manus: good morning from dubai. , daybreakoomberg europe. i am manus cranny. nejra: and i am nejra cehic. shifting tone. president donald trump sounds a positive note on a trade deal with china. asian equities follow stocks higher. and a shift in policy towards iran. >> they have to be good players. you understand what that means. and they cannot do what they were saying they were going to do. that, they will be met with violent force. nejra: and on borrowed time.

the future of the italian leader emerges with a sticky point. and another election. manus: warm welcome to daybreak europe. the fx markets do not believe rhetoric.d in a lovely tweet from the chief market strategist -- increasingly, the markets are recognizing the alleged call from china. is the u.s. blinking because of the friday slide in markets? do you believe the chinese really picked up the phone and said --we want to get around the table? nejra: they say they did not and all we got was a slight shift in tone from president trump.

it does not mean his underlying strategy has changed at all. more: there is a little risk on in the markets. if there is a shift in tone, maybe it will be followed by action. certainly not thought of by the big companies. tone.is a shift in china badly wants a deal. there is certainly a shift along the as if you 500. by the diff -- by the way, the difference between u.s. stocks in u.s. futures -- dollar-yen does not believe the mood music has shifted at all. the yen is stronger. it only thing that stops from getting stronger is the reach for technical yield. the oil traders were caught say. at -- one could they had built up their long

position into a ravaging by donald trump. mirror, mirror on the wall, dollar-yen tells it all. nejra: it is interesting. -- you will see the 10 year yields dipping just a little bit. all ofay, we gave back the gains we have seen in treasuries overnight in the asian session. ae curve has inverted for fourth session and the aussie coming under some pressure. one of the worst performers along with the kiwi in the g10. speaking of trade, let us get to our top story. market relief is palpable. donald trump left the g7 summit taking a softer tone towards china. manus: during a press conference, the president agreed with the remarks made by the top chinese negotiator.

for a deal to be made under conditions." however, he made it clear that he was not abandoning his rough-and-tumble tactics to force a trade deal. >> so when you say "maybe they want to" -- maybe they want to end maybe they don't but i don't think they have a choice. i don't say that as a threat. in the meantime, the united states which has never collected $.10 from china will shortly be in terrorists -- in tariffs. manus: let us get to tom mackenzie in beijing. the market -- the equity market seems to believe that there is a little bit of a shift. what caught our attention is the

chinese pushing back on this alleged telephone call. to pointyou are right that out. as you say, the vice premier who leads the negotiations on the chinese side dialing things down. saying again that china wants to continue to cooperate on trade. editoro, an influential of a newspaper here says hang on a second, the chinese did not say to the phone and donald trump that we want to sit down. the topsaid is that negotiators have not spoken in a few days. there is also deep skepticism here in china about this rhetoric change from donald trump and seeing these comments from the u.s. later -- u.s. leader are made to chin up the markets rather than any real change in his negotiating tactics.

are lookingerm, we ahead to the potential meeting in washington between the two sides in september. whether those talks go ahead or not even the change in rhetoric that we have seen in the last few days. nejra: what is the data telling impact onhe trade war the economy right now? tom: industrial profits came in higher than expected. an increase of 2.6% in july after a drop of 3% in june. but bloomberg economics says do not get too excited. there was a division in terms of downstream and upstream. they expect the domestic demand will continue to be weak and profits will become more sluggish in weeks ahead. capex andweigh on proved to be a drag on the economy ahead.

some surprise in terms of industrial profits but don't expect this to continue into the second half. nejra: thank you for joining us. market us now is our editor in sydney. garfield. given that it is china not quite getting on board with president trump's positive tone, why are we seeing such a rally in asian equities? garfield: to be honest, it is partly a matter of timing. comments yesterday came about when the asian markets were closed. home, i sawi went s&p rising on those comments. and then the u.s. session, after some hesitation, extended that. in a lot of ways asian equities are forced to play catch-up

because it is an arbitrage situation. i would argue that it is a little bit of a false narrative to talk about how your equities are completely relieved on the trade front. from just before china announced is retaliation on friday to where we are now, that is about a 1.5% drop. to theped about 4% trough looking at the s&p yesterday. that was the extreme panic. we have pulled back that we have not erased those declines and quite rightly because for all of talk, i think we are four days away from more tariffs on both sides. manus: i was looking on the blog this morning and by the way, thank you for the charts on a daily basis. about a looking

back at 2016. forward att looking the moment, the costs are not rising. yuan is like a racehorse. are we behind the curve? should we be set up for bigger shorts coming to the market on this? garfield: the pboc has made it clear that it is not willing to countenance big shorts going on in the yuan. like any central bank, the last thing it wants is a disorderly rout. it still has controls on the currency. it has actually been a reassurance for chinese stocks

in particular an asian stocks that the pboc has not followed up the big bang from earlier this month with a series of other big banks. yuan is weaker. forecaststial goldman -- that would be the very least that you would need to do and arguably anyone that sees a bottoming out for the yuan in the coming yield is probably fulling themselves unless they think the trade piece can be get back tod we can the situation there was before all of this took off. nejra: and is that what is needed for a recovery in emerging market fx? the emerging-market is heading to its worst month.

mean the problem with trade is you do not want that kind of volatility that has spread across the market. that is the whole point. you bet that this currency is not going to go too far because of the yield difference. so even if you think the currency will weaken, you are still learning the yield. and if the currency happens to rise, that is great. tradeall about the carry and volatility is very much of the enemy of that. and we have had a lot of comments out there from investors about how the volatility that donald has been spreading across the market -- and not just donald trump but italian politicians and the follow in and the fellow in number 10, boris johnson, he has also contributed to volatility.

none of that is appreciated by investors right now. manus: by the way, go and look at your egyptian carry trade. garfield reynolds, thank you very much. have even been hearing that people are regarding the dekal as a haven. give us your haven of choice. nejra: i will just go for the yen today. manus: you know, garfield, she never ceases to disappoint. garfield, thank you. enjoy the sunshine down under. let us put that question out there. what do we have? nejra: which assets can prosper without rate cuts?

you can join the debate on your bloomberg. ands: let us go across to for the first word. >> open to shift in u.s. policy towards iran. that is what president trump noted at the end of the g7 meeting. extended interest in meeting with the iranian president. but no breakthrough deal. over deal to end the feud the french plan to attack tech giants. minister saidance tariffs are definitely off. president trump did not confirm the deal and jokingly said that the first lady loves french

wine. her government can handle the ongoing demonstrations. she still wants to hold talks with protesters despite a recent flareup with violence. she will not give into one of their key demands, that she resign. >> a responsible chief executive at this point in time should continue to hold the fort and do her utmost to restore law and order in hong kong. and i would not say that my government has lost control. out, we are and day not only supporting the law enforcement bodies, we are also acting responsibly to deal with other issues that have arisen. italy, coalition talks between the five-star movement and democratic party are continuing. local media reports that democrats have not signed up for giuseppe conti. progress fueled optimism

that a deal can be reached to avoid early elections. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra: thank you so much. coming up on bloomberg, we speak ceo, robertrmers scott. that interview is coming up next. into: if you are heading work, tune into the bloomberg radio team on your mobile device. this is bloomberg. ♪

is bloomberg daybreak europe. i am nejra cehic in london. manus: i am manus cranny in dubai. -- juliette saly is in singapore. >> you're seeing chinese stocks get a leg up on the supposed reprieve in the china-u.s. trade dispute. a rebound inut by industrial profits for july in china rising 2.6% after a 3%

in june. hong kong stocks still fluctuating. a little weakness there. exports fell for a ninth straight month. gains in theeading region. so the kospi among one of the markets doing well. fallina banks -- the big reported earlier this week. investors are pricing a wide discount on chinese banks relative to their global peers. earlier had a different scenario on chinese economic growth. they say that is going to put a lot of pressure on these chinese banks which they say are already undercapitalized. that could put pressure on profitability. saying the chinese banks need to raise capital and banks in hong kong, taiwan, and here in singapore as well that have

direct exposure, they could be exposed as well. -- they could be affected as well. more capital for these banks. thank you very much. juliette saly in singapore. let us bring back in garfield reynolds. the one thing i am interested to know is whether you would possibly reach to the definition of what the indian central bank has done, releasing $24 billion to the government. ofld that have a withiff helicopter money? garfield: all central banks are entities that act in the real world and they have balance

sheets as we know which can be used for quantitive easing and have over the last few decades. profitse statements and that they can then remit to the government. remit thaty do not much. as i understand it, this is not money printing or helicopter money although it does speak to modern concerns about how independent the reserve bank of india can be. because at the very least what it is doing is taking the government out of a hole that it had put itself in. and there in lies the debate. absolutely. maybe i technically reached for the wrong phrase. let us see what will come next.

garfield, thank you very much. let us stay with the australian theme. wesfarmers may have one time -- let us get to the ceo in perth. rob scott. a lot of chatter out there and stories have been written in the aussie press. what i want to know from you is as an australian ceo, in your is rba, two rate cuts from the -- will it impact your business? rob: you need to look at the economy beyond the rate cuts. the results we have reported today in our industrial portfolio in many ways show that the australian economy is not in that bad of shape. been a bit of a

slowdown in economic growth partly impacted by concerns around house prices. we are seeing the stabilization there and once again, as we showed in the results, things are not too bad. nejra: rob, you recently said that you will no longer be pursuing the rare earth producer, lie next. .s a big -- linux is a big acquisition still in the future? i first tookd when over as ceo, the main involveities we look to investing capital. that is the primary focus. we will be opportunistic from time to time. since we first announced our interest in that company, we have since completed our acquisition of a commerce business. we are quite happy about the

investments we have in the pipeline and will continue to in our businesses particularly expanding our digital capabilities. manus: can we dig a little deeper into -- some people have been looking into the lithium deal. part ofproposition from our analysts is that you have gone after businesses with limited pricing power and limited assets. what do you say to those detractors that criticized the deal you have done? those are the propositions that you are doing deals with limited pricing power and limited asset lifespan. what you say to that? -- what do you say to that? rob: i think it shows a misunderstanding of how we look at market opportunities.

wesfarmers, we are very discerning and focused on asset specific opportunities. interestingly, the lithium opportunity is a high grade deposit but most importantly and of most interest to us was a very unique opportunity to develop a lithium hydroxide chemical processing plant adjacent to our own very successful chemical processing opportunity. we took the view that by leveraging what is a world-class chemical processing capability together with one of the lowest cost of lithium production, that was a good opportunity. but wewe have 10 seconds have comments from the number two at rba concerning the trade war. how concerned are you? rob: i think it does present concerns to austria. china is a significant trading

partner. we will not be immune to a economic ramification from the trade war. it is something we are monitoring closely. nejra: rob scott, the ceo from wesfarmers in perth. coming up, more on trade. this is bloomberg. ♪ ♪

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nejra: this is bloomberg daybreak europe. i am nejra cehic in london. manus: i am manus cranny in dubai. donald trump could be open to changing his position dramatically on iran. he made his most expansive offer yet to meet with the iranian president. saying he would do so if the conditions were correct. organizing face-to-face talks could be a little more complicated than those with north korea. moment to have our guest.

you.to see how big an offer is this? orit an offer of substance is it a counter attack? >> it is a very interesting question. with which process donald trump made this statement. but he has made this kind of statement before in the past. iranians do not know whether to take what he says seriously because he can change his rhetoric again depending on where vias is or the circumstances in the background. but i think today, looking at some of the newspapers, some of the front pages of newspapers in a ram, there seems to be a bit of a shift. one very striking front page asking the question -- will rouhani meet trump? i was kind of surprised. this is the first time that donald trump has made this kind

of overture. the iranians are taking it seriously. actualhow likely is an meeting between the leaders? the first in four decades that we will have seen a meeting of that kind. think the political circumstances at home in iran make it very complicated. it is very difficult to say right now -- right now, i would doubt that this kind of meeting would happen at this stage. i think the fact that it is being spoken about like this is important and interesting. we will have to wait and see. the next big event will be the u.n. general assembly in new york in late september. all eyes will probably be on whether there is going to be any kind of meeting at all. but what i can say with

certainty is that the iranians are not interested in a photo op . they do not want that. they do not see themselves as north korea in this situation by any stretch and i think that is precisely what the administration in washington does want. opy do want the photo looking ahead to the election. make a little bit of sense for us and our viewers on the credit note that donald trump has apparently signed on to. what is the proposition of that or what does that mean? toagain, i think we have also wait and see the details on that. are goinge iranians to calibrate very carefully any kind of offers, any kind of proposals they will get from any side. and i think, obviously with the

meeting between macron and is a iranian foreign minister -- any mediation going forward will be crucial here. nejra: thank you so much for joining us. let us check in on the markets. we are joined by our partner in mumbai. kick us off. how are investors in markets viewing this? is it enough to prop up growth in the region? there was some disappointment regarding the lack of announcements for fiscal stimulus. >> good morning. two things. friday's announcements did not have fiscal impact but did have

some support for the industry so the market did well despite no fiscal stimulus as you mentioned. liquidy markets have done well. though ared yields improving though the details are not clear. also the fact that in anticipation of this, in the last few sessions, things have started to correct. believe thats things are negated. maybe that is why we have had two days of drops. -- a prettyitive

positive run in india. manus: thank you. is quitel narrative graphic following the trade headlines and after g7. there is a divergence between the equity markets and the fx market. what degree of stabilization if any do you rate? -- do you read? when it comes to equities, we saw u.s. stocks rise yesterday after donald seemed positive on a deal with china. the asian equity market gaining -- markets were gaining today. i want to be clear. there is still a lot of skepticism in the markets of the narrative is not quite clear. u.s. futures are starting to decline. and on the gmm, the japanese yen is gaining. fore still is a haven bid currencies.

there is some country specific news. said theeputy governor lower bound for rates is 0% and 50 bets. we have seen the australian dollar declined 0.2%. on the front end of the curve, yields --till yeah, australia, yields are rising there as well. the u.k. markets will be back online today after the holiday. boris johnson saying he is optimistic about a new divorce deal but markets do not seem to quite agree with that. when we look at three-month euro pound volatility, it is hovering near the highs for the year. the we are flat on the month. traders looking beyond thinking perhaps there will be a no brexit deal or in early election -- if we get closer to those dates, expect the volatility

picture to increase. nejra: thank you to both of you. sticking with the trade narrative, let us get to our guest. joining us is christoph rieger from: is bank. christoph rieger from commerzbank. we saw a drop in the 10 year yield yesterday. the 30 year yield back above 2%. with the risks out there and the back-and-forth we are getting on trade, are you favoring duration on the u.s. curve at the moment? liketoph: we still quite duration especially on the u.s. curve. for some time, for instance the 10 year forecast has been 125 which is admittedly quite extending out but i think we are heading there. we are really seeing a pen -- a

convergence of global yields. the u.s. cannot escape what we are seeing elsewhere especially here in europe. markets are deeply negative. manus: good morning. the jgb market is the real challenge for central banks. library.ok at the jgb in the land of rising sun, we have falling yields. do you expect some sort of adjustment or pushback from the boj? how critical is this move? jgb's havewell, almost become high-yield compared to other markets and it is clearly creating problems. the boj has been very successful in their yield curve control. when this was seen as a bullish images but by now clearly they need to defend the yield range

at the lower end. they may even have to intervene on the other side of the markets which tends to strengthen the yen which is creating some concern given the general slowdown in the global economy. at some point, they will be reluctant for a while but at some point they may need to rethink also their rates stance because compared to other markets, they are only marginally negative. this would be a big impetus for the yen if they also would join the race to the more negative yields we have seen for instance and a lot of european countries by now. nejra: we have also seen volatility really picking up. if you look at the move index, the treasury for example, we are

back up near 2016 of volatility. how are you bracing for more volatility in your rate strategy if at all? christoph: what we saw over the summer was very peculiar. amplifying effect, and aggressive flattening of all global curves. what is clearly behind this is the so-called negative convection hedging. to buyds fall, they need ultra long-duration. this has been an important amplifier for this flattening. there are some parallels to december 2000 eight especially in europe. where it was the dutch pension funds that caused very aggressive flattening in birding the curve massively, within a few weeks.

also within a few weeks, they were versed most of that. there is a decent chance that as markets quiet down and liquidity returns after the summer, that we could see a greec resteepening of the curves as some of the hedging programs are completed. this hardly can be justified by fundamentals, no matter how gloomy your view is on the world. on 2008.u reflect back the question i have for you is, strains ining any terms of dollar liquidity, bond liquidity, that raise a red flag in your space? christoph: yes. certainly in the euro bond markets -- we are keeping a

close eye on that situation. it is very delicate. take last weeks 30 year bund auction. look at the yield levels and a lot of people are suggesting that there are more buyers than sellers out there but this is not true. markets will return after the summer and i think it could be quite challenging. new two-year a chance and tomorrow a new three-year fx. rate. below the ecb tempo we have already seen what we call an erosion of the investor base in core european markets including germany where investors simply cannot and will not right negative yields at these levels. and this of course is affecting liquidity adversely as well and the us also raising the risk of a sharper correction. at the end of the day, it may be up to the ecb to basically be the buyer of this paper and this

is what it looks like right now. nejra: very interesting. we will pick up on that european conversation with you in just a moment. christoph rieger from: respect -- from commerzbank stays with us. annabelle joins us now. moment,: at the according to president trump at the g7 summit, he left the door opened a slapping levees on the sector at a later date. washington and tokyo have reached a deal on trade that they hope to formalize in late september. of theto end the feud french plan to attack tech giants. president macron announced yesterday that paris and washington had reached an foreignt with the minister that the wind tariffs tariffshly off -- wine

are deathly off. in italy, coalition talks are continuing. thel media reports that democrats have not signed on to giuseppe conte t. but we are seeing an agreement that would see him remaining as prime minister. there is optimism that a deal could be reached to avoid early elections. there is no need for chinese troops to tackle the unrest in hong kong according to the leader. carrie lam says her government can handle the ongoing demonstrations. despite a recent flareup in violence. but she will not give into one of their key demands which is that she resign. >> i think it -- i think a responsible chief executive at this point in time would stay. that myuld not say government has lost control. billy in and day out, we are not only supporting the law

are alsont bodies, we acting responsibly to deal with other issues that have arisen. anabelle: global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. manus? manus: thank you very much for the roundup. here is what you should be watching for the rest of the week. the italian parties are trying to hammer out a deal and they have until the end of today. earnings are coming through from the four biggest state owned banks in china. that will be critically important as they control $14 trillion worth of assets. nejra: on thursday, the u.s. releases the second reading of second-quarter gdp. on friday, south korea sets rates though no changes anticipated. on sunday, the next round of u.s. tariffs on 300 billion

dollars of chinese goods will take affect. and so much has happened since we first learned of that announcement. ridess political future on the future of the sitting prime minister. more on those talks. this is bloomberg. ♪

manus: it is bloomberg daybreak: europe. i am manus cranny in dubai. nejra: and i am nejra cehic in london. annabelle is in hong kong. anabelle: the man who drove volkswagen to become one of the world top carmaker has died. he was the grandson of another auto pioneer. he became the v w chief executive in 1993. under his watch, the automaker eventually brought porsche into

its wide array of auto brands. he was 82. johnson & johnson rising in extended trading after a judge ordered the company to pay far less than expected in a trial over opioid painkillers. it was the first case from a state. johnson &ruled johnson created a temporary public nuisance and is to pay around 570 million dollars to oklahoma. aggressive growth. not a phrase you associate with deutsche bank at the moment but that is a phrase that the indian operations are going through. it is the lenders only franchise outside of europe and is set to hire people. they have been assured that capital is not going to be a concern. and that is your bloomberg business flash. and about, thank you very

much for rounding up the news flow. elections are riding on a coalition in rome. the democratic party, the five-star movement are close to forming a deal. and giuseppe conte would stay as the prime minister. christoph rieger stays with us. there is a sense of new momentum that elections may be avoided. talk me through the circumstances that need to happen to make this rally endure. the near-term impact well come from the politician if cangrees that five-star ndp form a coalition. that would be confirmed sometime by tomorrow. and then the final risk would be

removed that we are heading into near term elections. this appears to be averted. today should be firmer and will have more room to perform given the political constellation and the developments outside of italy as well of late in european politics. they also encourage investors to increase italian duration. nejra: does this mean that in order to trade italy, you would versus be buying btp's bunds? periphery,in the there is catch-up potential as

well. particularly in spain where the political situation is just as uncertain. we could be heading to new elections there within one month's time. there is therefore also probably there have been a number of foreign investors. we could now perhaps see some of this money flowing back into the market. at least technically. as we exit the summer. it is in a negative market. can we circle back to the

bund market? themuch risk is there in bund market in terms of -- if we there is some if sort of substantive reprieve? in the bubblerve territory for you? christoph: i have always resisted the characterization of the bund market as a bubble because it is not really speculative money that is driving it. to the contrary. if you speak to investors there, they are still not participating in the rally. if anything, they are still short and needing to cover. there is no leveraged money going into the market. the typical signs of a bubble i do not think are there. having said that, some

valuations are clearly a way from where the fundamentals should be. that might be the only sign where you could see that we could characterize this as a bubble under this definition. so yes, there is a risk of a correction especially in the long view. that mayar-term, subside. nejra: just a final question on credit. where are you choosing to put money there? christoph: we are still defensive in ig mainly cyclical names. the ecb buying candidates. with the ecb very likely to announce another round of net purchases, they should be well protected. i am sorry, the non-cyclical

sectors compared to the cyclical. the cyclicals are clearly suffering from the slowdown. nejra: thank you so much for joining us this morning. christoph rieger from commerzbank. great to have you with us. donald trump's trade tone -- donald trump's tone turning softer on chinese trade. this is bloomberg. ♪

nejra: from bloomberg headquarters in london, i am nejra cehic. manus: i am manus cranny, live from dubai. -- shiftingstories tone on china. aange of tack, trump signals change of policy towards iran saying he would meet with president rouhani if circumstances were correct. >> they have to be good players. you understand what that means? they can't do what they say they are going to do, because if they

do that, they will be met with very violent force. we have no choice. manus: the future of prime minister giuseppe conte emerges as a sticking point as italian leaders look to avoid yet another election. ♪ nejra: welcome to "daybreak europe." great to see you for a second hour, manus. what to read into what president trump said? but also softer tone said a 50-50 deal isn't good enough. manus: the question is, they amost decry, there was telephone call saying they were ready to go to the table, so it is about veracity. bit of data

nejra: gdp numbers coming through. 0.1%d-quarter gdp is down, quarter on quarter, as estimated, bang in line. we're looking for other data, industrial production data from china earlier, but the german number quarter on quarter bang in line with estimates. year on year, gdp absolutely at zero. manus? manus: yes. let's get into equities. the last conversation we had, market.cus on the bund commerzbank, i asked if it was in bubble territory, as we have money again going into the bond market. he said these are real buyers, not fast money. a piece this morning, deflation

is scary but scarcity is the real deal for the german bond market. we could see further drops in yield, according to our guest host christoph rieger. 10-year treasuries, what juncture breaks through the 2016 low, and what momentum do you see there? that's what we discussed. nejra: christoph rieger also said what we see with bunds isn't divorced from fundamentals, putting the bubble pressure to the side. we were looking for the yield to get close to the record low, but instead we retraced. we thought again in the s&p 500 yesterday, but futures looking more muted. european equities didn't have quite the same gains, and ftse 100 futures lower.

bear in mind that we are playing catch-up with the u.k. market because it was a bank holiday yesterday. dax, cac futures looking flat. similar picture with u.s. futures, edging a little weaker down. s&p 500 down .3%. juliette saly in singapore has more. speaking of catching up in the u.k. market, it seems asian equities are doing a similar thing. juliette: they really are, led by china on the softer tone from president trump regarding trade talks. some buying in banking stocks today. a pretty good rate in industrial profit, rebounding 2.6% in july after a 3% drop in june. still seeing weakness in hong kong, off .3%. we had exports falling a ninth straight month, and of course the city dealing with its own domestic issues with protests. the nikkei up 1%, despite

money going into the yen. money goingghtly, into tech stocks. focusing on singapore, because we had headphones coming through -- hedge funds, debt restructuring experts saying singapore will see more soured debt. this is after the government slashed their growth forecast in your-zero, as three c worrying seeo near-zero, as we worrying recessionary concerns, singapore really hit by u.s.-china dispute. tide ofuld be a distressed debt, starting to hurt bond investors. according to bloomberg data, about $12 billion of bonds are maturing next year, a record for borrowers in singapore dollar bond market.

nejra: thank you so much. our top story, trade. palpable, at least in the asian's equity -- asian equities, as the message has turned hopeful. donald trump, taking a softer tone towards china? manus: during the press conference, the remarks made by china's top trade negotiator, he agreed with those remarks, for "calmal to be made under conditions." however, he made it clear he wasn't abandoning the rough-and-tumble tactics that forced through a trade war. >> when you say, maybe they want to, maybe they don't. i think they want to make a deal. i am not sure they have a choice. i do not say that as a threat. i don't think they have a choice. meantime, the united states, which never collected ten cents from china will be in a short

time hold $100 billion in tariffs, so i think they want to make a deal very badly. manus: joining us now, the chief strategist at principal global investors. we cannot base all of our life off one phrase at the end of the press conference. but if we look at the realities of where we are, we have equity markets trading higher, in asia and america. yieldf any impact is the differential have between stocks and bonds? the widest in three years, 3.8%. is there merit in the differential as a driving factor in how you look at the market? >> if anything to me, it says what we should be considering is the disconnect means there, any catalyst can trigger a sharp correction at this stage. president trump's words on the trade war don't help, and it

could push markets over the edge. nejra: if we got that correction, would you advise investors about a buying opportunity,, or to hold off before we get something a little more concrete from trade or any sign there's a blossoming in global growth? one concern we have, until now investors have had the idea that at some point in 2020 there will be a resolution, simply because president trump can't afford to have a stock market correction at the time of the 2020 presidential election. at this stage, it looks like president trump could have tipped it over the edge, so even if he wants a trade deal next year, china might not be willing to concede. so if we have a correction now, it might not be a buying opportunity. we know, given that things could turn around with any kind of tweet, you need a maintained exposure to risk assets in your portfolio, even if you are defensive. manus: talking about being defensive, in conversation with allianz, they said the

probability of the united states in the near term having a recession is about 80%. 10-year, i have three-monthed ourselves to death, so a new proposition. u.s. capitol goods expenditure, nondefense, back at zero, crossing the three month moving average. inlect on that yellow lump, the middle. every time you go to zero, a recession. two-fold question. one, does this indicate something more malevolent, and how soon, if at all, could we needed another -- could we need another dose of q.e.? seema: that's a great chart to show.

any weakness coming through will be from investors, companies pulling back spending plans, pulling back on capex, which then triggers less hiring and consumers. what we're looking at, if the trade issue continues, we would expect that line to continue falling, and recession becomes more likely. for us at this stage we don't see recession as the main scenario, but the chances have increased, and day by day it becomes more likely. nejra: i suppose that makes sense, why you are advising investors to have some exposure to risk but just be more defensive. what does that look like concretely? seema: i think when we are looking at, within equities we feel you should have exposure to equities, but focused on defensive sectors. things like utilities. at the same time, you need some hedging, meaning overweight government bonds even though they are extremely expensive, and things like gold. short commodities. completely hedged, whatever could happen.

at this stage, market dynamics will be driven by president trump's tweets, which i we have learned are completely unpredictable. manus: you, i'm looking, you carry on that that process as you elaborated clearly. but you lean into the dollar. is that your preferred hedge relative to yen, which will have a tough time getting through the level we are at, at the moment? why lean into the dollar, if this is your scenario? seema: with the dollar, what we tend to see, the dollar tends to be anti-cyclical. so as the global economy weakens, you will see things rush of the u.s.. it is the reserve currency, after all. the other side, if you have $16 trillion of negative yield bonds, and the u.s. government, if they are still positive, not zero, they are still considered high-yield at this stage. nejra: seema shah of principal

global investors and stays with the rest of the show is our guest host. let's go to annabelle in hong kong. annabelle: open to shifting u.s. policy toward iran, what president trump said at the conclusion of the g7 meeting, extending an offer to meet with the islamic republic's president if the circumstances are right. it echoes his initial outreach to north korea, which resulted in three meetings of kim jong-un but no breakthrough deal. summit, the g7 president trump also signaled he's not considering tariffs on japanese cars at the moment, but left the door open to slapping levies on the nearly $50 billion sector at a later date. washington and tokyo reached an outline deal on trade that will be formalized in september. a deal to end the feud over france's plan to tax tech giants. paris in washington reached an

agreement, with france's finance minister saying wine tariffs are definitely off. president trump did not confirm the deal, and said jokingly the first lady love french wine. for chineseeed troops to tackle the unrest in hong kong, according to the city's leader. carrie lam says her government can handle the ongoing a recenttions, andespite flareup in violence. she says that she will not give into one of her key demands, to resign. >> i think a responsible chief executive at this point in time should continue to hold the fort and do her utmost to restore law and order in hong kong. i would not say my government has lost control. day in, day out, we are not only enforcing law enforcement bodies, but acting responsibly to deal with other issues. annabelle: global news 24 hours

a day, on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. nejra? nejra: thank you so much. coming up, contingent on conte. italy's political future rides on the future of the sitting prime minister. more on coalition talks next, live from rome. this is bloomberg. ♪

it is just gone 7:17 in london, 40 minutes from the start of the european trading session. i'm manus cranny in dubai. hicra: i am nejra ce in london. we saw the s&p 500 jump yesterday on hope of a change in tone from president trump in regards to trade, but looking a little softer now. the 10 year yield down two basis points but above 1.50. on hope thatp's, another election might be averted. manus: can they do a deal? up .5%. both pacing higher. when you come to visit, i will

take you to the mall. on the bid side. being-yen, is it suppressed by those who sell y en, buy overseas assets? ,he mliv question of midday quite interesting. which assets prosper without rate cuts? you can join the debate with the mliv team on that., nejra, myself, the whole team are there. nejra: let's get the bloomberg business flash with animal inllers -- annabel drullers hong kong. annabelle: aggressive growth, not something you associate with deutsche bank at the moment, but that's the phase indian operations are going through. it is the lender's only retail banking franchise outside europe, hiring around 140 p eople.

assured capital will not be a concern. struggling pizza maker papa john's is looking for a new ceo and we have learned they will tap arby's president rob lynch for the role. that is the biggest shakeup since star board set their sights on the pizza chain. papa john's has faced slowing sales, revenue declining 12% last year. the man who drove volkswagen to become one of the world's top carmakers has died. thedinand piech was grandson of another auto pioneer, ferdinand porsche, becoming vw chief executive in 1993. under his watch, the automaker raised their build quality and eventually brought porsche into their wide-ranging stable of brands. piech died age 82. that is your bloomberg business flash. manus: thank you for the roundup. one of our lead stories this morning on the italian

government bond market. yields dropping. the five-star movement and the democratic party are seen as close to a deal, forming a new government, keeping giuseppe conte as prime minister. theing us now from italy, acting rome bureau chief. good to have you with nejra and myself. will there be a new coalition? is it just a matter of getting across the line? >> yes. yes. it seems we are almost there. of course, there was a lot of uncertainty because the democrats and five-star were go sworncouple weeks a enemies. said they were the anti-democrat party part,y, but thelikely tie-up, risk of special elections and a government led by matteo salvini

with cautiousis, optimism of a government in the next few days. nejra: i guess if it is an unlikely tie up, the question is, with it actually last, and will it be good for the economy? >> that's really the question. government, form a what's the long-term plan? has said he wants not just a government to avoid elections in the fall, by the government that will last until the next parliament session is over in 2023. whether the parties will find a way to work together is what we have to see. the first test will be the 2020 budget, and there was a meeting until 1:30 a.m., and it's already contentious. the parties have struggled to

find agreement on the 2020 budget. sandro i lisandro -- alles speciale, thank you so much. shah is still with us. we see a rally in italian bonds at least now. the question is if the coalition will last. will the rally in bonds last? seema: it could continue a little longer. when you have so many negative yields out there, italy is a great buy, although the risk profile is pretty negative. in terms of whether it will last, there's such different ideologies of the two parties, you have to question will it continue for more than a year. so i wonder if there's more political discord to come, which at some point will create a buying opportunity for italian bonds. manus: a jeffries note this morning, one line that caught my eye. donald trump said three things.

the chinese are desperate for a deal, and we are close to a european deal. that's anybody's guess. one industry group that has been battled, the auto sector. jeffries says such a battered industry might merit attention. agree, disagree? how do you personify european exposure? seema: interesting point with the autos. if there were auto tariffs at this stage, that would be absolutely awful for the european economy. they are on the brink of recession, and can afford very little at this stage. even a hard brexit would be dangerous for the e.u. if there is a trade deal, that lifts a major clamp lying over europe. automakers on the other hand, they are under structural declines and need more than just good news in trade. but they are so undervalued,

they could be a buying opportunity at one stage. nejra: what will move the euro significantly at this point? compared to other currencies, fairly range bound. of course push and pull from different factors, but are you generally positive on the euro at the moment? seema: we are very negative on the euro. there's a couple of different things. one thing that is key, the ecb is likely to be more aggressive than the fed, despite whatever pressure that comes from president trump. the ecb is in a more difficult position than the fed. we are expecting a comprehensive easing package in september. on top of that, you have weaker growth coming through from germany, on the edge. from our perspective, the euro is on a further downward trend from here. manus: i know the ftse 100 is more of a global play than the u.k., but it makes for a good chart, so what the heck. the worst month for the ftse since 2015. that is a trade play. but talk that back through to me in terms of, are you at a breakpoint of where you would begin to reconsider taking more u.k. exposure, three sterling,

through the 250? how do you look at this? seema: what's interesting about that chart, probably, that investors have been waiting for that big drop down since the referendum. so this has been long in coming. now that we see it, it really tells us people are starting to lose confidence in where the brexit negotiations are going. i expect sterling to go through to 1.18 in the run-up to the 31st, and if a hard brexit comes through, i expect it to fall firmly through that threshold. nejra: some said 1.17 as a floor as well. manus: we will all find out where the floor is by october, and what volatility we have. thank you so much for being with us this morning. great answers. chief strategist at

principal global investors. nejra and i are handing it off to matt and anna. the european market open is next. ♪

anna:anna: welcome to "bloomberg markets the european open," live from our european headquarters in london, anna edwards alongside matt miller in berlin. matt: a final reading of german second-quarter gdp, confirming a contraction and futures are mixed as data shows a drop in exports. the cash trade is less than 30 minutes away. ♪ matt: soothing