>> good morning from bloomberg's european headquarters in london. i'm nejra cehic and these are today's top stories. china unveils a stimulus plan for automobiles and electronics. the pboc governor tells bloomberg exclusively the country has room to maneuver if the trade war worsens. we have tremendous room if something bad is happening. our monetary policy could act in a right direction. we have plenty of room in interest rates. plenty of room in reserve ratio fiscal monetary

policy, i think there is room .or adjustment -- mike pence says the u.s. plans to impose tariffs on mexico monday has talks continue. does the trade back and forth give the u.s. jobs report greater significance? crude extends a rally on reports washington may engage more with trade rivals. in st. petersburg, vladimir putin emphasizes the differences of the opec powers ahead of the big meeting with xi. welcome to "bloomberg daybreak: europe pickup oil extends a rally after a report washington was considering a delay to tariffs against mexico.

vladimir putin has emphasized differences between opec powers as alexander novak met his counterpart. where does oil stand? annmarie hordern is in st. petersburg. what is your answer to that question? annmarie: good morning. i have an incredible panel where i will be talking to alexander novak and a number of executives from total, royal dutch shell, and bp. the two things many want to know coming out of this panel is do we have a date for the opec meeting? we can't evensay decide on a date. how will they decide on production output. the second thing we want to know is -- we know he wants to extend but it iser of a cut, a different picture for alexander novak. he has been under pressure from state oil giants.

k we heard yesterday at the forum that russiah needs to defend themselves against u.s. shale andalid al saying the u.s. -- using oilh oil as a political weapon. nejra: oil, getting a bit swept up with risk assets and general concerns around trade. do not miss our big energy panel. we will be hearing from oil executives, live from st. petersburg. you can catch that on bloomberg tv 8:00 a.m. london time. let's get a check on the markets. we have trade concerns hanging over the markets but if we look at how we actually set up, we are positive on u.s. futures. the dollar, gaining today but heading for a weekly loss ahead of the quarter jobs data. k flattening on the two's tens yesterday and have restatement today. the three-month 10-year stays for me inverted -- firmly inverted. the euro's reaction to mario draghi yesterday, markets

weren't buying it. the euro jumped to a seven-week high and we hold those gains, 112.67. oil, also extending gains from a five-month low. let's check in on the markets in asia. yvonne man has those in hong kong for us. pretty quiet in asia to wrap up the trading week. hong kong, indonesia all closed for holiday here. we are dealing with small volumes and also seeing a drift higher in equities. we are poised to snap out of four weeks of decline for asian stocks. the nikkei 225, up .5%. we are seeing the asx following oil higher, up .7%. the big interview today with the pboc governor, some telling words about trade. he was talking about looking head to the g20 meeting and talks with steve mnuchin from the u.s..

it was looking to be uncertain and difficult what could come out of it. it was his comments on the renminbi that were particularly interesting. when it came to the reaction on the currency, we did see a big spike out. 0.2%rengthened as much as at one point, the most in a week. what he mentioned, tom mackenzie asked if there was a red line for the exchange rate and he no level that is is more important than others pick of is there a line in the sand -- than others." is there a line in the sand? given that we have hong kong and china flows, we are dealing with thin liquidities. some moves could be magnified. china is closed and we are slightly elevated, given the comments about plenty of policy tools. tremendous policy room for

easing to stabilize growth and the oil price after this bump up in new york crude. we are seeing some exports, oil countries like malaysia, benefiting. the ringgit, strengthening .4%. nejra: yvonne man, thank you. china has an veiled a stimulus plan to spur demand for automobiles and electronics as escalating tensions with the u.s. threatened to hurt china. the pboc governor says the country has room to maneuver if the trade war worsens. he was speaking exclusively with bloomberg's tom mackenzie in beijing. point, we at this have to come at this some idea of overcoming the tremendous difficulty ahead of us. we do not like a trade war. ourpe we can solve

differences through mutually respectable negotiation. >> talking of negotiation, you will be heading to the g20 and meeting with the u.s. secretary of treasury, steve mnuchin, and you will be having a discussion with him. is that an opportunity to get the tool back on track? i will meet secretary steven mnuchin this weekend in japan. i think we are going to talk global economy, of course, and also g20 issues. but also, we will discuss the topics that commonly interest both sides. i think it would be a productive talk, as always. tom: you mentioned the tariffs.

what impacts have the tariffs had come a both sides, to date? tariff to me is a bad idea. you know i am an economist. years, i taught my students trade is a benefit for both tariff is really a double-edged sword. it is hurting the chinese economy. it is also hurting the u.s. economy, especially the u.s. consumers. om if: we turn our attention to the chinese economy, the economic data has all been weaker. what is your assessment of the current state of the chinese economy? yi: i think the current state of the chinese economy for the first quarter, it was a little

better than expected. right now, the uncertainty of trade war, people see expectation turned negative in i think thebut chinese economy is resilient. consumption is still very robust, the growth of consumption is around 8%, and domestic consumption is still the main driver of the chinese economy. investment is flat. exports are suffering from the trade war. of totaln terms assessment of chinese economy, the innovation part of the plus weis very active, fiscal policyve and prudent monetary policy. tom: some of the pressures of

the economy and trade, what does that mean for the yuan? yi: the trade war would have a on thery depreciation renminbi but after the noise, the renminbi will continue to be very stable and relatively strong compared to emerging-market currencies, even compared to convertible currencies. a very strong currency. i am very confident the renminbi will be able to be stable. more or less, equilibrium level. nejra: that was the pboc governor yi gang speaking to bloomberg's tom mackenzie in beijing. donald trump says he will make a decision about further tariffs on chinese goods after the g20 summit. the u.s. administration plans to impose duties on mexico next week. joining us now, the head of u.k. macro rate strategy and economics at ubs. .reat to have you with us

i will go back to governor yi gang in a moment, but on mexico, what could be the shift in risk assets if we see tariffs on mexico imposed on monday? now have beenkets largely expecting it. the bigger question is how far we go from here and whether the ratcheting up of the levels of the tariffs happens? how does mexico respond as it sees tariffs put in place? the tariffs themselves, the markets are concerned as a try and engineer the changes the u.s. administration wants to see in ways around the world. it does seem to have triggered a response from mexico. the question of if it goes far enough and if the next step up in tariffs happens. if it does, people will be worried and if it doesn't, more reassured. nejra: what implications does it have for china? we heard from yi gang saying

they have the room for policy maneuver. they have the room, but will they act? the interviewshy and comments from policymakers are so important because markets are trying to gauge how far the combatants in the trade war are prepared to take things and how does china respond to increases in tariffs or the stated intention to impose them? the signs there, when they talk about room to ease policy, they will not back down, they will be prepared to absorb it -- but what was most interesting in those comments was the observation about it being a double-edged sword. it hurts both economies in the case of the u.s.-china dynamic and we think that is right. the more this escalates, the more gdp is at risk of slowing down or on a global basis if you include the other countries that have seen tariffs imposed. nejra: what are the key numbers

you are watching? a lot of people say the level of the yuan is crucial but we heard yi gang say no number was more important than others. your colleague was on the channel yesterday talking about total financing is crucial. what members are crucial for you to see the direction of chinese policy and potential support for markets? john: my colleague is more of an expert on china than i am and i financing -- we look at the currency level and we look at the way policy response or policymakers suggest they will respond to changing dynamics and changing rates of growth. it is not just trade war's. one of the issues with tariffs being imposed at this stage is in the case of the u.s., there are other forces at work would be ordinarily slowing down the economy. the fed has raised rates a lot,

the fiscal stimulus president trump brought in is darting to fade in its impact, so this is all incremental on top of conditions. we are looking at big economic data to see whether the u.s. labor data today, for example, the combination of all of these things is starting to weigh on the direction of travel for economies. nejra: how crucial is it for global markets that china gets stimulus right? john: it is important but that is the least of the markets worries at the moment. the market is concerned -- and you saw in the case of the ecb, to see how, camp, and will policymakers respond if growth struggles? john: john wraith, the head of u.k. macro rate strategy and economics at ubs stays with us. let's get the first word news with annabel in hong kong. >> the outlook for the u.s. economy remains solid. that risks are mounting according to new york's fed president. he says he understands the

market's concerns short of endorsing a rate cut. he echoed remarks from the chairman and vice chairman earlier in the week >> we are getting mixed signals from indicators, whether financial markets, the actual u.s. data were consumer spending looks pretty good. business investment is weakening, we are seeing mixed signals around china and europe and what is important for us from this is to keep an open mind and keep being data dependent in how uss this data. draghi hardened his language as he said the central bank won't shy from action. policymakers are "determined to act if needed" and that a prolonged period of uncertainty. he added the prospect of interest rates cuts. cks onestigation into atta

oil tankers in the middle east concluded a state actor was to blame. found a high degree of sophistication behind the incidents. attacksrt says the required intelligence capabilities to select the specific targets. the u.k. labour party has successfully defended the momentum of nigel farage's brexit party. it was the bookmakers favored to win the constituency. mainstream parties expected a backlash as the city voted to leave the eu by two thirds in 2016. nigel farage will have to wait for another opportunity to get a foothold in parliament. 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. inra: annabelle droulers hong kong, thank you so much. energy panel. big we will hear from oil ministers and executives including bob

dudley, live from st. petersburg. catch that on bloomberg tv 8:00 a.m. london time. this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." i'm nejra cehic in bloomberg's european headquarters in london. let's get a business flash with annabelle droulers in hong kong. has named paulfi hudson as it ceo. he will replace his predecessor who is retiring. sanofi is one of the world's biggest makers of diabetes drugs and has come under kurt -- scrutiny for rising prices. bloomberg's group. the german government is reportedly looking into the possibility of a tie up between commerzbank and ing. it is an option to form a financial heavyweight.

among issues being discussed is berlin's desire for the potential new bank to be headquartered in germany. a rosy sales outlook has sent e.on to meet soaring. shares had already quadrupled. there was a 26% jump in late trading yesterday. exceed --t will revenue all of last year was just 88 million. that is your bloomberg business flash. nejra: annabelle droulers in hong kong, thank you annabelle droulers. global central banks -- many governors have decidedly turned dovish this week so we are near mirror on the wall, who is the dovest of them all? philip lowe cut rates for the first time in three years to a record 1.1%. -- 1.25%. india central bank changed

policy stance to accommodative. european central bank extended clans to keep interest rates at a record low. mario draghi said to the ecb won't shy away from action to support the eurozone economy and jerome powell signaled openness to loosening if necessary but the comments seemed far from a policy change. here is what these key people had to say. >> it is fair enough to say we have any zingi -- an easing bias. >> external conditions turned in recent weeks. >> the risks surrounding the growth outlook remain on the downside. >> we will be very vigilant about understanding these heightened trade tensions. >> we think this reduction is possible. >> several members raised the possibility of further rate cuts. >> if you have been talking about rate cuts so much. great cut gets into your system. now, we could

help her center inflation expectations at the 2% target. >> central banks across the world have moved to an accommodative stance in setting monetary policy. ofdetermined to act in case adverse contingencies. thee will act to sustain expansion with a strong labor market and inflation near our symmetric 2% objective. nejra: john wraith, the head of u.k. macro rate strategy and economics at ubs is still with us. let's focus on the fed and what has been happening with the curve because you got the two's tens steepening since november. at the same time, three-month 10-year is firmly inverted. what is the chart telling you that we have steepening to's tens with an inverted tenure? -- 10-year? john: there has been enormous repricing at the front end.

you only have to go back to late last year, the market was expecting more hikes and is now fully pricing in two if not three cuts over the next 12 months or so. line in the case of the u.s. is the data has turned a bit. the fed has made it clear they will act if needed. when you look at the team -- two-year come of that is factored in. the three-month point is so nearby that will fall sharply when the markets think a cut is absolutely imminent. at this stage the data hasn't given way enough. there is an extent to which the markets have gone ahead of themselves. there are things to concern them. clearly whether the trade wars themselves or data, there is reason to think policymakers mean it when they say they might act in due course but in the case of the fed, there is a degree of patience. the data is ok.

we will see the jobs number later. the labor market is tight in the u.s. growth might be slowing but it is still healthy. at this point, to look for an imminent shock, we think it is bit premature. nejra: what extent could markets reprice off the jobs data you mentioned? john: if you saw weak numbers here, it would crystallize some market concerns. you would probably seen acceleration in recent moves. we are not expecting that and think that it will be robust and underpin through all of this nervousness abounding now, the u.s. economy remains on fairly sure footing at this stage. things could get worse over the coming months and we are certainly alert to that but at this point, we think the data will be pretty solid. convictione a increasing dynamic for the fed to be able to say there are things to worry about. we are watching them closely but at this point, we do not need to

do anything. nejra: what does this all mean for the dollar? we're heading for a weekly loss ahead of the jobs report. is 1995, the greenback fell only in two out of five. if the fed has to cut significantly, there will be bigger implications for the dollar but we don't think we are in that position yet. in the u.s. just but elsewhere, some of the concerns are slightly overdone and what that should mean if you think about hopefully trade war tensions dialing down a little like move forward, places the eurozone, some of the concerns alleviating a bit. nejra: john wraith, the head of u.k. macro rate strategy and economics at ubs stays with us. finance ministers and central bank governors from g20 nations meet in japan this weekend. policy makers will be meeting against a backdrop of a dovish tilt across the globe. mexico and the u.s. will be

there. the white house has threatened x ago and it chinese and american officials will be present as a trade deal evaders them. france willpan -- be in the same room. this is bloomberg. ♪ the latest innovation from xfinity

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nejra: i'm nejra cehic in bloomberg's european headquarters in london. mario draghi hardened language yesterday as he said the ecb won't shy away from action to support the euro area economy during weakening growth. socgen's ceo spoke to bloomberg's annmarie hordern at the st. petersburg international form and said the market environment is in fundamentally different from earlier this year with the prospect of economic slowdown, low interest rates, and capital markets under pressure. >> i think there was not any specific surprise in the comments. a slowdown but a relatively modest one.

probably the ecb will keep its rate as it stands currently. not a big surprise and financing conditions remain exceptionally good. annmarie: rejected suggestions negative rates were damaging the health of european banks. what do you make of that? it -- it definitely erodes revenue and i see different activities in the eurozone and outside the eurozone. it is easier to do retail banking in more normal interest-rate environment. like russia or the czech republic or africa. definitely puts pressure on profitability. >> i want to ask about the environment we have seen. in recent's, wall street ceos have sounded the alarm about brexit uncertainty, trade uncertainty, even today at a forum, talk of this. are you seeing that environment? >> i don't think there is anything specific with the way

we saw the beginning of the year. yes we see a slowdown in the economy. more further into 2020. yes, capital markets are under pressure. . it is nothing new but no change in the negative side. what is important is to it after business model and that is what we are doing. annmarie: jamie dimon said trading revenue slumped 4% to 5% the first few months of the second quarter. are you seeing a similar trend that socgen? manus: i don't like to comment on the current quarter. we are confident in our capital market activity and we can do good performance going forward. that was annmarie hordern speaking with socgen's ceo. by an now joined investment manager. great to have you on the

program. let's pick up on a theme that was discussed in terms of what we heard from mario draghi yesterday. did you get a sense mario draghi is running out of tools? >> well, one thing is for sure. when you think about the ecb's policy since 2011, it had been quite successful in whatever it takes to avert a deep recession in europe that has clearly been a success. isre the jury is still out long-term growth pattern that is reinstalled in europe. right now, i echo what was said that we are getting into a slower growth pattern. we are not getting into a recession. result, are we seeing an acceleration again? not at all and frankly, what we are seeing is the fact that yes, we have negative interest rates

and monetary policy tools that have been used and are successful in averting the worst but perhaps not as successful as people would have wanted in generating long-term growth that would be above the trendline. right now, we are heading toward naturall equal -- equilibrium in europe, which we estimate to be 1.5%. ecb has beend the successful so far but inflation is well below target and there has been criticism of the fact negative rates, the impact on bank profitability -- something i know you are well aware of -- so what should mario draghi do now? jean: i've said the ecb has been successful in averting the worst. clearly, when you look back at 2011, the eurocrisis and where we were then, the worst has not happened. in that sense, the ecb has been successful. were policy has been less inflation and

generating long-term growth that we could call -- above the trendline. i will not give lessons to mario draghi. we have to adjust and when you think about banking and the stress it puts on the profitability of banks, from an asset manager perspective, we have clients that have long-term dated liabilities which have been discounted in the past at ave to 7% and when you assume long-term low interest rate environment, probably longer than we anticipated 12 months ago, it becomes increasingly difficult for asset owners and pension funds, for example, to generate the kind of long-term they seek and as an asset manager, we need to bring solutions to our clients which

is how we are trying to adapt to the environment. nejra: tell me more about that, then. in an investing environment like that, where do you see the best opportunities? jean: we have to look at alternatives where you have a trade-off between liquidity and return or risk-adjusted return. we have to look at alternatives that different sources of revenues in private debt markets, private assets, infrastructure, real estate and real estate related ventures and we have to be imaginative. this is why we are putting a lot of capital at work to launch new products and new ways of investing so our clients can, through the diversification, chief the financial objectives -- achieve their financial objectives. recently, you announced you would buy an 11% stake in sierra capital. imaginativeou, how

will you be in the coming year or two in terms of more acquisitions? that transaction in canada was to give s a strong distribution platform. through the platform and our partnership with sierra, we expected to be able to bring to clients innovative solutions i was mentioning. as far as we are concerned, we are considering we are a consolidator and are looking at areas where we can grow. we announced a partnership two days ago in france to grow our insurance platform where we can generate economies of scale and become a european leader in issuance companies which as the challenges i described -- has the challenges i described so we could be a relevant partner for clients. when you think about the growth of our industry, it is still asia.

that is the main area of retention for my perspective. we look to grow in the region by acquiring new clients come across selling assets, bringing in more into the natexis family. , what is yourby assessment of russia at the moment? are you looking for opportunities? jean: from a long-term perspective, russia remains a one.-- an attractive clearly there is a russia discount. , the on a panel yesterday entire public heritage on investment and finance, and when i think about russia, there is clearly an issue with xi. there is a perception that the stability of the environment can be improved.

that is the main issue we have in russia. .e are here as an institution on the asset management side, it is still nascent from our perspective but we arrived -- exploring opportunities in a measured manner given the environment. nejra: speaking of the environment, we don't have much time left. as we look ahead to monday with a deadline possiblly on mexico and we discussed the u.s.-china trade war, are you taking any protection against the next --lation -- a next collation an escalation in the trade war? jean: can you think of what is called the trade were between the u.s. and china, from our perspective, this is not about trade per se. this is a mountain economic superpower -- an economic superpower being challenged. this is here to stay. this is make america great again versus meeting china 2025.

the trade debates are one aspect of this. frankly, 100 years ago it would be solved in a different way and it will be part of the narrative for years to come. no question about it. we live with it too. nejra: jean raby, thank you so much for your time. natexis' ceo in st. petersburg. , great to have you with us. talk us through indian markets today. agam: it has turned out to be quiet morning, considering we're looking sideways at the moment after what we saw on the benchmarks yesterday. the nifty and the sensex are trading largely flattish. trading where we left off yesterday. when it comes to the banking

indexes, we are a little strength but not as much and a lot of this is likely to this io flat at around 69.3. not much after the strengthening of the prettiest 2 -- previous two days against the dollar. a pretty quiet moment -- morning so far. nejra: david? what are you looking at? >> same thing. quiet. are on in the region track -- if you extrapolate into the end of the session, for about 3 billion shares traded. on a normal day, 22 billion the last 30 days. most markets are up and the wednesday session in the asia-pacific was enough to knock us higher for the week, offsetting highs in asia but we are on track globally to snap a four-week losing streak. the dollar is mostly good with

the aches -- bid with the exception of oil rated currencies. have a look at this bloomberg chart we are calling the stairway to seven on the chinese currencies. ang, in an exclusive interview earlier, he was asked if there was a specific level -- is there something more important than others and no. obviously everyone is talking about seven so these are the key things to watch. renminbiind, offshore has never been about seven in its short history. the on market, closed today, was last at seven in 2008. great to have you both with us. lower for longer was the message from mario draghi, saying the ecb will not shy away from action to support the euro area economy during weakening growth.

the ecb refrain from action on at all-timeremain lows but investor attention turned to the debate on the governing council. >> several members raise the possibility of further rate cuts. other members raise the possibility of the asset purchase program or further extensions in the forward guidance. nejra: john wraith, the head of u.k. macro rate strategy and economics at ubs is still with us. why was mario draghi such a disappointment to markets yesterday? john: in a way, it was confirming that nagging suspicion that there isn't a great deal the ecb can do. when you talk about other central banks, we have seen action from the australian and indian central banks. we heard the fed say if we see signs we need to act, we will. with the ecb, they have managed to extend forward guidance even

further. they talked about some members of the governing council being prepared to contemplate cutting policy rates are doing more qe but they are running out of road. if you look at inflation expectations in the eurozone, they felt quite sharply because people understand when you forecast downward revisions to growth and inflation, put alongside this determination to act but alongside a toolbox to have that is pretty threadbare, it makes people concerned they to get inflation near target and that has people worrying it could get worse. nejra: you can see the replacing -- repricing. we also some repricing in terms of the expectation of a cut to 2020. it has been pushed to the second quarter. the you concur with that? john: we hope they won't need to

cut again. we have the next move as being higher. they'll need to cut again if things deteriorate on the global picture that we have been talking about if the trade skirmishes escalate into a full-blown trade war. if growth slows down materially in the u.s., which will happen if you get a full-blown escalation of the trade situation and it spills into the eurozone. the inflation forecast yesterday had cpi getting up to 1.6 by the end of the three-year horizon. theou see downsides to central growth projection, that number will be lower and they will at some point need to act given they are supposed to get inflation close to 2%. markets think things might get worse and they have to ease further. problems is people understand there is only so much they can do. there is obviously some members of the governing council open to

that prospect but others are more reticent. the northern eurozone central bank governors don't want to ease policy further, even as things deteriorate. there is a realization the ecb is running out of road. they can talk a good game as mario draghi tried to yesterday but can't react in a decisive way because they don't have the ammunition. nejra: with the details on tltro 3, your reaction was it was disappointing. in terms of the euro hitting a seven-week high, not what mario draghi wanted on the back of a press conference, is there the prospect the euro could do the heavy lifting for the ecb? john: there is that possibility but you saw the reaction yesterday. from the interest-rate differential point of view, this realization that even if the ecb gets to the point where it can and will act, it can only go so far. banks, cut from

levels -- when you have a central bank that is worrying about missing its inflation target to the downside, if the currency strengthens, it will only add to concerns and if it comes to a circle where they have a problem on their hands. we will see what happens next. nejra: john wraith, the head of u.k. macro rate strategy and economics at ubs with us for the hour. john will continue the conversation on bloomberg radio at 7:30 u.k. time. coming up, two great interviews live from st. petersburg. first, the ceo of zte bank. we will also speak to alexander novak, the russian energy minister. this is bloomberg. ♪

nejra: this is daybreak: europe.

i'm nejra cehic in bloomberg's european headquarters in london. the latest episode of leaders with lacqua airs tonight. groupo of lloyds banking spoke the importance of digital and the strength of the u.k. economy. uncertainty on the u.k. economy and as i commented, the u.k. economy has been proving to be very resilient. the uncertainty, if it continues, might affect it. uncertainty is something markets and the economy don't like so it is important this uncertainty disappear but the economy is very resilient. you have gdp growing between one and 1.5%. employment in the u.k. at the highest ever since 2006 and unemployment at the lowest level since 1975. you have low interest rates, therefore the quality of balance

sheet of banks is high. the world economy is growing at a slower pace, but still growing around 3.3% for this year, a healthy pace. you have good conditions for economic growth to continue. you have important uncertainty areas. -- the economy as resilient with gun fundamentals -- good fundamentals. as an expected outcome, should go reasonably well but might not go as well. it is important to be prudent. francine: how do you deal with one of the major political parties in the u.k. that has taken a turn for the left and that could impose transaction? it is a tough environment to be a banker in when you don't know

bank rules? antonio: i don't think my function as bank executive is affected by politics. we have dealt with governments and will with the future governments. servejective is to clients in the best way and interact and deal with politicians, other stakeholders irrespective of which party they belong to. we have a common goal. if you want -- one of the beautiful things of our strategy being focused in the u k and the real economy of the u.k. is what we want is best for the u.k. economy. what is best for the u.k. economy is best for lloyd's and vice versa. is important and good in terms of our interaction with the u.k. society in general. full: you can watch the episode of "leaders with lacqua" at 7:00 p.m. london time. john wraith, the head of u.k. macro rate strategy and economics at ubs.

is not may's last day pivotal for markets but let's talk about markets because some say the pound will skp brutal selloff, even with a brexiteer leader. will it? john: probably depends on what the leader does in policy and how the u.k. leaves the eu. there is a lot of bad news priced in. we would agree with comments about the uk's economy being resilient, the labor market being tight, growth has been remarkably stable and around trend for the whole period since the referendum and before. level, surface everything looks pretty stable and decent in the u.k. economy. we also share the view there are downside risks out there that could crystallize if the uncertainty mounts and clearly, there are forms of brexit which could be economically disruptive. if there is a new prime minister in due course who is more open to the idea of a so-called there is downside

risk for the currency. it might not be dramatic but it depends on how it plays out. nejra: this is very u.k. politics specific but labour winning the u.k. by election, a blow to nigel farage's party. what do you make of it? john: it was an area devoted strongly to leave the eu so there was expectation the brexit party would do well in a single issue election took some people. it did do well given it didn't just six months ago but not enough to win the seat. by elections are always hard to extrapolate and turnover is low. there are local issues that come into play. u.k. politics has been completely upended because of brexit not happening yet, therefore there is scope for those wanted to happen and those who don't want it to happen to express that view through these new parties. it is a changeable forum at the moment. nejra: a big theme we have talked about, global banks

turning dovish. even the boj suggesting a rate cut. what is next for the bank of england? john: our opinion, not much. they will wait to see how brexit plays out. they assume it will be smooth and orderly. if it is, the central message is still if brexit plays out in a benign way, they expect to raise rates -- they said in may, more than the market was pricing in then. since the implied pricing is gone. they are on a relatively hawkish line but it is brexit dependent. if it goes wrong, they will have to talk about cuts. nejra: john wraith, the head of u.k. macro rate strategy and economics at ubs, thank you for joining us today. coming up, don't miss our energy panel. we will hear from oil ministers and executives including falih and dudley on bloomberg tv 8:00

a.m. london time. more on the trade, the fed. lots to talk about in markets coming up. this is bloomberg. ♪

nejra: welcome to "daybreak europe." china unveiled a stimulus plan to help spur demand for automobiles and electronics. the people's bank of china governor tells bloomberg exclusively the country has room to maneuver if the trade war worsens. -- ifhave tremendous something bad is happening. monetary policy could act in the right direction. plenty of room in interest rates, plenty of room in required reserve ratio rates, and for the physical monetary room for think

adjustment. u.s. vice president mike pence says the u.s. still plans to impose tariffs on mexico on monday as talks continue. does the trade back and forth give today's u.s. stocks report a greater significance than usual? crude extends a rally on reports washington may seek to engage with its trade rival in st. petersburg. vladimir putin emphasizes the difference between opec plus powers i have a big meeting with xi jinping. -- ahead of a big meeting with xi jinping. welcome to "daybreak europe." we are just under an hour from the start of cash equity trading in europe. here's what is dominating the markets. we've still got the threat of tariffs on mexico hanging over sentiment.

it is not reflected in the futures. ftse 100 futures up 0.2%. ducks futures higher. cac 40 futures in the green. a curve the backdrop of that is steepening. the three-month 10 year still inverted as we look at the bond markets as well. looking at futures in the bond market, you can see a little bit of money moving in a little bit to that 10 year treasury. we are fairly steady on the 10 year yield. a to 12 handle -- 212 handle. in terms of europe and mario draghi, the market seems to think you might's say you have whatever it takes, but we saw the euro dropped to a's -- jump to a seven-week i. -- seven-week high. china says it has tremendous room for adjusting monetary policy if the trade war deepens

while signaling talks with steven mnuchin could be difficult. the pboc governor told bloomberg's tom mackenzie how beijing will approach talks are at g20 meetings and what that means for the u.s. as it marches toward the seven handle. war ought to have a temporary depreciation pressure on their mmb -- on the renminbi. it will be relatively strong compared to emerging-market currencies, even compared to convertible currencies. it is a very strong currency. i'm very confident the renminbi will continue to be stable. >> is there a redline for the yuan? >> i do not think this is an important question because, you

smooth andmbers are continue -- a continuous number scale. thisnot think along mathematical scale any number is more important than the other numbers. driven totally market and determined by market supply and demand. the central bank of china, the people's bank of china, is pretty much not intervening the exchange market for a long time. situationt is the that will continue. flexibility of the renminbi is good for chinese economy, for the global economy, an automaticovides stabilizer for economy.

also the people's expectation will be along the line. regime isy a flexible a very good arrangement. thisll continue to have market oriented mechanism. >> if we find ourselves in a position where we see tariffs imposed on all chinese goods to the u.s. market, may be retaliation from the chinese side, that will lead to a softer, weaker economy domestically. renminbi.reciating >> for us, i think actually i of theot of resilience chinese economy. the renminbi has served as a stabilizer for adjustment and also for balance of payments, hikesr policy for further

in tariffs, for escalating of ready.ar, our policy is as you know, our fiscal policy for this year is tremendous. tremendous room if something bad is happening. our monetary policy could act in the right direction. there is plenty of room in interest rates. plenty of room in required reserve ratio rate, and also for the physical monetary policy. i think the room for adjustment -- if people are getting unemployed because of the trade

war temporarily, maybe for six months or maybe longer, we make sure that they have unappointed benefit to raise their family as well as send them to school for job training. let's bring in tom mackenzie. rate work and great to have you with us. the u.n. -- the yuan continuing that slide. offshore trading at 693 right now. we have heard there is not a particular important number for the pboc. what is there priority? interesting, on those comments, when we put this story out, we saw the yuan weakened by 0.1% on the back of that line. the line where he said, there is moremerical number important than another when i asked him whether there was a

pointing tosand focus among investors, analysts, and economists on that seven level for dollar-yuan. there is going to be flexibly. we should expect to see pressure , depreciation pressure on the currency. that flex ability will be good for the chinese economy. that flexibly will be good for the global economy. trying to frame it as a longer-term historical context as well as to where the currency line, stressing that the central bank has not intervened on exchange mechanism and as well saying, look, in terms of where things go, at the end of the day, this will remain a strong and stable currency. theowledging, as i said, trade war will raise the pressure in terms of depreciation of the currency. nejra: thank you so much. tom mackenzie for us in beijing. joining us on set as the fixed

income manager at aviva investors. great to have you with us. let's get your thoughts on that interview in terms of the room for china. they have room when it comes to rates, but will that be enough if the trade war escalates? >> that's a great question because one recent developing we had from china in april, the politburo statement was they felt they had done enough, at least with the weakness they signed the economy last year. -- they saw in the economy last year. a lot of that stemmed from china deleveraging in late 2017, early 2018. they felt they had done too much . the economy had moved slower than they were expecting and 50% ofd roughly about the deficit expansion they had in 2015 and 2016. we saw a very early sign that that was impacting the economy this year. we saw balance in the manufacturing pmi's.

they felt it was enough for them to sit back and say we feel like we have done enough. let's see if the economy stabilizes. now with the escalation in trade conflict in tariffs, it may be they need to be brought back to the table to do more. >> it is not just u.s.-china. we are trying to work out where we go next on u.s. and mexico. how pivotal will it be for risk assets if those tariffs get imposed on monday? thes important for signaling impact this administration is willing to use tariffs on non-trade related policy. previously it has been about bilateral trade with china, trying to reduce trade deficit, whereas the concert with mexico is about immigration -- the conflict with mexico is about immigration. this is a new paradigm for this tariff issue. for investors and policymakers, it is significant that the administration is willing to do that. in terms of economic impacts,

clearly between mexico and the u.s., 80% of mexican exports go to the u.s. and a lot of that is autos. for that sector it is a big deal. stay with us. we need to get out to st. petersburg, where annmarie hordern is standing by. . >> good morning. joined by a former diplomat. i might ask you about that for some questions. first, this conference is about foreign investment. the biggest foreign investment is on -- foreign investor is under house arrest. whatkind of environments, kind of message does this send to someone thinking about doing business in russia? form is not only for the foreign investment, but domestic investors. a lot of foreign investors came from around the world.

as well as from europe and the united states. i do not know him personally very much, but he is respected in russia and his company is also respected. the legislation here and there, it will bemuch hope resolved. >> do you think the charges against him are manufactured? >> i do not think so. business is such a tricky thing. you can sometimes unwillingly make some -- break some rules. i do not think he necessarily butld be punished for this, i should be clear. -- because hepe has a very good reputation.

is -- washington is talking about new sanctions, maybe doing some thing with dollar transactions. how are you preparing for this? >> i don't see any pretext for this. i do not think there was any ground. without anything. the new report behind president trump, he campaigned on better relations with russia and they have gotten worse. >> but he can do nothing from this case. it is congress. even if he wishes to do so. i always member the speech with one of the very senior before the group

of businessmen. he said we will impeach donald trump either for russia, money we think itor -- has not very much to do with russia. it is a domestic problem. meddling has happened. >> russia was already punished for this. what could be added to this list. >> president xi is here, 1000 strong for the delegation. have you been meeting with chinese business people? >> we had a lot of meetings, two or three meetings with chinese companies, companies with investment in russia. governmenthe russian -- for national projects. self are very much

involved -- ourselves are very much involved. chinese companies constructing, investing, that is one area. >> you are exiting your angola unit. how much are you going to get for that? spoke -- stopped the decision because i do not --nk >> you are going to stay? >> we would like to work with africa. bankingour investment from russia, -- from frankfurt. banking is normally working on the grounds with the population, .ith needs >> as of now you are saying? >> we have not made that decision. we might leave.

capital.atter of it does very much matter. >> anything else you are looking at exiting? >> with more and more focus on of our business comes from russia, but we would like to keep our international presence. keep our offices in shanghai in china. other parts of the world, many countries. bank in 2004 in georgia quite successfully. had job cuts in london. are you expecting to shrink london even more? >> i do not think so. our bank is meanly focusing outward london. in the u.k..

it has mainly worked with africa, asia, india, for example. will still have business in london. but we shall see what kind of brexit we have. >> what do you think of that? >> i do not know the answer. i do not know what to do with the irish border. i do not know. it looks like brexit without any agreement. said it would be difficult restructuring mozambique's debt. are in touch with the government, with the bank. i think we have moved substantially on finding the agreement. we are lucky that we came from our investigation. there is no indication of wrongdoing on the part of vtb.

i think we expect the visit of high-level officials to mozambique to include these discussions. 535 million dollar loan. how much of that do you hope to recover? restructuree will the debt. >> when will that be? year ornk during this maybe by autumn. >> thank you for your time. >> thank you very much. ceo, he is the vtb also a former diplomat. talking about trade wars, brexit, putting on his diplomat how -- diplomat hat. nejra: you are both very diplomatic. now here is a look at what you should be watching today. it :00 a.m., bloomberg moderates a panel at the tate petersburg international forum featuring key figures in the world oil.

president putin take part in a plenary session. u.s. job data is expected to come in. at 2:00, inflation data out of mexico, but all eyes are on talks with the u.s.. today president trump is in paris, set to meet world leaders including the canadian and swedish prime ministers. theresa may is scheduled to step down as leader of the conservative party. this kicks off the race to replace her. a new prime ministers should be chosen the week of july 22. monetary policy sweeps the globe. investors are supposed to reprice everything under the sun. this is bloomberg.

>> it is fair enough to say we have -- >> external conditions turn somewhat more volatile. >> the risks surrounding the outlook remains on the downside. >> very vigilant about understanding heightened trade tensions. members raised the possibility of rate cuts. >> so rate cut gets into your system. we could helpnow, resent your inflation expectations at the 2% target. >> banks across the world have moved to accommodative stance in

setting monetary policy. act in case of worst contingencies. >> we will act as appropriate to sustain the expansion with a strong labor market and inflation near our 2% objective. nejra: that is just some of the dovish commentary we have heard this past week. rba governor philip lowe cut rates to a record 1.25%. the r.b.i. lowered its key rate by 0.25%. india's central bank changed its status to accommodative. european central bank extended his plan to keep interest rates at a record low. mario draghi says the ecb will not shy away from action to support the euro area economy and jerome powell signaled an openness to cutting rates, but the comments seem far from actual policy change. let's kick off with the central banks. we know the bond markets are

quite aggressively pricing that rate cut. you see a divergence in terms of what bond markets are showing and what the equity markets are showing. are we do for a repricing of risk assets? jub: equity markets are the price where they are on the basis that we are going to get more easing from the fed. we are pricing pretty aggressive amount of cuts now over the next one year from the fed, about 100 basis points or so. for the fed, we don't really think the conditions are there yet for them to proceed with cutting interest rates. we are seeing from a number of fomc and members that are starting to entertain the idea, but the on appointment rate is around 3.8. we are getting decent gains in terms of the labor market in terms of employment each month, and inflation has fallen. they think some of the drivers of that are more transitory. what the market are pricing in the fixed income space is a downside risk. we will get escalation, we will

get tariffs with mexico. it is pricing something like a 40% probability the fed are going to cut rates close to zero, lower bound. if that's not delivered, we think that means more volatility for the equity market. duration. have added why? jub: 30 year rates are trading roughly around 2.6%. we think in an environment of higher volatility where there are growth risks to the downside, the ration can play a role as a risk producer in a way it could not last year when inflation was moving higher and the fed were hiking interest rates. this year, really your ability to own risk assets and belong credit and equities independent on how much you can rely on your risk reducers and duration plays a good role there were this year. nejra: you have trimmed your longs in credit. great to have you with us. coming up, don't miss our big energy panel.

oil ministers and executives live from saint petersburg. you can catch that on bloomberg tv at 8:00 a.m. london time. 30 minutes from the equity market open in europe. ♪ ♪

anna: we are live from our european headquarters in the city of london. matt: today, the markets say, who is the dovest as the central bank leaders try to outdo one another with policy tools and accounts. the open is less than 30 minutes away. anna: vice president mike