welcome to "street signs." i'm joumanna bercetche these are your headlines shares in germany's second largest lender, commerzbank, jump as it says it will resume its dividend this year we hear from the cfo first on cnbc vodafone sees red as vitorio colao steps down as cfo. easyjet shares soar to the top of the stoxx 600 as a higher

load factor helps losses narrow at the budget airline and the company forecasts revenues to rise for the year. >> the fact that our brand is stronger and higher than even british airways for the first time in the uk, that's all part of the result. looking forward, we do believe that we have a good momentum for the winter, and we hope that will continue throughout the summer. and just a few more days italy's ten-year bond yield hits the highest level in nearly two months as the five star and lega leaders are granted another delay to agree on a prime minister good morning before we get into all the markets, i want to draw your attention to some corporate earnings and announcements

announced this morning starting with commerzbank which is up more than 3% shares have been rallying after germany's second largest lender beat first quarter profit forecasts. the bank also said it aims to resume its dividend for the year commerzbank expects the interest rate environment to continue to improve in 2018. we will hear from the cfo, a first on cnbc at 11:40 cet next up, vodafone. shares are down 3.5% this after the ceo, vittori vittorio colao announced he will be stepping down in october. colao is credited with transforming the fortunes of the world's second largest mobile carrier. vodafone beat expectations and had core growth forecast of 5% in 2019. iliad shares down almost 15.5%

shares have touched their lowest level since december 2013 after the french telco group missed forecasts. they have also named thomas renault as new cfo effective may 21st shares down a whopping 15% and dragging down the rest of the telecom sector easyjet up 3%, they reported a narrower pretax loss for the half year and said it expects positive revenue per seat in the second half of 2018. the ceo said he was watching developments in the oil market >> we have a policy that's really, you know, flattening out some volatility around that. we are well hedged compared to other airlines out there as you see oil prices will increase, our model is very efficient. we have new aircraft which burn

less fuel. that means we compete well when the oil prices go up, compared to others, who tend to ground their aircraft, and the competitive pressure will be slightly easier. >> italy's ten-year yield has risen to the highest level in two months after the five star and lega parties ask for more time to work on a government willem is in rome. we've been watching the talks. doesn't appear there is a deal in sight and also some major differences on key topics. >> we got a clear sense over the weekend that they would be able to present an agreement to sergio mattarella yesterday as well as a candidate for prime minister that turned out not to be the case last night after the meetings with sergio

mattarella, we heard from luigi dimaio that they needed a few more days to hash out an agreement. >> translator: we are satisfied with the atmosphere of these talks. mostly for the points we're agreeing upon. the unemployment earning, pension reforms, cuts on public misspending, these are issues of great importance as well as public goods like water management, fight against corruption and imprisonment for those who dodge taxes. >> his counterpart, the leader of lega, mateo salvini he said things less optimistic about talks. he specifically wanted to stress the differences between the two sides. >> on migration, the position of the league and the five star movement are different, both respecting human rights and international treaties

i say this as a father, i will not allow a new summer and autumn arrival of migrants and the illegal migration. if a new government is formed, the league will have to have a free hand of protecting italian citizens the law on weapons and self-defense another delicate issue, we have to find an argument on a new position of italy in europe. we don't want to scare anybody, but italians voted for us to bring to the top of the political agenda in brussels and strasburg, the italian issues of employment, the right to employment and the dignity of labor. what is notable is that both sides have had euro skepticism in their dna throughout this company leading up to the march 4th election both made similar noises about migration. lega slightly more right wing when it came to it there are areas they cannot find

agreement and all of those talks about fiscal spending, about taxation, about pension reform seems to be areas they seem to have found common ground on. there will be a few more days of horse trading here, discussions about where they can find that middle ground, then we might hear about a prime minister. we might hear about a cabinet minister mateo salvini clear that they would not speculate on names ahead of a formal announcement >> thank you for that. >> with me to discuss is the director have european interest rate strategy at citi. i want totalk about the reaction or lack of reaction we're seeing in italian assets if you take it back beyond the italian elections, there's a couple reasons for bond yields to sell off. volatility in february, european growth slowdown, now inconclusive elections with the rise of the populist parties,

still no reaction in italian bond yields. what is going on >> that's an important point yes, spreads have responded to some political news over recent days, but they have responded from recent ties in april, around 115 basis points, and spreads are nowhere near where they achieved in q1 last year, 200 plus levels at the time of the french election. of course, in many ways, 2018 was meant to be a challenging year for italian assets and btp spreads, when we think about less qe, the risky asset volatility you're talking about, the italian election result itself the italian index, citi's returned 2% this year. it's important to think about what has changed from last year, a few years ago, to what's happening now to discern the near-term outlook, we point to

growth and reduced anti-euro rhetoric >> most of the thinking on the street, the consensus thinking is we'll get two parties coming into power, both plans entiail fiscal spending and repeal of fiscal reforms put in my previous governments how can you be constructive on italian bonds here >> politics does have the potential to disrupt what might otherwise be a benign tone very important developments going on in italy, significant this will be a different government, the policy platform in particular does need monitoring to the extent we're not getting significant anti-euro rhetoric, to the extent we've seen in other owe l other elections or in the past that plays an important point here and italy is still growing we expect 1.3% growth this year. the periphery growth was in line

with q4, unlike the euro area aggregate. in q1, though there is some debate around what the indicators are telling us, there's a potential for a rebound in q2. all of this is feeding into rating of rates. >> discuss the ownership of btp, how much is held by domestics versus foreigner give me a sense how sticky ownership is >> from the domestic base we got the domestic banks still there they have increased their holdings over recent years they have come down a bit, still an important player. we've seen interest from japan interest in some egb markets, aa markets, maybe even single a markets. foreign ownership is an important component to that stickiness, and there's still scope for some increases there coming down from recent levels

ownership structure is supported. it's a balancing act between that, growth dynamic, lack of anti-euro rhetoric with the political developments that will help navigate the spread zone. >> also what is important is how much refinancing activity they'll have in the short-term can you give us a sense for what the average duration is? my understanding is in recent years periphery countries such as spain and italy have been using this low interest rate environment to issue longer dated bonds. so they have less urgent short dat data >> we have seen a tendency of sovereigns taking advantage of the yield environment and supply is important italy, i think, is still in negative net supply for the entire year. looking at seasonality, looking at june, whether the supply profile is positive, that it's more supported, that's an important governor of these

spreads. >> i have got ten-year italian yields at 1.90 would you buy them at 2? >> we are looking for the growth factor to support the spread we think spain looks better than italy. lots of factors at work. >> still some what constructive. peter, thanks for joining us german economic growth has slowed slightly more than expected in the first quarter due to weak trade. gdp rose by 0.3% in the first three months, the slowest rate since the third quarter 2016 and below expectations but the figure still marks the 15th consecutive quarter of expansion in germany and the government says it expects the economy to bounce back in the second quarter we discussed a lot of things, some deals going on, the weakness in the telecom sector and talked about italian assets. get involved in the conversation, the address is

streetsignseurope@cnbc.com, tweet me at cnbcjou or @streetsignscnbc. higher costs weigh on pretax profit at commerzbank, we get two analyst views on the numbers after this break ahh... summer is coming. and it's time to get outside. pack in even more adventure with audible. with the largest selection of audiobooks. audible lets you follow plot twists off the beaten track. or discover magic when you hit the open road. with the free audible app, your stories go wherever you do. and for just $14.95 a month you get a credit, good for any audiobook. if you don't like it exchange it any time. no questions asked. you can also roll your credits to the next month if you don't use them. so take audible with you this summer... on the road... on the trail... or to the beach.

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welcome back to "street signs. let's check in on how markets are doing. we had a softer session in asia despite firmer tone that came out in u.s. equities towards the close yesterday. the picture in europe is lackluster, evenly split between green and red. stoxx 600 is trading around the flat line. if anything, slightly weaker let's get into individual indices. there you can see that ftse is up only 5 points or so still flattish but we have important data coming up on the labor side in about 15 minutes time. keep an eye out for that xetra dax is underperforming, down a quarter spent taj point ongoing government talks are taking place in italy, so ftse

mib up about 0.50% the leadership this morning is come fromfrom financial serviced banks. we'll get into earnings that came out today telecoms down 1.3% there we were just talking about iliad being down almost 15% on the day today as well as some news out of vodafone both names have been weighing down that sector let's talk about some earnings that have come out on the banking side this morning. at credit agricole first quarter profit missed forecasts with the bank citing disposals, currency headwinds and regulatory pressures as weighing on performance. net income rose 1.2%, revenue came in at 4.9 billion euros weakness in the french retail business and capital markets unit also hit results. commerzbank shares are rallying after germany's second

largest lender beat first quarter profit forecasts the bank said it aims to resume it's dividend for the year annette is in frankfurt. commerzbank is a play on higher interest rates but they also eked out a decent quarter. what more can you tell us? that's clearly the case. looking at what they've done operationally, it looks a lot better than people had expected. above all in that core unit, the private and business client unit, which is the froth area, they have said to the market in general, the private business clients came up with ab operating result of 202 million euros, which was better than analysts had anticipated and that is because they're saying that loan growth is going very well. and they could attract also more customers. the question about how much customers they're attracting is

always tricky. they're paying also a lot of money to actually lure people to the bank, to open accounts so the question of how much they spend to actually attract those customers is never answered during the press conferences but having said that, looking at the other subunits, the capital markets business is not doing too well, but we heard from deutsche bank early on last month that this special unit is very -- is doing poorly, so to say. all in all, one can argue the retail business is still a competitive market in germany with more banks even coming into the market to attract -- to try to do business with german customers. the likes of goldman sachs, they are also entering the market

going forward it will be more competitive most likely than it is now as you were saying, the bank is clearly a play on higher sbr interest rates, that's what they're saying as well in case interest rates rise, it will also be very good for their earnings so far shares have still a lot of upside potential until the german government will actually be able to sell their stake without posting a loss on it with that, back to you >> thank you very much we look forward to your interview with stephen engels at 11:40 cet. joining me to discuss all things banking sectors, is the senior analyst from axiom internal investments and the sbp from global financial group.

starting with these commerzbank earnings, they came in better than consensus, still the bank is is facing a lot of challenges, not least because of this low interest rate environment and increasing competition in the retail space. >> yes, i've been listening to the conference call. they point to increasing competitiveness where lenders are happy to take on some risks at fairly low margins. for them, they are definitely moving also the attention from their restructuring, which has been going forward for a number of years, so they're implementing the commerzbank fear 4.0 plan into a growth story, mentioning some growth that they've seen in their psbc business, even in the commercial banking business >> commerzbank is a name that

comes up a lot as a potential takeover target. these rumors have been swirling for months now, if not almost a year from your perspective, looking at the broader spectrum, who do you think it would make sense for to approach commerzbank or which jurisdictions do you think it would make sense for them to partner up with? >> if you look at speculation, names like juunicredit or sociee generale have been asked, but at axiom we don't believe a large scale cross-border merger could happen because of the synergies in capital so german banking should be looked at a lower scale for smaller sized institutions commerzbank has to continue to do the good job they're doing. in fact, compared to deutsche

bank, it's very much a stable story, if you listen to the commerzbank management compared to that at deutsche bank and they probably have to continue to doing that. >> let's get out to lisa dbrs ratings have been confirmed for deutsche bank. but the outlook has been revised to negative. can you talk me through the rational for that? is it that you're skeptical about the strategy and restructuring plan presented here >> sure. so last year -- sorry, last week, we resolved the trend to negative and we keep a negative trend on for about a year when we resolve it. this gives us opportunity to assess deutsche bank's strategy, it's management, stability and market positioning over the coming year. so we're kind of looking basically at three things over the coming year. the execution risk in strategic

targets, the scaled or restructuring class, when we look at restructuring, in addition to what deutsche bank is doing, we're looking at the continued investment in systems and technology which we feel has fallen behind the global peer group and looking at them to demonstrate management stability and cohesiveness going forward, which is somewhat challenging to assess but i would say if we continue to meet strategic targets, that's a good sign >> they ipo'd their asset management business, would you see that as a constructive development? >> it's a plan of theirs for them to make progress on any plan they put out is a positive and adds to their capital base >> thank you very much for joining us on the line thank you as well for your

thoughts on commerzbank. coming up later, israeli forces kill dozens of palestinian protesters in gaza as the u.s. embassy opens in jerusalem. we'll discuss the international reaction after this break.

welcome to "street signs." i'm joumanna bercetche these are your headlines shares in germany's second largest lender, commerzbank, jump as it says it will resume its dividend this year despite a decline in pretax profit for the first quarter we hear from the cfo first on cnbc vodafone sees red as vitorio colao steps down as ceo after ten years at the helm. easyjet shares soar to the

top of the stoxx 600 as a higher load factor helps losses narrow at the budget airline and the company forecasts revenues to rise for the year. >> the fact that our brand is stronger and higher than even british airways for the first time in the uk, that's all part of the result. looking forward, we do believe that we have a good momentum for the winter, and we hope that will continue throughout the summer. deadly violence on the border between israel and gaza leaves dozens of palestinians killed and many more injured as tens of thousands of protesters take part in the great march of return. checking in on european markets. we had a weaker session in asia, preceded by a stronger session in the u.s

eighth positive session in a row for the dow. this morning the xetra dax is the one laggard, down 0.1% underperforming its counterpart, cac 40, ftse 100, ftse mib ftse mib having a good day despite talks between lega and five star, still no clear indication of who the new prime minister will be maybe some news tomorrow before we switch to foreign exchange, want to draw your attention to some numbers out of the uk we have so the wage data just coming through and let me just pick up on that. we've got uk jobless rate, the employment -- the long-term employment is up 197k in three months the average weekly earnings is up 2.6% year-on-year, that's in line with consensus of 2.6%. the average weekly earnings x

bonuses is up 2.9 in line with 2.9% numbers in the uk are holding up here which is interesting given the weaker data we've gotten as of late. as far as wage growth is concerned, these numbers are pretty much in line with consensus. in fact, higher than they were the previous month the reaction you can see in the pound is somewhat muted. weaker on the day because of that stronger dollar, but we're still hanging in around that 135 mark we have not managed to have a sustained break through 135. let's talk about other foreign exchange markets just talking about cable that's down a bit. and the theme today is again one of dollar strength but again, quite lackluster moves. the main currency pair that is moving this morning, dollar/yen almost back up at 1.10 again

about 0.2% stronger on the day u.s. futures before we hand off in a half hour's time, dow opening up about 50 points weaker s&p is about 7 points weaker, this after a strong couple of sessions in the last few trading days now, some corporate news shares in vodafone are trading towards the bottom of the london market on news that vittori vittorio colao will step down. he has presided over a series of mega m&a deals he will be replaced by nick reid who joined vodafone in 2001 and has been the chief financial officer since 2014 before that he ran the uk business after leading another

unit and vodafone shares are down almost 3% in trading rwe posted a 13% drop in first quarter operating profit as lower wholesale power prices squeeze margins. adjusted ebit also fell but still beat expectations. the jeerm egerman utility said s deal with eon to break up energy is on track. the aim is to allow rwe to focus more on the renewable basis. i will speak with the cfo at 11:30 cet. german insurer allianz saw net profit rise 6.8% in the first quarter and said it is on track to meet full-year targets. net profits came in at 1.9 billion euros beatingestimates for 1.8 billion. profit was lifted by investment results and lower taxes and that the insurance industry is coming

back from a difficult 2017, marked bay seria by a series of disasters in the u.s billfinger has narrowed its loss from a year ago as orders increased 21% in the first quarter. they also confirmed their outlook. and thyssenkrupp has posted a 17% jump in operating profit for its second quarter as the german industrial firm got a boost from a recovery in steel prices adjusted ebit came in at 500 million euros, in line with forecasts b you y s but the sto reacted so well. it's trading down 5% easyjet reported a narrower pretax loss for the half year, and said that it expects positive revenue per seat in the second half of 2017. the british airline ceo said a

strong winter showing helped boost the carrier's earnings >> it's a great set of numbers it's one of the best winter performances that the company has had. i think it's down to two primary factors. there was an underlying strong demand for what we do. the company has been focusing on delivering excellent value for customers, and we are now the most considered brand when it comes to airlines in the uk. those two things are reflected in the results in this it's a fantastic performance i'm delighted for everybody in the company. airfrance-klm's board is meeting today to appoint an interim ceo after the resignation of the ceo earlier this month the airline will name anne marie couderc as interim chairman.

you have been following this story in france. anne marie comes from the secretary of state for employment, a coincidence given all the unions and talk going on there. what more can you tell us about her appointment given the fact it's likely to be in a transition appointment for the time being >> we expect the board to meet we expect them to name anne marie couderc. she's been an independent director on the board. she's a former junior labor minister maybe she knows how to handle the unions since she's been there before she will have the interim job of running the company while the company is looking for the permanent ceo. the ceo resigned ten days ago after management failed to come to an agreement on pay with workers, that's after rolling

strikes of two weeks that cost about 400 million euros to the company. so the ceo resigned after being on the job for just under two years. the previous ceo also struggled to come to an agreement on pay and cost cuts, while other european airlines have done these cost cuts, adjusted to the competition coming from middle east carriers for long haul and local carriers for the short haul air france has been struggling to do the adjustments to face competition. >> the government has a stake in air france when all of these strikes were going on, we heard from the finance minister is that he's washing his hands of the situation and didn't want to get involved if this continues and if there is no resolution with the unions, are you expecting there to be some repercussions from the government or at least in terms of sentiment and perception of how the government is handling this >> that's a tough situation. after the resignation of the

ceo, it was said the government would not bail out the airline however, it's difficult to believe. it's 46,000 jobs in france that would have massive consequences also there's a symbolic impact of national carriers there's a wider context of the general social -- this content, the reform going on, creating some strikes, some transport misery for the french public, so that adds to the pain. that opens another front for the french governmentto deal with and creates a bad sentiment for the public on one hand, if they want to show they're a reformist government, pro business, they said we have a small stake, 14% stake in air france, but it's a company matter they have to resolve it with the unions on the other hand there's a big social impact that the government has to deal with. >> i believe they're having a meeting this week to discuss the -- with the labor unions is that what will happen

>> the unions have sus ppended l strikes. they're waiting to start discussions again. that's the next step now dhm is happening this afternoon. then the board will have to name the new ceo. that's the next step they have to find a new person in charge. what are some names being put up as potential successor >> there's been some rumors. one of them could be the head of klm, also the head of air france the head of klm is one of the names. the tricky thing is he's not french the frenchgovernment would be keen to have a french person in charge of the group. also the former coo of airbus has been floated around. he has experience in dealing with a company with a double culture and double nationality he could fit the bill. >> charlotte, thanks for bringing us the latest on air

france a very important story for france and on the heels of macron's one-year anniversary. chinese fixed asset investment has grown at the slowest rate since 1999. the first came in at 7%. retail sales also came in below expectations industrial output topped forecasts, also growing at 7%. the u.s. index publisher msci has announced it will include 234 chinese stocks to the global and regional indices from the 1st of june this has chassparke interest in blue chip stocks most of the chinese equities are trading in the red overnight. and president trump has defended his intervention to help zte saying it was reflective of the larger trade

deal the u.s. is currently negotiating with beijing despite calling for an american first policy,mr. trump said he would work with president xi saying too many jobs had been lost in china. trump defended the turnaround saying zte is a big buyer of supplies from u.s. companies china's vice minister of foreign affairs called on china and the u.s. to keep talking >> i hope when there's a dispute, the difference i think on both sides, when they have arguments, they should sit down and have a talk, find a solution with each other. the trade war is not a solution. both sides i think have realized that they should sit down, have a talk that would benefit the world we should keep the momentum and

good recovery of the economy in the world. and keep that momentum going >> tesla boss elon musk says the company is undergoing a thorough reorganization in an e-mail to staff, musk said the carmaker was flattening the management structure to improve communication combining functions and trimming activities the restructuring comes as the company deals with production problems, staff departures, recent car crashes and that famous analyst call where musk was calling analysts out individually but head to cnbc.com for the memo musk has sent to his staff. cbs filed a lawsuit to reduce the voting power of the company owned by the redstone family in a move to gain independence cbs says it is seeking to stop the redstones from throwing out directors or changing of the company's bylaws before the board meets on thursday to

discuss issuing a dividend that would limit the family's voting power. cbs hopes to put an end to what it fears would be a forced merger with viacom get involved in the conversation, if you have a view on italian elections or results that have come out, e-mail us, the address is streetsignseurope@cnbc.com and tweet me @cnbcjou or @streetsignscnbc. israeli forces kill dozens of protesters in gaza. we head live to gaza city after the break. crohn's disease. you're more than just a bathroom disease. you're a life of unpredictable symptoms. crohn's, you've tried to own us. but now it's our turn to take control with stelara® stelara® works differently for adults with moderately to severely active crohn's disease. studies showed relief and remission, with dosing every 8 weeks.

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welcome back israel has come under intense international pressure after 50 palestinian protesters were killed by israeli troops in gaza yesterday. in a phone call with his palestinian counterpart, french president emanuel macron said he

condemned the violence of the israeli forces the u.n.'s human rights boss said those responsible must be held to account. turkey and south africa recalled their israeli ambassadors, president erdogan described israel's action as genocide. the united states, which opened a controversial new embassy in jerusalem, joined israel in blaming hamas for the violence matt bradley is in gaza city good morning to you. today also marks the commemoration of the 70 years when many palestinians were expelled from their homes. are we expecting more protests despite the fact that yesterday was one of the bloodiest days in four years in palestinian territories? >> we are. we expect protests not just here in the gaza strip but also in the west bank and throughout the arab and muslim world.

today is catastrophe day, that's when palestinians and people throughout the world commemorate the 70th anniversary of the founding of the state of israel. it's met by protests every year, this being the 70th anniversary, the day after president trump's decision to move the embassy from tel aviv to jerusalem this has particular significance and following this violence, the worst most deadliest violence in the gaza strip since 2014. we can expect more protests. but we're looking at today, and there has not been going on much at the border. we may see another round of deadly protest we hear from the israeli paper of record that they are trying to diminish some of those protests and scale back some of that violence. again, it's a little too early to tell what we'll be seeing today and whether we will see the casualty numbers that you

mentioned increase >> the united states still went ahead and changed the location of the embassy despite everyone warning that it would be an unnecessary provocation, and they went and did that everyone saw the stark images of a smiling trump family at the launch of the embassy, versus what was happening in gaza and one of the bloodiest days as we were just talking about. from that perspective, can the u.s. still be considered an honest broker when it comes to middle east peace? >> well, not really. that's one thing that the palestinians keep saying this means the u.s. is forfeiting its role as an honest broker in negotiations this was a very set peace process. there were several different ideas in terms of what would be negotiated this has been agreed upon by the parties for years. now the united states is leapfrogging ahead of this negotiation process. honestly, the palestinians i'm

talking to, they say they never really trusted the united states to be an honest broker they always thought the united states was on the side of israel, but that it was never this obvious and egregious as today. >> what's interesting as well is that we have not had a lot of reaction yet from some other arab counties, specifically saudi arabia there's been some light remarks from the foreign ministry there condemning the attacks, but we also heard from the leader of hezbollah yesterday who had basically put israel and saudi and the u.s. into one category how do you think this -- what do you think the implications are for the broader arab conflict playing out in terms of the iran and saudi arabia divide? >> when you talk about saudi arabia and some of these other countries, they're in a bind rite n right now. they want to be or have been

historically on the side of the palestinians, but now they're cozying up to the trump administration why? they want to pressure the trump administration and other allies of the united states to try to abandon that iranian nuclear deal that's because the dynamics here are changing fo for a lot of these countries israel is no longer the primary enemy. they find iran's influence is more fearful and dangerous than israel so the trump administration and netanyahu have chosen a good time to make this provocative move >> absolutely. thank you for bringing us the latest from gaza elsewhere in markets news, goldman sachs says something strange is happening in the u.s. economy which could cause interest rates to jump the budget deficit and unemployment rate are heading in different directions something that has not happened since post-world war ii. the tax overhaul has added to

the deficit, the expanding my has brought the number down, as government borrowing continues to grow. as a result, they predict the ten-year treasury note could yield 3.6% next year karen joins me for more to discuss this story what's interesting is that many people have been talking about the fundamental reasons for u.s. treasuries and supply would be one technical reason to add to that given how much spending there is the goldman note is interesting because they elude to the fact it's happening at a time when the unemployment rate is at historical low levels, 3.9%. >> it's not a lone voice on the street, it's many voices warning about what's happening if you take stock of what it's saying, the u.s. budget deficit going up and the employment rate coming down. the recent non-farm payrolls report shows the unemployment rate at 3.9%

it's the only peacetime since world war ii when this happened. spending ticked up around the korean war and the vietnam war so you have had this barrage of fiscal spending, 1.5 trillion in tax cuts approved there december, another 1.3 trillion on top of that to keep the government operating until the end of the fiscal year this amount of money is typically reserved for economic recovery in the early stages you would be hard to find a commentator who says we are in the early stages of recovery we are very much late stage. late stage you typically see that spending come down. they cut borrowing, but that's not happening at this point. we effectively have a war chest being spent on the economy could that tip rates higher? goldman's view is that we could get to 3.6% by next year that's an issue. we've seen an early flash reaction on markets when it ticked towards the 3% handle aggressively

markets are saying what's next from here? how much further above 3% can we go we come back to the old equation, how much money do i want to put in equities, to get dividends when i could park it in u.s. treasuries what's the cost of doing business for companies tapping capital markets and raising monies that cease the costs of repayments going up. it's a problem across the board for a number of different players, and you mentioned the fed. you have the fed exiting the bond buying program at the same time the government is issuing more supply. who is the ready buyer >> it's true the thing is, the only thing that makes it skeptical is that we've been talking about the extra supply, talking about the fact that the central bank is reducing the balance sheet and the fact they've been tightening those ten-year yields don't seem to be breaking through 3%. it's been tricky for fixed income to break through 3% at the beginning of the year, everyone has been saying we will

break through 3%, but it has not materialized >> is this time different? i think if you consider how relaxed investors have been on markets, and we talk to people day in and day out who are in disbelief that 2018 is different than 2017. some still believe we are still in gold by -- goldilocks a lot of people are closely eyeing volatility and that you have this fed program which they say is different from this and much more high risk. what is crucial to look at is what happens to the shape of the curve. we heard from two separate fed members yesterday. i spoke to mester from the cleveland fed, i asked about the yield curve flattening she said they consider it to be a consideration when thinking about the fed hiking path in the sense that they're aware that when they start hiking it may have a flattening impact on the curve. it's not happening on the outside. on the flip side, you had bullard warn that he could

potentially see a case where the yield curve inverts if that does happen, i suspect a lot of complacent investors that you talked to will get unnerved. >> it's something to watch out for. it's not just goldman sachs warn being levels of debt, the imf, too, saying it expects the u.s. to up its debt to gdp ratio. >> exactly definitely something market also watch out for. thank you for joining me >> absolutely. >> for more on the strange things goldman sees going on in the u.s. economy, head to cnbc.com let's look at u.s. futures which are seen opening up softer dow down 50 points that's it for today's show i'm joumanna bercetche "worldwide exchange" is coming up next. ♪ (daniel jacob) for every hour that you're idling in your car, you're sending about half a gallon

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