dani: good morning. this is "bloomberg daybreak: europe." on manus cranny. nejra: i'm nejra cehic in london. larry kudlow says trade talks with china will continue in coming weeks after president europelams beijing and for playing a big currency manipulation game. but thered yields, won't be fireworks for treasuries today. for july 4.hut next for investors is the june payroll report as u.s. stocks hit fresh records. ratesobius says negative should be sending investors

toward em debt. he also weighed in on the fx manipulation debate. >> the currency weapon has been on the table for a long time after the chinese have used that weapon. manus: a warm welcome to daybreak: europe. let's tell you what is going on in the market. what is happening with the dollar? will we see a new form of fx wars? bloomberg dollar index, this is five days. we have been down three days in a row. is it slippage or selling? europe, slams china and both in terms of their foreign-exchange policy -- big currency manipulation game, and the question he poses.

do we need to match or continue being dummies? what does that mean for the market? we will look at risk on and risk off assets. gold -- we just talked to mark mobius. everyone should have a little gold in their pocket. in the next fed rate reading -- cycle, the last cycle gold flew to the heavens. we will delve deeper. oil, a little slippage in the market. stockpiles were down for the third week in a row. globally, the market is debating where we are in the slowdown profile and what central banks will do, or governments, depending on the message from christine lagarde. it is good to be back in dubai. nejra: good morning. great to have you back and the focus has been markets by global bond yields.

did have treasury markets closed today because of july 4 and the u.s. stock market closed but we saw the dow, s&p 500, and nasdaq hit records yesterday. it was the bond proxies without performance given where global yields have fallen. handle andon a 195 hitting a 2016 low. given the holiday today but friday will be big as attention turns to the jobs report. entered a bull market yesterday, so four days of gains in european equities and we could see another day of gains today. different stories in bond and stock markets. what is that telling us and do stocks need lower bond yields? euro, steady for the past three days despite european bond markets. looks-year bund yield like it would head toward the deposit rate for the ecb -40 and the 10 year btp yield hitting a

32-month low. let's check on the markets in asia with juliette saly in singapore. certainly a holding pattern in asia. you've got markets mixed. we are not going to get the lead in terms of u.s. futures. the nikkei is up 125%. ¥7 billion in 30 year bonds. weakness out of hong kong and chinese stocks today and the hong kong dollar in focus. surging to the strongest level in two years. the monetary authority seems to be supporting that currency. in australia, up 5% on the asx 200. december 2007 highs, a fourth session of gains. india looking good and ahead of the budget. one thing that is interesting,

on my chart, this move coming through in south korean chipmakers. threen see a big move in of the names. this is the past weekend a strong surge. much as 20%en up as on expectations they will benefit from these new japanese restrictions on exports of key materials needed to make semiconductor and computer displays. one analyst we were speaking to saying if tokyo extends the curb to include more materials needed for semiconductors, a lot of south korean suppliers to samsung will benefit. manus: thank you, juliette saly in singapore. the u.s. and chinese officials are said to resume trade talks in coming weeks but larry kudlow says that for now, those discussions will happen over the phone. are lighthizer

and mnuchin. they will be on the phone and lots of communication. manus: while there may be optimism over a trade deal, that hasn't stopped president trump and leveling more accusations of currency manipulation at china and the eu. he tweeted beijing and brussels are manipulating their currencies, pumping money into their systems, adding the u.s. should match them. let's get a correspondent for asia, joining us from hong kong. is china manipulating the yuan? certainly find is this is not the case. quite the opposite. models whichixing is to identify how the pboc

fixing, guiding the exchange rate. it has been stronger than expected by market signals. yesterday's close and the basket of currency movement. based on our analysis, this is not the case. nejra: great to have you with us today. at bloomberg economics, you do expect to see continued downward pressure on the yuan. do you expect the pboc to keep supporting the currency? omegaxl -- we expect. is what at this point, you can see downward pressure on the currency in yuan. comments will give the yuan a boost and at the same time, they expect cuts by the federal reserve in interest rates and those would be supporting factors for the currency but if you look at the

economic fundamentals. the chineseat economic outlook, it is not very good. at this point, the economy is going to double-dip and more monetary easing is on the cards. based on those factors, you would expect the currency would continue to suffer from downward pressure. what the pboc is going to do -- on the one hand, they will welcome a weakening in the currency. the pboc governor mentioned the currency can play the role of stabilizer but on the other hand , if the currency depreciates -- capitalhat could outflows. what we see going forward is the pboc will focus on the change in

the currency in the change rate -- exchange rate rather than a particular level. manus: it is all about the velocities. take you for rounding that up, bloomberg economics global macro strategist at vtb capital -- cahang su. theoke to mark mobius about possibility of china manipulating the one. -- yuan. >> as you know, the chinese have used that weapon. manus: let's bring in our guest. james comer good to see you this morning. there we are, the specter of a of ethics wars. -- fx wars. do you think the chinese have manipulated the yuan? it is called the countercyclical factor bloomberg has looked at. the chinese have kept it on the

leash. james: i agree. i don't think they are manipulating. they had a few rocky packages -- patches but they are very mindful of potential capital outflow. the fundamentals are deteriorating, so there is going to be some weakness in the currency. i think that is clear. nejra: james comer great to have you with us today. manipulation comments from president trump mean we should be paired for anything. the u.s. hasn't intervened in fx markets 2011. if we saw it this time, how would it look other than job owning -- jaw boning? james: through interest rates. if you talk about the u.s. intervening, it is clear the dovish tilled in the fed is the

way to do it. you wouldn't dress that up as currency manipulation, it would be a necessary policy measure to revive the economy. manus: what the u.s. is going to battle now is perhaps a re-articulation, if christine lagarde takes the helm at the ecb, this will be a gearshift in the rhetoric and use of rhetoric -- that is my personal interpretation of forward guidance at the ecb. it is about euro-dollar where the risk has been the past six months. james: you are right. i think the ecb are in a bigger bind than the u.s. they are more exposed to the trade war with china than the u.s. is, really. particularly germany, and the is athing the ecb wants strong euro. you could see with the yield on so i think the ecb

is going to have to get ahead of the curve, if that makes sense, and really talk down the euro question -- euro. high two currency wars sit on your list of priorities to worry about. james: it wasn't on my radar until this morning, to be honest. manus: [laughter] i love the honesty. james: it comes and goes. when the temperature rises with a trade war, it comes into play. the race to the bottom, we have been here before and ultimately, fundamentals will out. your marketop of report, manufacturing gauges are looking dire. there is something wrong here. i want the director to take the

chart within my terminal. are pricing -- bond markets are pricing 60% to 65% probability of recession. the equity markets are literally flying high, up 15% globally this year. equity markets are saying zero probability of a recession. bond markets are repricing aggressively. global slowdown and the scale of it? james: global slowdown. manus: part equity markets irrational? so because the earnings outlook is poor and if you look at the first quarter for the s&p, what was it low single digits earning growth? they say that will go up to high single digits in the next quarter but it doesn't really make sense. the outlook is very poor. stilleld curve is inverted. nejra: we will pick up on that

in a minute. great to have you with us as our guest, james reeve. let's get a first word news with debra mao. : president trump has warned iran against stepping up the rainy and enrichment -- iranian enrichment. iran says it will restart him failed reactor if europe to offer economic guarantees by a july 7 deadline. the u.s. is hitting back at huawei's constitutional challenge to its blacklisting. the government says the move isn't punishment but serves to a test in the national interest. they say it is to prevent china gaining a strategic foothold in the networks of federal agencies. accused the british government of interference in the affairs of hong kong. a warned the territory is not what it used to be. this escalated the war of words

after theresa may said she was shocked by violence as protesters stormed hong kong's legislature. the european commission has decided against disciplinary action on italy over its debt after rome offered fresh commitments that addressed some of brussels concerns. the populist government sees its 29 deficit -- 2019 deficit in line with eu rules. a familiar faces leading the race to replace christine lagarde. the topney is to take job according to betway. he is due to leave his current post in january. 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. today, the mliv question is this. some of you didn't get an invitation to the party. why did commodities not join the

everything rally party? you can join the debate. reach the entire mliv team and join us on the blog if you are a bloomberg customer. what have you got? nejra: talking of rallies, that was clear in the bond market. forget japanification. europe has taken the helm as home to the world's largest negative yielding debt stockpile. this is bloomberg. ♪

manus: "bloomberg daybreak: europe," i am manus cranny in dubai. nejra: i am nejra cehic in london. the msci asia-pacific index, a touch of green but nothing aggressive in gains. .4%. u.s. stock markets are closed for july 4. yuan, slightly stronger and president trump talking about currency manipulation as the yuan is up and the dollar index

unchanged in today's session as we look to the jobs data at the end of the week. that adp report didn't do much to set us up for a good report. aussie dollar is bid. dropped but not as much as the market had expected off an amazingres record. bond proxies saw the money flow into them. arey fourth of july if you sitting anywhere with a martini in your hand. , riding the easy money policy. it is breeding a world awash in negative yields. countries from belgium and austria have seen 10 year government bond yields drop below zero for the first time. negative yields are worse in europe and in japan themselves. how do you explain it?

dani burger. let me start with the qualitative's. you have dovish central banks anda reach for safe havens bets inflation will remain low and because of that, $13 trillion stockpile of negative debt, a lot of it is home to europe, giving the error of eurofication. by some measures, japan definitely on an absolute level has a stockpile of negative debt around 5 trillion but taken as a percentage, many countries in europe have a higher number then japan. switzerland comes in at 69% though it is only $200 billion worth. we saw 50 year yields for switzerland go negative yesterday. you have to pay for the privilege of owning a half century worth of swiss debt. germany is higher, and italy, but at 8% has escape this we have seen odd things in the

market. two-year yields dipped below zero and 32-month flows. a lot is happening in italy in terms of yields sinking. the u.s., largely escaping the story. only 1% of all outstanding investment grade debt. for fun, i put in liechtenstein. that is one issuer whose yields are negative at the moment. the world is at 24%, so nearly a quarter of the world has negative debt. this looks even more stark when you look at the charts. 24% now but look how low it was at the end of 2018. as you had hopes of the synchronized world of growth. it is now at a quarter. a measure of how wild the bond market has gotten. i have the global bloomberg ag. it is a way of saying how quickly will i see the cash flow

from my bond? it has been steadily rising and it is at a record 8.4 years. means rates are extremely sensitive to any sort of interest rate change, so if we get a 1% change in interest rates, this measure tells us we could see $2.4 trillion wiped out of global bond value. nejra: dani burger, thank you. ofll with us is james reeve samba. we closed for the lower bound of global bond yields. james: i don't think so. i think this has more to run because as your correspondent was saying, it is very dovish everywhere we look. inflation doesn't seem to be making an appearance anywhere. we thought in the u.s. it was coming back but it seems to be growing participation rate has taken the heat out of the labor market in terms of wages. inflation is falling.

in the eurozone, inflation expectations are tanking. safe haven flow, as well. all in all, this market bond rally which never seems to die, has got a further few furlongs to run. manus: tell me this. bund yields heading toward the negative rate as set by the ecb. protection cover me, or what is that? is that an irrational move to you? james: i don't think bond market s are irrational generally speaking. i would say it is just safety. people are paying for the privilege of having their assets in bunds. it is weird -- i'm not sure it will trigger any massive kind of implosion if it goes below the ecb rate, but the ecb will be

cutting anyway. so they will be chasing each other down. nejra: james, when i discussed this over the past couple of days in terms of the bund yield, that has been explained as the fact investors are expecting the ecb to step in with more stimulus. that is the only rational way to explain where bund yields are right now. zero, the two-year below and where the 10 is, that seems like a reach for yield and some others have confirmed that. theou look at the u.s., moves in treasuries haven't been as extreme as in europe and the u.s. stocks are at record highs even as more than 80% of companies have cut their earnings outlooks. do u.s. equities need lower yields to keep reaching high after high? need higher they earnings, i think. at the moment, the earning outlook looks a bit grim. i'm not sure fed cuts will solve the issue of the trade dispute,

which is undermining the manufacturing sector. for me, i don't think the equity market rally has got that much longer to run, to be honest with you. i'll probably look foolish in six months' time but i think the trade dispute is front and manufacturing and investment, and i think that will start to weigh on equities pretty soon. manus: it may well be that there is some resolution between china and the united states of america. europe, moderately sized country, so too is japan. we have much more to extract from you this morning. coming up, saudi arabia issues its first euro denominated bonds. what does the move tell us about the u.n. debt market? we will discuss on a deeper dive. if you are traveling to work,

tune into bloomberg radio and we are with you every mile. we are on your device, dab digital in the london area. this is bloomberg. ♪

♪ nejra: this is "bloomberg daybreak: europe." i am nejra cehic in london. manus: i am manus cranny in dubai. we just had that conversation with james reed. happy fourth of july. no martini for you or i just yet. these bond yields in the united states of america continue to go lower. james, it does not mean a market implosion. i would dispute that. i will not dispute it too much. goldman sachs sees the bond yields going to -55 by years end. if you ask people, where is the lord found in bond yields, it

seems that -- lower bound in bond yields, it seems that nobody knows. reallyour columnist has put his finger on the pulse. it talks about the italian government bonds going below zero. it is a moment of highly illogical move. --is utterly national irrational. that sovereign is a smell away from junk. if that is not a personification of irrational exuberance, i don't know what is. nejra: to me, i would say it is the personification of the search for yield. that's what guests on the show have confirmed. a lot of people have said before they like the front end of that italian curve, but now that we are in negative, do you still like it? they have said not so much.

it comes back to that search for yield. what does that mean for stocks? does the search for yield continued to push stocks ever higher? manus: they are blasting through on the s&p 500. they might take a little pause in the futures. where do we go in the earnings season? what does uninsurance rate anting cycle look like -- insurance rate cutting cycle look like? indian equity markets, how do they look? >> manus, good morning. looking ok for the time being. , asrrow is the union budget i have spoken about enough. today is the economic survey one day before the budget. it talks about the state of the economy. i daresay that while today we are talking about equity markets and what they are doing, over

the whole day tomorrow we will be talking about what the currency and yields are doing most importantly. the indian fiscal deficit numbers will be watched for very keenly. doing ok for the time being but all eyes are on the budget. back to you. nejra: thank you so much. what are you focusing on today? >> when you look at asian markets, we are seeing modest gains for the australian index, the kospi, as well as india, singapore. we see weakness in chinese markets after -- happy fourth of july to both of you, even though you are not american. fireworks came early in the u.s. with those four major equity gauges closing at an all-time high. in foreign exchange, all about the hong kong dollar, it's searched to the strongest in -- it has surged to the strongest in two years.

also softerand wti after u.s. stockpile data yesterday. it comes after the worst reaction for crude from an opec meeting since 2014. in iron ore, i want to look at this today, disconnected firm reality. ge we have seen in iron ore. prices are disconnected from fundamentals. they are saying possibly this is overdone. supply is improving. we will see a softness in demand in the second half of the year in china. overnight, the u.s. ramped up pressure on steel imports from asia, additional tariffs they will be moving on that. this morning it, you have to take a look at when the market opens, these iron ore makers. nejra: thank you so much.

everybody.4 two today, we are asking the question on mliv, why are commodities not joining the everything rally party? let's get a bloomberg first word news now with debra mao in hong kong. >> president trump has resumed his attack on china and the european union. he claims both are manipulating their currencies to gain an unfair advantage. he tweeted that beijing and brussels are pumping cash into the system, saying the u.s. should do the same. it is sparking speculation that treasury could intervene to weaken the dollar. u.s. and chinese officials will talk over the phone in the coming weeks to solve the as leading trade war, according to larry kudlow. earlier, we spoke to the white house advisor on trade policy, peter navarro. >> we speak -- as we speak,

plans are being made to reengage both in china and here in the united states. what we prefer to do always is negotiate behind closed doors in good faith. ♪ -- has not singapore office perch -- off of its perch at the top destination for ex-pats. the u.k. sank to 27th. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus? manus: deborah, thank you very much -- debra mao, peggy very much -- thank you very much. the world teeters on the brink of conflict between the u.s. and iran. staring down about $13 trillion

in negative yield in global debt, investors are going on a payout of bonds on the gcc. saudi arabia sold its first ever eurobond on tuesday to help fund the country's budget deficit. joining us is our chief middle east economist. james reed is the chief economist at standard financial group, our guest host this morning. first of all, let's take a look at the turkish story. there is a number of different facets at play. what is the latest piece you have written on turkey? >> the key number that came out of the inflation number yesterday, which dropped quite significantly. the significance is that is that it sets the path of the central bank back to cut rates at the end of the month. inflation is currently more than 800 basis points below the policy rate. it is one of the highest in emerging markets. it comes in line with other indicators, which are basically

flashing rate cuts for the central bank at the end of the month. nejra: what about economic en, other than thantts -- then, other rate cuts? that helped the economy avoid a recession in q1. in q2, the government has withdrawn that stimulus and that has helped stabilize the lira. that could help central banks cut rates at the end of the month. manus: good to see you. good to see you getting out of the heat and into london. talked to me about the saudi pmi's. 19 month high on the headline for saudi arabia, get the same time, you are seeing -- yet at

the same time, you are seeing the nonoil economy remain under pressure. opec is. sticking to the deal of cutting output. how much more can saudi take in terms of this agreement? what is your perspective on this? >> i think you have to understand the saudi economy. the saudi economy is basically, growth is driven by government spending, which is financed by oil prices. the higher the oil price, the better it is for the government and economic growth. growth was rather uninspiring in q1. --a is still preliminary q2 in q2. early indications suggest there is an improvement. oil growth might -- nonoil growth might exceed 2.5% for the first time since 2016. nejra: you are talking about

preliminary indicators looking good for the second quarter for saudi. could that carry through for the rest of the year? >> it could. the government has been stimulating the economy through fiscal policy in the last three years. maybe you are finally seemed the fiscal stimulus -- seeing the fiscal stimulus showing up in the growth numbers. we expect not all growth to be 2.6% this year. the issue is medium-term sustainability. the progress on this diversification is still slow. manus: ok, thank you very much. chief middle east economist. james is our guest host this morning. ad talk about the saudi situation, it is thaat two ends of the extreme.

there is still a great deal of pressure in saudi. james: agreed. there has been a pickup in activity. you are correct to say that the employment situation, although the headline unemployment ratio does notdown, there's seem to be a lot of saudi nationals picking up the track of the express -- ex-pats. it has been about 6% over the last four quarters. that is certainly helping consumer facing segments in the kingdom. ziad, you look obviously at the whole of the middle east as well. for a global investor, where would you say are the best opportunities based on the economic fundamentals at the moment? ziad: the economies across the middle east, especially the oil exporting once, are picking up

-- ones, are picking up. we are seeing stimulus across the region. yes, like in saudi arabia, the pickup in the region has been slow so far. the stimulus will eventually show up in the growth numbers across the board there. manus: hold that thought. let's dig deeper into some of the market aspects. these are the saudi arabia and bonds -- saudi arabian bonds. are credit ratings down here? we put columbia and saudi arabia on the same chart. there is one way travel on the bond yields. does the reach for yields transfer itself into saudi? do you expect much more saudi issuance to come? >> i expect more issuance to come, because i think the government spending, which has revived the economy, obviously has to be finance.

oil at 65 or whatever will not do it. i think there will be quite a bit more issuance. we have seen in euros and dollars. the reach for yield, yes, i think the bond markets will lap up the saudi debt. it is underpinned by the biggest oil reserve in the world. is not toke -- what like? nejra: fair enough. the oil market has featured prominently in everything we have been discussing. what is your outlook for oil for the rest of year, in terms of whether the risks are tilted to the upside or downside? >> i think the risks are tilted to the downside. the main issue, as ever, is u.s. shale production, which i think we'll pick up in the second half of the year now that pipelines are being rolled out. bindplus is in a bit of a to put it mildly. russia has made some and

belligerent noises about expanding -- ambivalent noises about extending it. bit toe chomping at the get their fields up and running. for russia, there is no fiscal necessity to be in this agreement. it is really a geopolitical issue for pizza and -- for putin, which is a perfectly valid reason. that outlook for next year, demand wise, the iea saying all of next year's increase in demand can be matched by non-opec supply. where does that leave opec? it is probably going to have to increase its cuts at some point next year. manus: ok. the question is, could we see that come sooner than we think? it very much depends on the political outcome. james, stay with us. ziad is our chief economist from

bloomberg economics in london. quick question on iron ore. iron ore tumbles 4% in singapore. this comes down to concerns about the supply outlook. one could argue that the oil markets have not got a dissimilar position to deal with in terms of u.s. permian production weighing on the overall market. there you go. singapore down nearly 4%. nejra: interesting that you have that drop off. has have said that iron ore become disconnected from the fundamentals after the huge rally. the u.s. celebrates its independence day holiday today. stock and bond markets are closed, along with government offices. in europe, we will be hearing from a number of central bankers , including the ecb chief economist at ecb vice president. manus? manus: and the afternoon, the italian finance minister,

giovanni tria, will give a speech in rome. least, pope francis holds the russian president, vladimir putin, at the vatican today. it will be their third meeting since they last met in 2013. ♪

♪ today at 4:00, our boston pops spectacular airing later today. the u.s. celebrates later today. sky.ction will be in the the celebration in washington happens every year, but almost never includes presidential speeches on the mall. president trump would independence day differently this time. agenda, in military parade with tanks. they will temporarily close airspace and ground commercial flights at reagan airport.

protesters have a permit to display an inflatable baby version of the president. the overall cost of the event is unknown. a similar of that the president wanted to hold -- event that the president wanted to hold was $21 million. manus: it will be a spectacular boston pops. matt miller gets all of the great gigs. let's see how the celebrations will occur this evening come about how americans actually celebrate? barbecue, 150l million hot dogs, 750 million pounds of chicken, 100 million pounds of beef, and they will wash it down with approximately 5% of the annual beer consumption. this is a holiday for a long weekend. a glass of beer and a hot dog. debra mao is in hong kong.

she has much more serious business with the business flash. --deutsche bank overhauls deutsche bank's overhaul plan could reportedly cost as much as 5 billion euros. it could tip the german lender into a loss this year. the banks restructuring strategy may be unveiled as soon as next week. boeing offering $100 million to the families of victims of the two crashes on the 737 max. the money will go toward education, hardship, and living expenses. the american plane maker committing these funds over multiple years. news on a long-sought after deal. big m carlyle have made a 3.4 billion euro bid to acquire a german lighting company.

osram will decide shortly if it was accepted the offer. the supervisory board -- if it will accept the offer. the supervisory board set to meet later today. nejra: all eyes will be on the numbers for u.s. jobs data tomorrow. the fed will be looking for signs of strain as policymakers consider whether to cut interest rates. while many are leaning toward a reduction, the cleveland president -- fed president says it is too soon to call for one. >> we expected some sloan this year to trend -- slowing this year to trend. nejra: let's bring in the chief economist at standard financial group. she argues there are a number of data points coming that could lead the fed to actually cut, and not starting with the jobs number. do you agree? james: the fed is in a bit of a

bind because the markets are at least baked in at least a 25% basis cut in july -- 25 point basis cut in july. i think tomorrow will be critical. i think anything significantly will give a green light to the fed. we had a disappointing adp number yesterday. i think that will be enough for the fed to move. i have sympathy with the view that there is not overwhelming evidence that the economy is beginning to slow drastically. ever, to bes, as ahead of the curve. they need to anticipate downturns low ahead of time. manus: let's try to interpret -- well ahead of time. manus: let's interpret -- try to interpret what's going on with bond market. you go back in history and we can always manipulate data, that's fine.

if you go back, you have got the global financial crisis, savings and loans way back. you have got a number of different moments. 30 year paper traded below the fed's fund paper. how ominous is this chart or not? year, i don't know too much about that. i am still looking at the three-month versus the 10 year. it is almost in the sense that, you know, -- manus: this proceeded pretty difficult times -- preceded pretty difficult times economically. just: i think it is another sign that bond markets are very nervous and inflation expectations are very subdued. the growth outlook is therefore, you know, pretty soggy. i think -- don't think it will, in itself, trigger anything. it makes investors that much more edgy.

manus: james, thank you very much. the chief economist over at samba will return. we will talk a lot more about trade. this is bloomberg. ♪

♪ from: good morning bloomberg's european headquarters in the city of london. i am nejra cehic. ♪ manus: i am manus cranny live from dubai. this is "bloomberg daybreak: europe." these are today's top stories. fur exchange. larry kudlow says trade talks with china will continue in the coming weeks after president trump slams beijing and europe for playing big currency manipulation games. the next catalyst. global bond yields pommel, but there will not be fireworks for u.s. treasuries today. investorse agenda for

, the payrolls report for june. crowded trades. mark mobius tells bloomberg that negative rates should be sending investors towards em debt. he also weighs in on affects manipulation debate -- fx manipulation debate. >> the chinese have used that weapon. -- the currency weapon has been on the table for some time. as you know, the chinese have used that weapon. ♪ nejra: good morning, everyone and welcome to "bloomberg daybreak: europe." 7:00 a.m. in london and just under an hour from the start of cash equity trading in your. cash, stock, and bond markets closed in the u.s. for independent state. we hit records on the at -- independence day. we hit records on the s&p 500, the dax. the euro stoxx 50 going into a

bull market yesterday. we are seeing a really different story from equity and bond markets. ftse 100 futures flat. dax futures, looks like money could continue to move into these equities. we could even see a flat open after four days in the green. what has stolen the show in markets is bonds. manus: absolutely. the question we needed to ask ourselves -- we need to ask ourselves, talk about the bond yields going towards the negative deposit rate. it would not signify an implosion for him. let's have a look at the bond board. the cash market is closed. the treasury market itself is open. has escaped this deadly moment of where the eu. them. the question you -- analyzed penalized them. are you irrationally exuberant

when it comes to battalion that -- italian debt? as far as the markets, i still say the best thing i have read is that from pimco, you have probably covered in the past couple of days, have been and help -- heaven and hell. risk and risk assets are priced to perfection and their lies the issue. let's get to juliette saly in singapore with your markets. juliette: it has been a little bit more of a subdued session in asia. pretty much for those reasons you were alluding to. we are not going to see u.s. trade thursday. we can is coming through in china's market -- weakness coming through in china's market. money going into india stocks ahead of the budget tomorrow. australia closed higher as well, a fourth session of gains. you have seen a little bit of money going into korea and japan

as well. the nikkei up by about 0.3% on the close. there was a big bond auction in japan. let's have a look at some of the other assets we are watching. in the last half-hour in singapore, there has been a big tumble in iron ore futures prices. that is one to watch for the european session in terms of potential moves coming through in those metals players. urge come through in the -- coming through in the hong kong dollar. more signs perhaps of some strong, or some strengthening in terms of support for those assets from the hong kong monetary authority. the offshore yuan a little bit higher as well, holding fairly steady after we had president trump accusing china currency manipulation. nejra: juliette saly in singapore, thank you so much.

, justtake a look at osram because it is getting 2.6%. we could see gains when the cash equity marketsos -- ram confirmed -- osram confirmed the 3.4 billion euro buyout from bain an carlyle. manus: the last time we heard profits wouldsaid grow this year because it was reducing its markdowns and reining in its inventories. the full-year outlook. they can give us guidance. full-year outlook remains unchanged. year to date, when it comes to the closing retail arm, they are saying that trading has recovered strongly in june. they say year to date sales are 4% ahead of last year at a fx rate.f ratex --

when it comes to sugar, i don't like the old sugar. it is not good for me. sugar was in line with the last year in the third quarter. bulwark, the, -- question is, where are you shopping when you are out there? the retail food side. let's talk trade. the u.s. and chinese officials are set to resume talks in the coming week. larry kudlow says that for now, these discussions will be by phone. his optimism over a trade you have not stopped president trump deal has not stopped president trump from loving accusations against china and vyingu -- le

accusations against china and the eu. nejra: we talked to mark mobius about what he thinks about merck and see -- currency tuition. -- currency manipulation. joining us now is luca paolini from pictet asset management. how high a risk do you see the threat of currency manipulation globally? luca: i don't think this is the main issue. since the global financial crisis, almost every government used to slip into get out of -- used this to get out of inflate -- deflation. i think it is pretty much about politics more than substance. course --l, guess, of yes, of course the rhetoric sometimes does not match with one on with the treasury department. i have mark mobius, -- had mark mobius, who says he thinks the

chinese may have used the currency as a weapon. do you think the slight strengthening, do you think they have held off letting it off the leash. luca: look, i am not completely convinced, in the sense that it is true that you have seen. of weakness --. of weakness in the currency. we have seen the same situation in europe. we are still in an environment deflationary pressure. it is almost inevitable that if your economy is struggling, it is almost inevitable your currency fluctuates. i personally think the currency manipulation kind of story is a little bit overblown. it does not mean it is not true. it has always happened since

2009. this is the kind of thing governments usually do when they are facing deflationary pressures. nejra: the other thing mark mobius talked about was low global interest rates, and therefore, where he would see money shifting into e.m. bonds. we can clearly see that global interest rates are at the lowest in 18 months. however, we have not yet hit that low from back in 2016. manus made the point earlier that we are seeing a rational moves in bond markets. is this -- irrational moves in bond markets. is this a rational moves in bond markets -- irrational moves in bond markets? luca: i think so. inflation is not zero. inflation is just slightly below target. the risk of a trade war is still there. when you look at where the global economies and bond yields gap,there is a massive which can only be explained by central banks continuing to be

dovish. will they stay dovish like this? i think the bond market seems to be pricing in i think too many cuts. how does that manifest itself? do we get one rate cut not in tune what people think that's with what people think? if disappointment comes, it will come from the fed and what will the market consequence be? luca: i think it will not just be from the fed. the expectation for a rate cut is pretty much there, which i don't think will materialize. i think the surprise is that there are more than 100 basis points of cuts priced in. at the end of the day, either we get a recession, which will not be good for markets, or the fed, it is almost inevitable that at some point they will say, the

economy is not as good as we thought, maybe there is a trade deal. at that point, the fed may cut once or twice. for the global economy to remain kind of soggy, which i find difficult to believe. nejra: you are underweight bonds at the moment. nasdaq -- 500 dow and s&p 500, dow, and nasdaq, triple record it yesterday -- triple record yesterday. that outlook sun earnings not looking too sparkly. luca: we saw there were -- bonds were massively overbought and incredibly expensive. i think of bonds continue to vote, that would be a clear sign -- if bonds continue to fall, that would be a clear sign we are going into recession.

it is true in the last few months it was incredibly supported. now we have reached the point where i think part of the planning bond yields will be very negative for equities. that is why even on equities we still struggle at the moment. nejra: interesting. the consumer is grand. i am paraphrasing aggressively. until you see a dislocation in that, she is not convinced you need rate cuts. you said no rate cut disappointment from the ecb. bonds traded negative. let's just rounded all up -- round it all up. if there is no rate cut, where does that yield return to? well, i don't think what the ecb could achieve by cutting rates a little bit more will actually -- when actually, a lot of the reason why the european

economy has been weak is because of the trade war. that is something outside of the ecb to control. europe is still quite solid if you look at employment, wages, construction. i think the ecb obviously has an issue credibility. i think they will probably make more, change their forward guidance. i think -- don't think they will be rushed into a rate cut. they obviously want to give the signal that they are ready to act, which is the right message to send. i don't think they will be rushing any decision, until, if and only if the data will get worse, which we don't expect. nejra: you expect the data to get better. you did, however, say that you were a bit concerned about equities as well. it's not like you are full on risk on in the portfolio as well. what is your preferred asset class region? luca: we don't expect much

upside for equities. some areas of the equity market have value. european equities is one. everybody is worried about europe, about the banks, about italy. i think the situation is much better. the water -- the other one is emerging markets. what we want to avoid is the path of the market, very cyclical, and where the expectations are very high. this is mainly in the u.s.. u.s. cyclicals for us are basically where the risks are. expectations are too high. earnings will not go up 10% next year in the u.s., we think. this is where we are much more cautious. manus: thank you very much. chiefaolini, strategist at pictet asset management. -- ab foods,make

commerzbank. the price target average is going to come down, so down by about 17%. analysts basically kicking in here on the recommendation on that trade. keep an eye on that stock as we go towards the opening. let's get a check on the first word news. debra mao is with us. president trump has warned iran on stepping up uranium enrichment. iran says it will restart a reactor if europe fails to offer economic guarantees by july 7. the u.s. is hitting back at

huawei's challenge to the law that prevents it from selling to federal agencies. the government says the law aims to protect the national interest. they say it is designed to prevent china from gaining a strategic foothold in the networks of federal agencies. china has accused the british government of interference in the affairs of hong kong. beijing reminding the u.k. that territory is not what it used to be. this escalates the world words after prime minister theresa may said she was shocked by scenes of violence of protesters -- as protesters stormed hong kong's legislature. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. nejra: debra mao in hong kong, peggy so much. coming up next -- thank you so much. coming up next, we speak to michael d'arcy. he is in town to launch ireland's international financial services strategy.

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♪ 7:20 a.m. in london. this is "bloomberg daybreak: europe." i am nejra cehic in london. manus: i am manus cranny in dubai. let's get a quick snapshot of the markets on this fourth of july. if you are beginning celebrations early, we are just off a record. third day in a row we saw the s&p futures rise. nymex crude down a little bit. there you go. kissing the lower bound. .39%.n bunds, negative just a moment in time of when we really do break that level, isn't it?

nejra: absolutely. goldman sachs sees as having -55 on the bund yield by years and. we are not seeing the precipitous drops we saw yesterday. the 10 year italian yield, negative six basis points. 10-year belgium and french yields also in negative territory. euro stocks yesterday went into a bull market. let's turn to brexit. both boris johnson and jeremy hunt have bowed to rip -- promised to rip up the controversial irish backstop. how is ireland navigating all this coming out of westminster? dublin is looking to make the nation a top-tier location for finances. ,ith us is michael d'arcy minister for financial services for the republic of ireland. great to have you with us. thank you for joining us on set. what are you hoping to achieve

with your u.k. launch? michael: we have a hugely vibrant sector in ireland. what we want to do is add to our current operations and move up the value chain financial services. manus: minister, good morning. aybreak."o "d more financial banks, is is central-bank equipped to take that on? the have the tolerance to take on -- do you have the tolerance to take on additional systemic risk? michael: we do. the risk is a european risk rather than an irish, domestic risk. risk hasation and changed. it is not like the way it was for the last crisis.

the connection between the sovereign, the institutions, that era is over. nejra: what the government come ,nder -- will the government under any pressure from business groups or farmers that stand to lose the most from a no deal brexit? will the government, under pressure from these groups -- come under pressure from these groups? michael: the backstop is an insurance policy. we do not want it to be involved. we do not expect that there will be a trade deal -- we expect there will be a trade you agree to after the withdrawal deal is agree to in the parliament. it has been agreed by 28 governments. manus: michael, one of the other big discussion points has been from the candidates in regards to the use of article 24. if there is no deal, we can come

to an agreement under some old legislation and use article 24 and still have no tariffs. i have written down three options for you. is this fanciful, delusional, or perfectly rational? nejra: [laughter] michael: a little bit of everything. nobody wants to go there. we expect a deal can be concluded. the u.k. has voted to leave the european union. they are leaving the european union. we are disappointed with that. the u.k. our closest friends, closes trading partner. closest trading partner, closest friends. nejra: that is a lot of talk that a hard, messy brexit could lead eventually to a united ireland. could it? michael: is difficult to predict that. these are decisions to be made at some stage in the future.

they are probably decades away. i think talk of a united ireland is very premature. brexit, the u.k. is leaving the european union. we are disappointed with that. any talk in that direction is very early. you,: michael, can i ask do you get -- is the government at home in the republic of ireland moving to a higher preparedness for hard brexit? is there anything additional you are doing in preparedness for hard brexit? is there higher risk in the cabinet now? michael: certainly it is, manus. we had an economic statement last week in the circumstances of a negotiated you -- statement last week. a disorderly exit from the european union, we believe we may run a deficit of up to 5 billion euros.

that is a 6.5 billion euro swing. that is a huge impact on the irish economy. we are preparing for the worst-case scenario. we are hoping that is not the case but we are prepared. nejra: to go back to your strategy, how many jobs do you expect to be graded? -- to be created? michael: about 5000 jobs. it is not as ambitious as the previous strategy. innovation and technology will have an impact on the sector. i don't think anybody is saying we will be where we were five years ago. it is 5000 jobs. 50,000 directly employ jobs within the sector by 25. nejra: thank you so much for joining us. michael d'arcy, minister of financial services for the republic of ireland. the european open is up next. --opean stocks, s&p 500

european stocks down. european futures ticking ever so slightly higher after the euro stocks 500 went into a bull market yesterday. this is bloomberg. ♪

anna: good morning. welcome to "bloomberg markets: the european open." i am anna edwards in london. today, where are the fireworks? gear to a modest open after the highs. dax touched the cash trade is less than 30 minutes away. president trump hits out at beijing and europe for playing a "big currency manipulation game." will the u.s.