nejra: good morning from bloomberg's european headquarters in london, i am nejra cehic. this is "bloomberg markets: european open. williams hits dovish notes. the comments are academic in nature am other regains ground. days losses after an american warship downs and iranian drone. the u.s. president calls and other nations to protect their ships. corpus galore, boeing shares drop. europe, the new chief

executive, we hear from the head of the groups china's business exclusively. this is long-term, we have one of the biggest production bases. nejra: welcome to "bloomberg daybreak: europe." 6:00 a.m. in london. williams, andom the markets react. bond markets price 41 basis points, we have pulled back from that, but yields across the curve. yield, to your yield drops below 1.80. we move up three basis points

today. we see dollar reaction to the fed speakers. yen, and japan inflation data pushing the yen weaker. the youngf equities, affecting asia, but u.s. futures on the front foot. today's get gains in session. gold hitting a fresh six-year high. brent jumping on concerns around geopolitical risk around the strait of hormuz. juliette saly in singapore with lots more for us. a pretty happy friday for asian equities today. a strong rebound coming through in japanese stocks, yesterday had their worst session in more than three months. helped out by that movement in the yen. even though inflation nowhere near, it did come in line with

expectations getting back everything it lost yesterday, up by 2%. hong kong stocks looking good along with those in china. over the course of the week, it looked like it will be positive for asian stocks, up 0.5%. japanese stocks ahead of earnings and net warning about canon coming through with a big job, underperforming this week. weekly losses of about 1%. yesterday youay, had netflix shake the market up. there is still buoyancy in tech. tsmc in taipei having its best session in two months and

flowing into the japanese chipmakers. sydney, ross mcewan, trying to turn that bank around. at one of thek other major banks in australia. juliette saly in singapore thank you so much. equity markets got a tailwind on dovish comments from richard clarida and new york fed president john williams. the comments arrived before the blackout period before the next meeting. williams said it is important to take preventive measures than wait for disaster. it moved market expectations closer to a 50 basis point cut this month. richard clarida said, you do not need to wait until things get so bad to have dramatic rate cuts.

it adds more fuel to easing money markets, pricing in 41 basis points in july. this relates to the 35 basis points after a new york spokeswoman took the unusual -- she says these were on an academic speech on 20 years of research. asking, will the fed take a small step or a giant leap this july? reach out to us and the mliv team on your bloomberg. ,oining me now, michael sneyd global head fx strategy & cross asset strategist, bnp paribasm our guest host for the hour. depending on whether you expect a small step for giant leap, what trader you setting up ahead of the july meeting? michael: we think there will be 25 basis point rate cuts, and 50 is unlikely. what we will follow with another

rate cut later this year. ,e think the trade best to play the rates market is looking overdone with the pricing. we see opportunity in fx. we like bearish dollar trades. you have seen the dollar, a little bit since we have seen the fed expectations of cuts increase. nejra: you think the dollar can weaken even if we do not get an extended easing? michael: that is right, what is key is what the fed delivers and what the market expects. when you look back at the cycles, even when the fed insurers rate cuts in the cycle, in a full prices easing cycle.

the market will probably price more, and that will undermine the dollar. the other key thing is positioning. nejra: talk to me about the positioning. what is it telling you? michael: what we have seen in havex universe is they started to answer short dollar positions. they have moved from being long over the last 18 months to now being short. portfolio flows over the last five years into the u.s. from europe and japanese investors. we think the hedge ratio on these positions is quite low. the dollar starts to turn, that will put more pressure on fixed income to increase the hedge ratio on that position, and from the euro zone alone you have had a trillion euros worth of outflows. it does not take much hedge ratio to lead to a dollars

selling play. nejra: that all makes sense. usterday j.p. morgan told that he sees the 10 year yield going all the way to zero. you say already the bond market is aggressively priced. there are people who are saying there is more potential for that to go further on the longer end. what you still not want to take moves in rates based on a view like that? michael: we think bond yields after the rise of the last two weeks are looking too high. particularly into the summer, it could come off a little bit. that could encourage flows into bonds. what is priceds into bonds. the models we run try to price assets based on macro variables tell us next year the treasury

market is pricing 1% growth from the u.s. what is uncertain is the market pricing 100% probability of 1% growth, or 50% from ability of zero and 50% everything will be ok at 2%. that makes the bond market tricky, but it shows you the extent to which there is pessimism priced into a large extent in tenure treasuries. nejra: though you have a view at cycle,e are in the translate what it means for risk assets. if you look at rate cuts in the past, they are not that great for stocks. fed easing cycles, talk to me where we are in the cycle and how you position? study lookingd a over the examples in the last 60 years, and what we found is we have had three periods that we

define as extended late cycle. that is where this late stage has lasted between three to six years. what is interesting in those ,ases was you saw low inflation and i gave the chance for the fed to allow the cycle to extend further. it feels like we are in a similar position, low inflation, the fed is reactive and responding. we think this will allow growth to remain stable, and a late stage of the cycle to extend. what i think is really important for managers is this late stage of the cycle, you look at asset performance, it is extremely good for risky assets. in those last three cycles, in the late stage you have seen s&t rise 50%. we think about the market at the moment, a little cautious in the short-term, but if we get an indication the fed is determined

to loosen policy with rate cuts that are priced, we find growth remains ok. we think that will be a good environment for risky assets. nejra: i know you are looking to add risk over the summer, you mentioned commentary from the fed around that. we hear conversations between the u.s. and china over the phone around trade talk. is that an opportunity that you would also take to add the risk over the summer? michael: it is always difficult how do you fit trade into the situation, and when you do modeling it seems more the case. we view this as we need to be paying attention. throughout the fed response, and you have seen a pickup of growth does give an indication that the underlying economy is doing ok. if we get positive developments on the trade tensions, that will

bolster our view. nejra: michael sneyd, global head fx strategy & cross asset strategist, bnp paribas will stay with us. michael is suggesting it is all about the fed. u.s. lenders reported earnings as low interest rates weigh on profits. investors picked through the results. here with the details is dani burger. dani: morgan stanley with the last of the big six, they released their earnings yesterday and rate ported a 14% drop in equity trading revenue. that is the steepest decline among major banks. it has been a tough quarter foremost on the banking and trading front. big themes emerged, the banks keep setting records. they managed to crack $30 billion in quarterly earnings for the first time on record. this does little to soothe investor concern that earnings have. we have executives warning there are tough times ahead given

geopolitical uncertainties that have been pushing traders to the sidelines. we got warnings of the more challenging rate environment. all four of the commercial banks missed estimates and lower the bar for next year. the fed has not announced those rate cuts yet. they are getting more cautious generally. trading revenue fell 8%, the fourth consecutive decline. oldman were the only equity traders who saw increases, and they said they have been getting market share from their weaker rivals. there is one consistent bright spot, the u.s. consumer. this is especially important for the economy given we are in this debate saying, where are we? when will the credit cycle turn? this is the total sum of risky loans for each bank, and everything will quarter the amount of loans near default decrease. this is a positive for banks. low interest rates may hit

interest income, but the cheaper borrowing is driving retail division like bank of america to record profits. nejra: thank you so much. let's get first word news with debra mao in hong kong. the u.s. and china have spoken for the second time since the sides call a truce. they spoke over the phone, but there are no details on what was discussed. president trump reiterated he could impose additional tariffs if he wants. a deal on the u.s. budget and raising the debt ceiling are very close, but according to treasury secretary steven mnuchin, he says the administration and congressional democrats have agreed on spending levels. this paves a way for a deal before congress leaves town for the summer. president trump has distanced himself from a "send her back" chant targeting congresswoman

ilhan omar. the president says he was not happy when he heard the chant, saying he disagreed with it and felt deadly about it. japan's inflation fell again in june, hitting a two year low. it added pressure on japan to increase policy stimulus. fresh food rose by 0.6% from a year earlier. the key inflation gauge has not talked 1% since 2015. thing as freech access, that is what the european union has warned british banks against. a draft document presented by brussels says the u.k. should expect rigorous assessment of its regulations. a financial firm would be allowed to do business in the bloc after brexit. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg.

nejra: debra mao in hong kong, thank you. coming up to my crude concerns, oil climbing after an american warship downed in iranian drone. a critical oil chokepoint, the strait of hormuz. that is next. ♪

nejra: this is "bloomberg daybreak: europe." i am nejra cehic in london. littlemarkets in asia, a bit of risk on the table. we saw dollar weakness yesterday in reaction to comments from the feds claret up and williams. -- clarida and williams. also on dollar-yen, japan inflation i'm a bring crude spiking on concerns of

geopolitical risk around the strait of hormuz. backup in the two-year and 10 year, and a re-flattening after yesterday. teachers pointing to a higher open in europe and the u.s. equities in the u.s. yesterday getting a lift from the fed policymaker comments. there is debra mao in hong kong. boeing will take a 4.9 billion dollar charge when it reports earnings next week as fallout from the 737 max 8 continues. the after-tax charge covers compensation for airlines. the costs will equip more than $5 billion of revenue in the quarter. bmw has promoted production with a nude chief executive. this resets leadership as it attempts to catch up with rivals in the era of self driving and electric cars. the former executive is stepping

years.ter four microsoft has topped quarterly sales and projections, fueled by cloud computing services and a surprisingly strong and does business. it forecasts robust growth into next year, promising double-digit percentage gains in sales and operating income. sales after the lifting of business in asia, according to dow jones. may sell divisions in australia and south korea. they are ending to raise $10 billion to cover its debt. that is your bloomberg business flash. snapped four days of losses after a u.s. warship downed in iranian drone. president trump: defensive action against an iranian drone,

which had closed into a near distance approximately 1000 yards, ignoring multiple calls to stand down, and was threatening the safety of the ship and the ship's crew. the drone was immediately destroyed. nejra: oil heading for the steepest decline since the end of may, as concerns about global demand. crude flow from the middle east might be disrupted. michael sneyd, global head fx strategy & cross asset strategist, bnp paribas is still with us. you have been looking at models on what is driving the oil price. michael: we have a model about the complexities of the oil market, the factors change over time. sometimes it can be commodity variables and sometimes it can be economic, sometimes markets. at the moment it is telling us the main factors is the

sentiment in markets and also growth in the u.s. and china. what we are seeing is the oil fundamentals from the production story are not factor driving. model,ming out of the the fair value for the oil price environment, and this is recently short-term, it is about where the price is at the moment. although you are having rising tensions in the middle east, that is not yet factored into the oil price. nejra: potentially if we get rising tensions, the spike could be extreme? michael: yes, that is right. and it tells us for the oil trade, they are concerned about growth outlook. you do not want to go based on geopolitics and have soft growth or risk off sentiment in markets, that means the oil goes down.

it is not a clear-cut story that oil should rally, because the economic fundamentals are still important. nejra: they are telling you the downside risk is weighing more, even with the last opec meeting, the reaction was the worst since 2014 in the gain following the opec meeting was short-lived. michael: yes, and we look at causality models. on becausewe focus the oil market gives you an indication of what is the actual demand and underline economy. the fact the oil prices failing to respond to potential sharks gives you an indication demand is not as strong as you are saying in some of the economic data. nejra: generally you are not that pessimistic. you do not see a recession is imminent. michael: that is correct because we think the fed has been responsive.

the cut will offset the headwinds from the trade tensions. nejra: when we mentioned trader earlier, you said it is difficult to account for things like trade tensions and geopolitical risk. this is a volatility, natural next step when we talk this -- we have seen rising but coming off a little bit. what are your models telling you about volatility? michael: at the moment volatility does look too high. oft fundamental driver volatility, being that i come from a macro background, one of the things i like to look at is economic data. the volatility of economic data tends to be a leading variable for volatility in the market. this is a good signal over the last three months. you are starting to see it is coming down because you are not seeing such big shocks which we

think argues for the market to come down slightly. could go theew other way is in the eventual market has reduced, but as we go into the summer you that you see it move higher. nejra: very briefly, we have 20 seconds, when you consider geopolitical risk, do you take that act for your models? michael: that is right. we did see the impact of trade , what would be the impact on the market? it lookstreasuries, like it is discounted in the price. nejra: michael sneyd, global head fx strategy & cross asset strategist, bnp paribas staying with us.

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daybreak: europe." in london.cehic annmarie hordern standing by for us. a bit of risk on an asian session today. can think the fed for the dovish comments from williams suggesting the possibility of a more aggressive policy action later this month. japan's nikkei up 0.2%, the kospi up 1.4%. a lot green across the screen. japanese yen down 0.3% against the u.s. dollar. commodities, brent crude up more

than 1.7%. given a geopolitical situation in the wake of the downing of the iranian drone in the gulf, but given that situation we are saying prices higher in brent. we are seeing gains on the weekly basis, wti in the red down almost 7% on the week. on track for the worst performance since late may. this has narrowed down to the demand outlook. usn china coming back to the table but we do not have an agreement yet. what we are saying is bearish sentiment in the oil market, really gripping it. today's games do not matter much. nejra: that gravitational pull does seem to offset the spikes in oil. thank you annmarie hordern. bmw has promoted its production

chief to chief executive officer to catch up with rivals in the transition to an era of so thriving electric cars. he succeeds the previous ceo who struggled to set a course for the carmaker. the futurepoke with strategy for the group. is to be slightly better, we expect the premium segment to grow single digits. this is an orientation for us. ,he 70% the second half we are moving closer to the single-digit growth of the total market. >> do you think the market will start to bottom out towards the end of the year? >> i think we see that already.

decline is slowing down, so we are quite close to the bottom of the total market. in the second half, probably driven by model introductions. we believe the car market will show slow growth in the second half. >> there has been change at the top of bmw. what signal does that send in terms of the direction of travel for bmw and the companies priorities going forward? >> as i am responsible for china, let me comment on china. instrumentale was for implementing our china strategy. he successfully negotiated the equity increase. support, and his

successor is a long-term friend. we have one of the biggest which he bases oversaw. it from a china perspective, we expect a continued support. that was tom mackenzie speaking with bmw's china president on the future of strategic path. let's get first word news with debra mao in hong kong. debra: senior federal reserve officials are stressing the need to act sooner rather than later. richard clarida and john williams say policymakers need to act quickly if the u.s. economy. this has reinforced that the fed will cut rates as much as 50 basis points. the u.s. and china have spoken for the second time since they called a truce. trade teams spoke over the

phone, but there are no details on what was discussed. president trump reiterated he could impose additional tariffs on china if he wants. a deal on the u.s. budget and raising the debt ceiling are very close. that is according to steven mnuchin. he says the administration and congressional democrats have agreed on spending levels. this paves the way for a deal before, was these town for the summer. president trump has distanced himself from a "send her back" chant focused on congresswoman ilhan omar. the president says he was not happy when he heard the chant and felt badly about it. inflation fell again in june hitting a two year low. it has pressure to increase policy stimulus. consumer prices including fresh

food rose by 0.6% from a year earlier. inflation has not topped 1% since 2015. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. bloomberg. nejra: debra mao in hong kong. with earnings season for the second quarter kicking off, we will get results from european companies next week. let's focus on europe's biggest economy and how global headwinds and the domestic downturn has impacted german companies. annmarie hordern has the details. annmarie: big earnings next week from germany may further erode the dax performance. see when you look at the ratio relative to the cac, it is strength in the cac versus the dax. otto, chemicals, these are key to the german economy and account or a quarter of the dax.

basfer and volkswagen and will all report. shotfired a warning earlier this month, and they say slowing markets from cars to crops, and the impact of the trade war threatened to cut drop it by 30% this year. they are dealing with a downturn of the german economy. 11% of their revenue comes from the german economy. the other one we need to focus on is daimler. they as well had a third profit wereng in a year, and two back to back. this copy attention to the credit rating agents, they moved their outlook stable. a one notchnaling downgrade over the next 12 months. adding more gloom to that, there is a sell recommendation on daimler from goldman sachs.

one thing to watch is dividends, they are key to the dax, important relative to that index. the dax performance, without these dividends, look where it would be. nejra: thank you so much. michael sneyd, global head fx strategy & cross asset strategist, bnp paribas is still with us. let's talk about europe and the ecb. yesterday, bloomberg had a story talking about the ecb revamping its inflation goal in the twilight of the draghi era. we saw bunds spiking. when we talk about the u.s. earlier, you said markets may have gone too far with pricing. could the ecb go further than the market expects in terms of stimulus? michael: the reason stories like this gain attention, one of the main things on the markets mind is how much further can ecb move

and react? if they did change the inflation target, that would show they have a willingness to be more reactive. really what the key is, announcements around what they could do. our expectations are we will see 20 basis points of rate cuts this year. announcehink they will a restart of qe by the end of this year. we think the ecb will move to being more reactive. nejra: and the rate cuts start when? michael: we think september. the key thing next week's around the ford guidance, and they give an indication they will lower rates. we think it is too soon given the conversations in the soonround, it will be too to expect rate cuts next week. nejra: economists agree with you .

what does this mean for the euro? is it react strongly to the dovishness? we are morele aggressive on the ecb outlook than the market and consensus, we are short on euro-dollar. europe, weish on think the euro will decline versus the yen. but we think the relative story, the dollar will react more to the fed than the euro can react to the ecb. nejra: in rates how are you trading this? the way youthink have had the rise of yields over the past few weeks has gone too far as the ecb will be more active. essentially looking for yields in europe that continue to decline. nejra: what does it mean for the curve, the euro curve need to steepen? michael: we have seen the steepening of the curve more recently.

we think it will flatten again. we do not think that is where the trade is. we think it is in spreads and products. where you see a flattening over the last few months, that would result in the spreads. you see that in germany and italy, but not so much in credit spreads. we think we can see credit spreads narrow in europe, particularly if the ecb starts qe again. nejra: also talk to me about the work you have done around comparing this time to 2015. peoplee a different way react? action, the size of the we think the direction is the same. nejra: great to have you with us. michael sneyd, global head fx strategy & cross asset strategist, bnp paribas is staying with us for the hour. this weekend marks 50 years

since the apollo 11 moon landing. the space race was driven by the rivalry between the u.s. and russia. some things have changed a lot in five decades, but how has the space race changed? dani burger takes a look. dani: in the half-century since man first walk on the moon, the space race has fundamentally changed. it used to be a battle between the u.s. and soviet union, but now most new missions are by private companies. the number of objects launched into outer space also skyrocketed. half 45057 to over last year. it may sound like science fiction, industry is using satellites differently. companies can monitor to get data on foot faults months

before releases. commodity companies are getting in on the action. it gauges output at a better level. shifthas been a seismic in understanding space, but while it is still vast, unknown, and unreachable, it is also a resource that businesses can start to utilize. ♪

>> in an hour of change and challenge, in a decade of hope and fear, in an age of knowledge theignorance, why some say moon, why choose this as our goal? they may well ask, why climb the highest mountain? across thes ago lannett? we choose to go to the moon in otherecade and do the

things not because they are easy, but because they are hard. >> 60 seconds. is one small step for-man --one small step man, one giant leap for mankind. >> it is beautiful, it really is. >> that is great. is the lighting halfway decent? >> yes, indeed. nejra: we are marking 50 years since the historic apollo 11 moon landing. it was driven by the rivalry between the u.s. and russia, and now china is a major force. china did not have a space july 1969, but is planning a series of missions to match that. china could have its own astronauts on the moon sometime

in the 20 30's. who is winning this race? >> it is a good question. if you look at space in aggregate, the u.s. is far ahead. china is catching up. if you look at the race to get to the moon, you put the u.s. ahead, but china is not that far behind. if you look at the funding power, china has a lot more flexibility than the u.s. for ahas been pushing timetable but has been met with resistance in congress. it will be on the private sector to reach those ambitions. nejra: what implications could it have if china gets ahead of the u.s.? kind of a terrestrial trade war, this will raise those

tensions in terms of commercial opportunity that exists on the moon and beyond. and potentially militarily. there could be sensitivity between these nations. with a corporate angle toward this, how are industries using satellites in different ways t? >> increasingly, you have these satellites that are tiny, a lot of monitoring going on for agriculture, commercial, and financial trading. one of the most famous examples is monitoring carparks around shopping malls to see how football is evolving, and if you can invest ahead of retail to see how well outlets are doing. it is interesting these

developments. it seems the market is trying to figure out how it should be using it. in the u.s. you have macro series where the value seems more into detail. the fact you can break it down by a state-by-state level or country by country level, that will be opening up a lot of interesting opportunities. nejra: thank you so much. michael sneyd, global head fx strategy & cross asset strategist, bnp paribas stays with us. don't miss a great conversation later. it is with nasa's chief financial officer. a no deal brexit just got a little less likely. harder forking it the next prime minister to push through a departure by suspending parliament. casting a shadow over the search for a new bank of england governor, with potential candidates hesitant to get embroiled in the politics. , long different views

sterling, short sterling, how are you viewing the situation on cable? michael: let's break it down by what the models tell us. worst-case, a is no deal brexit. the fundamentals would argue that cable should be trading about 1.17. you should probably get and overshoot on that. the moment,rice at there is a reasonable but not substantial brexit risk priced into the pound. that means when it comes to trade, it makes it difficult from a medium-term macro perspective, political perspective, we want to long sterling, we think it is cheap and there are opportunities that you could get a positive outcome. to be not the time putting on those types of trades, because the risk-reward

does not look attractive enough yet. nejra: if you look at the positioning, hedge funds have been boosting bearish bets on sterling. does that have to change to affect the timing of when you put the pound long? michael: the positioning is really important when it comes to trading the pound. the 5% decline over the last two months has corresponded with the market having been long the to thefter the extension market being reasonably short of sterling. if you do get positive , and the new prime minister is pushing a no deal the pound can recover. until we see some indications, some headlines, we think it is best. were talkingr we

about political risk and how that factors into your models. you bring it back to the economics. tied together what we talked about the politics and what the boe might do. people are expecting the boe to become more dovish. michael: it seems increasingly likely given that we are looking at the data, it looks like the u.k. economy is starting to contract. it seems increasingly likely you could see more pricing. that is another factor weighing on the pound and makes us want to it on the sidelines. cable if you look at vol, volatility has been spiking but less than before the march deadline. what is that telling you in terms of how you want to position around the price or vol? michael: what is interesting isut the sterling vol market how steep the curve is. there is very little volatility priced in the next three months,

itn at the end of october, is a given you will get more headlines around what kind of stance the new pm will take, what will be the stance of europe with a new leader, we think the next three months you could see the volatility. nejra: how are you trading cable versus eurosterling? michael: we tend to prefer becauseat eurosterling, the dollar and cable is being driven by that trade. that means if you get this fed rate cuts in the dollar weakening against the backdrop of a no deal outcome, then sterling probably goes down but not as much as it would under the dollar at its current pricing. nejra: thank you for joining us,

michael sneyd, global head fx strategy & cross asset strategist, bnp paribas. let's get the bloomberg business flash from debra mao in hong kong. debra: boeing will take a $4.9 billion charge reports earnings next week, the fallout from the continues. the after-tax charge covers compensation for airlines who have had to cancel flights. billion oft $5.5 revenues for the quarter. microsoft has topped orderly sales and profit projections, fueled by steady demand for its cloud computing services and acer presently strong wind is business. it forecast robust growth well into next year, promising double-digit percentage gains. unit sales after the failed listing of its business in asia, according to dow jones. it could sell divisions in australia, central america and

south korea. the beverage giant is aiming to raise as much as $10 billion to cut its debt. that is your bloomberg business flash. nejra: debra mao, thank you. coming up, u.s. futures climbing interest could trim rates. will it take a small policy step or giant leap? we will discuss that. pricingy we saw increased toward 50 basis points, but has pulled back since to about 35 basis points. it went as high as 41. european futures pointing high, equities get a lift from this. the dollar dropped yesterday and is bouncing back a little today. we still stay below a 1,80 handle on the two-year yield. users can interact with the charts using gtv go.

catch-up on key analysis. when you are traveling to work, bloomberg radio live on your device or dab radio in the london area. this is bloomberg. ♪

nejra: good morning from bloomberg's european headquarters in london. i am nejra cehic. this is "bloomberg daybreak: europe." dubs in charge. -- doves in charge. the new york fed clarified williams comments as academic, and the dollar regains ground. , an american warship downs in iranian drone near the strait of hormuz. the u.s. called on other nations to protect their ships. , aporate galore, shares drop $5 billion hits from the 737

max. we hear from the head of the groups china business exclusively. we have one of the biggest production bases, which was overseen from a china perspective, it continues part of the strategy from our new chairman. nejra: welcome to "bloomberg daybreak: europe." pricesppi data, producer rising 1.2% from a year earlier, that is a miss on the estimate, 1.5%. in terms of the month on month number, negative. the estimate was a drop of 0.1%,

a little worse than expected. 0.2%e down a little bit, on the euro, but we did close higher yesterday. futures markets, we have two days of declines for european equities, and we could end in the green. u.s. futures pointing to the same. we are into earnings season. microsoft earnings coming in better than expected. equities lifted yesterday by comments from williams and c larida from the fed, putting the message that the fed needs to act early. the fed walking back the comments and the pricing did shift. in closer to price 50 basis points of cuts are july. we walked that back and saw the steepening on yesterday's

session. we flattened today. the 10 year yield sitting on a 2.0 handle. european markets responding to the report that the ecb might be revamping its inflation target. we sell yields drop generally. we could see a further decline and yields as the cash market gets going. let's check markets in asia. iniette saly is with us singapore. we are green on the screen in asia. juliette: we certainly are, taking that lead from the u.s.. even though we did have clarity on that call from john williams regarding whether he was saying there would be a potential policy move. money out of the yen and back into japanese equities which has recouped yesterday's losses. japan's stocks on track for a weekly loss. story, itthe ab inbev

is continuing to value eight an ipo of budweiser. for kong has been looked at that ipo. up bybeen quite good, 0.8%. laggard.a bit of a we had japan inflation numbers today, and they are at a two-year low. it is something the boj will not be happy about. the hong kong story, early in the week we spoke about retail sales were hit by the protests. this chart shows you retail sales in hong kong slump for the past four months ahead of the protests. and you are still seeing people get into the city. we have heard from international

players saying they are worried they are seeing a downturn in sales. bloomberg intelligence says there is a silver lining and risk could go elsewhere, there could be more spending at home in china in the luxury markets. in singapore, picking up a little slack as we see people worried about shopping in hong kong. nejra: juliette saly in singapore. equity markets got a tailwind yesterday on dovish comments from federal reserve vice-chairman richard clarida. williams said it is better to take preventative measures than wait for disaster. his comments boosted expectations toward 50 basis point cut, but speaking with fox , we, richard clarida said do not have to wait for things to get so bad to have rate cut.

this added more fuel. 41 basis points of easing priced in for july. this was dial back to 35 basis points. the spokeswoman clarified the anarks saying they were from academic speech on 20 years of research, not potential policy action at the upcoming fmoc meeting. will the fed take a small step or a giant leap this july? join the debate. we judge to the mliv team on your bloomberg. joining us now, viraj patel, fx & global macro strategist, arkera inc. as we celebrate 50 years of the moon landing, small step or giant leap for the fed? viraj: i think there are two twice five basis point cut coming. when i look at the rationale for the cause, let's look at what williams said. dichotomyere was some

in interest-rate policy in 2018 when the fed was hiking interest rates against the backdrop of the fallen neutral rate. in effect, he is saying they ,eed to take some hikes back and maybe do a little bit more. that is contingent on the state of the u.s. economy. there is a scenario where u.s. investment is down by trade war uncertainty. that could give fuel for further rate cuts heading into 2020, and potentially qe. i think we are away from pricing in that scenario. you may see a bounce in rates before positioning for that tail risk. nejra: it is an interesting point you make about taking the hikes back in 2018. does the fed need to go further? sense, you look

where the consumer is, and if you look at u.s. inflation, people point to it does not make sense to cutting at all. michael: viraj: that is why it will be gradual. thes see what the state of u.s. economy is in six months time, and then keep assessing that cycle. rather than a big confidence boost, it is more taking rate hikes back. nejra: the fed has to consider what the market is pricing. say they go 25 in july, the market will reprice, what does that mean for the dollar? isguest the last hour convinced we will see dollar weakness. think the talk around rate cuts and qe is enough to

keep a lid on the dollar. any easing cycle will weigh on the dollar. there will be a point when how much easing can weigh on the dollar. if you look at it, it is a case that they will keep a lid on it. nejra: what does this mean for risk assets? it is to a certain extent about the fed, but what we are hearing on u.s. and china, we have more news overnight they are talking on the phone. markets have added to the risk .entiment seeing that progress jp morgan had comments on being risk on at the moment. we have the quote that you can look at. momentironment at the around pricing, is that positive for risk assets? viraj: i think there are three and getns, we continue

a stable policy, and global easing backdrop continues for three months. i think that is great for kerry risks, putting money to work in the em. selective about where you put your money to work , and timing and value. rupee, these are taking the boxes now. stays withj patel us. alice get first word news from debra mao in hong kong. debra: president trump says the u.s. destroyed a iranian drone. the incident and the strait of hormuz is the latest sign of escalating tensions in the gulf. trump says the drone was a threat to the ship and its crew and urge other nations to protect their ships in the region. the u.s. and china has spoken for the second time since they call a truce.

trade teams in washington and beijing spoke over the phone but no details of what was discussed. president trump reiterated he could impose additional tariffs. havestreet's trading endured the worst half of the year in a decade. the banks chiefs are bemoaning what they describe as clients sitting on the sideline. uncertainty about the trade war and federal reserve rate is making investors extra cautious. president trump has distance himself from a "send her back" chant directed at congressman ilhan omar. the president said he was not happy when he heard the chant, and he felt badly about it. japan's inflation fell again in june, hitting a two year low. it adds pressure to increase policy stimulus. consumer prices including fresh

foods rose by 0.6% from a year earlier. the key inflation gauge has not talked 1% since 2015. global news, 24 hours a day on air and at tic-toc on twitter, powered by 2700 journalists and analysts in more than 120 countries. nejra: debra mao in hong kong. coming up, a warning shot to boris johnson. mp's moved to stop the u.k. from crashing out of europe. how much likely has a no deal brexit become? traveling to work unit to bloomberg radio live on your mobile device or on dab digital radio in london. this is bloomberg. ♪

nejra: we are 45 minutes from cash equity market opening. this is "bloomberg daybreak: europe." markets, green on

the screen in asia to end the week after a couple of days of declines. a boost from dovish commentary from fed officials. we sell the dollar weakened yesterday, it bounces back today particularly against the yen. on the yen side it has to do with japan inflation data. the 10 year yield moves back up two basis points. that dropped yesterday. the curve steepening but re-flattening today. extend growth, the new york fed walked back the comment. the 10-year bund yield deeper into negative territory. we have a report from bloomberg, the ecb is revamping its targets. another day of gains for equities in the u.s. yesterday we sell weakness in europe.

oil is moving this morning after a u.s. warship down an iranian drone in the strait of hormuz. annmarie hordern has the details. we have seen a spike in brent. annmarie: we are seeing wti and brent up more than 1% snapping four days of losses. this is giving fresh concerns in the gulf with the u.s. saying they downed a iranian drone, president trump saying it was a thousand yards away so they had no choice. the iranians are saying they did not move the drone. regardless, we are seeing risk in the prices this morning. concerning worries about the situation in the strait of hormuz, and the security of what it means, the energy security for india and china. the strait of hormuz accounts for a third of oil and fuel going through. on a weeklyk at it

basis, we are seeing one of the worst weeks for oil since the end of may. dti down 7% now. withy this has to do demand. this is a demand focus story when you look at the long-term. short-termof the spikes, the world is concerned about what is going on with the trade war between the u.s. and china. we have many concerns about a slowing global economy. the bearish tone is gripping the market. nejra: debra mao has the bloomberg business flash from hong kong. a 4.9 boeing will take billion dollar charge when it reports earnings next week as the fallout from the 737 max 8 rounding continues. the after-tax charge covers compensation for airlines who have had to cancel flights. it will be $5.5 billion from

revenue in the quarter. bmw has promoted production chief to chief executive. this resets the leadership as it attempts to catch up with rivals in the transition to era of self driving electric cars. former ceoceed the steps down after four years. top profitas projections for its cloud computing services and its windows business. forecast robust growth into next year and promising double-digit earnings in sales and operating income. that is your bloomberg business flash. just gotno deal brexit a little less likely. mps have moved to stop u.k. from leaving without an agreement, making it harder for the next prime minister to push through an agreement.

this is also casting a shadow over the new bank of england have and are, with some candidates hesitant to get embroiled in politics. viraj patel, fx & global macro strategist, arkera inc. is with us. yesterday cable gained. perhaps some negotiation around the irish border. is now the time to add cable long? arej: a number of red flags short sterling now, and take a long consensus view that cable ends up at 1.20 over the next three months. riskse think about brexit and what should be priced into the currency, it is about what happens, do we crash out of the eu and revert to wto trading rules? that seems unlikely even if you listen to boris johnson this week. it could be the endgame for his premiership. when i look at the risks and

where the depreciation in the pan comes from, it is difficult to see any major catalyst right now versus what is priced in. you look at positioning, valuations, the disconnect from the u.k. fundamentals in terms of the economy. the market is overestimating boe rate cut. those are red flags for being short right now. sense, and youes are right, the positioning. let me challenge you in terms of the vol chart. cable vol has been spiking. is this the market underpricing risk? it sounds like you do not think so. michael: i think there are two factors, we have been to this party before. there is something potentially to kick the can down the road, politicalhe

backdrop. it is a different environment than 2018. nejra: let's talk about the ecb, we did see moves in the euro yesterday. the ecb officials are thinking about revamping their inflation target. we get an update, economists the the ecb setting the markets up for more stimulus. what is your outlook for what the ecb does? viraj: with the ecb throwing the kitchen sink at trying to revive the eurozone inflation, there is little left. on the margin we will get rate cuts and qe. for the euro and front end of the curve, anything you deliver will be a disappointment relative to what is priced in. isanything, the real value between peripheral and core, but that has moved over the last couple weeks pricing in expectations for a sizable

amount of qe. it is hard for the ecb to deliver more than what the market expects. nejra: when you talk about euro-dollar, it becomes about rate if original. but michael of j.p. morgan said it is headed to zero over the next two years and the rally in bonds has not begun yet. about whether you think that will happen, and the impact it has on the dollar. does that further support your view we will not see a huge amount of euro weakness? viraj: i think that story is about the global backdrop. it is the u.s. cycle where you have limited inflation and slowing growth the support a rally in bond markets. when we look at rate differentials at the front, and for the fed to cut more drastically, that is why we think that rate differentials do not work against a weaker euro-dollar.

nejra: how strong are those headwinds? viraj: we are always watching out for u.s. trade policy risks, theying about car tariffs, seem to subside, but the euro-dollar is caught in a trap and will remain in that trap. the value is not chasing any direction. volatility is suppressed which allows carry. nejra: great to have you with us. viraj patel, fx & global macro strategist, arkera inc.. let's turn to a corporate story has morning, ab inbev agreed to sell its operations for enterprise value of $16 billion australian. it is reviving an initial public offering. joining me now is duncan fox. what is your take away from what we heard. takeaway is they will

, that us and do m&a strike in business is high-margin but low growth. and can get a good price push that cash to better use elsewhere. use will theytter use that cash for? duncan: the whole point was to do deals in places like china or asia-pacific west, as they call it. faster growth markets and younger population, and they do not have a strong market share. they like to be a leader in emerging markets. i assume the ipo was for m&a in those regions. dora: under what conditions you think this asian ipo will go ahead? duncan: i suppose where the cash generated businesses with

high-margin leading higher growth and higher potential margin business going forward. when the whole thing settles down, i am not sure the hong kong rules will be perfect when they can come back and price it. at some point they can reduce debt and do deals and attract prices, they can rely on whatever price is right in the market at that time. nejra: thank you so much. that is it for "bloomberg daybreak: europe." risk on friday morning, it is the weekend. the european open is next. we are seeing futures point higher in europe. in the u.s. we have had a risk on trade and reaction from the fed and commentary taken as dovish. they have walked that back but the market is pricing in 35 for july.ts of cuts

when you're traveling to work, tune into bloomberg radio. this is bloomberg. ♪

good morning and welcome to bloomberg markets, the european open. we are live from our european headquarters in london. say it does markets not matter if it is academic or not. highern futures point following comments from john williams even after the new york fed tried to tone them down.