manus: good morning from dubai. this is "bloomberg daybreak: europe." i'm manus cranny. nejra: nejra cehic i'm -- i'm nejra cehic, these are today's top stories. goldman's top analyst says monetary policy could turn into a hall of mirrors. a warning of his own. >> i think the market got to dovish on the fed. the idea they would do 50 basis points in terms of easing in july was too optimistic. more to come, hong kong's protest organizers say there are more demonstrations ahead. this as the prime minister

legislation,extra -- extradition legislation saying it is dead. deutsche bank shares slumped over 5% as danske bank flashes its profit forecast for the year. manus: welcome to daybreak: europe. time for a little defense. s&p, lower. it is blackrock who leads the charge this morning, cutting their equity risk, changing cash balances. go moderately defensive, the difference between blackrock and blackrocknley is likes u.s. equities. they still want to be overweight

u.s. equities, so that is something to bear in mind. how much more bang for your fed back will you get? we will put that to the guest host this morning. let's look at consequences of over ambition. capital. -- apple. the michigan what happened during the session, a downgrade coming through. fundamental deterioration they are saying. they are worried about the iphone and in terms of analyst, they haven't been this negative on apple's 2004. ratings on the stock, the most since 1997. the market is pricing in 87 basis points of a cut. three things driving the dollar. ning,cuts, trump jawboin and the third is what powell does tomorrow.

messaginggressed the dovish nettle and reinforce it? he speaks three times this week. it is almost like the garden of guess thethsemane. nejra: you wonder what some other risk points are doing for traders. feedsuth korea-japan spat into apple in terms of do we get disruption of the global supply chain and what does that mean for semiconductors and the likes of apple? the 10 year yield has jumped can basis point in 10 days. 2%, two .03. there is a risk off labor to markets. european equities closed flat yesterday and futures pointing to a lower open today. u.s. futures pointing lower looking at the s&p 500. oil, geopolitical risk premium and concerns around iran, but is declining the first time in a 57.48 and with european

equities, i believe it with deutsche bank because the stock end of the day low having initially gained. is no room for error and noting challenges and the fact you profitability targets may be too ambitious, so concerns starting to come in around whether deutsche bank can implement this broad restructuring and if it will work. let's check on the markets in asia with yvonne man. e: lackluster trading asia today. we are licking our wins from heavy selling monday so we are -- wounds from heavy selling monday. volumes are lower and we are waiting for jay powell to speak. we are seeing down .8% despite what we heard from carrie lam saying the extradition bill is dead. he saw the reprieve and then resumed the slide. fornikkei and kospi, a flat the tokyo stocks. kospi, we are marginally lower.

south korea and japan are restarting trade talks but we heard from the japanese delegations these curves may not curbs may not be withdrawn. with currencies and stocks, we're watching the hong kong dollar today, weakening to a one-week low. perhaps the cash squeeze in the city is easing off a bit. won strengthening on some of the trade optimism we are seeing. we are rallying about .2%. upsung seeing a bounceback, 1.8%. geely coming out with a profit warning the first half looked 40%.from missing downgrades from banks and four days of losses at around 18% declines. manus: thank you very much, yvonne man in hong kong.

the latest on the asian market. markets are gearing up for jay powell's testimony to the house of financial services committee and the senate banking committee this week. many wonder how he will react to friday's jobs report. goldman sachs chief economist says the bond market pricing may over basis points of cuts the next few fed meetings suggest policymakers are relying on crowds. we're hearing the market has become to dovish on the fed. he spoke exclusively to bloomberg in new york. to dovishket got on the fed. the idea they would do 50 basis points in egypt -- using in july was too optimistic. ultimately, the fed sees low inflation and i think they see slowing growth. i think the prudent thing to do is 25 basis points so when we

were talking ahead of the jobs report, that is where we stood. look, there are few times -- only three or four times in history where the fed funds is more than 50 basis points above the two-year. every time that happens, the fed eases. >> this is a key point. i'd like to bring up a chart that illustrates this. we can show everyone what has happened in the short run. amazingly, some people have missed this the virgins between the -- divergence. >> when the market gets like it happen in 1989, 98, 2000, and 2006. every time, the fed needed to get ahead of the curve. 2 thousand six, and 2007, he got bumpy but in 1998, the market went to the upside.

have aw is we don't nasty recession but don't buy off on the case that we will have a 1998 to 2000 run-up. that is the big question though, right? does this look like 89? ors it look like 1998, 2006, 2000 when instead of having equity markets higher 12 months hence, you need a correction. >> let's walk through those. to me, the case it is 2007, companies are over earning abnormally, i don't see that. 2000, you had a valuation issue. 1989 would not be a bad test case where you bumble through, make it through, the central banks got dovish but you have core for profitability issues. shakespeare, sound and fury signifying nothing. we think the market is caps on the upside by -- you don't get any more multiple extension from here but on the downside, you ase a protective fed as well

peers in the global central banks. nejra: that was kkr caution head of global macro and alan assignation speaking with erik schatzker in new york. joining us in london, the macro fund manager at mag investment. jpmorgan talking about risk of an abrupt selloff in the bond market. they talked about gradual increasing bond volatility, deterioration in liquidity sparking a bond trentham -- tantrum. at the same time, goldman sachs talking about a hall of mirrors and the risk of that taking the funds rate away from the level justified by economic fundamentals. are we getting set up for a backup in yields? >> the bond market is vulnerable at the current juncture. it is worth trying to make sense of the confusion. you are getting different opinions, people trying to over forecast.

way too specific about what will happen and what might happen. the fundamental observation about the world is that everybody, central bankers, market participants, are repeatedly exaggerating the probability of a recession and the reason is mental scarring. everyone stills remember, it was you brought up in the quote just showed, great financial crisis 2008. any time you get a slowdown in economic data, there is a collective overreaction and fear this could more from to some disastrous recession and the market over prices that. you are seeing that everywhere but the point i would say is when you look at the nature of price action, what you have seen in bond markets over four to six weeks is not a considered reaction to shifts and underlying fact. it is investor psychology and market momentum and those phases are always vulnerable as people reassess.

why am i buying tenure german government bonds at a negative yield and you can get a significant reversal in yield in those conditions. manus: good to see you. veryarket is potentially vulnerable. if you look at some extreme moves in italy, the aggressive ,ositioning in u.s. treasuries what is it that reverses this for anyve move to haven reach for yield? what turns the story? eric: again, this goes back to how do asset prices behave? q can get a reversal on nothing -- reversal on nothing. you point out the moving italian bonds. he had been long italian bonds the last year. i took that as an opportunity to close most of those positions.

it was not at all obvious anything fundamentally has theged with respect to outlook to the political environment, fiscal policy, and you can get a 40 basis point rally in the government bond market. to 50uld easily get a 25 basis point reversal in global bond yields without anything significant happening. if i was to point to -- i suspect there is probability we see some improvement in the data over the next three to six months, or the more obvious things which is you get disappointment with respect to what people expect from monetary policy. nejra: i understand what you are saying in the move we have seen in bond yields recently may not be rational and perhaps brace for a reversal in yields but won't it be short-lived central banks are the only game in town and ready to save the markets? eric: there is a circularity here. in the united states, first of all, to the extent one can say

anything about the short run in economic data -- if you see week data, given expectations, you should shift you get an improvement in the data. -- other point is if you thee had a stimulus to economy because very few market participants borrow at the fed funds rate. kim bro 10 year on the, five-year government bonds as a benchmark, credit spreads have compressed, bond yields have rallied. that is stimulus. there is this kind of circularity that the market prices in that the fed will ease policy. a reduces the probability of the fed increasing rates. you want to have a calm head and think about sustainable returns. you are not getting paid to take on the risk of the bond market today. it is a pretty risky asset government bond now.

manus: what about on the equities side? if we look at the gtv library, the best first half in 2019 inequities. we get two rate cuts from the fed, let's a. is that enough to give me the kind of $5 trillion return you had in u.s. equities in the second half or is the upside in the goldilocks scenario cap from here -- capped from here? eric: you should not be investing inequities on the premise that the fed is going to cut interest rates and save the day for you. i think that is a very risky thing to be doing because the fed might disappoint you or the circumstances in which case the fed is cutting interest rates are disappointing aggressively if there is a negative economic environment. if you are in a queen market investor, you look at what valuations are telling you and what sustainable long-term returns are and you've got to be able to weather volatility or

you shouldn't be investing in the equity market. if i look at equities today, i would say clearly a lot of what has been driving the equity market has been the bond proxies so there are parts of the equity market that look related. i got low prospective returns and iran attractive. -- unattractive. the equityithin market is clearly and understandably in the cyclical components. you've got to be comfortable with that risk but your potential risks are high in the cyclical parts of the equity market. manus: much more work to do this morning. eric lonergan is from m&g investment. let's get you up to speed with your first word news. annabelle drillers --annabelle droulers is in hong kong. greece's new prime a financeas chosen minister carried one of the budget chiefs first half to negotiate the relaxation of

greece's fiscal target. that would free up rims for tax cuts and other measures to boost economic growth. tensions between japan and south korea are threatening chipmakers like samsung after japan's restrictions on materials crucial to semiconductors. depends on whether the japanese prime minister and south korean president can work out a compromise. a vicious cycle of measures and countermeasures would not be ideal for both countries. if south korean companies begin experiencing actual damage, the government have no choice but to respond as necessary. i hope it doesn't come to that and we urge japan to withdraw it measures. annabelle: deutsche bank's revamp will leave thousands of financing employees out of work and with firms throughout the industry running lane, some they struggle to find jobs.

automation and reduced risk taking have cut the numbers of positions available. said itsachs last year stock trading unit had three people doing a job once done by 500. 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. nejra: annabelle droulers in hong kong, thank you. sticking with hong kong, carrie lam said her bill that would allow extradition to china is dead. her announcement follows weeks of mass protests including the ransacking of the city's legislative council building. >> there are still lingering doubts about the government's whethery, or worries the government will restart the process in a legislative council. that there isre no such plan. the bill is dead. joining us now is bloomberg's hong kong bureau chief.

freight have you with us. what -- great to have you with us. what does this mean? is she withdrawing the bill? >> not really. she is not withdrawing the bill. there is a technical difference. i'll not go into details but what she meant is a strong signal the government has sent on extradition. we have just heard, she won't wants to putrns -- concerns at ease and understands the bill has caused gloomy sentiment in hong kong and she is willing to have dialogue and open constructive, particularly with the young people. manus: how did the protesters react? we see in other news conference this morning with leaders on the civil rights front calling for more protests. yes, we are almost three hours since carrie lam has spoken.

we talked to protest leaders, the general sense is they reject her. one of the opposition lawmakers even put it as too little too late, and to fake. a protest leader in hong kong also rejected her claims and said there would continue to be more protestsl. it looks like the press -- protests. it looks like the pressure will continue in the future. more to come on that story. it is not one that will go a. coming up, game changer. global stocks, global banks from society general, credit agricole reverse their call for gains in the lira falling the ousting of turkey central bank governor. we discuss emerging markets. this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." i'm nejra cehic in london. manus: i'm manus cranny in dubai. the removalmarkets, of turkey central bank governor and the u.s. interest rates cut cycle clouded risk assets. president erdogan replaced his governor fueling concern about the independence. morgan stanley doubled down on their emerging-market bets. they are reiterating investors should buy the dips. eric lonergan is from m&g investment. we've got banks mailing on their long lira bets. and you can is gone expect a rate cut july 25. you would suggest that the carry negative trump this

rhetoric at the moment from these three houses? eric: absolutely. for me, it is not a intellectual breakthrough to observe the turkish central bank isn't independent. this is an ongoing part of what has been happening in turkey. we know there are fundamental issues and problems in terms of governance from a monetary policy standpoint but that is not new. as an investor come you've got to ask you might getting paid to take on risks? what are the underlying fundamentals doing and you are getting close to 20% carry. if you look at turkish bonds on the lira, prior to this you had a strong run so we shouldn't be surprised or volatility but if i stand back and look, 20% carry to take on the leery underlying fundamentals are improving substantially which is setting you up for a better and stronger

economic environment. i would be pretty comfortable taking on the lira within a diversified portfolio today. nejra: i understand the carry trade with the lira but earlier, you said it might be overdone in terms of expectation for fed rate cuts in developed bond markets and u.s. bond market, but also in u.s. equities. why would you want to buy em on that thesis? eric: it is a fair point and largely depends on how my optic you are. -- ifworth thinking about you go back to december when there was a huge change in trade expectations in the united states, your prior would have been emerging markets will do very well. we have three to four years of periodic panics in em associated with fed tightening. then you have a phase where there is a huge reversal on interest rate expectations. it has only been in the last

four to six weeks you have had material recovery in em asset prices. i wouldn't be surprised if you had a reversal in u.s. interest rates expect tatian and em proves immune to it. the currency doesn't have to do anything for you to make money. hugh just sit there and him not yield. in a sense, you are not even premised on a positive asset price response to an interest rate environment. you make money purely out of a carry. lira has to depreciate substantially from here to offset the power of that carry. nejra: depreciation of what source? eric: you need more than 20% annualized from a depressed level already. nejra: eric lonergan from m&g investments will stay with us. not the one to take over for christine lagarde at the imf, so who is? some say it should be a european. this is bloomberg. ♪ we're the slowskys.

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manus: it is "bloomberg daybreak: europe." i am manus cranny in dubai. nejra: on nejra cehic in london. let's get a check of markets around the world. great to have you with us. additional tax charge liability on foreign portfolio investors. what is the setup today? carriedems to have forward into today's trade. the sentiment remains weak on the benchmark index which trades below a hundred day moving average. some downward pressure.

across the board, massive amounts of selloff for banks and especially the nifty bank falling 160 odd points. you are witnessing a lot of pressure on the real estate ande, metals looking weak the i.t. pocket which was more defensive, remains weak ahead of numbers. manus: thank you very much. let's take a look at the asian market session 30 minutes into urope.-- daybreak e we could get a powell speech and he could disappoint us, couldn't he? seeing: already, we are the easing coming off. that has hit the equity session but hong kong seems to be the standout. carrie lam saying the extradition bill is dead but it is awfully .8%, headed for its fifth consecutive consensus.

if it hits six days, it would be longest streak since october when the hang seng dropped 10%. ec japan and south korea selling off trade tensions still ever president. tensions, andes, currencies, it is the commodity sensitive currencies which look to be off as oil falls. going back to hong kong, looking at the volatility picture, i think of interest but one month volatility has spiked above one year volatility. this is odd because typically when you're volatility is going to be priced higher by the nature it is in the future, there is less certainty but with the protests in hong kong, there is some tension, creating this gap. last time that happened was in december in the market wide selloff and now it is local issues which tend to last a few weeks.

look for the volatility picture to correct itself. nejra: thank you both so much. let's get the first word news with annabelle droulers in hong kong. hong kong leader carrie lam says a controversial bill which would allow extradition to china is dead. she stopped short of saying it would be withdrawn entirely. the announcement follows weeks of mass protesters and organizers say they will play major new rallies. >> there are still lingering doubts about the government's sincerity, or worries whether the government will restart the process in a legislative council. i reiterate here that there is no such plan. the bill is dead. annabelle: u.k.'s opposition labor party has taken another step toward opposing brexit as sets policyit

agreed to back a referendum. union chiefs say the policy must be to oppose leaving the eu on any terms and initiated by britain's ruling conservative government. fund manager jeffrey epstein is being held in a correctional center in new york as he awaits a bail hearing on charges of sex trafficking and conspiracy. the charges included sex acts with girls as young as 14 and carry a minimum of 10 years in prison if convicted. he pleaded not guilty in court on monday. 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. nejra? manus: thank you very much, annabelle droulers in hong kong. minister hasrime been sworn in and has already unveiled a cabinet for his entire center-right

administration. a budget specialist with broad experience in negotiating with the nation's capital has been appointed finance minister, so let's get to maria tadeo on the ground for us. mitsotakis already getting on with the job. there is a gulf between what he is promising and accomplished, but what is the first order of business for him? maria: things are moving quickly here for mitsotakis as he is already sworn in. he was the alternate finance minister between 2012 and 2015, so someone with experience at a brussels level that knows how the negotiations take place and who had to help with a bailout. there are two things mitsotakis

has said he wants to do. one is get a tax legislation bill that sees taxes come down for companies. he wants to go to brussels and renegotiate the surplus target, 3.5% of gdp until 2022. he wants to lower that but it is not clear by any means that the creditors will agree to this and if anything, the euro group meeting today has already warned there is a risk greece is not going to comply with its budget target. nejra: good to chat with you. the euro group, meeting today and also discussing christine lagarde. what will they talk about? isn't this just a formality now? this is pretty much a done deal. this was part of a package, the european leaders took three days to get to that stage and they have all endorsed her so finance ministers will say she is the right fit for the job.

there were a number of questions raised about her independence because of her political background and after she gets the nod of approval, which she will get from finance ministers today, the conversation will turn to the imf. european leaders do want to nominate a european for the job. there was speculation that maybe this time, they would let this pass and go to an emerging market country but we understand no. there are a number of names being floated. the problem for the head of the euro group is he is seen as may be too much of a core cut of hawkish. who weark carney understand that for the europeans he is not "european enough" to get nominated from the european council and the leaders. nejra: maria tadeo, joining us from athens. eric lonergan from m&g investments is still with us. we had ecb officials commenting,

the general takeaway is they are ready to add stimulus but not when or how. , how are backdrop you positioning around european fixed income? eric: my perspective would be, the value that did exist in peripheral bonds is gone. if you go back to a year ago when you have the concerns about populism in italy, preaching of the fiscal rules, the bond market discipline to the italians, now the spreads have effectively reversed. i don't think there is any opportunity left on the long side. on the short side, it is compelling to be shorting b unds 10-year and 30 year at similar levels. the last time you were at similar yields post-brexit 2016 come you saw aggressive reversals. q lost years worth of capital soue in german bond markets the idea you can't win short in german bond market is a dangerous perspective to have. manus: with that in mind, the

question would be what does it take to get bunds back to zero because if you look at the five-year swap, inflation swaps, we've given back a deal of that optimism on inflation. do you need to see five-year inflation swaps turn aggressively higher to make that kind of shorting trade work? eric: again, i find them intriguing at the market price. i don't really believe you could have a reassessment of inflation in five years time, a five-year inflation in five years time has genuinely changed. as implied in the shift in those charts, so absolutely that can reverse. it is telling you more about risk preferences, the correlation of investor behavior are ficklece, these beliefs and prices.

you've got to stand back and have common sense. unattractive,is it is death by a thousand cuts. you are paying 40 basis points to hold cash at a bank if not more. german government bonds, similar. you are paying the german government to spend money even though it doesn't want to. these are fundamentally losing trades. you just lose money slowly and every now and then, you get given optimism when the bond market rallies and you get aggressive reversals. these are treacherous assets to be owning. nejra: in terms of what is winning, you said potentially high returns available in cyclical equities and i know that within that come you think european banks are included. we've been talking about deutsche bank. you don't want to focus on individual stock, but some investors underwhelmed by the restructuring. how does the story of deutsche

bank fit into your thoughts there is value in european banks? eric: if you compare and contrast european bank equity and u.s. bank equity over the effectively years, you've been on not dissimilar ratings at various points in time. sector, thereng was considerable consolidation and since then, you've had considerable growth in book values and earnings despite broadly the interest rate environment and the yield curve. in europe over the last five years, they haven't been able to grow sustainably earnings and book value and part of the reason for that has been the interest-rate environment and woth --ter european gr growth, but also excess capacity. it is good to see the likes of -- aree bank aren't shrinking which means higher returns for the sector aggregate -- in aggregate. manus: some pretty strong calls.

eric lonergan, macro fund manager at m&g investments stays with us. it robot revolution has had for the fixed income. data, bute long used as the credit super cycle reaches its peak, traders are unleashing on the state bond market. what does it all mean? dani burger divines the divinity. bring its new meaning. said, it has really been a long time that money making has happened in equities when it comes to quant factors but they are betting they can revolutionize bonds. the idea is you use data, find behavioral biases and take advantage of them.

you buy boring companies because investors tend to underprice them. these are factors and it is gigantic inequities and the bond market. proxys using etf's as a but 97% of assets are. inequities. -- in equities. rebecca was one of the first to do this and i spoke with a fund manager at the firm who heard about this idea in 1998 in his thesis i -- paper that it is catching on the big way. aqr launched a fixed-income mutual fund in 2018. northern trust corp. also raising money for a fund based on credit factors. this strategy is similar to stocks, seeks out securities. momentum, value, low volatility, carry.

it is harder than fixed-income given the number of bonds per company and an issue getting data and of course, the liquidity issues. it is still a timely pitch in. you have a super cycle decade old and any reversal could hurt traditional investors who largely outperformed by chasing yield. saidoke to jcb -- jpmorgan uants, their funds will outperform. jpmorgan offering strategies. four years old, in the white, only slightly outperforming the this year but that that is over time this will win out and beat out yield chasing and duration risk in the long haul. nejra: dani burger, thank you. eric lonergan from m&g investments is still with us. are you worried you will get a beating out by quants in a bond market? eric: i'm not too worried, to be honest.

if anything, the row of quantitative strategies is increasing market inefficiency rather than reducing inefficiency. they tend to move in a uniform fashion and in a sense, the edge is faster. buthan the other quant fund they do the same thing. if anything, you're seeing more flash crashes, more belief reinvesting is how i would invest it and for someone like me, that creates opportunities, just like we have seen in the move in btp's, generically in government bonds, dislocation in the equity market. investor, i will encourage other people to participate on a belief free basis. as a regulator, i would be quite concerned about some of these developments because absolutely, there is a lot less liquidity for the reasons cited in your report in parts of the corporate bond market than in other capital markets. where is we talk about

the next big risk hiding, crowded trades from many of the bond fund managers. i want to bring you back to 2018, february and we moved by 20 points on the vix. shouldn't we prepare, given the intonation of everything you said this morning, on the back wethe algo story, shouldn't be prepared for more spikes in vol at the back half of the year? that's a very good question and i think it will probably depend on which asset you are in. there is no need to over complicate it. it is pretty clear now where the risk is in markets, which is either rate expectations have become too stretched, or independently we see a significant reversal in where bond yields are. with respect to equities, what happens is more complicated. anthe backdrop isn't

improvement, if the yield curve steepen's, you could see aggregate equity indices doing ok but quite violent rotation within the equity market. manus: and that is the warning etc. inm blackrock, terms of repositioning ourselves. great conversation, as always. thank you for joining us. eric lonergan is macro fund manager at m&g investments. let's get set up for the rest of the trading day. a paris court will decide whether the ceo helped the businessman cheat the government out of 403 million euros in 2008. 3:15 in the afternoon. that is when we get more economically interesting. the look lane will answer questions live on twitter. he is a new economist at the ecb and watch for commentary on christine lagarde's appointment

as the new head of the ecb. nejra: later today, president trump will hold talks with qatar in washington. they are expected to discuss economic and security ties and discuss counterterrorism. later, boris johnson and jeremy hunt will go head-to-head in front of a live tv auditions -- audience. this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." i'm nejra cehic in london. manus: i'm manus cranny in dubai. what do brexit and trump have been common? apart from being populist, this triad represents the first phase in a paradigm shift that will see the disintegration of the world order that we have come to know over the past 30 years, such as globalization, and the

idea of an open society. we've wiped out my entire career of 30 years. the book is called "the leveling," the end of globalization and what comes next potentially. friend ofsullivan, bloomberg is the author of "the leveling." former cio at credit suisse a wealth management. good to see you. i take it you got to the end of the advice to the super wealthy to proclaim what the end is nigh. what is next 30 years about? michael: your reduction is far more dramatic and maybe pessimistic than i intended. , we get reminders every day that globalization and never think you and i have grown up with over 30 years is coming to an end. democracies being checked, the independence of central banks checked, growth slowing, etc. and we go through a period the next five to 10 years until we

get new frameworks, new ideas. in that period, the world economy particular has to digest the number of enormous , indebtedness is the highest since the second world war, the power of central banks is enormous. governments have to rediscover the recipe for organic growth and what is exciting is politics is now beginning to remake itself. we are slowly coming out of this political depression or recession. that you are getting the creation of new parties and there is debate in the u.s., democratic race, for example. the whole geopolitical order is shifting. he will go into a multi polar world. we see that already with the eu changing and in particular, this rivalry between the u.s. and china. it has implications for countries like the u.k., for example. nejra: you talk about the era of

globalization ending and giving way to new power centers and institutions. what will those look like? guess towell, i paraphrase it, globalized world is where everything is interconnect did and people tend to do the same in-laws and approaches. we are going into a multicolor world where at least three big regions do things increasingly different, be it to democracy, the internet, etc. also, many institutions of the 20th century, the imf, world bank, world trade organization, in many cases have fizzled the roles set for them, in other cases are becoming defunct. attention needs to change to the institutions of the 21st century. for example, a global climate authority with policy teeth, a body that can overseeing the internet or cyber war, and also you get new alliances and constellations between countries.

we've got at least two, maybe three irishmen on the show this morning. the league of small countries across europe is one new trend. you are getting new military alliances based around asia. you've got a quad, a partnership between the u.s., australia, japan, and india which is beginning to face off against the shanghai cooperation organization, which effectively is a team made up of russia, iran, and china. and every day, we are getting a reminder of that. best example of what it is to export a generation. what should christine lagarde do? we know she will be a great forward guidance communicator. what is the most radical thing the ecb can do? i think the most radical thing the ecb and other central banks can do is admit qe

has run its course and as a result of seven or eight years of qe, central banks have encroached into the political theymy and as a result, are allowing reckless politicians to do reckless things. i'm thinking of the entirely in government, i'm thinking of the in cells president is directing at the fed. it will be healthy if the next phase in economic policy would be central banks slowly begin to step back and put enough pressure on politicians to take meaningful reforms. i think if christine lagarde wants to do that in europe, more qe is not the answer. nejra: think you for joining us. michael o'sullivan, author of "the levelling." manus and i cannot wait to get our teeth into your book. up, our pound traders downplaying the risk of a boris

johnson no deal brexit? there will be a new prime minister, but the same old story for the pound. we speak to the global head of fx research, 10:00 a.m. london time. this is bloomberg. ♪

>> these are today's top stories. channeling bernanke, goldman warns onief economist markets are pricing around the fed. a hall ofolicy in mirrors. henry mcveigh has morning of his own. >> a think the market got to dovish on the fed area the idea they would do 50 basis points in terms of easing in july is too optimistic. more to come. protest, organizers say there are more demonstrations ahead. stoppingarrie lam

short of withdrawing the extradition. saying the bill is dead. and a thumbs down from investors. shares slumped over 5%. they had its profit forecast for the year. nejra: welcome to "bloomberg daybreak: europe." ceo.ing down as that is coming through now from remy cointreau, upcoming changes in the group is what we were expecting and we have no more information for now but the ceo will step down. looking at basf.

manus: the stock is lower. the headline is they were cutting the full-year orchestral last night. the full-year outlook for 2018. of othered a host chemical makers in the same space. if you look at the numbers tracker, you're looking at levels we have not seen since 2009. sales and profit have been cut. trading partners have not eased. overall uncertainty remains high. the embodiment and personification of trade. you have the futures. nejra: european equities closed flat yesterday we saw we us in the u.s. session. judging by how futures i said if incould see a down day europe. deutsche bank shares ended up down more than 5% in yesterday's session so analyst are underwhelmed in terms of what we

got out of the restructuring, questions over how much you can achieve and where the possibility targets are achievable. and keeping an eye on apple. we have that downgrade from rosenblatt cutting it to sell. seeing fundamental deterioration. there are five sell ratings on apple the first since 1997. impacting chipmakers and some parts of the world. you wonder if that will feed to to the u.s. equity session. manus: japan is an interesting sideline on the whole trade discussion. have a look at this board. they are treacherous after reviews from energy. bond futures are declining, yields are rising. what you have here is a warning the mnd team basically saying that in these overreached markets, stretched markets,

there is no reason why you cannot see a spring higher in terms of yield. and analysts said they have gone easing,like, the fed they favor european government bonds relative to u.s. treasuries because the ecb could fed.ore relative to the and on that note, we just have spoken to michael sullivan who said the ecb should put more pressure on governments to get your house in order. the expectations, the tone and internation from the ecb is there is more easing on the way. let's get into the asian markets. innne man is standing by hong kong. yvonne: we are still seeing a challenging day for asian equities, they are drifting lower. we are off the lows of the session but quite a bit of red as we wait for jay powell and the testimony from the fed. we are seeing the likes of hong kong, losses were down.

you mentioned about the carrie lam lines, the chief executive saying this will is dead but it did not go far enough with the full withdrawal. a lot of confusion on that. the reprieve we saw now resuming the slide. we continue to see the cloud between japan and south korea trade. they are going to start talking as soon as we get a reprieve when it comes to some of the semiconductor stocks. the cost be down, japan slightly higher by .1 of 1%. the delegation says they will be withdrawing the export curbs on material. the csi is flat. we saw an ugly day yesterday, the biggest drop in nine months beer that budget which would a disappointment. they are narrowing the budget gap and also not spending enough

, more to boost the economy. let's show you what we're watching in terms of movers and currencies, the hong kong dollars when we are watching for. one week lows for the currency. perhaps that is nearing its end. the korean won down to back just a bit on some of the trade optimism, 1184 and samsung close to a 2% gain for some of the stocks today. a drop.to having it could berofit, 40% lower than a year ago. also the china auto sales rebounded and snapped out of that when your slump but still some mixed messages whether this is carmakers clearing out the inventory ahead of stricter emissions standards. manus: thank you. we are gearing up for jay

powell's testimony. handan sachs on the other mother chief economist said the bond market is pricing near 50 basis point cuts over the next two fed meetings. policymakers are relying on the pounds to he had this morning on the subject. to dovish market got on the fed. the idea that they would do 50 basis point in terms of easing in july is too optimistic. ultimately, the fed sees low inflation and they see slowing growth area the prudent thing to do is to do 25 basis points. manus: joining us now is here dixon -- peter dixon.

listening to the warning shots from kkr and a number of others that have -- stepped into five. alas just called the fonts a slightly treasurers -- treacherous to hold. how close are we to a treacherous reversal and a bond market tantrum if we are underwhelmed by the fed? >> there is every prospect we will see some false not fast but it will -- may not be for long. in market is right to price three rate cuts over the course of the months. the markets are frontloaded but the direction is right. nejra: if you're not in the equity market should you be joining the rally? it's a lot of investors are thinking they said get out, we

heard from the likes of black rock who want to cut their equity exposure. i don't disagree. the concern i have is the timing. it may be wise to get out now. that is something that will give markets a downward leg and let's not forget the markets have in supportive over the course of the last two or three months purely by expectations of rate cuts. that leads to a selloff. i think in the course of the next few months, cautious about where equities will head. the question is you get another 18% return on the s&p 500. ishave a lovely story which wildcardet on the

notion, the u.s. could intervene. they have not done it aggressively to sell the dollar down since 2000 but imd say thad the weaker dollar to support the u.s. economy going into an election cycle could be too great. do you think it is a real risk that the u.s. would be forced into a position of where they would try and move the market given the g20 communique? >> i think there is a political risk associated with the dollar. -- has expressed concerns the dollar is too strong and he wants to see it weaker to improve competitiveness somehow. it is something on the edge of the radar. not something that i would expect the fed to engage in. we are in a politicized world when it comes to monetary and financial conditions area investors are wise to [inaudible] the things you point to is the trade dispute

flares up again. concerns around semiconductor stocks, you get yesterday a downgrade on apple from rosenblatt cutting it to sell. seeing fundamental deterioration. apple one of the shares that could be vulnerable if we have a redistribution of the supply chain because of the trade war how does that factor into the view you have given us in terms of being pessimistic about tech stocks? >> it is a major risk. risk onrough times of an risk off with regards to trade. my take on the u.s.-china dispute is this is something which mr. trump is using is hard campaign. it suits him to ratchet up tension every now and again to that he is looking out for the u.s. that is why he is dialing things down. this is something will have to

get used to over the next few months. the danger is the chinese say we are not lying this game anymore, we are just going to react. you get the risk of a policy mistake. that will haveng major ramifications for the markets and this is one of those trigger points which investors are looking for two maybe prompt the equity selloff which many are thinking about but cannot see what the trigger would be. nejra: lots more to discuss, let's get the bloomberg first word news. says the: carrie lam controversy of bill that would allow extradition to china is dead. she stopped short of saying they would withdraw the bill entirely. organizers say they will keep planning major new rallies. >> there are still lingering doubts about the government's sincerity, or worries about

whether the government will stop the protests so i reiterate here there is no such plan. the bill is dead. annabelle: the new prime minister of race has chosen a finance minister. freeing up tax cuts and other measures designed to boost economic growth area in tensions between japan and south korea are threatening to wallop check -- chipmakers like samsung after onan slapped restrictions materials crucial to the production of semiconductors. much depends on whether shinzo abe and the south korean president monday and can work out a compromise. >> a vicious cycle of measures and countermeasures would not be ideal for both countries.

but if south korean companies began experiencing actual damage , the government would have no choice but to respond as necessary. i hope it does not come to that. we urge japan to withdraw its measures. annabelle: 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. manus: thank you. coming up on the show, deutsche bank's restructuring plan was not the only turnaround investors had to die -- digest yesterday. german lender shares closed down after climbing in early trade. we bring you the latest on the banking landscape in europe. this is bloomberg. ♪

nejra: 10:17 a.m. in london, 42

minutes away from that equity market opening. i am nejra cehic in london. manus i am manus cranny in : dubai. currencies are on the move ahead of the powell testimony. three times he will speak this week. he may not be dovish enough and disappointed dollar, stronger in the back of that. likewise on dollar-yen. dollar-yen hitting a one-month low before the testimony. what does it take to break higher and the hong kong dollar, we have protest ongoing against carrie lam who has idled the bill on moving people back to china but had not killed the bill completely. will powell's testimony main question mark we jumped 10 basis points over the past two days, we're back down a basis point today. we could get a third day of declines on the s&p 500.

tech stocks took a bit of a beating, apple falling after a downgrade from rosenblatt meeting there are five sell ratings on apple's and crude is weaker in today's session dropping for the first time in a week. let's get a bloomberg business flash. wall street has not been this pessimistic on apple in a long time. rosenblatt has been the latest to downgrade the company bringing the total number of bearish analysts to five. apple did not release the imac until a year later in the iphone did not debut until 2001. basf is cutting its for your sales forecasted sales and profit forecast. it has been hit by a weakening order market in the fallout from the u.s.-china trade war. the noted a disappointing

second-quarter saying earnings will be as much as 30% lower this year than last. virgin galactic could become the first human spaceflight company to go public according to the wall street journal. he reports they are trying -- invest in the company for a 40% stake. the newspaper saying the company would be publicly listed as part of the deal. that is your bloomberg is this flash. manus: thank you. deutsche bank shares tumbled in the close yesterday. the turnaround plan fell flat with the market, closing down by more than 5%. raising the initial gains sparked on the news of the exit from the equity sales and trading business. nicolas sarkozy comfort is our banking reporter joining us now from frankfurt. i am not so sure that we should judge this strategic plan on one days equity market shorting but

why do you think the market did not respond more positively yesterday? nicholas: deutsche bank said the growth assumptions are conservative in terms of what revenues they are projecting but there are analysts out there saying if you are cutting back in one area, you will have attrition in other areas and we do not see those numbers stacking up. and then the profitability target looks in doubt. nejra: tell us about the winners and losers in terms of the big shakeup of executives. have seen three management board members leaving. thebank is trying to save

-- this is the most important market for them. that was interesting. you have the investment bank who as an executive leaves. he is reporting directly. corporate finance hat reporting. a lot of people moving up were moving around and also some new names. thank you for joining us. and peter dixon from commerzbank is still with us. what is your take of the banking landscape in europe right now that we've got this restructuring happening from deutsche bank? peter: bank margins are being squeezed by negative interest rates in europe which is one of the major problems. the second one is the increased

amount of regulation. more difficult and costly to engage in certain forms of business. with regard to the addressed rate environment i guess that we would still be in negative territory and possibly going lower. difficult to believe that we found ourselves in this position. we are in an environment where the monetary authorities have more instruments and it will have long-term consequences one of which is on pensions and profitability. that is the main thing which is hurting banks. and i guess the reason why banks are slow to respond to that environment is they did not believe rates would remain so low for so long and deutsche bank and other banks are having to bow to the inevitable with regard to cost cuts. and quite usre

ways of cost cuts to come. can i turn the slightly around? a -- isthe criticisms you did not get the bad bank and siphon off the toxic assets. here we are, 70 4 billion, we do not know what the final number goodbe but this is not a cathartic moment that deutsche bank steps forward and eels with the elephant in the toxic room. peter: i think it is the biggest step the european banking sector has taken in this regard and you are right. european banks have been a lot slower off the mark come here to the u.s. which acted quickly. this you dropped in 2008. european banks have been much slower. it has been an incremental process. that is a realization

incremental processes will not work. the landscape has changed and despite all the difficulties of cost restructuring in europe compared to the u.s., the move is a recognition that now is the time because if you do not act now it may be too late. let's talk about whether the ecb needs to act now before comes to a because commerce work has been our head in terms of the call for easing. they were calling for 10 to its and changed that to 20. do you think the bond rally has further to go? >> it has a bit to go, yes. i think the rate moves for now are priced in. i think as the markets look ahead as the toll becomes even morer with the prospect of kiwi being dangled in front of the markets, you see more of a rally. we are looking for the tenure bund yield to hit by year-end which is not far from where we are now. you saw the rally from 3040.

it could go lower. from have been hearing various guests, the prospect is the markets have overdone expectation of global monetary easing so you might see some snapback before you resumed the downward trend in yields. is really's see who enough to buy the greek bonds. we can discuss that the next time. teeter dixon, global equities economist at commerzbank. that is it for today. we have equities slightly soft. they are all beginning to say show some caution, scale back. two different views from what we saw from yesterday in regards to what they think of europe and japan. goldman sachs talking about the fed becoming a bit of

a hall of mirrors situation. what will that mean for bond markets, do we get that taper tantrum type scenario? or pound traders down risking desk downplaying the risk of a brexit? saying it is the same story for the pound. we speak to david bloom. this is bloomberg. ♪

anna: good morning, welcome to bloomberg markets, the european open. the markets say consider the dove. you can u.s. equity futures point lower as markets await testimony from ron paul. the cash trade is less than minuteses what -- 30 away. ♪ anna: bad news from basf, cutting sales and profit