♪ manus: good morning from dubai, it is daybreak europe. starting the agenda with your top stories. asian stocks and futures are steady. the offshore you want remains resilient after china makes its most substantial move yet. sterling sores to a three-year high as vaccines spur optimism.

the u.k.'s economic recovery is -- economic recovery continues. miracle gets ready to let the controversial lockdown law lapse. the alliance is expected to press ahead with a gradual increase in production. welcome to the show. the agenda was roughed up a little bit yesterday by the pboc. this is the narrative, the central bank concerned about the strength of their currency. this is the cover story, a message from the pboc raising the rrr by 2%. about $20 billion of liquidity throughout the system. is it really going to turn the dial on the yuan's move higher? city doubted the effectiveness. yes, you can tighten onshore

sure but the world will lend and that will allow you to get a hold of the care retrade for all the world. we can debate the nuances. the cease and desist order. south korean exports fly to the moon. it is memorial weekend, oil up a quarter percent as any return of iranian oil barrels will be orderly according to the secretary-general. the aussie, there is cable. let me tell you about what is wrong with cable. it is quite literally killing me. a three-year high against the yen. the vaccine rollout, nearly three quarters of united kingdom will have two doses in their arm within the next month according

to johns hopkins research. confidence rising as bank holiday demonstrates the reopening. a quick snapshot of the yuan and the aussie. talking about may be a little bit more qe hand extending their targeting. the yuan, is the action taken by the pboc enough to move the dial? let's talk about china and a little more detail. first of all, it is the fx front. the finance ministry is considering a proposal to transfer it shares and other bad debt and injures to a new holding company. it is a bloomberg's group. our credit report or me now. the market has been waiting for details on how china will deal with -- what is the latest move

and should we take heart from it? >> the latest information that we know is that a proposal is being considered in this transfer that you mentioned. that would essentially kind of take it from a more commercial stance. this is a model that has already been introduced to deal with the very big state run banks. i think what it shows is again this determination that beijing has two really combat some of the financial risk building up in the sector. this is just one of the proposals that potentially helps do that. manus: and why is it being proposed right now? >> i think that is the really fundamental question. this initially came up three years ago.

again, it is being revisited in light of the turmoil we are seeing. on the one hand, renewed scrutiny and focus on the sector as a whole and the need to reform risk in that part of the financial universe in china. there is the question of whether or not that plan will impact the level and extent of state report they can receive from investors. at this point, there is a a lot of ambiguity around what this means. investors want to know, does this mean that the state is less likely to support them when it comes to restructuring? manus: my last guest said they still expect bondholders to take some level of pain and not to get away scott free. let's go to my guest host,

senior executive officer at arch capital. the chinese are very, very active at the moment in a whole series of directions. i want to circle back to the yuan story and get your take. raising the rrr, the first hike we have seen since 2007. there seems to be skepticism that this is a real line in the sand for the pboc. what is the message for you? >> i think one of the things we have to look at, right now, banks basically front running the customers especially in china. you had the blip down at the beginning of the year, 6.4 or 6.5 i think. a gradual increase to 6.5-plus.

i think the pboc runs their currency like the doj in the sense that they have to manage their liquidity levels for the export market. china's main problem right now is rising commodity prices for import commodities. a weakening yuan does not help them very much. the main burden is effectively prices. i think what we are looking at is the pboc actively intervening in the market, saying they will not tolerate speculation. manus: are there repercussions for other cross currencies? some people say the aussies could get caught up in the crosshairs. it is sort of a vicarious trade for everything outside of china. if the yuan weakens a little bit here, so might the aussie?

saed: one of the drivers for aussie the past month or two months, between australia and china. that is why we saw the initial spike in commodities. speculation driven by the idea -- coming out of australia. i think at this point, australia is much like the rest of the g10 , basically who will exit first. the focus remains, brief rallies. the story remains the same. the next two or three months. manus: the rba came out, the initial take seems to be that their guidance for 2024 for the earliest rate hike. they obviously have a long ability to project. and they will consider further

qe in july. given that they were probably going to intimate rate hikes in the second half of 2022, this is a heck of a divergence in terms of perspective. saed: they have been clear in what their path is. they are waiting for employment and to begin to set in. now, they have a very different mandate in terms of their export market. i think what we are looking at is a diverges policy, one being banks like norway, sweden, canada beginning to exit monetary easing toward the fed, the rba, perhaps the ecb. manus: the other dynamic is this risk. if we look at the overall risk

of markets, you say global markets remain elevated in the face of an overall central expansion. rallies are now an opportunity to establish short positions because the panic associated with covid has been removed. where is the biggest opportunity to establish short positions? >> one of the things, the tech sector as well as the overall u.s. value story. one of the things you have to remember, you had intimations from the fed and european counterparts that the markets are frothy. the past two or three months or four months. as it gets closer to the zero hour for the fed, ecb, and we begin having the conversation about lift off, i think markets

will react. right now, flat since march or april or may of last year, and begin looking at -- manus: there is no such thing as a free lunch. i know. i have been to lunch with you. i have paid many times. don't worry, you are on the to have a. there you go. let's get to yvonne man with first word news. yvonne: angela merkel says she is ready to allow germany's controversial lockdown law to lapse. restrictions including curfews for hard-hit areas were launched in april. the country has been gradually easing restrictions as infections fall and vaccinations accelerate. the iaea says iran has produced a record volume of highly enriched uranium. this comes as envoys hunker down

for an eighth week of negotiations in vienna. saboteurs struck the facility's facility six weeks ago. fans at the next month's olympics. spectators will be required to provide a negative virus test or a vaccination certificate. fans from overseas however will not be allowed to see events in person. the battle to control italy's largest highway operator is nearing an end. they have backed the sale to an investor group led by italy's state back lender. it is a victory for the family that controls the infrastructure giant. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

manus: thank you very much. coming up on the show, deflation risks? the oecd just the latest voice warning against growing price pressures. but right now, he has bigger concerns. the global economy. that conversation on a regular up. this is bloomberg. ♪ -- on daybreak europe. this is bloomberg. ♪

>> it is vaccination, vaccination, vaccination. that is going to define how robust the recovery is. the other question is, is it going to be vaccination only for

the wealthiest countries, or are we going to generalize it? >> the time to worry about inflation, although one should always keep it in the back of our mind. just like it is not the time to worry about that. why> because the enemy is still there. the viruses having immediate consequences on the economic side, the social side. those will stop the moment we stop the virus. manus: the outgoing oecd secretary-general warning that many parts of the world will be left behind from the recovery from the pandemic. our guest this morning says he is bullish. he economies around the world will pick up. we will talk about the broad asset classes in just a moment. i want to reflect on what the

secretary-general said. now is not the time to worry about inflation or debt. i look at inflation expectations from the university of michigan and i worry. do you? saed: i think we are on a dangerous path. the fed, the ecb beginning to realize that their policies have led to a grand valuation in asset markets. i thing assess how much liquidity do we still need and whether that affects liquidity on asset markets. at what point in time do we reduce this liquidity? the benchmark, you have real wage versus nominal wage. i think the asset markets will respond to nominal versus real wage. manus: the real wage is lowest since the 1970's.

everyone tells me that is what i should be focused on and i should not get carried away with nominal rates. >> obviously, the forward guidance that we have been given , 2024, 2022. the idea is they are willing to raise funds once inflation picks up considerably. this is perhaps -- the real test is going to be in q4. and q1 of 2022. these base effect. if we do have elevated inflation , also central banks will find some kind of curb, having to raise. with covid, beginning to gradually open up slowly. i think we are normalizing. we have to look at china in some ways as the benchmark.

china did months of lockdown and eventually opened up. the question is, the rates. manus: ok, let's squeeze another couple in before we let you go. jobs report on friday, 650 is the bloomberg consensus. if there is a significant heat, excess of a million to return that narrative of a speedy jobs build, does that bring a taper more squarely onto the table? do you think we will get away with it this time? it is almost implied that we are going to taper this year. >> i think nonfarm payrolls will come up decent. i think there will be a pushback of yields, 170, 180 perhaps. nonfarm payroll, actually,

people applying for jobs. i think people actually have to go back into the market. the real play here, at some point in time, you begin seeing wage inflation. that is something over the next few months. manus: let'ueeze in a cable view on you. vaccine rollout. johns hopkins, three quarters of the u.k. population will have two doses within one month. business sentiment ramping higher. is that all indy sterling price. how much of it is alpha of sterling and the u.k. story in itself? saed: a shift to the bank of england, prepared to actually look at raising rates in 2022.

they are preparing to have a conversation to move outside of their present monetary policy. it is a race between sterling, euro, and dollar effectively. at this point in time, given the recovery and vaccinations in the u.k., i think we have a chance to actually see a rally between 1.3, 1.4 over the next few days. manus: that will kill me a little bit more. that means you definitely have to pay for breakfast. senior executive officer at ark capital. coming up on the show, the reopening continues. italy reintroducing indoor dining in low risk areas as the vaccine drive kicks into gear. we have the details. this is bloomberg. ♪

manus: it is daybreak europe. one of europe's largest economies is reopening. from today, restaurants in italy' low risk sounds conserve restaurants indoors. businesses in these areas including yams, shopping malls, will also reopen. italy is throwing open its doors. one of the key changes, this is one big step to normalization >> yes, it is. starting today, we are going to see that reopening that should culminate by the end of the month, fully open for the summer. going to possibly see vaccination open for everyone

starting tomorrow. today, the indoor dining is going to be available. shopping centers, gyms, and the same goes for stadiums when it comes to visitors from outside the european union. they can also enter the country. one of the things i should highlight here is that this was a priority for reo draghi. if you look at this reopening, the number of infections, the number of deaths have gone down. the number of vaccinations have tripled. at the beginning of the year, hundred 70,000 people a day. right now, 600,000 people. that is also reflecting the economic process for the country. yesterday, the end of the central bank said that he does expect the economy to pick up. it showed significant momentum in the second half of the year. manus: the reopening trade

bolstering everything from oil through to equities. how big of a test is this for mario draghi? in his new role as prime minister. >> if you remember when mario draghi became premier in italy, he said his number one priority for the government was dealing with the health crisis, dealing with coronavirus. the vaccination campaign has proven under mario draghi that he has changed the system around it including the top medical officers dealing with the pandemic. the country could be on track to reach herd immunity by the end of the summer. the focus would turn to the recovery fund which is almost fully ready to go with the commission expected to tap markets in june, make those payments in july.

that is something the markets will look out for. it seems the commission is on track to do everything on schedule. manus: thank you very much. tracking the italian reopening story. to the markets. you are waiting for the jobs data to the tape on friday. why would you go into this week with any huge risk? that job report and the wages will define the next part of the story. wages higher, 42.05. is the export data that really has lit a fire. stocks above 4000 level. asia up a quarter of 1%. that is the highest level in over a month. part of the narrative today, where does the -- can oil indoor above $70 a barrel? that is opm plus's job.

the world deals with a whole variety of variance in the covid story. ♪ (announcer) do you want to reduce stress? shed pounds? do you want to flatten your stomach? do all that and more in just 10 minutes a day with aerotrainer, the total body fitness solution that uses its revolutionary ergonomic design to help you to maintain comfortable, correct form. that means better results in less time. you can do an uncomfortable, old-fashioned crunch or an aerotrainer super crunch. turn regular planks into turbo planks without getting down on the floor. and there are over 20 exercises to choose from. incredible for improving flexibility and perfect for enhancing yoga and pilates. and safe for all fitness levels. get gym results at home

in just 10 minutes a day. no expensive machines, no expensive memberships. get off the floor with aerotrainer. go to aerotrainer.com to get yours now.

manus: from our middle east headquarters, i'm manus cranny. asian stocks u.s. futures are steady. the offshore you one remains resilient as china makes its most substantial move yet to raining -- rein in surging currency.

vaccine optimism spurs the narrative. u.k. economic recovery. angela merkel gets ready to let germany's controversial lockdown law lapse. crude times ahead of the opec-plus meeting today. the alliance expected to press ahead with a gradual increase in production. the chinese have quite frankly had enough of strength in the yuan. i'm paraphrasing. the pboc has made a clear directional noise, not appreciating the speed of the appreciation in the one. -- the yuan. they have raised the rrr. i want to give you some context. banks held about a trillion dollars in fx deposits. a two percentage point rise which is what has been offered by the pboc or asked for, the first of which since 2007, is the addition of $20 billion in

deposits. there's a trillion on deposit. a 2% spike asks for 20 billion more. is that going to stop the runaway train? citigroup says no. its effectiveness remains in doubt. hsbc says it will not be sustainable enough. global investors can get their hands on cash anywhere they want to buy the currency. we are waiting for the jobs report on friday. how much risk do you want to take on to your book is an terms of equity exposure? if the jobs report does come in at over a billion on friday, what should your risk be? what would be the risk because the whole narrative would shift around the fed. equities in the green. cable literally is killing me. vaccines -- johns hopkins university, three quarters of

the u.k. will have two doses of the vaccine in their arm within a month. three quarters of the u.k. will have a double vaccine. that is pretty significant. optimism is rising. people are talking about 145 on cable. positioning is neutral according to the bloomberg survey. secretary general barkindo says any iranian barrels that come back to the market will come back in an orderly and transparent fashion. the iranian government says let's get to 6.5 million barrels a day quickly. the aussies holding to the doves. they will reconsider what to do with qe and you targeting in july. let's reset. bullish wagers on commodities overall. what we are seeing is a reduction in long bets on crops, copper, and natural gas.

what happened to super cycle? let's ask juliette saly. she has a decent chart. are you going to call the end of the commodity super cycle? >> i would not be so bold to do that. certainly we know there has been a big rally coming through in commodities. on the bloomberg commodity index we saw a gain in may out of the last 14 months -- 12 out of the last 14 months. we have been tracking 20 out of 23 commodities tracked on the bloomberg index falling by the most since november. perhaps we have seen a peak particularly as we see inflation concerns and demand concerns. there is a lot of reason, milder weather in the u.s., as that going to reduce demand for natural gas? could be more oil coming onto the market with iran. you have china having these

morning words over rising raw material prices. there are outliers. if we look at the moves we are seeing in commodities over the past year or so, we know they have been huge. finally showing some estimates for aerobic a. drought keeping demand -- arab ica coffee. drought keeping demand. this is where you look ahead to the jobs report. the overall global economic recovery, parts of the world grapple with the virus. manus: melbourne and another week of lockdown. juliette saly in singapore. setting the stage on the commodity market. it is a year after the shuttering of unprecedented volumes of crude.

opec-plus meeting today to discuss boosting supply in the second half. the cartel is expected to press ahead with a gradual increase already penciled in for july. that went well, didn't it? anthony dipaolo, our opec-plus washer for the day. is it a rubberstamp of the agenda, the three-point agenda opec-plus has led? do more barrels come back as planned in july? >> good morning. indeed, that is the expectation. that they will go ahead with the plan to ease the tapering have already agreed to. we don't see any change in what has already been agreed to. bringing back the total of 2 million barrels a day through july. some of the has already come back to the market. people are really looking at what's going to happen second half as you mentioned in the lead up.

oil is up. people are looking at a demand increase in the second half as economies come back online with that opec production still being constrained. they are still holding off the market. manus: it seems when oil is in the 70's, the market and opec-plus seem to be more driven by the demand outlook and the potential tightening, rebalancing of the market, the five-year average, versus the risk of iran barrels coming back without a quota. >> they do need to balance those issues. obviously opec has also got its eye on the energy transition, people switching away from oil, using other products. a price that catchment -- that gets much higher than we are now

starts to be damaging for consumers. opec is keeping its options open. they have that prospect of the iranian barrels coming back to the markets. there are talks going on between iran and the world powers. those have run into some complications. very intense negotiations. that is up in the air. the expectation is that a deal is going to happen. the question mark is really can they get it done before the election or is it going to have to wait? that's going to have to affect when the iranian barrels could come back. manus: iran's comeback will occur in an orderly and transparent fashion.

i set that against when he was saying we should get production to six point 5 million barrels a day as quick as possible. the secretary-general seeking to quell our concerns. what could disrupt the outlook? >> iran will come back quickly. perhaps more quickly than people are expecting. this is what happened the last time sanctions were eased. they were able to bring back a lot of productions and about three months, 3, 4 months. the expectation is they will be up around 3.4 million barrels a day by the end of the year. but not full capacity by this year. that is if we get a deal sooner rather than later. not reaching full capacity until next year. for capacity for iran is just shy of 4 million barrels a day. they have not produced 6 million barrels a day since the 1970's.

the minister announced yesterday , the moment, fantasy, because they don't have the capacity. there is the resource to iran, it would mean a lot of investment and development to get to that level. i think he is talking in terms of the reserves opec countries have. they could do that on the framework of course. demand is going to be the question going forward. maybe there's going to be more demand. we are going to have to see. that is a question for the coming years. manus: thank you. anthony dipaola setting the stage for opec-plus. our guest is head of european energy research.

we are in the 70's. opec-plus seem to have done a good job. can we take more supply easily in the coming months? good morning. >> probably. we have visibility. we can almost watch the oil market in real time through tanker tracking. we have been pretty consistently undersupplied so far this year. a good chunk of the demand lies ahead. oil markets can almost certainly take more oil. that is what opec is planning for. manus: let square away the iran risk. it is possible they will come

back in size by the fourth quarter, get production back to around 3.6, 3.8. will that unsettle any of your outlook on the market? were you penciling in average oil as it were for the rest of this year into next year? >> oil should be trading in the high 60's, close to $70. 70 is a hard level to break. for short periods of time, very volatile. above $70, you are starting to stimulate a significant amount of additional production, particularly in the united states. that is a situation we have seen before. we were in that situation where opec withheld production, but the u.s. players add those barrels back. we basically saw a market share

shift from opec producers to u.s. producers. that is not a story for 2021. there are time lags in the system. u.s. producers cannot ramp up. there is an argument to be made. i think it is a valid one. opec now allows oil prices to rise too high, $75, $80, for a good number of months, then you will see once again the ramp up. once again late this year into 2022 we are mulling a significant amount of growth from u.s. shale. it all just about works, but we are getting to price levels where into 2022, the tension between, do we want higher prices now are better market share next year? that comes back. i still think $70 is a hard level to break. nevertheless, that is a healthy level for most producers. manus: i do want to get to your

equity calls, but can i square off a couple comments? obviously american shale, the risk is $80. is there also a risk to demand? is demand lower than what we were able to tolerate free covid? -- pre-covid? >> that is a very valid argument to make. we are relatively optimistic about reopening trade. we also argue the true peak in oil demand is a decade plus away. it is likely coming out of covid , what your previous colleague mentioned about what is going on with the transition, we will have lower trend growth in oil demand. the days of 1.4 million barrels a day structural year after year decade after decade growth, those days are behind us. also, we are reaching levels of price where the demand is more sensitive.

inflationary concerns are already coming back. in parts of asia, gasoline and diesel is already as expensive as it was before coronavirus. there is still fragility in the economy. there is a demand impact for higher prices that should be taken into account. manus: tear absolute domain, what to do's equities, i know you say shale and you have big calls. may 26 i would say is one of those days were it changed. exxon got two itchy activist members on the board. chevron will review can there was a reduction of emissions. and shall, -- shell cut emissions harder and faster.

was may 26 the day on which we will look back and say this is where the tide went out? what is your strategy on a cleaner future in oil? >> that may be the case. this is not easy to judge. if you are close to the sector, every day for many years, these are not new themes. we have been writing and talking about energy transition issues basically since the previous downturn. in 2015, discussions came up and accelerated, but sometimes you can be too close to a sector. and you think we have been talking about this for a very long period of time. it may well be the case that the events of 2020, the esg and the

climate change issue and the events of last week have really driven these issues home to a much larger audience. that makes it a relatively difficult trade-off. fundamental analysts like me have seen shares the rate for some time already. our argument is a lot is in the price when it comes to european oil majors, when it comes to the esg and energy transition agenda. now we are seeing the cyclical recovery. oil prices are up, natural gas prices are up. petrochemical margins are up. we are seeing companies produce very large amount of gas flow. i would argue these valuations particularly for current multiples. manus: far be it from me to call

the death of big oil anytime soon. i want you to come back soon and talk to the dividend narrative. on another day we can spend more time on that. shell maintaining attractive valuation, just a little less conviction. we are far from the death of oil. coming up, policymakers learn the lessons of 2008 to apply a wider set of tools to repair damage from covid. will it be enough to manage the economic boom? today's big take story. ♪

>> for generations to manage

economic crises. covid-19 changed all that. last year the doctrine of austerity fell to the wayside. fiscal expansion took over for monetary policy. governments channeled cash directly to households and businesses running a record budget deficit. central banks played a secondary and supportive role. even in fiscally conservative germany, policymakers scrapped a law requiring balanced budgets. the imf said the biggest risk to recovery was that governments would curtail spending too soon. in the u.s., the sentiment shifted away from the financial crisis. no americans lost their jobs through any fault of their own and that helped clear the way for big fiscal response. >> the smartest thing we can do is act big. i believe the benefits will far outweigh the costs. >> president biden's team has embraced the new approach.

it leans on proposals for higher taxes on the rich, more spending to benefit the poor, and policy that has been out of fashion since the 1970's. obviously inflation concerns are fueling the heated debate. some economists are more worried than others. >> the highest inflation numbers are just ahead of us. i think ultimately it is going to be more temporary. >> i was on the worried side about inflation. it is all moved much faster, much sooner than i predicted and i think that has to make us nervous going forward. >> we had a generation of macroeconomic policy donated by fears of doing too much. the attitudes seem to have broken out of that mindset. lessons have been learned about how to get out of the downturn. now we have to talk about

managing and sustaining. manus: we are going to check on the markets with dani burger in a moment. ♪

manus: it is "daybreak europe." suffering the pressures of arising pound. what is going on? what is behind the move? >> of course it takes two to tango. dollar weakness is the same weakness we have seen moving this. on the u.k. side, two fundamental reasons are driving this. these have been simmering under the surface. on one we have economic growth and on the other hand we have increased bets that perhaps the boe will move sooner on rates. on the economic strength, boris

johnson sang the past few weeks he does not see concrete reason to delay the reopening. inoculation paces and the reopening we've got so far mean business confidence is at its highest since 2019. you have a brighter economic picture. this is a lloyd's survey. business confidence is at the highest since 2016. at the same time you have mpc members saying in the best case scenario, we might be getting a rate hike sooner. should the furlough scheme work its way out, should employment stay very strong, we might get a rate sometime sooner would be appropriate. that has increased those bets for rate hikes we have seen in the market. all of that leading to this three year high for sterling. manus: could the fed be late to the hiking party? thank you, we will see of

tomorrow. dani burger in the london hq. the european market open is up next. this is bloomberg. ♪

in business, it's never just another day. it's the big sale, or the big presentation. the day where everything goes right. or the one where nothing does. with comcast business you get the network that can deliver gig speeds to the most businesses and advanced cybersecurity to protect every device on it— all backed by a dedicated team, 24/7. every day in business is a big day. we'll keep you ready for what's next. comcast business powering possibilities. (announcer) back pain hurts. you can spend thousands and still not get relief. now there's aerotrainer by golo. you can stretch and strengthen your core, relieve back pain, and tone your entire body. (man) and you're stretching your lower back on there. there is no better feeling. (announcer) do planks for maximum core and total body conditioning. (woman) aerotrainer makes me want to work out. look at me. it works, 100%. (announcer) find out more at aerotrainer.com. that's aerotrainer.com.

mark: welcome to bloomberg markets. this is "the european open." the cash trade is less than an hour away. futures are steadily moving higher in the u.k. and the u.s. markets coming back from the long weekend. global stocks starting the month near record highs. unlocking italy.