manus: a good morning from middle east headquarters in dubai. you're with me, manus cranny, for "bloomberg daybreak: europe." talk sounding more and more dovish, tapering conditions could be met this year. stocks look for direction, the

boe is expected to upgrade its near-term growth outlook. and bmw is setting a high bar for the automakers. will talk numbers. a warm welcome to the show, 6:00 a.m. in london. 9:00 a.m. here in dubai. are you going to see a hike and role in inflation? these are the protagonists. some would welcome a little bit of inflation.

it makes me decidedly uneasy, that's for sure. then i look at the other side, the fed versus the street. novak over at jp morgan says going to get an inflation shock, the likes of which you have not seen for a long time. given there is still high unemployment, central banks are likely to tolerate higher inflation and see it as temporary, so they would look through this. and talking about a generation that has not seen high risk inflation and therefore the reflation trade will take hold and it's going to be a mother of all rotation. the man at the center of the pivot is the boston fed president, aaron rosengren. he's playing down the inflation threat, and has something to say about daybreak. let's take a listen. >> were going to take -- taper if it becomes clear that the

economy continues to grow at the base the forecasters have. i'm expecting a very strong economic recovery, most private-sector forecasts are expecting that. manus: let's check in on the markets. china and australia seem to be knocking discussions on the head. is that what is taking the chinese equity markets off or is it biden sharing vaccine technology? huge moves on the likes of our capital which is the growth to value personification. is at the start of much bigger trade? can it endure above $10,000? it's not a straight road beyond to 15,000 s some are reporting. rosengren wants to embrace a little bit more social inflation.

what kind of inflation -- at your job to tell me in this market. is it temporary, or will it endure? michael: good morning, and what a great question to start with. at state street we partner with the company that scrapes hundreds of thousands of retail prices every day to get a good catch of online inflation. i can tell you right now that inflation number through the end of last month is heading to three or 4%. were certainly going to get a headline inflation shock. the other thing that obviously we know is that inflation will peak very soon. we will know the answer to this question in the next 3-4 weeks, i would say, and see how quickly

it rolls over. it looks like it will peak at about 4.2% in the middle of may and then it should start rolling over. the question is how fast will it start rolling over? i think our concern is it won't roll over as fast as the market or the fed hopes. i'm sort of in the shock camp a little bit because there's enough evidence that you might get rid of pent-up demand, you got supply pressures, and to be frank, to jp morgan's point, if you look -- if you don't get inflation now, when will you get inflation? manus: i like that around the dinner table, saying if another person tells them different there going to cry in their soup. is the market ready for the false imprint on inflation? what would that do to stocks, or

more importantly to the bond market and yields? i don't think the market has a 4% number in its site line. michael: it might have a 4% number for one month, but it wouldn't have a number above 3% by september. i think that because so much of the energy -- the market is going to look through it and is already. we already know the next inflation print will show the ideal inflation rate up at least a percent. that is the consensus, it's already at 3.6. for the next couple of months, because we know these are temporary base effects going on, the market will look through it initially. it's the numbers later in the year, and this will be the tricky part, you're not going to get the answer until may the

august or september print when you can see whether it has rolled over. that's going to be the key, they will look to the next couple of months, but after that is when you get the problem. manus: do you take any remedial action? do you prepare maybe for some breakevens in the portfolio to take that narrative into consideration? how do i hedge the possibility of what to do with the portfolio to prepare for that event? michael: obviously medium-term market expectations have gone up. but there certainly no way they are near 4%. i think some direct inflation protection is sensible. you've already seen it to some extent, investors have moved toward real assets, commodity linked assets as well.

they performed pretty well. the bigger question there is if the fed really is looking through it, are we going back to a steeper yield curve and the value rotation that you talked about? manus: what is your take? i encourage everyone to watch this conversation with jonathan. he's a fully invested bear. he said it's not going to pass through them are going to get a taper sooner than we all think and a rate hike in 2022. what is the risk of a rate hike in 2022? michael: i don't think you could rule it out. in this scenario were talking about with the inflation not coming down as much as the fed expects, i think to some degree it will be guided by markets in the sense that if market expectations going up through 2.5% and rising quickly, they

will realize they need to act. it's quite possible that even though the fed's mandate allows them -- it encourages them to allow the economy to run hot, but it might just be that quite rapidly rising expectations might make them think they need to start talking about a timeline next year. i think the market will nudge them toward that, but then obviously when they start talking about it maybe the fixed income market will relax a little bit. manus: i've never seen a bond trader with a soft knock. maybe the fx traders are different. with the narrative you've just given to me, i'm reflecting on what wells fargo said, do i lean into financials?

do i take more financial exposure based on the possibility of an earlier taper and perhaps a tightening cycle on a steeper curve? michael: i think it's been interesting the reaction that near-term earnings were good but the outlook was weak. or the guidance wasn't as strong as hoped. obviously one of the main reasons for that is the low level of rates and the shape of the curve. if that is the story we go down it removes the potential negative financials so that's absolutely right, the environment will become better for them, but it would also be better for cyclicals and reflation stocks as well. financials would be part of the story, but you are right, it would be a better environment for them. manus: some saying get ready for

monster rotation to value that that's more a generational thing. a lot of people haven't seen -- i remember paying a mortgage of 7%. that reflects my age. a headline coming get to annabel over in asia, is there no choice but to's an emergency extension? tracking all these rolling shutdowns around the world, the osaka government said there's no choice but to seek an emergency extension in japan. leading into all sorts of questions about the olympics in japan. we will keep an eye on those headlines as they come across the bloomberg terminal. let's get to asia and annabelle droulers is standing by with the first word news.

>> top j seven diplomats have singled out china in their communique after talking in london. calling on beijing to participate constructively in the system but also mention alleged human rights abuses, taiwan, and cyberattacks. you seven leaders are meeting in the u.k. next month. china is suspending its economic dialogue with australia. it's a low largely symbolic move . last month they decide to cancel the agreement between the belt and road initiative and the state of victoria. the latest blow to the relationship. officials are starting the latest data to work out which country should be added to a new green list of approved destinations. the details are expected to be announced tomorrow. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg. manus: coming up, a pinch me moment. that is next. this is bloomberg. ♪

>> i'm so grateful for my honesty from my partner, nick. when he joined me, we put together a strategy around what we wanted to do and we worked very hard at making that strategy really come to life. >> we're going to be focused on

this brand and the ability to continue to ask -- extend this brand in a very methodical way, before looking at and exploring anything from an m&a perspective. we are happy with the portfolio we have the ability to go deeper and wider within the honest brand. manus: jessica alba and nick talking about the companies debut. a dutch bank says it aims to distribute dividends after september, subject to ecb recommendations. joining me is the ing cfo. great to have you with us on the show. this is a great barometer of what is going on. europe is reopening, your company is reopening. are you seeing and in tandem -- in tandem spike and loan demand? is it reopening and taking off?

good morning. >> we see a resurgence in terms of revenue numbers which have recovered from a low point in the first quarter of 2020. the revenue growth has been in retail banking as well as host cell bank so it is quite broad-based during the course of this quarter as well. manus: i see your loan losses are 50% below the estimate. with that endure, or have we seen the best improvement in your estimate of loan losses? >> for this quarter, we decided not to -- we stayed prudent in terms of adding somewhat more to our loan loss provisions. in fact we do see the ratio of nonperforming loans have remained benign, given the economic situation and strong

credit management. our guidance has been that we expect loan losses this year will be lower than the previous year. manus: you had a long growth forecast of 3%-4%. does that still stand, or will you set that target aside? >> it depends a bit. i think we see strong economic recovery in parts of asia and certainly in the u.s.. europe is really coming out of the lockdown more slowly than the other parts of the world. but we expect loan growth to track back to within 3%-4% over the course of the coming quarters. manus: obviously your dividend policy is contingent on the ecb allowing all banks to return to some kind of normality. will buybacks be part of the narrative when the ecb allows you to take action on dividends? >> yes. as you know, we reserve dividend

payments at $.27 a share. we also still have reserve 45 cents from 2019 and we mentioned in our press release this morning a further 500 million euros in dividend reserves for q1. we will announce our plans of course later this year when the dividend banned by the ecb is lifted and indeed share buyback as part of that configuration, so we are guiding the market and considering that as part of our capital or cash distribution policy back to our shareholders. manus: bank of america reports were talking about delivering the biggest ever, germany was the biggest since the march round.

>> just the sense of scale, the program is over 2 trillion euros. it is a massive program. we did indeed participate in the program to over 50 billion euros. overall i think once the program ins, i think the ecb should gradually bring this level of liquidity out from the market because i think there's plenty of liquidity from private savers within the market. manus: did you need that 50 billion, or did you just take advantage of the offering and the carry? >> its accommodation of both. i think it was wise for us to take that liquidity and injected into the economy, which we have done. at the same time we did benefit from a lower cost of fun from

the program. manus: have you worked out work from home as you settled on three days in into days out? how much less floor space is ing going to need? >> today is my day in the office for this interview and most of the time i work from home. it's probably four days out and one day in unfortunately. manus: back to the office, let's see how it all translates. the ing cfo, we thank you for being with us this morning. coming up, the uk's economic rebound is fueling speculation the bank of england will start discussing when to taper stimulus. more of the details, right here on bloomberg. ♪

manus: this is "bloomberg daybreak: europe." the uk's economic rebound is fueling speculation the bank of england will start discussing when to take a statement -- taper stimulus. they're expected to maintain a target of 150 billion pounds of bond purchases this year. but could begin to slow the pace. we've been looking at all the nuances. good to see you. what can we expect from boe today? >> we are expecting the monetary policy committee to keep the key interest rates on hold today. what were expecting to change is growth expectation. back in february they forecast 5% growth for the year. since then we've had a raft of good news, the success of the vaccine rollout which allowed loosening restrictions, and

we've had extended government support measures. as a result we've seen resilience of consumers and that's reflected in all the economic data for retail sales through job assessments. to put it all together, it's a pretty significant upgrade to 7.5% growth for the year. but gdp has been swinging a lot throughout the pandemic. what investors might be even more interested in our in -- inflation expectations. bloomberg economic sees inflation tipping past the banks 2% target. if the bank agrees with that, one economist i spoke to said it's a pretty hot issue manus:. you look at bank of canada relative to the rest, the market

expects a hike from the bank of england next year. i think it's interesting to see whether they can go before the fed. what about the taper talk? do you think that will fly a kite on it today, or what is your view? >> given how well the recovery has been going, everybody wants to know when it's going to take its foot off the stimulus pedal. is it going to taper abruptly sooner than the end of the year? if it goes with the latter option, investors are likely to see a hawk us sign of interest rates in the pipeline. manus: the markets don't like anything abrupt, they have to be spoon every nuance. we will put those questions in a

moment. let's give you some context on what's going on in the markets this morning. the g7 calling out china in terms of human rights abuses. you have a headline that china and canberra are -- a state of crisis, but it's more than that. it's about her discomfort in global relations. the nasdaq is back to flat. is it time to bail on growth and pitch into value? michael jp morgan says you're going to see a gargantuan rotation. if i talk about it enough, -- commerzbank warrant it will not be a one-way route with a trajectory to the other side. michael metcalf, will return to that conversation in a moment. he says he can see inflation

spiking to over 4%. he says it may take you into the back of autumn to decide whether it's sticky inflation are just social inflation. that's

manus: good morning. this is "bloomberg daybreak: europe." the story to set your agenda. the fed hawks are sounding more and more dovish. tapering conditions could be met this year. attention turns to other central

banks, the boe expected to upgrade the near-term growth outlook. societe generale has its best equity trading performance since 2014. >> it's a mix of positive markets, high volatility and organize level and the reflation trade, activities also on the corporate side. so a lot of elements were aligned to help us. annmarie: cheering on the equity manus: -- manus: cheering on the equities performance. we'll hear more from him shortly. the g7 clearly lampoons china in

terms of its human rights position. the red headline that unseated the equity markets and the aussie dollar currency this morning was the suspension of dialogue between china and australia. is it largely a symbolic moment that the talks were suspended in last held in 2017? it took a bit of a beating yesterday. there is a debate as to whether your seen a moment of any sick that significant rotation from tech into values into commodities. copper, 990 one dollars, up .5%. various housing calling -- bank of america, my apologies to barclays.

get ready for 4% inflation, but it may not endure. society general reported first-quarter revenues beating the equity business, the best quarter since 2015. revenue surging. the suction ceo spoke to bloomberg in paris. >> we're considering the overall job and financing activities. >> do you believe the volume of tradable assets as you create momentum for the business? >> again, it's a mix of positive markets.

high volatility at an organize level. and the potential for investors with the reflation trade. lots of elements were aligned to help us be even stronger. >> in france and the rest of europe, despite the vaccination rollout, he remains quite slow compared to others in the world. >> it might be a little bit slower, but you saw the pmi index which was at the highest level since 1997. some businesses are more impacted, but vaccinations, for the u.s., it will help europe.

>> let's talk about working from home, how are you managing the expectations of your employees? do you expect them to return to the office by the summer, or by september? >> it's difficult to have a general position there. regarding france, on average, for most there will be between two and three days a week working from home. we will not go back to something similar to before the pandemic. i think it is the right balance and i think it's very attractive for our staff. it will help us to further

improve the effectiveness as an employer. >> you have revised down your budget for travel expenses for the year and next year. >> we have spent less than previous years. going forward we will probably resume traveling budgets, but taking also into account the environmental issues, it will be necessary to travel again and to shake hands again, but probably we are now all used to using videos very efficiently. it can help with communicating with clients, staff and others. manus: the best quarter on the

division. let's get to michael metcalf and see what state street thinks about the risk of taper being flown today. what is the risk of that? michael: i don't think it's that windy today to fly a kite. in the u.k. in particular, the economy is coming out of a much deeper hole and other economies. so yes, the recovery forecasts are all going to be revised up. but i think there is a lot of ground to be made up still. i think it is too early, even as the markets begin to speculate about a rate hike nectar. the uk's in a very different situation from the u.s.. manus: do you think that's a we bit over the top? the fed is still technically priced at 20. 23.

-- $20.23. michael: you show that nice chart when you were doing the bank of england segment on the level of gdp. it's going to take quite some time for the level of u.k. gdp to recover to its pre-pandemic level, whereas the u.s. is almost there. that highlights the difference. we can blame the speculation entirely on the pandemic. but we know the bank of canada was always more active. so we're careful about placing the blame on the back of what the bank of canada did. the situation is slightly different. manus: if anybody calls me, i will say it was michael metcalf that blamed the canadians. i thank you for joining me.

the global head of microstrategy. there is a ceo waiting in the wings. matt miller is on the ground with the ceo of volkswagen. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." the numbers are in for volkswagen. they've raised the earnings outlook. higher demand for battery powered vehicles. matt miller has the ceo. good day, matt. matt: good day, manus cranny. herbert joins us to talk about these results.

better than the restraint -- better than the street was anticipating and strong electric vehicles as manus said. i wonder how much stronger this is going to get? what is the trajectory of growth from your seat right now? >> we would be very happy if we could finish the year basically on levels of 2019. that would be our target. there is still a lot of challenge ahead of us because of semiconductor shortages. i think we could manage very well in the first quarter, but the incidence in japan and america are going to hurt us now. we think toward year end we are hopeful to recover. matt: can you quantify how much they're going to hurt in the second quarter?

we've heard some pretty shocking numbers, partner of your said 50% of production will be cut due to the chip shortage costing them $2.5 billion. what do the specific numbers look like for volkswagen? herbert: i won't give you numbers because were fighting day by day to be heard, but -- were going to be hurt, but not to that kind of magnitude. we will see some lines stopping for a few days or a few weeks, but it's not as brutal as the figures we see from some of our competitors. matt: how about how long it lasts? some have set a few months and some say the bottleneck will take a few years to play out. how long does it look like from your vantage point that we will see problems here? herbert: the shortage we will probably see through this year

at least and probably next year. it will take time. but hopefully what were not going to see is such incidents all over the world they squirted because of the incidents we had in america. semiconductors are going to be tight supply, but also there's a lot of additional capacity in it . we are in direct discussions with semiconductor manufacturers and foundries. semiconductor demand has raised a lot because of certain things and now it's important to add capacity as far as possible. matt: i wonder about the ways in which you get the most out of your production. other carmakers have cut out certain function capabilities

from their vehicles, taking out some screens from their vehicles. you've got incredibly high tech vehicles. is it possible to produce more cars and cut back on some of those capabilities that cars have? herbert: also eat let's say you optimize your mix and it lasts through the year, it should be possible to recover, but in her general mode, referring to some product lines, but were doing everything to keep production running and make the best out of it on the market side for as many customers as possible at the right time. matt: do you aim your production at higher-margin vehicles? the daimler ceo was saying they do everything they can to get

the x class out there because of course they make the most money off of that. herbert: i think that's natural behavior, i fully understand what daimler is doing there. matt: you're investing so much in technology, those have been the biggest headlines in terms of the way you are steering your company right now. software is obviously a massive investment. what about the chip side of things? will you make your own chips the way tesla and apple have designed their own chips? herbert: think there are some areas where we share chips with other industries and it will remain the same. but we will see more specific's, becoming closer to autonomous driving.

today's chips we are purchasing a specific amount and it will increase definitely you through the next years. matt: is i.t. becoming so key to the production of your cars that you need to add a new board member specifically responsible for the technology that's going into the making of these vehicles? herbert: the biggest step was really finding a software subsidiary and where ramping up our capacities, filling in and making good progress. toward the end of the year we will have close to 5000 people working in 15 companies which we are integrating. step-by-step we will ramp up our capacity. matt: but you're not searching for a new management board

member to strictly focus on the i.t.? herbert: i would say the most important trump cards are where we are really focusing on, the board member would focus more on the company software side. that something which is not the highest priority. matt: i'm looking at pictures of the i-4. i have friends who have taken delivery and they love them. you also have the q4 coming out, and a wagon version. we will you narrow your ev sales gap to tesla this year or even close it by 2022? herbert: we are working on it. it has good product momentum.

about 100,000 orders which we are deliberately -- ev's are less impacted by the shortages of semiconductors. so yes, i think basically more than 170% of plug-ins. so i'm still optimistic that we can reach our very ambitious target of selling one million ev's in 2020. matt: we've seen other costs absolutely sore in terms of commodities, inputs, so key for these vehicles, including ev's. is that a concern for you going forward this year? are you watching commodity prices closely? herbert: absolutely. precious metals are at all-time highs. this is a concern for us.

we try to manage through long-term contracting, finding new sources, but it's going to be challenged through 2031 for sure -- 2021 for sure. supplies are constrained. that's a development we have to manage. matt: with demand so strong in the consumer willing to pay the price, i've seen some incredible dealer markups across all brands. do you have renewed pricing power this year? herbert: we tried to cope with the situation, tried to sell a better mix because of the constraint. we had very good margins in the first quarter. we're very pleased with the mix of sales we got and also the margins we achieved, a 10% margin first quarter.

and high cash flows we could generate. generally, in countries where we have also currency differences now, like latin america, so far that's going well. the customer accepts the higher price. matt: herbert, we appreciate the time you sit with us this morning. the ceo of volkswagen talking about their earnings for the first quarter and increased estimates for the full year. it's a brighter picture, although they've got some issues to deal with, some obstacles they are working on getting around. manus: a great conversation around the whole chip shortage. a huge story on the bloomberg terminal this morning, one of the most read stories. and confident about overcoming

the near-term hurdle. always great to see you, matt. matt miller in berlin. coming up on the show, a return to the summer holidays. this is bloomberg. ♪

>> the one thing that has held back travel in the last 12 months is the uncertainty and the clear structure in place will be very positive. >> i have no doubt that tourism in italy will bounceback as strong as it was before, and even stronger. >> we want to find the right

balance between opening and being safe. it will certainly be much better than 2020. >> is time to book your holidays in italy. we look forward to welcoming you soon. manus: the messages book your holidays, get yourself to italy. that was the political leaders and business leaders talking about a return to the summer season. i want to show you one leader who is in a decidedly uncomfortable position. the longest losing streak in 6.5 years. this is a much bigger market question than a flurry to the downside. the put options are building up on capital values for sure. there's been five days of outflows. but it begs the much bigger

fundamental question about tech and the challenge to big tech in terms of surging valuations. will there be almost a pivotal moment where we rotate from growth into value commodities? saying there's an inflation shock coming and outside impact on inflation and reflation moves of the coming year. when it comes to liquidation of your position, the richest man in the world might be sending us all a message. he's got three times the amount to sell, according to the papers that have been lodged. jeff bezos selling a little bit of paper from amazon, just to give you some context. he has about $189 billion left. do you want to bid for a seat on

the new ship going to space on july 20? a quick snapshot of markets before anna edwards and mark take you through the next couple of hours on markets. a beautiful day in london. the city of london is open for business. ♪

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♪ anna: good morning and welcome to bloomberg markets. mark cudmore joins me in singapore to take us through all the market action this hour. the cash trade is less than an hour away. here are your top headlines. the fed hawks out of -- are sounding more and more dovish. playing down inflation. tapering conditions could be lifted this year. stocks look for direction