dubai. morning from this is "bloomberg daybreak: europe." i'm manus cranny. >> these are today's top stories. the risk trade. president trump readies new sentient on iran -- readies new sanctions on iran. hit at home. turkey'srallies after opposition candidate wins by a landslide. how big a blow could this be for president bergen -- erdogan? third time unlucky. the third profit warning from daimler in a year.

manus: warm welcome to "daybreak: europe." erdoganng rebuke for and his party in istanbul. the lira rallied as much as 1.5%. we've given a little bit of that back. the second worst emerging-market currency of 2019. if the politics get a little change in turkey, do you want to be long turkish lira, or do you believe the threat of sanctions will weigh on the currency and put on -- a cap in? if the market moving story of the morning -- it's the market moving story of the morning. these are the two dominant forces on markets. to the gold market, above $1400. we haven't broken this since 2013. up over $1400. more to come, according to

citigroup. it's a portfolio diversifier. the money just flowed in. $3 billion flowed in the etf's last week -- into etf's last week. hedge funds are the most bullish since 2018. crude, the most stunning line in the commentary over the weekend from the president of the united states, who says he doesn't care about the closure of the strait of hormuz, because he has oil. that is feeling. you look at wti, adding to its best weekly move since 2016. the hedge funds, raised their long positions by 13%. fear and the fed drive these markets. good morning. nejra: good morning, and welcome back. u.s. equities came off the record high on friday, but futures are firmer today. we've seen seven weeks of declines for treasury yields. the question is, do you want to see that rally ahead of the g20?

bank of america saying that the path of least service since for yields is lower -- of least resistance for yields is lower. we'll discuss all these big topics this hour. the dollar stays on the back foot. the aussie outperforms in g10. as well as the lira. on that note, let's check in on the markets in asia. juliette saly has more. happy monday. juliette: the aussie is certainly one to watch as we hear the governor saying that the monetary easing may not provide that much support when it comes to aussie stocks. you are seeing a little bit of weakness. it's been a mixed to slightly higher start for asian equities today. we have japanese stocks a little bit firmer on the nikkei. turning bearish on the overall japanese equity market due to the strength of the yen. hong kong's market holding onto last week's gains.

we are seeing the chip players in taiwan coming under pressure today. the taiex is down by about 0.3%. president trump signaling more chinese tech firms could be blacklisted. let's look at some of the specific stocks. that's hurting some of the japanese chip players as well today. disco in tokyo trade off by about 2%. falling the most in more than a year, off by about 9%. a little bit of concern about its return to growth strategy. that probably won't start to 2020.e till four, this company has been halted from trade, but not before that huge plunge, 25%, the biggest on record, after a research firm said they are shorting the company and that the shares in the apparel maker are worth zero. manus: lovely roundup. juliette saly with the latest on the asian markets. president trump says the u.s.

will oppose -- impose major additional sanctions on iran today, days after abruptly calling off air strikes in retaliation for the downing of a navy drone. the administration has also signaled a willingness to talk with the islamic republic. itst's continued threats -- continued threats and acts of aggression against israel, our allies in the arabian gulf, and against u.s. personnel and assets across the middle east are not signs of a nation seeking peace. >> on monday, there will be a significant set of new sanctions. president trump: i'm not looking for war, and if there is, it will be obliteration like you've never seen before. but i'm not looking to do that. but you can't have a nuclear weapon. you want to talk, good. otherwise, you're going to have a bad economy for the next three years. no preconditions. manus: let's get to tehran. good to see you this morning. what is the reaction to this

offer of we can talk about anything, but you are just not going to have nuclear weapons? is this new? how has it been received? >> there hasn't been any direct official reaction yet from the government to this. but i'm predicting that the reaction will be the same as before. because we've heard this many times from the u.s. administration, that they are willing to negotiate, but they say that at the same time as increasing punitive measures on iran. that's what iran cannot accept. view, itpoint of cannot see itself being dragged the negotiating table that have administration kind of developed itself.

so, i think from the iranian point of view, this is not going to modify them or make them think the u.s. administration has anymore coherent quality -- policy than it has had before. nejra: golnar, what could these sanctions target? we don't have a lot of detail at the moment. golnar: it's a good question. we have no detail whatsoever. i was with friends at a dinner party last night here in tehran. that was the question everyone was asking. what's there left for them to sanction? what can they possibly target now that they haven't targeted already? one thing they could do is up the sanctions they applied in the petrochemical sector. they could target the entire industry. they could name the big carmakers here, as opposed to sanctioning some other sectors that the car industry is more sensitive to. someone mentioned the possibility of them sectioning iranian airspace.

these are the things that iranians are really worried about, and they are scratching their heads. they are kind of wondering where this will come from, how they got here after being in a position three years ago where they were expecting sanctions relief and a turnaround in their economy. nejra: bloomberg news reporter golnar in tehran for us. sticking with the middle east, oil extending gains after its biggest weekly rise since late-2016 as geopolitical tensions escalate. joining us now is a fixed income strategist. great to have you with us. let's talk about these risks around iran. we have a great blog on the bloomberg, tracking it, saying the middle east tensions are a dangerous distraction for opec plus. >> all these tensions -- are these a distraction or something they need to integrate into their strategy and portfolios? >> it's the latter. distraction feels like an understatement when we are considering how many been -- travel barrels a day

through the strait of hormuz. anything that puts at risk has to be a front and center concern. step,take one additional we know that spikes in oil prices have been one of the primary causes of volatility. distraction feels like a lowball to me. manus: it certainly does when you look at the exuberance of, perhaps, equity markets. christopher, good morning. a 10% rally in the space of five days in wti. this is perhaps about the velocity, rather than the quantum, and that's what markets i think have yet to reconcile. is that a fair take? christopher: absolutely. the level the oil prices have reached is thus far not particularly troubling. the mood last week is quite big, but we have not seen -- the move

last week is quite big, but we have not seen -- a reasonably low probability, high risk event, thinking about how to factor that into pricing every day. there's an option out there that is a long way out for the money, i guess would be the analogy, and in the event of a certain set of risks crystallizing, this become the dominant driver of oil prices. but absent that, we have to go back to worrying about the bread-and-butter of supply and demand in the market and the impact of slowing chinese growth in the mainstream is a more important factor than this political concern. there is a button that can be pressed or a flip -- switch that can be flipped, and the geopolitical risk could be the only thing that matters. nejra: how do you trade a geopolitical risk other than through the goal -- oil price? is it through gold, through dialing down equity risk a little bit? christopher: the person you want

to do is have a starting point that is extremely well diversified baseline portfolio. that's how we think about this. run appropriate scenarios over that portfolio to understand where your vulnerabilities are. when these kind of events happen, you want to have some experts on -- if not on the ground, then at your disposal to have a deep

understanding of the dynamics in that market. what you don't want here, to use a football analogy, is to have everybody chasing the ball in one direction, then the other direction. if we structure our team and structure our approach that way, it's about having expert to look at issues on a case-by-case basis, rather than trying to keep up-to-the-minute on each issue. manus: to pick up on that, chris, it is quite a crowded trade. nejra ask you whether it is gold and that inflation mindset or that protectionist mindset. if you look at the currency moves, that's also going to have a major impact inflow. that flow in currency is into yen, out of dollar at the swiss. into there's this haven move in the currencies. how does that translate for risk for you? there are two things going on simultaneously. there is an element of that safe haven flow. element wheren we've seen more than a race to the bottom, it's kind of a race through the bottom. over the course of the last week, we heard from the ecb that -- their lower bound in interest rates is no longer -- their lowernd bound. in the u.s., a clear privet -- pivot towards looser policy. capital ins of places -- you get flows of capital where the infrastructure below szero. relative gainers. that gets you to the swiss yen, the gold momentum that you have spoken about. gold doesn't pay an interest rate. rates are negative. that becomes less of a concern. manus: there was a lovely line blog this morning. we will talk more about that in a moment. thank you., let's get to first word news. thanks, manus. well, a stunning blow for erdogan in turkey. he lost by a landslide to the opposition candidate. it's a stinging indictment of ankara's economic policies after

president's refusal to accept an earlier defeat. the news sent the lira rallying. the drumbeat for a fed reserve rate hike is getting louder. minneapolis fed president neel kashkari says he called for a 50 basis point reduction at last week's meeting. these comments reinforce expectations that the central rates, on pace to cut maybe as soon as next month. was, i think, broad agreement around the table that the case for providing more accommodation has increased meeting. may clearly, we are going to be very attuned to the incoming data flow. president trump has denied he threatened to demote jerome powell, but says he would be able to do it if he wanted. the president reiterated he powell'spy with actions. trump says the u.s. economy is throughnough to push the headwinds created by the fed's rate hike. north korea has released a photo of what it says is kim jong-un reading a letter from president trump. the state media describes the tone of the message as quote ent" and says kim will take the content seriously. nejra: coming up, the potential meeting between president trump and xi at the g20 is the main event this week as it could offer new signals on the direction of the trade war. this is bloomberg. ♪ . this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i'm manus cranny in dubai. nejra: let's get a check in on the markets. we start the week with a bit of a risk on flavor, at least in

asian equities. does that last through the g20? oil on the front book -- foot. the lira also spiking today as the opposition backs the landslide victory in istanbul. what does it mean for economic reform in turkey? manus? manus: aussie dollar is up there this morning. the government says there are limits to what monetary policy can do. day five of the rally in aussie dollar. the dollar itself rolling over for the fifth day of losses. two things driving the aussie. the biggest loss in six months. is king dollar dead? jeffrey says it is a warning sign. u.s. futures -- money flowed into equity markets at a vicious rate last week. stocks are higher by 0.3% this morning. let's get your headlines from around the world. thanks, manus. daimler has issued its third

profit warning in a year, blaming costs related to the deeper scrutiny of its vehicles. carmaker is facing investigations in europe and the u.s. over allegedly excessive pollution. it now sees this year's profit being at a similar level last year. -- to last year. a chinese retailer is planning to buy an 80% stake in a chinese unit of -- the transaction's awaiting regulatory approval, but is expected to close by the end of the year. a growing number of european retailers are scaling back their china presence, amid a shift to online shopping that favors local operators. orado reports is reportedly ising stevens -- resorts reportedly buying stevens entertainment. is valued atstock about $13 per share -- buying

caesars entertainment. the stock is valued at about $13 per share. nejra: thank you so much. equities trading mixed this morning as investors await the high-stakes g20 meeting between president donald trump and xi jinping. till the event kicks off on friday, traders have -- though the event kicks off on friday, traders have already begun to position themselves. >> when we look at what option markets are doing, they are pricing in some pretty major swings around the g20 weekend. here, this is data courtesy of wells fargo. what we've essentially done is taken forward volatility at the money options for the s&p 500. you can see this pretty decent premium being priced into the market. this is traders betting that markets with around the meeting -- markets will swing more than 1% around the meeting.

investor should take advantage of this. they should be buying puts on volatility etf's. with the vix above 15, it's only about this -- because this chu nky premium at the moment. we got a similar view from an analyst at nomura. basic position is like, especially with headphones -- they say positioning is like, especially with hedge funds -- is light, especially with hedge funds. compare the two. we see equities hit near a peak here, but they continue to rally for the following month. nomura says this is likely to happen again once we get the g20 meeting out-of-the-way. they say any dip we see in stocks is a good opportunity to buy this week. nejra, manus? manus: i will pick it up from here. dani burger said the context for a momentous week. it takes us to the mliv question today, the stock side of the asset class. can stocks rally even without a trade deal?

join our debate. it's on your bloomberg. do you need a trade deal to boost the rally, or is the fed enough to sate the market? christopher at lgim. we are all gearing towards the g20 this week. last week it was about powell and the fed. this week it is about g20. do you even get the sense that markets are perhaps a little prospectoyed up on the of a trade deal between xi and trump? christopher: i don't get that sense, actually. i think wherever we look, you don't see sentiment particularly being stretched in either the equity or the risky corners of the fixed income market. yes, prices have rallied, but it seems to be one of the most unloved rallies, one of the most unlovable markets in history. if you look -- unloved bull market in history. if you look at what investors

have in their portfolio, if you look at surveys, all of those say this is not an over-- rally in any way. nejra: we had a number of speakers come out and cement the powellpivot we got from let's listen in. two vice chair richard clarida -- to vice chair richard clarida. >> the economy is hitting some crosscurrents now. there has been a marking down of global growth prospects. there's uncertainty about international trade. there is some evidence that is weighing on sentiment. we are monitoring that closely and we will act as appropriate to sustain expansion. >> you kashkari, who of course -- was saying kashkari he was gunning for a 50 point drop. we talk about the fed's dovish pivot being cemented if we don't

get a great outcome from the g20. how does that change the way you would trade fixed income? christopher: the inflation is just more lasting than the vagaries that might come out of the g20. we can make assessments about what trump and xi might decide, but none of us know. it's been a significant step down over the course of the last six months. it's a global phenomenon, both europe and the u.s. and central banks with an inflation targeting mandate, or in the u.s. case with the dual mandate, has to pay attention to that -- have to pay attention to that. it's both market-based measures, but consumer service-based -- consumer survey-based measures or economist survey-based measures. if they want to re-anchor, than they need to do something about it. that's at least half of what's behind this recent dovish pivot. manus: to re-anchor those

expectations, would you join the morgan stanley house for a 50 basis point cut in july? the validation would be cut, then verify. does it take something like shock and all, 50 basis point -- shock and awe, 50 basis point, anchor the expectations? we've seen a bounce of 10 to 15 basis point on the back of the pivot. you've made additional dovish comments after the meeting. jerome powell's use of the word "us" was particularly important. over all used to passing statements from the fed with a fine tooth comb. that "us" word is very important. nejra: christopher jeffrey, staying with us.

questions of character dog boris johnson in the race to become prime minister. we will discuss that next. this is bloomberg. ♪ hey! i'm bill slowsky jr.,

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nejra: this is "bloomberg daybreak: europe." we are all set for the g20 at the end of the week. some saying that is the fed's opportunity or maybe their offramp to do something aggressive. has perhapsguage set the stage for rate cuts regardless of what happens at the g20 this week. the question now is what is the size and the quantum of that? how visceral could it be? >> and what would it take for the fed not to cut? , thesay look at the data

next jobs numbers, if we get a good outcome of the g20, maybe that. the treasury rally with yields moving lower, you have bank of america saying, save that rally. manus: the consensus seems to be toward steepeners. how do you achieve that steepness? is at the long and moving? ubs in morgan stanley going from 50 basis points. the economy could pick up. inflation expectations could start to rise. will the fed continue to stay on the sidelines? that is there scenario for re-steepening. and what does it mean for the dollar? has dropped below the moving averages. a dovish fed does not mean a weaker dollar, doesn't? manus: it does not.

let's get the first word news. we have annabel standing by in hong kong. >> the u.s. plans to announce new sanctions against iran. president trump called off airstrikes at the last minute after the islamic republic shot down a navy drone. the president has said he is going to negotiate with tehran. pres. trump: i am not looking for war. if there is, it will be obliteration like you have never seen before. i'm not looking to do that. but you can't have a nuclear weapon. otherwise you can have about economy, as far as i'm concerned, no preconditions. >> president erdogan in turkey's party lost a race by a landslide to the opposition candidate area is a stinging indictment of

ankara's policies. the news sent the lira rallying after political uncertainty has weighed on the currency. the drumbeat for a fed reserve rate cut is getting louder. the minneapolis fed president neel kashkari says he voted for a 50 basis point reduction. the central bank is on course to cut rates as soon as next month. north korea has released a photo of what it says is kim jong-un reading a letter from president trump. state media describes the tone of the message as, quote, willlent, and that kim take the content seriously. mike pompeo says this could lead to relations in a better place. global news 24 hours a day on air and on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thank you so much.

three years ago today, investors woke up to news most were not expecting. >> two major networks are projecting a win for the leave campaign. projects the u.k. will leave the european union. exit is a minor blood compared to the move we are seeing on the british pound, already done by 11.62%. do we get a downgrade for the u.k.? >> we have been saying for at least a year, a brexit vote will lead to a downgrade in the u.k.'s rating. >> the british people have made a decision to take a different path. as such, i think the country requires fresh leadership to take it this direction. negotiation with the european union will need to begin under a new prime minister. hearing?re you

is everyone assuming it would be boris johnson? as we have learned over the last 24 hours or so, the bookies can get things wrong. has beenove instrumental in the leave campaign and somebody people have talked about. theresa may has also been mentioned previously. nejra: that is some of our coverage from june 24, 2016. three years on, brexit is dominating another race to becoming the u.k.'s next prime minister. germy hunt has called on boris johnson to take part in more interviews and debates after johnson refused to answer questions this weekend about a noisy row with his partner that brought police to a house. three years. wow. how are you positioning?

the leadership race continues. >> that has been nonstop brexit talk for three years. sterling is the way forward. we are going through the election we think is a premium and it pays to take the other side. asset tohas been the trade on brexit news. that now,you think 120 seven on cable, where eurosterling is right now, you actually think as we get closer to that crunch data -- crunch date, you are not going to see more serious volatility before then? for do you use that to load up? >> i think we can get to that they without volatility. that might be a futile wish.

toore we get there, we need find to the new prime minister is. hard to find anyone in the market who does not think that is boris johnson. we have got to see whether the government survives under that new leadership. again, very unclear with the way the majority in parliament has been. we have a number of risks reflect it in the price of sterling. the long position is likely to be the one that is rewarded. nejra: you have like to btp's for a little while. that is another area with little risk. why do you like that? is it that you are getting paid to take that risk right now? >> it is not that you can have a warm and fuzzy feeling about italian fundamentals. you have debt rising and a deficit. in italy's favor is it is too big to fail. were there to be a systemic event in italian risk, it is

catastrophic for the rest of europe. everybody knows that. maintaining a lid on italian yield is in the italians interest, but in european interests as well. part ofot be stated as the policy objectives, but that is one. backstop.y have that it is called the ecb. have a look at this. this is staggering. 850 euros worth in the market. six german pieces of paper above zero. last week, aberdeen standard said it was a laughing fit. do we go below zero in germany? if so, when? >> that has been the direction of travel. --have people calling ringing a metaphorical bell and calling for the end of the rally in the german bond market. fundamentally, what is going on

here is that you have a market which is shrinking, a share of gdp in nominal terms, and you have a central bank which is desperately trying to inject more stimulus. there is just less and less left over for private investors. the repeated argument in europe that we need a safe haven asset at the euro zone level and we don't have that, we get this incredible supply squeeze. think that reason to underlying dynamic will continue. nejra: the statement we got out of the ecb was huge. we were talking about inflation expectations. we saw expectations in europe last week. we've still got a long way to go to truly inflect, but you have been making some trades around inflation expectations in the u.s.. what kind of trades are you making in europe based on what you expect from the ecb? >> it is a really good question.

we don't have a great deal of exposure one way or the other. just to clarify this point about ,ow big that statement was fixed income analysts or economists in europe are focusing on how box in the ecb is overall, working on how much headroom they have on bonds. i think it is pretty explicit. i do not know whether he has but thease lately, statement is the only rule is there are no rules. that is basically what he is saying. we don't know where they are going to settle. let's see when qe begins to start. christopher jeffrey, fixed generaltrategist at investor managements. we have our partners in mumbai standing by.

in london, it's annmarie hordern kicking things off this monday morning. let's take it to you. the report today is the r.b.i. governor has quit before his term was do to end. is that having any impact the alco -- is that having any impact? >> good morning to you. the deputy governor has quit now. now is what people seem to be suggesting. blip on theinor offshore ruby. have -- the offshore rupee. it could have an impact on the currency today. but thatoo dramatic, is the big monetary boost from the indian markets. very flat, no big gyration for

the equity markets. back to you. annmarie, you are looking at the wider markets. mixed in asia as well. we are seeing some green overall, but oil is standing out. how big could those gyrations get? we are gaining, but not by a huge amount. >> last week was the best we have seen since 2016. the equities in the gmm, mixed aj was saying. in foreign exchange, the standout is the lira. this as the opposition party to president erdogan won that election. the australian also higher this morning. the rba governor saying there are limits of what monetary easing can achieve. you can see yields higher. let's get back to oil quickly. i want to show you what's going on with the hedge funds.

they are reversing course. seven weeks of pessimism is being snapped. 13% higher on these hedge funds, that's to the upside. week ending june 18. it comes as tensions are escalating in the middle east. we could see prices continue to the upside. tensions are going to be highlighted just today as part of the downtrend that his administration will -- as part of donald trump saying his administration will put more sanctions on iran. great job. at yourke a quick look agenda for this week. this is what we have got. mike pence giving a speech on china. it was originally scheduled for the anniversary of the tiananmen square. he delayed it to avoid offending beijing. tomorrow, the embattled fed chairman jerome powell speaking

on the council of foreign relations. other fed speakers, what we? and staying with central-bank on wednesday, mark carney testifies before parliament's treasury committee. thursday, the federal reserve releases part two. the close of the week, the g 20 summit in japan. investors will be watching as president trump and president xi meet to restart trade talks. stay with us for all the coverage. this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." manus: the lira is on the move this morning. the turkish opposition candidate won a landslide victory in istanbul.

the ruling party narrowly lost. he spoke after his victory, positioning his win as a win for democracy. >> you have protected the reputation of democracy in turkey. with the whole world watching. you have protected our tradition of democracy that goes back over 100 years. thank you, istanbul. joining us now is our executive producer on the ground. for erdogan in terms of this pushback from the heart of the country. yes, it is definitely a defeat for erdogan and his party. theyis the second time called for a vote in his temple and the second time they lost. back in the local election in

march, the opposition party sorry, won by -- 14,000 votes. this time around, he won by 800,000 votes. president erdogan is well aware istanbul is a very important city in both the commercial and financial hub of turkey. this is where he started his political rear -- political career 25 years ago, becoming prime minister and president. he could be feeling the pressure now. for the first time, he sees there could be a serious contender against him. nejra: is this a sign that voters are concerned about an economy reeling from a spike in inflation yuck -- inflation? >> when we look back at the local election in march, the

ruling party lost power in most of the major cities in turkey, now istanbul. as well as the capital, ankara. the economy has a lot to do with it. inflation is four times the central bank's target rate. unemployment is stuck in double digits. turkey just exited a recession. it looks like we could see a double-dip. consumer confidence is at an all-time low. thank you so much. joining us now and the london set is the emerging market strategist at a company. good to have you with us. the question seems to be what's going to happen with economic reform. it's president erdogan going to be distracted by this? key thing.the the reaction we have had, the positive reaction starting last night was viewed amongst investors as, we have gotten

through this protest. it went very smoothly, and now we can focus on how the government can focus on the economy, doing something about the recession we have, but also doing something about npl's, which seem to be under pressure. all of these things are now the focus. manus: you've got the push and pull of the currency. the second worst performing currency of 2019. are you bull or bear? >> i would frame it according to timing. , a couple get it is days, we squeezed stronger, outperform the high-yielding

currencies, but that is because of a technical advantage. have beennvestors becoming increasingly defensive on turkey. seeing this result, a couple of people are going to say, ok, let us scale back that defensive positioning. you will see the lira bounce on that. beyond that, we still have the underlying problem. nejra: you say your emerging-market bond funds are positioned cautiously. what will be the trigger to make you change that? be economics would policies which show signs of addressing the rating agencies concerns, which is how are we going to rain back the deficit? how are we going to stop the deterioration of the debt load and at the same time generate growth yeah if we can see that, ok, there is value here.

those are the things we are looking for. we broaden the conversation, does that mean dollar debt has returned 9% this year? this is a bracing return. what level of fed easing do you need to see to sustain that level and that momentum? is there more to come? koon: i don't need to see anymore fed easing. i don't need to see anymore than already priced in. an 85rket pricing in basis point cut. however, what is more important by theeasing signaled fed alongside the ecb and the we are going to turn looser.

we have seen what global monetary easing can do a decade ago. what it will do, it will make it easier for a lot of companies to refinance. that is the key thing. don't be too greedy because you are not looking at the world. nejra: we have seen it weaken ,nd drop below some key levels moving the averages. people disagree on whether the decline in the dollar continues. if you look at emerging-market currencies, where is the best carry regardless of what the dollar does? can you be long the dollar -- can you ignore the dollar? no you can't. it ricochets into the major currencies. look at what dollar is doing, what dollar-yen is doing. it.cannot ignore the environment is one where you

are not aiming for big stock moves. in the indonesian rupiah, countries which offer you carry are not big macro problems. you don't really reach -- no, hold those thoughts. this is from lufthansa. they are changing their dividend policy. 20% to 40% of adjusted net income. they will pay out a regular dividend of 20% to 40% of net income. that is the latest headline. the airline having a fairly tough time. we will keep an eye on that. , want to draw your attention have a look at this. this is china bond premium relative to u.s. treasury. they are just not benefiting

from this cascading or movement that is in the rest of the global bond market. this sticks out like a sore thumb. when you see this kind of differential, if you don't reach for argentinian yield, would you reach for a bit of china? >> i would with both hands. the chinese local market is a fascinating one. to liquidity goes policy in the country. impacts banks,y local banks, who are the sources of these bonds. because we are focusing on, when is the next liquidity dose? they are not moving yields down. global yields are moved. , union bancaire privee, thanks. so much for us.ing

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nejra: headquarters in the city of london. dubai, this ism bloomberg daybreak: europe. these are today's top stories. to its biggest weekly gain since 2016 as president trump readies new sanctions on iran. later this week, attention turns to that meeting in osaka. after theallies turkish opposition candidate wins a repeat of the istanbul mayoral election, this time by a landslide. how big a blow could this be for president erdogan? and third time unlucky.

ceo has the group issues its third profit warning in a year. nejra: good morning, everyone. 7:00 a.m. in london. we are under an hour from the start of cash equity trading in europe. we saw weakness in equities on friday. ftse futures on the front foot. a bit of red on dax and cac 40 futures. we have had three weeks of gains for global equities. u.s. equities hitting a record left for the s&p 500. off that record on friday. going toquity markets position moving in and out of that? particularly in relation to bond markets. we have been seeing equity and bond markets in the u.s. gain in

tandem. good morning. manus: i know you missed me. the question is, what did we do to the bond market last week? bonds below 2% because humdrum rate cut noise, it is almost shakespearean in its sentiment. how big will do rate cut be? -- will the rate cut be? jp morgan and the strategists there are recommending steepeners. the momentum is building in terms of what the fed might do. even if there is a resolution at the g20. the bund market up this morning. you have this japanification of the german bond market. there are only six pieces of paper worth more than zero in germany. will we see all of the yield curve fall below zero?

it is something you can do more of as prices rise. no laughing matter in the bond the differential you get with italy with the ecb backstop. juliette saly has the latest from singapore. are starting to see weakness in late trade. the csi 300 off by 0.2%. credit suisse has turned negative on their targets for major indices in china ahead of the g20 talks this week. hong kong still flat after gains in the morning session. we have been watching to players as well on these reports pleasant -- president trump may blacklist more china tech firms. the nikkei closing of the session just slightly below the end with a 107 handle.

the asx 200 also having modest gains and a little bit of weakness in the indian market. let's have a look at some of the currencies. the aussie dollar has been rising for a fifth session against the greenback. the biggest winning streak since december 2017. the rba governor speaking today saying the more you continue to give monetary easing, it may not actually make a difference. we are also watching the indonesian rupiah, higher against the greenback today. global funds buying up that currency. we saw indonesian exports fall almost 9% year on year in may. quite bearish against the asian fx. you have a short on the u.s. dollar against the korean one in the structure and the korean won is the best performing asian currency today up by 7/10 of 1% against the dollar. nejra: thank you so much. corporate headlines coming through this morning. what we have heard from daimler is it has issued its third

profit warning in a year as risks have been mounting. if you did not know much, you might say, maybe it was something to do with trade. what they have been talking about is handling long-standing proceedings around diesel --ssions a month after a new took the helm. the new cfo facing a sobering start of those passed diesel troubles. of ebit around the level last year. a third profit warning from daimler and we are getting indications that stock could fall at the european equity market open in under an hour's time. it is falling 6%. manus: if you take the comparison, i'm just looking at the auto stocks today, daimler is still up at 6% -- up 8% on the year. you look at michelin up 30%.

daimler, theyn say the stock is still a sell case for them in the short term. a major earnings risk related to the auto division. that noise chamber is rising in terms of the risks. it big deal they are trying to do between fiat, renault, and nissan, that trio. we have a little bit of news to go on lufthansa. this is about dividend policy. 20 to 40%. that's going to be the adjusted payout. 20% to 40% only going forward basis. the previous policy, if you want to benchmark it, 30% to 40% previously it was, 1015%. those are going to be very much in focus. -- i was just going to add that actually, oil and airline stocks may be in focus on the geopolitical risk in the middle

east. and what islitics going on here is absolutely top of the agenda. president trump says the u.s. are about to impose additional sanctions on iran days after abruptly calling off airstrikes in retaliation for the downing of a navy drone. the administration has signaled a willingness to talk with the islamic republic. is continued threats and acts of aggression against israel, our allies in the arabian gulf, and against u.s. personnel and assets across the middle east are not signs of a nation seeking peace. >> monday, there will be new sanctions. trump: if there is more, it will be obliteration like you have never seen before. i am not looking to do that, but you can't have a nuclear weapon.

>> no preconditions? >> not as far as i am concerned. a bloomberg reporters with us from tehran. good to see you this morning. what is you think the response mechanism from iran will be? yes, you can have talks, but you can't have nuclear weapons. that is the end to synthesis -- startinghesis of a point for the iranians. >> iran has never wanted nuclear weapons. dealasis of the nuclear was that iran's position was they would not seek to have a nuclear weapon and that the international community would by endingntee that their sanctions regime. i suspect the iranian reaction is going to be similar to the

previous comments. this is the first time have said they are willing to talk without preconditions. is problem the iranians have they are happy with the deal that already exists with the europeans. , to paraphrase one of their own ambassadors, they cannot come to a the united table states has defined itself with a knife to their neck. they cannot talk to the united states while everything they agreed to has been pulled from under their feet. position for the government of the islamic republic. nejra: thank you so much.

what the new over sanctions would actually target. sticking with the middle east, oil extending gains after its biggest weekly rise since 2016. ofning us now is the cio nutmeg. great to have you with us. this comp the opec plus meeting manus and i are looking ahead to next week. you see a range of $50 to $80 on brent. right now for you more to the upside or downside? >> to the upside. the oil price has not rallied by a lot more. ist is because global price high and inventories are high. global demand is weak at the moment. it is those conditions keeping the oil price in that range. we are expecting more of an escalation. you will see oil rally more to the $80 range i mentioned. manus: we do not know where

these negotiations will go. what are the potential escalations between the united states and iran? where would you hedge that? have a look at gold. some people are saying you want yen, you want gold, you want something low-cost. my question is, you have seen this break in gold. a highly act as relevant portfolio diversifier? price has not rallied as much as you think. ink at the price measured trade-weighted dollar, it is not much. there is more to go in gold if you believe the geopolitical tensions are going to rise from here. i do not think it is as good a portfolio buffer. it adds to your risk. we like the yen more.

biga: we look ahead to the g20 summit at the end of the week, osaka. got bank of america saying play that treasury rally at your risk. one second, we have breaking news. the r.b.i. deputy governor resigning. this is an r.b.i. statement on media reports. we will get more information as soon as we can on the facts. the r.b.i. deputy governor resigning. -- more and more risks piling up for the market. looking would you be for a treasury rally at all on a bad outcome? >> no. everyone expects we are not going to see big progress through this meeting. trade tensions are going to

persist well into the election in november. i would not necessarily trade on trade. it is more about the economy. if you see the economy start to better jobs numbers, it is more about the global economy. manus: some people have suggested we have had this parabolic move in stocks, oil , patience last week was lost the fed when you see that as being slightly -- behavior when you see not just risk on, but assets almost going bubble? financial conditions very easy at the moment. fed cut is going to eco the 1995 when we saw a strong rally in stocks.

i think we're going to see stocks grind higher. risks started around global trade and especially round u.s.. i think it is too early to talk about bubbles from here. the market is getting ahead of itself speaking about a 100 basis point rate cut. we will see whether the fed is inclined to help the market along. it certainly looks like an everything rally. more work to do this morning. port, cio at nutmeg. >> a stunning blow for president erdogan in turkey. his party lost the merrill election in istanbul to the opposition. .he news sent the lira rallying

political uncertainty has weighed on the currency. president trump has denied he threatened to remove jerome powell, but said he would be able to if you wanted to. the president reiterated he is not happy with past actions, saying, i don't think he has done a good job. trump says the u.s. economy is strong enough to get through the headwinds created by the fed's rate hike. north korea has released this photo of what it says is kim jong-un reading a letter from president trump. state media describes the tone of the message as, quote, excellent, and that kim will take the content seriously. this exchangeys leaves relations in a better place. boris johnson has repeated his insistence the u.k. must leave the eu by the end of october. split will happen.

his campaign suffered a setback after police were called to a wondon home amid a a heated ro with his partner. twitterews at tictoc on powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. thank you so much. dime learn cuts its profit this is again -- dime bloomberg. ♪

nejra: 7:19 a.m. in london.

under 40 minutes away from the start of cash trading. it is "daybreak europe." nejra: lines coming out about the r.b.i., the reserve bank of india deputy governor resigning. the r.b.i. citing unavoidable personal circumstances. positioning ahead of this on the expectation one of the more hawkish members of the monetary setting policy committee would be resigning. we are seeing yields continue to move. we have seen a wobble in the rupee as well on the expectation . now we have the confirmation. another line coming through on the iran story. theiranian naval chief says drone downing could be repeated. this is the very essence of escalation which saw the u.s.

launch planes, then bring them back from going ahead with targeted strikes. the president saying, i don't want war, but if there is or, it would be obliteration of iran. what are the new sanctions that make come to play today? may come to play today? what have we got? nejra: we do have these rising political risks. you and i talked about whether that will preserve rates for the rest of the market. or will the central bank just save us all? let's talk about rate expectations from the fed. they have changed drastically. it was not long ago we were talking about hiking. now we are talking about moving the opposite direction all but certainly. the conversation around rate cuts has gone from if, to when, to how much. has called kashkari a 50 basis point cut. the fed vice chairman richard clarida gave us more insight

into his thinking. >> in the last six or eight weeks, there have been elevated uncertainty about the outlook, the economy is heading crosscurrents now. there has been a marked down in global growth prospects. there is uncertainty about international trade. we are monitoring that closely. we will act as appropriate to sustain expansion. manus: getting ready to act appropriately. port. morgan stanley calling for 50 basis points. how much of a shock would it be if the fed were to cut by 50 basis? do you think it is possible at all? >> this is a precautionary cut. cut reallye need to aggressively down the line. it is all about precaution. there in mind, bond yields have

come down a lot. mortgage rates have come down a lot. for the fed to cut 50 basis what weit would explain are worried about, versus what we are seeing at the moment. nejra: what has the potential to ?ally more on a fed put equities are u.s. credit? shaun: we have not seen much responsiveness from credit spreads. people are very cautious about equities. bet we are seeing is that u.s. equities do really strongly on this. i had a look at two indices. the philly fed is the second worst reading since 2010. maybe there is something more malevolent in the economy than we are seeing in the headline. agree or disagree? aaun: i would agree there is

strong weakness in global trade and the trading goods sector. we are seeing this across many areas. if it is the service sector, unemployment growingte strongly, consumer confidence at an all-time high, on the expenditure side, the u.s. economy is looking quite strong. the dollar continue to we can from here? shaun: yes, but not much. nejra: thank you. nutmeg, wonderful answers on all fronts. the third profit warning from daimler in a year. straight to get oliver. he joins us now from munich. a row fore third in this new ceo.

>> the new ceo just came in on may. we had two warnings before that. these three are all coming at the same time. he has not had enough time as a ceo to change things a lot, but investors are going to start saying thereis and must be some thing fundamental here. going to start asking, what is the real reason? it is the time to look deeper into daimler and european automakers who have had specific warnings in the last year or so. nejra: for investors, it could get worse from here. >> absolutely. there are critical events coming up. set of the second emissions rules coming in september. they nearly sent germany into a recession last year. starting 2020 we have carbon dioxide rules that could spell

really big fines for european automakers. many up for question how -- how much emissions their fleets will have. it could get a lot worse. nejra: great to have you with us. there are a couple stocks we are going to be watching ahead of the open. lots of news flow this hour as well. the r.b.i. deputy governor has resigned. as we look ahead to the g20 as well, there is a lot of geopolitical risk from middle east. do not think anybody is holding out a great hope of a trade deal at the g20 this weekend or this friday. tensions are high. the oil market is higher in the iranian naval chief says drone downing could be repeated. breaking on danske bank. this is going to be important

for the market. the former interim ceo has been dismissed. that will come into play in stocks this morning. let's do it again tomorrow. this is bloomberg. ♪

anna: good morning. welcome to "bloomberg markets the european open." today, the markets say politics are in play. oil climbs as the u.s. says it is planning sanctions on iran. the lira jumps after a redo of istanbul's mayoral race. the cash trade is less than 30 minutes away. ♪ anna: crude