♪ nejra: yields on 10 year treasuries fall to the lowest as how will open the door to a july rate cut. but investors asked if he will go to 50 basis points. will an increasingly likely fed cut force a governor kuroda's hand? decides at england noon and governors expect a hawkish tone. amidst rising tensions, shrinking stockpiles, and a dovish fed.

i am nejra cehic in london, great to have you on the show today. this bank is raising its benchmark rate, 25 basis points to 1.25%. talking about the lost -- last hawk standing, nor just -- norge s saying they will likely hike again in 2019. it is, by the looks of it, a hawkish hike. you can see the reaction in the norwegian krone jumping. we have also had news from the philippines central-bank, keeping its key rate at 4.5%. let's take a look at the markets. we are still dealing with the fallout from jerome powell's press conference. the bond market seems to take what he said well. in europe, we're seeing equities on the front foot. playing catch-up because these markets closed. u.s. equities gained .3%.

it was the defensive's and bond proxies that led the game. it was a muted reaction but futures point to future gains. the 10 year yield down to basis points. of course, we did a drop below it, hitting a 2016 low. curve steepening yesterday, flattening today. the dollar down for a third day. will the weakness continue if the fed delivers? gold and wti jumping. u.s. stockpile drops feeding into that as well as three top opec producers signal those output cuts could be extended and the geopolitical risk premium playing as well. coming up on "" -- "surveillance" we speak to one of the few central banks still on a hike cycle. let's go to bloomberg first word news. iran says it shot down a u.s.

spy drone, ratcheting up tensions in the middle east. but the situation is still uncertain. a fox news reporter tweeted a drone was shot down over the straits of for moves -- hormuz, following a missile strike from rebels in yemen. drone was shot down over the straits of forwe are told ts to saudi arabia. house may use the war authorization from 2001 as legal cover for action against tehran. that action allows the use of force behind those kind the september 11 terrorist attacks. today marks the chinese president's first state visit to north korea in 14 years. it is set to showcase new camaraderie between the neighbors and sends a message to president donald trump about china's influence.

that is ahead of potentially pivotal trade talks between the u.s. and china. authorities are reportedly investigating if deutsche bank complied with anti-money-laundering laws. that is according to the new york times. thepro includes a review of handling of quote suspicious activity reports. are prepared by employees about potentially problematic transactions. some are linked to jared kushner. conservativek. party will take the final shortlist of two candidates to defeat prime minister theresa may. morrison johnson's place in the final two looks assured but the battle between the final position will be between others. whoever wins will face the final task of breaking the impasse over brexit. global news, 24 hours a day on air, on tictoc, and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: thank you so much.

jerome powell has opened the door to a rate cut, sending the 10 year treasury yields to the lowest since 2016. dovishc's dumbest -- evolution was clear and dropped the word patient altogether. showed about half of the meetings participants leaning towards a cumulative 25-50 basis points of cuts, less than what the markets were pricing in. >> the case for additional accommodation has strengthened since may. i don't know what that means in terms of the size of a particular rate cut going forward. we will always be willing to adjust policy so that it serves our dual mandate objectives. we take this as a given and we have our tools. the law is clear i have a four-year term and i fully intend to serve it. globaljoining us is the

head of rates research at merrill lynch and the global macro strategist at rbc capital markets. thank you for joining us. are we going to get 50 basis points of cuts? some have already changed forecasts to say 25 in july and september. our economists are looking for 25 in september and another 25 in december. haslimited pushback we had resulted in the market pricing in 1.5 cuts for july. the risks are rising. together, we need another bad payroll report or weakness in the consumer which highlighted as one of the areas of strength and, obviously, bad news on trade. nejra: what we would -- what would we need to see to see a re-pricing the bond market out of favor from easing? >> the hurdle is pretty high. -- are all are be

already expecting repricing, so that alone will not do the trick. i think we need a narrative change. a narrative change that things are really moving away from the tensions and that inflation is really there. i find it quite unlikely to see. if you don't mind me also answering the question you asked ralf, for me, the market is not necessary. ,ven if we don't get that cut is the market able to price it out entirely going forward? i find it is difficult to see. nejra: let me ask the same question. now trade would you put on given how far bond pricing has gone? ralf: we still like the steepness. -- aanged forecasts a wild wild back to be bullish, so i think there is room. there is lots of room for the

curve to steepen, but you need to start thinking quite carefully about which part of the curve you expose yourself to. time simply a matter of let's 5.30 or 10.3 start -- starts looking attractive. peter: i like break even. the inflation expectations have started to rise following that. something i mentioned on radio, when you look between the u.s. and europe, yes the u.s. has outperformed in the rally, but historically speaking, if you compare it to how they have previously done some of they have done very little given that the bund and europe have been relatively strong. but given where we are, if we move into a rate cutting scenario, there is a very good chance the u.s. will perform much more strongly. nejra: if you look at euro-dollar futures, yes, the

market is pricing in an easing cycle. but as my colleague was pointing out, they are also starting to price in the next hike. so what these futures are telling you is that we could get an easing cycle but it will be quite short and aggressive. is that what you are bracing for? is trying toblem extract that kind of information from market pricing is we tend to think in modal scenarios. that, to me, is a surprise from what i heard from powell yesterday. there was not really a discussion of the different scenarios the fed envisioned. there is a scenario where we might have to revisit the zero, but there is a scenario where the fed might not get to cut at all. from that perspective, i'm very reluctant to put too much weight on getting these cuts and hikes. that is not what the market is trying to say. what the market is trying to say is yes, the easing cycle is

rising in likelihood. , it is likelyes to be quite aggressive initially. that is still the state of the world we are in. nejra: let's not forget the balance sheet. it is not all about rate cuts. what do you expect to see around tinkering around that alongside what you expect for potential rate cuts? in my mind, the balance sheet reduction was set to peter out anyway. they will probably bring that forward a little bit. at the end of the day, if we are looking at the magnitude of the billions of dollars that could be extracted from the balance sheet am a it's not all that much -- sheet, it is not all that much. it is quite plausible out of europe that we get much more money being put into the system. on a global basis, we are probably seeing more extension

than extraction. nejra: quickly on equities, what do we need to see to hit another record? the reaction was a little muted yesterday. ralf: i don't know what you were expecting, but when you look at the broader picture, it was a pretty strong reaction, i would think. we are very close to the all-time high in the u.s., europe is reacting positively, at the chinese market was up 3% on the goblet from the fed and the potential resumption of trade talks. i thought it was a strong reaction. directly to your question, what do we need to see? more of the same, i think we will get. nejra: we might disagree is a strong reaction, but i take your point on global equities. both stay with us. we have lots to get to come including other central banks. i broke the news from noges bank . -- norges bank.

1.25% get that hike to and a bit of a hawkish bias in terms of forward guidance. you can see the reaction in the krone has been that strengthening. and we have been talking about the broader markets as well. i called it a bit muted, peter shaffer disagrees. the stoxx 600 up, s&p futures up , closer and closer to that record high. taking a look there as well at norway stocks, up just .2%. coming up, diverging fortunes, we hear from the bank of england. inflation looks like it could be on a downward trend. so is the hiking by is here to stay? -- bias here to stay? this is bloomberg. ♪

nejra: economics, finance, politics, this is "bloomberg: surveillance." let's focus on the race for the european unions top job. leaders had to brussels for another round of talks to elect the next commission president with the roles of ecb president and council president up for grabs. internal divisions and competing visions set to propagate the --e --, take the race complicate the race. how is the horsetrading going? >> good morning. it will definitely impact that decision.

as one official put it to me, nothing is agreed until everything is agreed. that is why commission president is such a big role. we know there is a deadlock, competing ambitions between the french and german government, of course, it will open up the new rate for the ecb. political conventions in brussels will tell you that whoever gets the commission will have to be counterbalanced at the ecb. perhaps a more dovish voice. we got an interview yesterday. it is a legal tool, part of the central bank tools, and the central bank has to be decisive when it takes action. it is interesting that because i'm sure you are member he opposed this at the start when it was first launched. wiseman --e

weissmann trying to get a compromise. nejra: still with us is ralf from merrill lynch and peter from rbc. when one of the more perceived hawks out there makes comments like that, does that give you reassurance in the ecb will actually deliver on what mario draghi talks about? ralf: no. [laughter] i think the two are completely independent of each other. it gives the reassurance that it is a sign he wants the job. otherwise, i'm -- it does not give me assurance at all. the ecb has a difficult task ahead because it is not obvious that any of the tools would do much. what is the point of cutting rates when euro-dollar is at 1.12? e when the point of qe

the french tenure is zero and spanish is at 50 basis points. i think the intellectually thest thing to do would be realizations, as opposed to forecasts. but the market is not pricing in anything from the ecb for a few years. the problems the ecb has is not that there are not policy options, it is convincing anyone that these options would change the macro outlook. nejra: that said, but peter shaffer, you have changed your you changedffrick, your call. peter: i have, but that is not necessarily contradicting what ralf is saying. i have quite a few sympathies for what he has just expressed. way the you look at the i thinkcurve is priced,

the forward guidance is a very powerful tool. you can still lowered the forwards. -- lower the forwards. given that the ecb has a wishy-washy hiking by us, the issue is steepening between two's and fives. -40 is not the floor where you thought was and changing forward guidance. i think they can effectively deliver rate cuts. the question is if that really change the outlook for the economy. that is the second consideration. but for markets, that is the way i see this going. nejra: last time we spoke, you were bullish on bunds. has that changed? peter's point, we like the flat. crook, the ecb will be forced to ease. ultimately, that implies a

flatter curve, even if the rate cut is involved. i think the steepening bias would only be temporary. so we like the flatness. we are still constructive on blogs -- bunds. i get asked all the time, what is the lower bound? i would certainly say the ecb would never cut, so that in of itself imparts bullish buyers into the rate market. and even with these ridiculous yield levels am a the rate curve is still the steepest. so from that perspective, there is a lot of support from the shape of the curve. nejra: we are out of time for now. are still i know you recommending to keep flat traits in the euro curve. from have more with ralf merrill lynch and peter from rbc. theng up, we speak to k atcer of the norges ban

10:30 london time. this is bloomberg. ♪

nejra: this is "bloomberg: surveillance." ralf from merrill lynch and peter from rbc. lots of central bank decisions happening today. but let's just talk about the dollar. a third day of declines, is that going to continue? ralf: generally speaking, we do

in vision a weaker dollar for the rest of the year. the argument is quite simple. we are seeing the return of the hiking cycle and are going back from divergence towards convergence. broadly,ion is, more to what extent will other central banks try to fight against that? i would argue that the synchronized a dovish tilt is probably in part due to the fear of being out-don't -- out-doved by the fed. at least until now, the demand for dollar assets has been so strong that we have not seen the currency weakness we have been expecting prior to today. nejra: exactly. so does that not put a floor under the dollar about other central banks wanting to be out -doved/ -- out-doved?

peter: not to put too fine a point on it, euro-dollar trading has not been that great. there has been a tendency towards a stronger dollar, but by and large, volatility in the fx market has been relatively moderate. that is the biggest thing i point out. i don't think that is going to go away anytime soon. ,n one hand, you have the fed which is a bit more dovish than expected six months ago, however on the other side, the u.s. economy remains reasonably strong. i think these forces will push and pull. ralf from merrill lynch, thanks so much. peter from rbc stays with us. up next, we talked the u.k.. this is bloomberg. ♪

♪ nejra: no more patients. 10 year treasuries fall the

lowest since late 2016 as chairman powell opens the door for a july rate cut. norway hikes, but the boj stance at. meets atof england noon, with analysts expecting a hawkish tone. a more dovish fed will report live from the region. welcome to "bloomberg surveillance." datae getting retail sales from the uk's so let's get to the breaking news crossing the terminal right now as we look ahead to the boe. looking at retail sales for may, x fuel falling 0.2%. -- 0.3%. it is coming in a little bit better than expected. if you are including the fuel, the retail sales fall 0.5%, as forecast. the pound is higher against the backdrop of a weaker dollar. let's focus on more unwelcome

news for deutsche bank. u.s. federal authorities are investigating whether the german bank complied with laws to stop money-laundering. the investigation includes a review of bush's handling of suspicious activity -- deutsche's handling of suspicious activity. how serious is this for deutsche? matt: it is certainly a serious case brought by a whistleblower who claims it she was fired because she brought up suspicious activity by donald trump and jared kushner, or related companies. they have denied any money laundering allegations. , the department of justice is investigating this after steve mnuchin passed on the case. it is obviously a very serious charge. it could reveal a lot about the president. in terms of deutsche bank itself

, this company has suffered so much already, in terms of legal charges. the stock has already fallen to an all-time low. there is really not much further it can drop. the shares traded for below six dollars -- six euros at some point in the last couple of weeks. over the lastied week as investors are hoping there is nowhere else to go but up for deutsche bank shares. nejra: of course in the past few days as well, we have had various news headlines come through about possible changes in certain leadership roles. with that context, what can and will deutsche do about this? matt: in terms of the changes at the bank, that is the focus for investors, not so much this legal case, which will be the focus certainly for political watchers in the u.s. deutsche bank investors are focused on what they are going

to do with the investment banking division. will they shut down the u.s. unit? while the cfo be replaced -- will the cfo be replaced? these are the kinds of issues investors care about, not so much the trump related investigation in the u.s. nejra: matt miller in berlin, thank you so much. let's get to some other stocks that investors care about that it. >> let's kick it off with the biggest gainer on the stoxx 600 this morning, up 9% as they raise their for your revenue year revenue-- 4 , deliveries hero. up.ch group raz to the downside, down

nearly 5% this morning. thank you so much. let's get the bloomberg first word news. approachng its patient to monetary policy, the u.s. federal reserve signaling it is open to lowering interest rates as early as next month. that would be the first cut since 2008. the central bank citing increasing uncertainty surrounding the trade war and its impact on the u.s. economy. officials are starkly divided on the path for rates. many participants believed that some cut in federal funds rate will be appropriate in the scenario they see as most likely. some participants wrote down policy cuts, others did not. and number of those who wrote down a flat rate past agreed

that the case for additional accommodation has strengthened since our main meeting. >> president donald trump reportedly telling confidants that he believes he has the authority to demote jerome powell, replacing him as chairman of the federal reserve board. powell says the law is clear and he intends to serve his full term. trump has repeatedly criticized his own pick for fed chairman. recently he said he disagreed with powell entirely. today the bank of england expected to leave rates on hold but mark carney may choose to repeat his warning that few rate rises are needed to control inflation. the boe's forecast remains rooted in the assumption of a smooth brexit. many investors see a bumpier road ahead. norway's central bank delivering its third interest rate hikes in september and signal there is more to come. it further widens the gap between the bank and the world major central banks.

the deposit rate was raised to 1.25. norway's economy is starting to show signs of overheating. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: thank you so much. now to the race for the top job in the u.k. conservative members of parliament will choose the final candidates towo succeed theresa may as prime minister. maurice johnson stretched his -- boris johnson stretches lead to 89 votes. the parties 160,000 members will have a month to decide between the remaining pair. still with us is peter. are you sure the pound come along the pound -- short the pound, along the pound? , -- myou look at cable

preferred gauge is against the euro. that is a pretty good barometer. we weekend quite a bit in the middle of the range we were trading in. i think the next really decisive step is either the bank, but i don't really see the bank doing whating, or once we know the strategy of a very likely prime minister johnson will be. over the next two or three months, we don't really learn anything. i don't see any independent movement in the pound. nejra: when we talk about the bank of england and bank info -- and inflation expectations, you can clearly see that in the u.s. and europe, the trend has been down, whereas the u.k. is going the other way. does that mean anything for what

kind of strategy might take with gilt versus bonds? >> clearly in the underlying economic picture, the u.k. has a little bit clearer basis picture . we have to question whether the message we are getting from the markets, whether that is a true reflection of inflation expectations alone are whether there's something else in there. the last widening we have seen it is probably a reflection of the market structure and lack of liquidity and these types of things. i would not necessarily say that it has been a surge in inflation expectations for the u.k.. nejra: peter stays with us. , there isf the boe much more coming up on that central-bank policy front. we will bring you mark carney and philip hammond's speech. this is bloomberg. ♪

♪ nejra: economics, finance, politics, this is "bloomberg surveillance." let's get the bloomberg business flash. weightus has muscled its in front at the paris air show. it added orders for its newest point after going stalled the boeinght -- bowling -- stole the spotlight. overall orders are at 206. ,t can fly further than the max connecting destinations that were not previously cost effective. unilever saying 75% of its sales growth comes from purposeful brent.

this comes after -- brands. this comes after the chief criticized woke- walking. >> we will give all of the brands in our portfolio an amount of time to figure out how they can make a contribution -- positive country vision to society -- contribution to society. the ones that are not able to find a higher order, a role that they can play, may well end up better off with someone else. >> elon musk putting a new spin on henry ford's line that a customer can have any color, as long as it's black. tesla choosing white instead. it will cost buyers a next her $1000 to have the car in black starting next month. that is your bloomberg business flash.

nejra: thank you so much. let's get a quick check of the markets. equities in the green. the stoxx 600, most industry groups trading higher after we saw chairman powell drop statementfrom the from the statement. futures trading above the level of the record height in the cash market. do we hit that record today or later this week? -- hit alate 2016 low late 2016 low. wti and brent both spiking today, combination of geopolitical risks, speculation after the top three producers in opec talked about the possibility of an extension in the output cut. the pboc is stepping up efforts to avert a funding squeeze among the nations banks and security

companies after a rare government seizure of a small lender should look concerns -- triggered concerns. joining us now is grace wu, head of banks ratings at fitch ratings. peter is still with us. thank you for joining the show. talk to us a little bit about how you are viewing china banks right now. grace: we have a negative sector outlook on chinese banks. we think there is still in a lot of challenges in terms of banks needing to maintain adequate goals for the economy, but at the same time preserving profitability and capital. i think the incident you described right now, they needed need toight decimate -- highlight the vulnerability in the system. with potential to

increase contagion risk. there are still measures they can employ it to ease liquidity conditions. china construction bank has been asked to basically step in and assist with this takeover to try to calm fears in the market. what we have observed is no significant increase in the interbank rates. haveof the transactions come down. there is more concerns from banks when they are lending to these smaller banks, especially the ones that have not been reporting financial statements for a number of years. nejra: what do authorities need to do from here to sort of placate investors? said thathave always one of the concerns we have on the system is that the governance level with the small

banks among because they have basically doubled their market share over the last decade, and have done so through high-risk areas. by ensuring that there is some confidence that the authorities are on top of the situation, because a lot of things in china are very much built on that implicit government support. i think while the government is trying to reinforce that, but at the same time i think it is quite positive that they have come out and quite publicly acknowledged the problem within the systems. to us, i think the more explicit recognition of problems within the system it should only lead to improvement over time. you expectr, what do in terms of stimulus now from china? maybe not just related to banks, but generally also as we headed toward the g20?

>> one thing is very clear. in an environment where particularly asia is slowing seen various monetary and fiscal measures being taken already. i do not think we have seen the end of it. at the end of the day, this region in particular in china, they need to continue growing in order to just sustain what they have been doing so far. i certainly think there is more to come from both the people's bank, as well as the fiscal authorities. nejra: what does this mean for profit growth? grace: i think one of the challenges with the chinese banks is that there is not enough bank capital to support any large-scale stimulus. that authorities want banks to do more lending at lower interest rates, that will be negative. they have been trying to alleviate that.

i would highlight that right now, the current rrr level is already lower than the pre-2000 pre-2009, 2008 stimulus levels. while there is still room to lower the rrr, i think it is more limited than last year. nejra: are you expecting trouble are cuts -- rrr cuts? grace: we do. the slower just be lending on private enterprise, but i think broadly speaking, there is a lot of pressure on banks to lower interest rates in order to help ease the interest burden. nejra: interesting. grace wu, thank you for joining us. peter stays with us. coming up, oil surge. crude climbs amid rising tensions in the persian gulf.

we are live in the region. coming up later come a we speak exclusively to the fed vice chairman. don't miss that conversation tomorrow at 11:30 a.m. london time as the markets celebrate post powell. this is bloomberg. ♪

♪ economics, finance, politics, this is "bloomberg surveillance." i am nejra cehic in london. let's get the latest from the moving stores in the middle east. iran says it shot down a u.s. drone and its airspace, escalating tensions in the persian gulf. media described as a spy drone and said it would hit near the countries southern coast -- country's southern coast. great to have you both with us. what have the iranians set about this so far -- said it about this -- said about this so far? >> they shot down a surveilling drone that was shot down -- they shot down a surveilling drone near the iranian persian gulf coast, very close to the stratum

hormuz -- straight of a hormuz hormuz.t of say, was shot where they then that would indicate that the drone had flown into iranian territory. the commander said that is a redline for iran. he says we do not want a war, but this is invading our borders and it is a redline. nejra: what is the sentiment in the gulf given what we know from the u.s. so far? >> the sentiment is similarly tense. we heard this morning about another attack by the houthi rebels in yemen. so far we are hearing quite a bit about the frequency of the attacks throughout the gulf.

when analyst this morning was telling me that a lot of governments -- one analyst this morning was telling that a lot of governments across the region are making contingency plans. some believe it may be the trigger will be somewhere in iraq. many wary that this would be some -- worry that this would be somewhere in the gulf. people are worried about the frequency of these attacks escalating and leading the region to war. much. thank you so let's get the thoughts of peter, global macro strategist at rbc capital markets. a lot of people have said the outlook for oil overall is bearish when you take into account trade war concerns around demand and growing u.s. stockpiles. overnight, we get this trifecta of issues that perhaps makes more of a bullish case for oil.

opec plus is likely to extend or deepen cuts. could you get on board with a call like that? peter: if you allow me to take a step back, because i think you raise an important issue. the question, particularly the for the commodities space -- particularly for the commodities space, is, what is moving at? ofoil is going up because strong demand, that typically is a good sign for the economy. what we currently have is at the demand factor is pulling it down, whereas the supply is pulling it up. even if oil goes up, i think for the global economy, it is a negative. yes, i might currently be on board if the tensions increase that it will lead probably to

slightly higher oil prices. it is definitely a very worrying sign. it is not a good sign at all, as it typically can be. nejra: great to have your thoughts today. coming up, we speak to the ,overnor of the norges bank oystein olsen. we got that story earlier of the height from the norges bank. other central banks, including the fed, turn dovish. equities higher, treasury yields lower. the dollar lower as well. this is bloomberg. ♪

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overflowing, -- punch bowl is overflowing. futures event, the dollar weakens. economists recalibrate. the vice chairman will speak on bloomberg surveillance tomorrow. draghi speaks, powell speaks. what can the governor of the bank of brexit do? carney at 7:00 wall street time. good morning, everyone. this is "bloomberg surveillance." i am tom keene in new york. guy johnson in for francine. what does governor carney do? what does the governor of the bank of england do today? guy: the governor of the bank of england plus a number of others have been talking about rate hikes, not rate cuts. the market simply does not believe that the bank of england is in any position to hike rates at this point in time. the market is pricing.

cuts it will be interesting to see if we get movements on the mpc. tom: great. let's go to the first word news. >> tensions between the u.s. and iran just got worse. tehran saying it shot down a u.s. drone and its airspace. iranian media describing as a spy drone. fox news reporting a high altitude navy drone was shot down in international airspace. u.s. federal reserve chairman jerome powell opening the door to an interest rate cut next month. he made it clear uncertainty about the impact of trade battles is a major factor but not all policymakers are on board. >> many participants believed that some cut in the federal funds rate will be appropriate in the scenario that they see as most likely. wrote some participants

down policy cuts and others did not, our deliberations made clear that a number of those who wrote down a flat rate has, our case for additional accommodation has strengthened. >> president donald trump reportedly believes he has the authority to replace powell. the president believes he could demote powell to effectiveness. governor.-- a fed today the bank of japan kept monetary policy unchanged, but a majority of economists surveyed by bloomberg predicts the central bank's next policy move will be to increase stimulus. citigroup predicting some policymakers will vote for an immediate increase. today also, conservative members of britain's parliament will choose the final 2 candidates to succeed theresa may. boris johnson increased his lead. johnson winning 143 of the 313 vote cap.

-- technologies taking an unusual route today to the trading floor. they are following in the steps of spotify. they will start trading on the new york stock exchange via a direct listing. bloomberg data is an investor --beta is an investor in slack. global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you so much. my head is spinning. let's get through a data check and then i want guy to come on a headline out of italy. look at the big lift. s&p futures. dow futures down 193.

curve steepening. most of that, not all, in the short end space. on we go to the next screen with the vix. a huge number, a lower number, 13.83. with in 2 em currencies junk conditions this morning. stronger yuan as well. we have to talk about the gloom at of italy. guy: this will further make life difficult between rome and brussels. the economy is not growing, the plan is not working. i don't think anybody in the economics world will be massively surprised by this, but nevertheless, it just confirms the difficulty that italy is facing right now. not much action at the front end

of the btp curve right now. keep an eye on the cable rates. ge are going to be seein the bank of england today and a whittling down to two in the conservative party. move in the swedish krona today. the oil price getting a lift. brents up 2.5%. tom: let me look at the bloomberg right now. i call this the stan fischer hart, where we are altra accommodative on the negative fed funds rate. fromhas been the path ultra accommodative to accommodative. this would be a presumed 25 rate cut, presumed 50 rate cut, and

even three rate cuts, which would take us nicely back into negative fed funds rate territory. guy: incredible, isn't it? i will take a factor approach to the fed. this chart shows european momentum stocks, which are stacked at the moment with bond like proxies, like next week -- nestle. they have surged. they are outperforming value by a massive amount. once we get into this cutting cycle, does this trade start to reverse? has the pendulum swung too far? it certainly looks like an outlier, in terms of what's going on. fu for aks to scarlet really smart fed decides. great conversation. let's listen to the chairman. >> made some significant changes

to our statement. we have been mindful of some ongoing crosscurrents, including trade developments and concerns about global growth. we would like to see whether these risks continue to weigh on the outlook. always be willing to a just balance sheet policies. we are prepared to move end-user tools as needed to sustain the expansion. i don't know what that means in terms of the size of a particular rate cut going forward. i think the law is clear that i have a four-year term and i fully intend to serve it. tom: the chairman yesterday, just extraordinary. pause, janet henry joins us and diana amoa with us as well. janet, did hsbc change their guidance, their view, their forecast after the festivities

of yesterday afternoon? tom.: we did, we have long been forecasting the fed would cut rates in 2020, but there was enough in the statement and press conference yesterday for us to bring forward our views. we have now moved are 50 basis points of cuts through to the next few months. tom: very important. i want to stop the show and say the single best major housecall i have seen in the last 18 on a combinedc's equity market fixed income call. it was an act of god about december of last year. why don't you bring in our esteemed guest from jpmorgan. guy: ok. 50 basis points or 25 basis points -- -- next month? which one will it be? diana: the comments from the

chairman have hinted that 50 is not off the table. i would say 50. guy: you say 50? we have seen previous cutting cycles start that way. why not do 25 and 25 and wait for the g20 meeting, hedge your bets a little bit, figure out what's going on with the trade story? diana: 25 really does not achieve a very much, whereas 50 would be sending a strong signal to markets and will be a significant repricing of those front end rates, which could allow them to prolong this expansion, which is what they are trying to ultimately achieve. i would say 50 as a start. if the risks materialize, they could keep going. guy: what do you think? 50, 25? janet: -- next month? no guarantee they even cut next

month. we know a people think that rates will be lower -- eight people think that rates will be lower. they could easily extended a little bit later -- extend it and the relator, but they could it a little extend bit later. the market can reassess on data, on fed commentary, the market can reassess on the g20. when they move, i think more likely that the move is 25. tom: in the market -- bond market we are seeing a lot of different moves. what should bond investors do after the junk condition we have seen since draghi spoke three days ago? >> i think bond investors need

to increase duration. they will be ready to ease policy. the stock of negative yielding bonds in the world is increasing once more. investors need to look at places where they can get yields. we like government bonds. we are also looking at other government bonds, whether it's places like spain, or in em local markets were central banks are cutting rates. tom: we will continue. more to talk about. janet henry with us, hsbc, diana amoa of jpmorgan as well. we are trying to bring you the best of conversation, draghi, powell. tomorrow, a conversation with richard clarida, the vice chairman of the fed. that the 6:00 hour. this is bloomberg. ♪