bond market. kind in a bear market, now of stabilizing here after a real wipeout yesterday. david: really beaten up badly yesterday. alix: a lot of investors saying i don't know quite what happened. it was inventory, and now there is real fear about demand growth. david: it is time now for the morning briefdavid:. president trump is in normandy

commemorating the 75th anniversary of the d-day invasion. he's expected to have a bilateral meeting with president macron. at 7:40 five this morning, the ecb releasing its latest rate presidentfollowed by draghi's news conference. we will get u.s. jobless claims for the last week. we will also hear from chicago fed president robert kaplan. we are joined by sarah ponczek and michael mckee. subject ofck to the trade, very much in the news yesterday. president trump was in ireland yesterday, and this is what he had to say. 25%. trump: we are getting on $250 billion, and i can go up another 300 billion dollars, and i will do that at the right time.

but i think china wants to make a deal badly. i think mexico wants to make a deal badly. david: they may want to do a deal badly, but we don't have one yet. --had mexican discussants mexican discussions yesterday, and they walked away. michael: the united states once mexico to limit illegal immigration to the united states, but how would you measure that? what would be a success? that seems to be a major sticking point. before he left for france this morning, donald trump said could see something dramatic happened with mexico in the next few days. you have to wonder if this is one of those things like he did with the special olympics or great lakes funding, where he creates a problem, solves the nothing and actually happened, but there's a lot of headlines. all of this angst just goes away. alix: which is kind of what is happening in the equity market,

like 5% from all-time highs. sarah: i think if you think described -- i think if you described how investors are feeling right now, it is hopeful. it is pretty unbelievable how investors and markets seem to believe this deal with mexico is going to get through and we will not see tariffs implement it monday. -- tariffs implemented. we keep seeing headlines drop. one is positive. the next one is negative. it is really hard to trade on these. investors are saying why even bother when, two weeks from now, it could all go away. our other top story has to do with what is going to happen with the ecb. the spotlight is on tltro's. the last tltro was a two-year loan program. the average rate was about -36 basis points.

what kind of details are we actually expecting today? michael: we want to know what that rate is. how far does the ecb go? do they said a very low rate so that banks can then lend into the real economy at a slightly higher rate? they get a carry trade, and it sends them into additional lending. but there are countries where there just isn't loan demand. those are among the countries that needed the most, italy being a good example. it is not clear how much effect it would have come a but they need to give the details now and we will see how markets react. david: the real issue is whether they will create more growth in europe by doing this or just not discourage people because people expect it now. i don't know if this will help as opposed to not hurt. sarah: is there really anything much that they can do at this point? at this point in time, probably

all they can do is acknowledge the fact that there are increasing risks to their guidance, and they have been pretty encouraging and set in stone with their hiking bias, that we will see a hike sometime in the future. now there are concerns that they could be pushed further and further into 2020 because you see the likes of what is going on in italy, we have brexit, we have trade, there is so much uncertainty. michael: that is the thing to watch with mario draghi in his news conference, the guidance of when rates will move. had german factory numbers coming better than expected for the second month in a row. headlines have been bad, but maybe they are turning now. i know what he's going to say, we had not discussed it yet. [laughter] david: that's exactly right. let's turn to our third story. renault could use a little

forward guidance this morning. this big deal we thought was in the offing over in europe, yesterday, after a second day of meetings, the renault board will walk away from the table at least for now. fiat chrysler has been fluctuating around. what is interesting to me about this is the reporting. we don't know exactly what went wrong. the french government owns 15% of renault, but the reports are they are willing to take a cut in how much they own, but want a dominant position in government. i've seen so many of these big deals fall on the question of who controls. sarah: it is a little bit iffy what is going on here. there's completely a blame game going on. i didn't think there was a note out from a bernstein analyst i thought was very telling. he said that perhaps this was

just doomed to not go well from the beginning. if you look at the times we are living in, we are living not just at the individual and level. we see it at the corporate level. alix: for all of the charts we used and more, go to gtv on your terminal. coming up, more on the lack of progress on u.s./mexico talks. eric farnsworth and mark mccormick join us. this is bloomberg. ♪

yesterday we heard that

u.s./my scope talks ended at the white house -- u.s./mexico talks ended at the white house without any progress. mexico has been making hundreds of billions of dollars. they've been making an absolute fortune on the united states. they have to step up to the plate, and perhaps they will. we will see. they can solve the problem. david: joining us is eric farnsworth, council of the americas vice president, and mark mccormick, td america head of global fx strategy. is there a real fundamental problem here, or is it just negotiation? >> the real problem is the president seems to be expecting the impossible, the ending of migration from mexico to the united states, or at least in a

very restricted timeframe, by monday. is seriousexico about trying to find ways to work through a very difficult. -- a very difficult period of time. david: does he want to get that done, or say that he got it done? >> that's a really good question, but it does seem like the president himself is looking for a record of achievement, which could not be, by definition, accomplished by june 10. alix: in the market, the reaction is clear. how do you handle it? mark: i think the way it works is we have a lot of uncertainty around this. no one was prepared for the tweet on may 5. no one was ready for a politically motivated dental tariff escalation on mexico. markets have been in this kind of carry trade mode, especially in latin america.

we are getting a lot more volatility, a lot more uncertainty, and it is becoming a lot more paralyzing. i think we are seeing a little more focus on the u.s. dollar in the short run, but none of these moves are really sticking. people are fading it because they anticipate these are political moves generating a lot more noise than signal, and that is becoming a good reason to not really follow into momentum trade. david: the markets always have difficulty trying to pricing geopolitics. to what extent should the markets take some solace in the fact that republican senator's seem to very -- seem to be very unhappy with these tariffs? eric: they should take a lot of solace because this is the first time they started to the president --first time they've stood up to the president. it is unclear whether the

president can declare this unilaterally. out, butto be worked nonetheless, the fact that on a congress isasis rejecting it, that is a good signal. chairman grassley came out right after the initial pleat and said this is an overstep of presidential authority. marco rubio said let's play this out. senator kennedy said essentially the same thing. but there are senior republicans who have come out and said this is not the way to approach the issue or our relationship with mexico. david: what are the chances the markets are actually overreacting? mark: i think that is something that's been happening a lot recently. you even see it in central-bank prices. the market is looking for three fed cuts over the year. people are reacting to things and don't exactly know what the

signal is, so if you think about the economic impact, the concern e have this iteris are -- the concern we have with the tariffs is that people are overreacting to the headlines, but it is hard not to. from a market perspective, it is easier to not look at the headline, but for someone who manages risk, there's an element , whichat you have to be is moving markets pretty rapidly. david: ok. eric farnsworth, it should you have you with us. mark mccormick will be staying with us up in toronto. coming up, the impact of the trade war on steelmakers. we speak to the chairman of a russian steelmaker from the scene petersburg economic forum. this is bloomberg -- from the st. petersburg economic forum.

this is bloomberg. ♪

david: the st. petersburg national economic forum is underway in russia. our colleague annmarie hordern is there with the chair of the largest russian steel giant sever stall. annmarie: yes, i am joined by mordoshov. are you worried about a global trade war? yes, a global trade war is very detrimental for economic growth. [indiscernible] annmarie: what about for sever severstal?or alexey: we have been hit as

well. annmarie: steelmakers are under pressure in europe right now. and russia, you are doing very well. how long be you think this trend will last? alexey: who knows? i just don't know. fundamentalseing in markets. we are one of the best in the world and our capabilities. [indiscernible] annmarie: european steelmakers are now lobbying to get cheaper

imports in turkey and russia. how much could this hurt you? alexey: before we had this policy. it was kept for many years in all of europe. annmarie: but they might get harsher? alexey: yes. we have vested interest in european markets as well. we have customers in europe. our demand would be badly impacted. like the industry to be stable and prosperous as well.

but it should be done in a balanced way. staying in europe, you have a stake in the region. environment?ctions alexey: not at all. sanctions.afraid of , so far we have better .pportunities [indiscernible] annmarie: so you are not worried about sanctions. alexey: of course we are worried

about sanctions, and it could be harsher. sanctions have impacted us so much, everywhere or anywhere. you don't understand why these are imposed. annmarie: i want to talk about one of your recent investments, type.art or costco you are the largest retailer in internet food. there's a lot of competition to become the next amazon. do you want to be the next jeff bezos or amazon of russia? i would probably say --t

[indiscernible] annmarie: so you want to link these two businesses you already have a stake in together? alexey: -- best interest of minority shareholders. , it probablyally

makes sense to merge both. [indiscernible] annmarie: are there any other peers in the space you could potentially buy to make it an amazon? growth is inurse, the scale.

[indiscernible] annmarie: thank you so much for your time. alix: thank you so much. annmarie hordern joining us there. show miss my commodities at 1:00 p.m. new york time. we will also be talking to the for pricescurement aluminum.about ecb, negative yielding debt. we will look at all of the problems mario draghi is dealing with and how he will tinker around the edges. ♪ the latest innovation from xfinity

isn't just a store. it's a save more with a new kind of wireless network store. it's a look what your wifi can do now store. a get your questions answered by awesome experts store. it's a now there's one store that connects your life like never before store. the xfinity store is here. and it's simple, easy, awesome. ♪ alix: this is "bloomberg daybreak." we are waiting and seeing what is going to happen, with trade tensions still percolating on the margin. s&p futures up by about nine

points. european banks also up 6/10 of 1%. what will the terms be for the banks?hree loans for on the safe haven side, you're getting a bid into the yen. also getting the euro holding onto some strength. a broadly weaker dollar here. a downgrade from fitz, a .arnings downgrade outlook then the trade headline broke, and that is not going to help. david: ok. now let's turn to europe. european banks have not had an easy time of it. for an overview, we turn to taylor riggs. taylor: i one to take a look at two-year and four-year swap rates. banks did face favorable financing rates, but what we are hearing from bloomberg

economists, with the swap rate so low, tltro three may not be as advantageous in terms of the borrowing rate these banks can get. still, these programs have been relatively successful. you had banks borrowing a total of 400 billion dollars, bringing a cumulative total to $740 billion. italian lenders making up 63% of that, clearly the biggest beneficiary. still, that is not helping performance. if we take a look at where the stocks of these banking sectors have been, you are up almost 43% .n the last five years focusy this programming helping. alix: still with us is mark

mccormick. you look at euro-dollar at 1.12. if we get the details of a tltro three, what is going to move the market? what will be a positive boost to the euro? >> this isn't about policy accommodation. , and alsoout growth about how the banks are part of this process. the point i would emphasize is if we get something markets are expecting, maybe an extension of the loan, this is good for the euro largely because it is good for the banking sector. correlates with the yield curve in germany. there are all of these elements where you want to see easy financial conditions in europe, you want to see growth that is supportive, and you want to see this reflected in the banking

sector sub index. i think in terms of levels, short-term what's really important is the 1.14 in euro-dollar. david: what is it going to do for inflation? i will put a chart up that shows mario draghi's problem. michael: the fed and the ecb are both looking at market inflation and worried about it becoming unanchored. if they cut rates, that might do a littletimulate higher inflation expectations, but that's a problem where you get back into banks. there's been some speculation they might do tearing in different banks pay different rates, but that may be a little complicated.

for of options on the table mario draghi, but not a lot of good ones. they will also be a little bit of the problem, but not the major problem. alix: we are already looking at 10 basis points for a cut in 2020. it feels like the bar is so high for a real dovish move from mario draghi. mark: i think that is a big point. one of the things people need to think through is how much are these central banks now pushing out of strength? is more additional easing harmful for the banking system? is that going to do anything to increase the transmission of monetary policy to the real economy, which comes through the credit numbers? if you look at the adoration of ecb stimulus, the more stimulus , it really comes back

to a broader macroeconomic framework. there's excess savings in the corporate sector, in the budgetary sector, so there's a large amount of savings and the cost of money is not pulling into the broader economy. so there's an element here that europe needs to find a way to generate demand not through supply of money come about through more stimulative measures on the fiscal side. that is really the solution david: at the same time -- the solution. , with at the same time india and australia, do you have -- matchl: you don't have to cut for cut, but it is a problem. you don't want your currency to get to strong relative to others. is one of the considerations the fed is going

to have to take when they figure out what they want to do. where --s a position remember, we've got a two-stage thing. first we went on pause. then we are starting to talk about cutting. the ecb has been in raise mode, so they've got to back off that before they probably go into the additional stimulus mode. if they went straight from a to that scares people even more. alix: that hold tight rope thing he's walking. had a gooderian bloomberg opinion article. he said, "the fed has had to rely on using a financial channel to promote consumption and economic growth. the view that they will boost and trigger a pro

consumption wealth effect and pro investment animal spirits." michael: if they do cut rates, that would probably boost equities. they are concerned about the possibility of a bubble from that. they are not really convinced they could create additional inflation, so i be just asset price inflation, which we've shown over the last few years is going to boost the overall economy. we are any weird position now that we are doing fiscal stimulus, but a lot of people are saying the answer for europe is not the ecb and monetary policy. it is additional fiscal stimulus. the italians are trying it, and the eu is coming down on them for that, so they may have to figure out some other way to do it beside just turning to mario draghi. david: the person who's not having fiscal stimulus right now is angela merkel. they're waiting for germany, because that could make a difference. there are political difficulties with this. if they did get in the fiscal stimulus game, but could that due to europe? mark: i think what you want to

think about for fx is there is a framework for you look at currencies from a longer valuation perspective. could be six to 18 months. the euro is undervalued largely -- justthe xx savings the ethics savings -- x savings. no one expects europe will actually deliver fiscal stimulus. i think what is happening in the political environment, if you go back to the parliamentary elections, there is a pivot from populism towards centerleft policies because they are becoming the most influential coalition partner in europe. they are focused on the environment, but also

fiscal measures, especially as a buffer to how we work around the politics of who will be the next ecb chairman, the most important thing we can think about over the next couple of weeks. but that is a kind of forward-looking narrative where isgermany is fisting suit -- move rates, we are looking at markets pricing and a 1.15 level by the end of the year. alix: when you factor all the political stuff in, what actually is leading the currency market? is it going to be differentials? politics? the equity market? mark: we wrote a piece on this recently looking at the exact correlations relative to two-year differentials. there is overwhelming evidence that suggests it is the relative

equity performance driving the dollar against emerging markets and g10. to me, this takes us back to the growth environment. last year it was u.s. is sectionalism -- u.s. exceptionalism. the concern i have now is that there is a narrative around u.s. tariffs and the u.s. stance on trade policy come but no one is factoring in u.s. corporations. while the u.s. is a closed economy, it may not suffer .reatly from a trade war there could be a prophet to be a lit -- a profitability issue. there could also be a big draw down inequities if these problems persist. the dollar is leveraged to the best equity performance versus the rest of the world, which i think makes it very vulnerable going into the next six months. alix: michael mckee and mark

mccormick will be staying with us. coming up, we will break down the ecb decision next. this is bloomberg. ♪

♪ viviana: this is "bloomberg daybreak." coming up later on "bloomberg generale ceo.ete here's your bloomberg business flash. in california, pg&e planning an $11 billion fund to settle claims related to wildfires blamed on the bankrupt utility. the company has been consulting partners.rs and pgt

the pg&e proposal does not require help from taxpayers or customers. ford'she next step in plans to overhaul european operations. plaint ind to close a south wales that employs more than 1500 workers. that is your bloomberg business flash. alix: thank you so much. not a surprise though, with ford. david: no. globally the auto industry is having a soft spot, but particularly troubles in europe. gm got out of that business. ford said they were going to pull back, and finally says brexit has put a lot of pressure on them. in the markets, we are seconds away from the latest ecb rate decision. a little bit of equity optimism in the market.

a lot of buy on the yield. the euro-dollar now flat as we await any sort of readthrough from a tltro, a new loan program for banks. how low will that deposit rate be? what will it mean for the peripherals, in particular italy, spain and portugal? it comes out right now. david: we have it right here. alix: deposit rate unchanged at negative four basis points, and all of that totally normal. the euro is falling right out of that statement, down 1/10 of 1%. david: the thing to look for here is anything on tltro's and anything on -- go.: there ago -- there we still waiting for more on that. "levels at present rate needed."

euro moving lower on the news. david: they are continuing to reinvest quantitative easing debt. i would say my own take on this right now is i don't see a lot surprising at the moment. this was largely what people had been expecting. alix: you are seeing buying all throughout europe. german bunds at -23 basis points. now euro-dollar is a little choppy are. the tltro's still a question mark. david: let's go to the location of the meeting with our colleague maria tadeo. tell us what you know. maria: good morning. nothing that would be of surprise here in terms of the deposit rate.

what is new here is the european central bank says it now sees rates at least through the first half of 2020. they had said through the end of 2019, so it appears that had changed. what is crucial is to get more details on the tell her around. what already matters -- on the tltro round. the challenge for mario draghi will be to out-dove the market. the narrative around central banks has really changed. we had headlines out of the fed, the risk and the challenge for mario draghi. have a little bit of

color right now on the tltro's. it is the main rate plus 1/10 of 1%. rate: the long term loan can be as low as the deposit rate plus .1%. alix: does that mean we are looking at -50 basis points or -30? david: great question. i don't know the answer to it. alix: you are seeing some selling in btp's now. joining us from london is david owen. mark mccormick is still with us. we are also getting all of these he deals -- all of these details . what does this mean to you, the headline? >> the first point i would make is the market has really gone ahead of itself. cuts is of rate entirely premature. we had some strong domestic

demand published this morning for the euro zone first thing, and we've seen wages pick up running at they, fastest rate of wage inflation since 1999. in terms of the tltro's, the devil will be there in the details, but it is there. maybe it is not quite as generous as some people in the markets were expecting, but if they had that and target, they can still borrow at a very low rate, and that will help the recovery. for the italian banking sector, maybe it is not perhaps as generous as they were hoping. we will have to wait and hear from mario draghi at the press conference. david: which we will be taking live here on bloomberg television, of course. when we talk about what the market was pricing in and expecting, does that readthrough to business confidence and consumer confidence? it seems like on both sides of

areatlantic, the markets really expecting a lot. does it also readthrough to business decisions and investment decisions? >> the first point to make is that particularly the equity market, it is much less relevant for the euro zone overall that it is for the u.s. and the u.k., where large cap company rates will fall. is donethe financing with the banks, and in particular, there's lots of potential. divorcethere is a clear between what the markets are saying and what we can see on the ground in terms of the hard data. at the end of the day, it does matter, but i don't know anyone who uses their five-year

expectation when negotiating pay raises. it is not relevant for most people operating in the wider economy. recap what just we've learned. i think david was talking about takeaway being it is not as dovish as the market thought, but it is ok. hand, they extended their guidance for the first half of 2020 so they see rates at present level through that time. if you take a look at the depot , it lookshe tltro like it is going to be the deposit rate, -40 basis points, plus 10 basis points, so overall -30. a little less generous than two.ps round mark mccormick, walk me through your take. mark: i think about the forward guidance towards a rate cut next year.

i think we got some firming in the language of that. likely are rated to be really where they are at this time next year. i think markets just want to be short the u.s. dollar, largely because we are pricing in a potential fed cut, u.s. data is really soft. if you look at the fed now cast, they are sitting around 1.5%. but gold is driving an anti-dollar bid, and euro is trying to catch up at this point. alix: great stuff, guys. david owens and mark mccormick, great to see you both. the reaction in the two-year, though, very clear. sell, sell, sell. david: as you said, not quite as

generous as the markets were anticipating. alix: but not as general. we will discuss the ecb with manager forrtfolio global assets. this is bloomberg. ♪

david: we are going to go live now to france. the honor guard waiting for the arrival of president trump and president macron. they've been to omaha beach on the 75th commemoration of the invasion at normandy. they are now going to have a bilateral meeting between the presidents of france and the united states, with, i'm sure, things on the table such as iran, huawei, and they may even talk about things like financing the military. alix: and climate change. david: absolutely. it is called the paris accords, as i recall. alix: what is the state of their relationship?

david: great question. remember, famously, the first time they were together, they had that handshake. macron would not back down. initially it was thought they had a good relationship, but we will see where it is now. alix: we are also going to see what happens in the markets after the ecb rate decision. banks are going to be able to get two-year long-term loans for -30 basis points. it appears like the market doesn't like it that much. higherr yields moving due to selloff across the board, particularly in spain. withg up, more on the ecb manager.ortfolio this is bloomberg. ♪

♪ i think china wants to make a deal badly.

i think mexico wants to make a deal badly. alix: president trump says progress was made with mexico, but the country has got to step up. china injects 5 billion yuan into its economy as trump threatens more tariffs. the central bank says it will keep rates at present levels for the first half of 2020 and unveiled its third long-term loan program for the ecb. withdraws its offer for renault. david: welcome to "bloomberg daybreak." we just had the ecb decision about four minutes ago. it was somewhat less generous, but not horrible. they will extend a third tltro program, and cut back a bit on the incentive. on average, the loan was -36 basis points into the second program, so now we are at -30,

so it is kind of in line. it might spur a lot of demand for the loan and banks to get money flowing. david: the initial market reaction was not terribly enthusiastic, but not running away. alix: a little bit of buying in the long end, selling in the shortened. david: we are going to learn a lot more about this about 30 minutes from now, when mario draghi holds his news conference. we will take that live here on bloomberg television. watching in france, where president trump is arriving with president macron. they have already been to the invasionre the d-day occurred 75 years ago.

now they are going to talk shop. alix: what shop? we will see. in the market, it is going to be about the ecb dominating over the next couple of hours, although we do still have trade tensions perforating here. s&p futures still up by about eight points. we are only five percentage points away from the record high on the s&p. the ecb is choppy after rate decision, now up by 4/10 of 1%. like i mentioned, we are selling particularly in the shortened. end. the short had a marioarkindo draghi moment yesterday. the head of opec said we want to do whatever it takes to stabilize oil. david: it was really a mess yesterday. that is interesting. time now for the winning brief.

president trump is in normandy thememorating 75th anniversary of the d-day invasion. at 8:30, president draghi holds his news conference, which we are going to be taking live, explaining why the ecb did what it did and giving us hopes of details on the new tltro program. we also get u.s. jobless claims and will hear from dallas fed president robert kaplan and new york fed president john williams. let's find out was is going on outside the business world. viviana hurtado is here with first word news. viviana: today, president donald trump and french president emmanuel macron paid tribute to landed inrs that normandy in june 6, 1944. pres. trump: we are gathered

here on freedoms altar. on these shores and bluffs 75 years ago, men shared their blood and thousands sacrifice their lives. viviana: about 160 world war ii veterans were there, members of the greatest generation, the president telling them "your die." will never one more sign how the trade war with the u.s. has hurt china's economy, beijing unveiling a stimulus program to help increase demand for cars and electronics. there won't be any new spending from the central government, but local governments are encouraged to provide support. new restrictions on car purchases will be banned. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. david: i'm fascinated with china stimulus because they are

focusing on autos. they had 14 or 15 months of declining auto sales in china. they just said basically that line.governments get in we will not do anything to discourage the purchase of automobiles. alix: or consumer-electronics. interesting to see that in play in the market. china may be adding new , andlus to the economy trade tensions with united states don't seem to be going away anytime soon. pres. trump: we are getting 25% on $250 billion, and i can go up another $300 billion. i will do that at the right time. but i think china wants to make

a deal badly. i think mexico wants to make a deal badly. invesco'swelcome now global head of asset. let's start with mexico. we got a surprise yesterday for most of us that they broke off talks for the time being. guest: the problems with mexico, while we tend to focus more on china is the largest economy, also politically a very sensitive partner, the tensions with mexico have to be considered because it is completely integrated in the supply chain. the issues with china are about inflation, rising consumer prices, and political tensions. when you start talking about mexico and canada, you really start affecting the entire supply chain of the auto industry and much more. the impact is not just on consumers.

it is on the entire industrial production cycle of the united states. with, the main problem respect to trade tensions at the number they are one apple expenditures. as a result of how late we are in the cycle, we were really relying on a boost of capital expenditures to sustain the cycle to the longest length we have experienced in our lifetime. alix: bloomberg intelligence look on what it means for the equity markets. what is actually factored in there? you can see the bar chart. the blue bars are the fall in equity prices. think that assumes that

the appropriate delays, these estimates are fairly reasonable. i would think that if you factor in the impact of the yellow and orange bars, a 10% fall in global equities seems fairly limited to me. think the impact on financial markets and the followthrough can be larger. david: how much can monetary policy make up for that loss in gdp growth? guest: quite a bit. a lot, to be honest, especially this time around. the reason why equity markets are close to all-time highs after all of this is precisely because we've been able to ease over 100 basis points in global yield in the last few months, precisely because we don't have

inflationary pressures and central banks don't need to remain in over tightening. however, frontrunning rate cuts can only go so far. at this point we need to see the to see rateu need cuts by the federal reserve. you need to re-steepen the yield curve. don't think it is something we can say just yet by the end of this year. alix: you are going to be sticking with us, and we are awaiting the arrival of president trump and president emmanuel macron. they are going to be having a bilateral later this afternoon. is this the hotel? david: that is where they are meeting, so i believe it is. it is basically like the city hall, a government building where the seat of local

government is. coming up, while way works around the clock in order to counter president trump's blacklist. more on that in today's bottom line. this is bloomberg. ♪

david: time now to look at three companies worth watching this morning. we are in france, waiting for president trump and president macron to come up for their bilateral. i'm watching fiat and renault. we thought they were about to have a deal. they said we will put it up one more day, then walked away. they actually did just withdraw the offer. mainly because of the republic of france. alix: 15% is what france owns of

renault, and they would own 10% or 8%. want 7.5%, say they but they would still control the thing. alix: one of my favorite stories , thethe last 24 hours secretary of state says exxon billion in 2009 for $31 and then gas prices crashed. i love that. aen do you ever hear shareholder saying that? david: you got to talk about this in commodities. alix: yes, at 1:00 p.m.. the third company is huawei. we have bloomberg sutherland here -- we have bloomberg brooke

sutherland here -- we have bloomberg's brooke sutherland here. people workinge three shifts today, some people not going home between shift. this is to bring component manufacturing in-house to a void having a significant hit to banr business on this u.s. of companies selling software. fullyre trying to become self-sufficient so they don't need to rely on these other suppliers. they do have a stockpile of all of the communities they will huge but not a cushion. when you look at the negotiations with china, there's not a lot of reason for optimism right now. while way is trying to find a way to avoid a said, didn't financial hit. questions on what

this does to the american .hipmakers that sell alix: i'm think about japan, rare-earth, soybeans in brazil 10 years ago. that is an issue as well. brooke: i think while way has realize the risks, and they are more incentivized to become self-reliant. even if this goes away, i don't know that that tendency stops. the bigger question is, with the american government pushing other world leaders to ban while way equipment in their countries, is there any market for it? can they have a viable business and people to sell this equip into? david: thank you so much to brooke sutherland. we are watching again in france, where

president macron and president trump are about to arrive after they were at omaha beach overlooking normandy for the 75th commemoration of the d-day invasion. will monitor anything coming out of that bilateral meeting. coming up, we take a look at the promise facing mario draghi i had of his news conference. live from new york, this is bloomberg. ♪

♪ david: we are looking at a live shot right now in france, where president trump and president macron will be arriving. that may be -- no. i thought it might be him, but it is not. they will have a bilateral there after they had their visits to omaha beach in normandy to commemorate the 75th anniversary

of the d-day invasion in normandy. we are just a few minutes away from ecb mario draghi's news conference. joining us from the location of the meeting in vilnius, lithuania is maria tadeo. maria: we have more details now, and the market reaction, i would not say disappointment, but it is slightly underwhelming. a lot of this had to do with the whole narrative. the market was very dovish going into this. a lot had to do with that implied rate cut. the expectation was very high. if you look at the details, the european central bank did change its forward guidance commode you --n as a dovish element change its forward guidance, which is seen as a demo's element -- a dovish element. when you look at the details for the tltro round three, it is almost similar to that which was

priced in. we knew there was a debate in the governing council is to whether central banks should have a big say or whether they were to hooked on stimulus. seem they found some middle ground. the issue seems to be expectation. speak in thatill press conference we are expecting. david: thank you so much. alix: now we are going to go to taylor riggs for a rundown of the challenges facing mario draghi. taylor: these are the challenges. the first i want to start with is manufacturing pmi in the euro zone in blue, falling into contraction territory. this is even as the u.s. in yellow has fallen recently, but at least still in expansion that key, 50.5, above $50 level.

you have core inflation, the more stable measure since 2014, really hovering flat, but only three quarters of 1%. this is only the latest of some of the issues facing mario draghi in the ecb. what they could do is, well, not much. rate is still negative. . hard to see what else they could do. alix: thank you so much to bloomberg's taylor riggs. still with us is invesco's portfolio manager. we are also waiting on the arrival of president trump and president macron. david: they are picking up the drums. that's progress. alix: we are watching for that

arrival. of course, the bilateral coming along later today. so the market reaction, you want to sell the short action. is this the right reaction to the ecb? guest: maria described it perfectly well. this is the natural market reaction across pretty much all of the markets for the day. it is just a daily event. this is not a major economic development. we were pricing in the .ossibility of a cut are movingl that we that hiring the shortened. rates staying at present levels or lower at least through 2020, we didn't get

that, so it is normal to see that at the short end. we're getting into this transition at the ecb where five-year inflation expectations are close to the all-time lows we saw as a result of brexit. this is not what is supposed to happen after we have lloyd that monetary bazooka. the idea that something is still not working and it's affecting the long end of the curve make sense. to avoid really meant leverage large -- avoid the very tail end. we know there are problems the ecb cannot fix. this is frankly where we are today. it is still a transition into the new counsel. david: we want to go live now to france, where president trump is

arriving. he arriving with president macron for their bilateral meeting. they are visiting normandy in northwestern france for the 75th commemoration of the invasion of d-day. the two respective presidents are about to go into the local government headquarters. there is an honor guard waiting for them. that isng to guess us. macron whose back is to alix: the thing with the pmi's is france still has some trouble with business sentiment. it seems like the yellow vests protests are wearing down, but perhaps not as explosive as a few weeks ago. business sentiment and prospects for growth in terms of how leaders and investors see it. david: there are differences and similarities across europe.

the yellow vests are a larger frown on of many people feeling like they've been left behind. you see this in country after country, exacerbated by immigration. even if the protests may die down some, there is an underlying issue there that governments have to address. alix: who actually is leading europe? who is that leader now? guest: we don't have one. this is a particularly difficult time when we are dealing also with brexit. politically, that is certainly an issue. economically, it remains an issue. alerted to the green prospects for europe. what we have seen are some positive surprises with respect , probablyr confidence

reflecting that allegations have been set so low that the future realization was not as bad as feared. however, where we continue to see very large negative surprises is across the manufacturing sector, especially in germany. david: we now see president trump and the first lady as they are about to enter the local government offices. alix: it looks like micron is organizing. cron is like ma organizing. david: he's the host. they are going in now. this is the local government headquarters. the honor guard has been waiting for some time, as we have been watching. the president has seen more than one honor guard on his trip. ♪

alix: walking into this bilateral, who has an upper hand? who has the negotiating leverage and who doesn't? how do you view it? i would say the u.s. has the upper hand simply because of the strength it is finding itself in. europe is the continent with the weakest cyclical dynamics and a completely different situation to be handled. we see it time and time again. trump steps up the trade tensions every time the stock market makes a new high. this is that a administration that really uses the validation from the stock market to really move its political levers as well. david: a strong economy, and certainly stronger than germany right now in terms of growth, but at the same time we have

distribution issues here. a critical time where we are not sure how strong it is or how strong it will be. we have heard from members just this week, we have to see what happened to the economic data. the direction is certainly the one for deterioration in the numbers. cyclical posters are, the u.s. has more room for deceleration in the data. europe is already more concerned, rick perry staring -- more concerned, registering recessionary numbers. if the u.s. slows down meaningfully from here, that is bad news for europe because for the last five years, europe has been sustained by the global export cycle. if that rock is taken off its feet, the to domestic growth -- in europe, there is far

more downside risk with respect to dealing with this recession. that is a problem. alix: yes. that also raises the question, when you have a market pricing and potentially four rate cuts through 2020 for the fed, and just can basis points for the ecb in 2020, how does that equitythrough to the market? guest: those cuts have to come. pricing and cuts without delivering them, it is only a temporary solution. so we need to see, if the fed does deliver those rate cuts , it is timeit is time to see se cuts being materialized. to prevent the downside risk to the economy.

david: you made an important point. we are nearing the end of mario draghi's term. is it too early to start talking about what his legacy will be. or did he the game play a bad hand well but ultimately did not deliver what he needed to deliver? alessio: i think is right as he has been set, -- i think his legacy has been set, the books have been written. months have been about keeping the lights on. his legacy was set in 2011 and 2012 and 2015. alix: the legacy of the u.s. in terms of its jobless rate continuing to be awesome when you talk to the fed. jobless claims coming out, 200 18,000 -- 218,000 individuals filed for jobless claims.

we got that terrible bp number that speak to the market. do you think the job market holds up as is or what is it start to roll over because of trade? alessio: i think it is starting to roll over. alix: it is not a one-off? alessio: i take seriously some of the numbers underneath the surface. if you look at the manufacturing sector, has been declining for a wild. those tend to be the leading indicator of payroll growth. industry tends to decrease the amount of time that workers need to put in before they ship work. watch for a continuation of those trends, more micro data within the labor market. for now they are suggesting that payroll growth should be decelerating. draghiwe're seeing mario walking in for his news conference. they have the required shots, the photographs.

alix: we have a good five minutes. to recap, easy selling on the short end all over europe and the buying in the back end. dovish was the statement, all about the refinancing operations. the deposit was at the rate banks can get. dovish on the margins but a little less than what markets have been expecting. the question is is there read through to loan growth and what it means for overall growth. the question for the ecb and mario draghi is will he stick to his theme that the back half of the year will get better based on trade tensions. we turn now to mario draghi. draghi: the vice president and i are pleased to our press conference.

i would like to thank the for yourof the board hospitality and express our special gratitude to his staff for the excellent organization of today's meeting of the governing council. we will now report on the outcome of our meeting. based on a regular economic and monetary analysis, we have conducted a thorough assessment of the economic and inflation outlook. also taking into account the latest macro economic projections for the euro area as a result, the governing council took the following decisions in the pursuit of its price stability objective. we decided to keep the key ecb interest rates unchanged. we now expect them to remain at their present levels, at least

through the first half of 2020. in any case, for as long as necessary to ensure the continued sustained convergence of inflation to levels below but close to 2% over the medium term. continue thend to principal payments for maturing securities purchased under the asset purchase program for an extended period of time passed the day when we start raising the key ecb interest rates. in any case, for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation. third, regarding the modality of the targeted longer-term 3,inance operations, tltro

we decided the interest rate it needs -- in each operation would be at a level 10 basis points above the rate applied to the euro system's main refinance operations over the line for the respected tltro. for banks, who's eligible met lending exceeds the benchmark, the rate applied in tltro three will be lower and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points. -- a presslease release with further details on the terms of the tltro 3 will be published at 3:30 today. saysoverning council also that at this point in time, the positive contribution of negative interest rates to the accommodative monetary policy

stance and to the sustained convergence of inflation is not undermined by possible side effects on bank-based intermediation. monitor we continue to carefully the bank-based transmission channel of monetary policy and the case for mitigating measures. today's monetary policy decisions were taken to provide the monetary accommodation necessary for inflation to remain on a sustained path toward levels that are below but close to 2% over the medium term. the somewhat better than expected data for the first quarter, the most recent information indicates that global headlines continue to weigh -- global headwinds continue to weigh on the euro area outlook.

the prolonged presence of uncertainty related to geopolitical factors, the rising threat of protectionism and vulnerability in emerging markets is leaving its mark on economic sentiment. time, further employment gains and increasing wages continue to underpin the resilience of the euro area economy and gradually rising inflation. today's policy measures ensure that financial conditions will , supporting the euro area expansion, the ongoing buildup of domestic -- and thus headline inflation developments over the medium-term. looking ahead, the governing council is determined to act in case of adverse contingencies

and also stands ready to adjust all its instruments as appropriate to ensure that inflation continues to move toward the governing councils inflation name in a sustained manner. let me now explain our assessment in greater detail, starting with the economic analysis. the euro area real gdp grows by 0.4% quarter to quarter in the first quarter of 2019, following an increase of 0.2% in the fourth quarter of 2018. incoming economic data and survey information point to somewhat weaker growth in the second and third quarter of this year. this reflects the ongoing ,eakness in international trade

in an environment of global uncertainty, prolonged global uncertainty, which are weighing on the euro area manufacturing sector. areae same time, the euro services and construction sectors are showing resilience and the labor market is continuing to improve. looking ahead, the euro area expansion will continue to be supported by favorable financing conditions. the expansionary euro stance, further employment game, and rising wages. this assessment is broadly reflected in the june 2019 euro system macro economic projections for the euro area. these projections foresee annual inl gdp increasing by 1.2%

in9, 1.4% in 2020, and 1.4% 2021. the march 2019 ecb staff macroeconomic projections, the outlook for real gdp growth has been revised up by 0.1% for 2019. by 0.2been revised down percentage points for 2020 and .1% for 2021. risk surrounding the euro area growth outlook remain on the downside on account of the prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism, and

vulnerabilities in emerging markets. estimates, euro area annual hrc be inflation was 1.2% in may 2019 after 1.7% in april, reflecting lower services price inflation. on the basis of current view jurors prices for oil -- current futures prices for oil, headline inflation is likely to decline over the coming months before rising again toward the end of the year. looking through the recent volatility due to temporary factors, measures of underlying inflation remain muted. labor cost pressures continue to strengthen and broaden and make high levels of capacity utilization and tightening labor

markets. looking ahead, underlying inflation is expected to increase over the medium-term, supported by monetary policy measures and the ongoing economic expansion and stronger wage growth. this assessment is also reflected in the june 2019 euro system macro economic projections, which foresee andal hsb inflation at 1.3 in9, 1.4 and 2020, and 1.6% 2021. compared with the march projections, the outlook for inflation has been revised up by .1% for 2019 and down 2020. analysiso the monetary

, growth money and growth stood april after 4.6% in march. sustained rates brought money growth reflect ongoing bank credit creation for the private cost. and low opportunity the narrow monetary aggregate in one continues to be the main contributor to the growth of the component side. loansnual growth rate of to multinational corporations increase to 3.9% in april 2019 from 3.6% in march. volatility,-term the annual growth rate of loans to nonfinancial corporations has moderated somewhat in recent months from its big in

september, 2018, reflecting the typical lag reaction to the slow over theconomic growth course of 2018. the annual growth rate of loans to household stood at 344% -- 3.4%in april compared with in march, continuing its gradual employment. the monetary policy measures taken today improving tltro 3 will have to say that favorable bank lending conditions and we continue to sport access to financing, particularly for small and medium-sized enterprises. a cross check of the outcome of economic analysis with the signals coming from the monetary that an amplerms degree of monetary accommodation for the necessary

continued sustained convergence of inflation to levels below but close to 2% over the medium-term. read the benefits from our monetary policy measures, other policy areas must contribute more decisively toward raising the long-term growth potential and reducing vulnerabilities. the implementation of structural reforms in euro area countries needs to be stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and potential. the 29th in red -- the 2019 recommendations should serve as a relevant signpost. , theding fiscal policy expansionary euro area fiscal stance is providing support to economic activity. at the same time, countries were

need tont debt is high continue rebuilding fiscal buffers. should enforce their efforts to achieve a more growth friendly composition of public finances. transparent and consistent implementation of european union's fiscal and economic framework over time and across countries remains essential to boost the resilience of the euro area economy. improving the functioning of the economic and monetary union remains a priority. the governing council welcomes the ongoing work and urges for the specific and decisive steps to complete the banking union and the capital markets union. now we are at your disposal for questions.

>> caroline, bloomberg news. in today's policy statement you set interest rates will remain at their current levels through the first half of next year. the market is pricing for the next ecb interest rate move. one second. >> can you hear me better now? mr. draghi: hold on. >> is this better? mr. draghi: probably better. >> ok. you set interest rates will remain at their current levels through the first half of next year, that the market is pricing for the next interest rate moved to be a cut. if you look the market reaction after you issued the policy statement, it does look like investors were expecting more. would you say markets are getting ahead of themselves, even though you have said in the

past that markets are pricing in the ecb reaction? my second question is on market-based inflation expectations, which has continued to slag recently. you said that was because of negative risk premium. to seeg can you continue market-based inflation expectations so low and lower your aim? mr. draghi: the extension of forward guidance, you have to distinguish between market-based expectations and survey expectations. the extension of the six months of this forward guidance basically takes into account the prolongation of uncertainty with respect to what we saw and believed in march. seen that the threat of , and theotectionism

point made by someone about what markets see in this protectionism threat, and they seem to see much more than simply the damage to the economy coming from trade. a much broader phenomenon, questioning all of the multilateral order that we have lived in since the second world war. then, the uncertainty about the brexit negotiation and the uncertainty about the vulnerability of certain emerging-market countries, which are important. more generally, the uncertainty about global trade growth has extended beyond what we believed

, and that is why we have extended our forward guidance. , data about the economy are not bad. there is not any substantial worsening in the outlook. that is the reason for this extension by seven months. is about question inflation expectations. yes, the market-based inflation expectations, we are taking this seriously. bulk ofhat the inflation expectations now -- let me step back. there is no probability of deflation. a very low probability of recession.

analysis, noous threats of dna growing inflation at -- of anchoring inflation expectations. by the way, inflation expectations is not happening only in europe. it is happening elsewhere, although admittedly from higher levels. there must be some sort of it is factor, but certainly something we take into account in our policy. >> can you hear me? could you give us your customary summary of the discussions -- what were the contentious points where there was unanimity or dissent?

the second question relates to italy. as you are well aware, there is a new debate between the commission and italy on fiscal policy. what is your message to the italian government about fiscal policy and i'm curious your thoughts about the proposal in bots, whichue many seem to be against the issue of the treaty and might be of great concern to you. mr. draghi: thank you. i will answer the first question first. if i give a broad summary of the discussion, i will say it was three key concepts. , there's still confidence in the baseline in the midst of increased and prolonged uncertainty. prolonged means this uncertainty will not go out.

in march we might have hoped for a trade deal. we might have hoped for a decrease in uncertainty more generally. we might have hoped for a different evolution of brexit, but now it is different. there is some acknowledgment of the economy at the same time. acknowledgment of risk. these risks have gained importance and gain projection. we can go through these risks more analytically. there is a third element that has characterized our discussion today. you can find words to this extent in the introductory summary. namely, the readiness to act in case of contingencies. i've said this on other occasions. has time the discussion

become more granular in the members raiseeral the possibility of further rate cuts. other members raise the possibility of restarting the asset purchase program or further extensions in the forward guidance. the conviction that we should pursue our objective in a systematic fashion was also expressed. that in case the worst contingencies were to happen, certainly fiscal policy will have to come in to consideration and play a

monumental role. this.inkles to why don't i leave this to other questions and answer the second question. the second question is about italy. the commission has concluded that italy must redo -- must reduce its debt to gdp ratio and this opinion will go to the european council. by then, the italian government will produce a medium-term plan for reducing debt to gdp ratios. the in mind we are not interrogatories of the commission and council at this point, but i do not see anything that would ask for a rapid decline of debt to gdp. to make the debt to gdp decline fast is impossible. it would be a medium-term plan,

which has to be credible, and istical -- and credibility measured by how it is planned, and the actions that would follow from the plant itself. i think that is what everybody is expecting. about the many bots, i think i have answered this question in the past. there out of money and illegal. all of their debt, and that stock goes up. reading that people have and markets have does not seem to be very positive. i am only to stopping at what i said. and ieither money or debt

do not think there is a third possibility. >> claire jones, financial times. i would like to address the answer he gave to the last question about the granularity of the discussion. could you fill us in more on under what circumstances would you cut rates and under what circumstances would you restart expansionist qe. for my second question or issue, it looks as though the u.s. federal reserve might start to cut rates soon as well. could you discuss the pros and cons in terms of how the measure would impact the euro zone economy? it is a reflection that has just started today in this meeting.

discussed which contingency would call for which , and on the possibility of restarting the asset purchase program, let me say we now, having abstained from purchasing bonds, we also have comfortable below after the european court of justice gave the explicitly brought -- to pursuing a proportionate manner, our objectives and comply with our mandate. instrument that was quoted was a possible decrease in interest rates. let me talk about the point i said in introductory statements. there was a quite long discussion about the weather. the period of negative interest rates and the weather,

especially the expansion of forward guidance is affecting banks profitability in a way that could hamper lending. -- these are answers in the aggregate. within the aggregate there are many different situations. in the aggregate the answer was that so far we see no effect for a variety of reasons. it is not at all granted as a result if we were to further extend the forward guidance or if we were to decrease interest rates. that is why the introductory statement makes reference to mitigating measures in that case. was whetherestion the possible rate cut in some other jurisdiction might affect the european economy.

it is a question we have asked ourselves several times over the last few years. i did not speak about the financing conditions. i should say financing conditions with respect to the last meeting, the last monetary policy meeting, have become slightly tighter. of the on the account fact that stock prices are now lower, and the euro has appreciated. the effective exchange rate of the euro has appreciated. that is the answer to your question. >> i have two