ecb ist feels like the running out of room to suppress the yields on the ecb. does seem like since we are getting to the end of that stimulus, the deficit starts the matter again. exactly. these things do not matter until they do. when you have bedrock assumptions that institutions are going to keep these ratios in check, when you have those assumptions pulled out, all the sudden you are priced on fundamentals again. >> a classic eurozone mood swing. things start to fall out of bed, but the lesson of last year or so is that you profit from political risk in europe. what's to say we will not see that in italy, too? itwe have all gotten used to and some traders are getting too comfortable with that. this could be worse. there really is not a lot of interesting things to look forward to in italy. they don't even get to go to the world cup this year. [laughter] henry peabody, let's not talk about the world cup. my father's italian, you are going to get us into trouble. we need to understand the reaction function of the ecb to really make a call on ecb presence on t

lisa: it feels like the ecb is running out of room to suppress the yields on the ecb. it does seem like since we are getting to the end of that stimulus, the deficit starts to matter again. henry: exactly. these things do not matter until they do. when you have bedrock assumptions that institutions are going to keep these ratios in check, when you have those bedrock assumptions pulled out, all the sudden you are priced on fundamentals again. that is what we are in the process of doing. jonathan: i still wonder if this is a classic eurozone mood swing, in the sense that things start to fall out of bed, but the lesson of last year or so is that you profit from fading political risk in europe. we saw that in catalonia and france. what's to say we will not see that in italy, too? >> you have been paid to buy the dip for the last several years. we have all gotten used to it and some traders are getting too comfortable with that. this could be worse. there really is not a lot of interesting things to look forward to in italy. they don't even get to go to the world cup this y

i think we have to understand what the reaction function is of the ecb, to really make a call on ecbresence on this. is there a line in the sand? we brought up that chart. we can bring it back for our audience. this line in the sand has been around the 240 mark. yields have just come back down and down again, and we see that over the last couple of years. is 240 significant? we have reached that level now. why is that a key level for so many people? >> i'm not sure that it is. one of the things the ecb has the opportunity to do is instill a little discipline. with the political shift in italy, they have the opportunity to fight back as they are pulling back. let's watch as this plays out. i think matt is right and that we do probably see this gets weaker before it gets better. lisa: hold on a second. what you are saying is fascinating. you are saying the ecb would perhaps not step in on purpose, perhaps allowing yields to blowout in order to send them a message. jonathan: it would not be the first time that the ecb would be accused of having political motives. we saw that throughout

ecb's presence on this.s there a line in the sand? we brought up that chart. we can bring it back for our audience. this line in the sand has been around the 240 mark. yields have just come back down and down again, and we see that over the last couple of years. is 240 significant? we have breached that level now. why is that a key level for so many people? henry: i'm not sure that it is. one of the things the ecb has the opportunity to do is instill a little discipline. i think with the political shift in italy, they have the opportunity to fight back as they are pulling back. let's watch as this plays out. i think matt is right in that we do probably see this get weaker before it gets better. lisa: hold on a second. what you are saying is fascinating. you are saying the ecb would perhaps not step in on purpose, perhaps allow yields to blowout in order to send them a message. jonathan: it would not be the first time that the ecb would be accused of having political motives. would it? we saw that throughout

this is a chart that we looked at yesterday. -- whatto what the ecb the ecb stay firm -- will the ecby firm? i think part of pretending that that chart is say,appening is maybe they if we focus on the fundamentals, we will maintain the policies. nothing has happened in terms of fundamental changes over the past two weeks. the reality is, a lot has happened. francine: a lot of the parties are actually calling for elections very soon, like in july. would you expect a lot more markets of newhe elections are extended until september, october, or possibly 2019? >> yes. markets are generally more liquid over the summer months, because everybody is at the beach. prolonging that risk would only leave that uncertainty and cloud hanging over markets. francine: thank you so much for joining us. check out mliv . it is terrific. yesterday there was so much appetite on the markets to find out what our team got. guy stear from societe generale stays with us. we are talking spain next. upping the pressure. trump stokes trade tensions as he moves forward with plans to impose to risk on chinese imp

there is no need for the ecb to step in.tions about whether it can be triggered are completely overdone. dramatict has to be a letdown for especially the germans.those board members of ecb that wanted to -- alerting that comes to the end of a qe that makes it with a black and white. four in ecb that wants start raising rates next year, before out, you will easily can be continually kicked down the road beyond september? >> i believe at least for another quarter yes. they will extend, but then at a slightly slower played -- pace. reducing it from $30 billion until about $20 billion. they need to buy time because we still don't know where the economy is headed to. we don't have the italian i am told,ill unfold possible new elections in literary -- italy. i think the ecb will try to play it safe. that means buying time and kicking down the can down the road. abouti want to ask you something completely different here. we are all focusing on what is happening. there is some real action finally the narrowing its focus to one bench

shouldn't the ecb make sure these areas don't get out of hand? have made a substantial gains over the years since the market to market losses. classesook at the asset of 2018, it has been the european government bonds. maybe not italy, but the rest of performed extremely well. they have made significant profits over many years. manus: tim, thank you. he stays with us, and our thanks to our cohort on the mliv team. juliette saly standing by. kkr has agreed to buy information technology management provided bmc software. 8.3deal is worth about million dollars, including debt. from an buy bmc investment group. royce holdings is expecting a sharp rise in the number of dream miners being talks withcause of the maker of its turbines. this comes ahead of mandated inspections at the power unit due to a durability problem. the number of dream miners is isected to -- dreamliners expected to peak at 50 from the current level of 35. fernandez and other officials are being investigated for andgedly taking rides influencing local policy as a result. middlemen t

has changed.ent the ecb is in control.t who has been buying the btp's, that's where they have gone. anna: -- anna: are they threatening to buy less because they don't like what they've heard of the new government? steven: and the flow is coming down. we have seen in the past, the ecb has had some influence on policy and government. , they have a huge amount of leverage. it's a negotiation. our last to suggested that eventually they will all wake up and say we can't allow itself.g to unpick i am looking at spain versus italy. will what ist happening in italy stay with in italy? and remain contained? this creates buying opportunities and investors need this disruption to pick up cheap assets. in terms of the fundamentals, spain is in much better shape than italy. the private sector debt has come down a lot. the overall deposition is much more manageable. there is momentum in the right direction. the reforms are coming through and bearing fruit. there is a lots of positivity around spain. i think it is interesting that these

this may influence the ecb to some degree. the core inflation figure continues to fluctuate around the near 1%, and it's going to stay there because the unemployment rate in the eurozone is more than 7%. you have mass unemployment, wage increases of a near 1.25%, and core inflation is likely to fluctuate around the mere 1%, and it is unlikely to rise as expected by the ecb. anna: you are suggesting the ecb actually change the inflation target they look at, focus on a long-term inflation target rather than a very short-term one, and you are suggesting inflation will not reached the ecb's target for years to come. how far out into the future, even with oil prices on the rise, is achievement of that kind of target? joerg: well, we have seen over the past couple of years that the influence of eurozone indicators such as unemployment, etc., on the core inflation, has been declining. the phillips curve is quite flat. this has a lot to do with globalization. inflation than penang impact of globalization will vanish, however, the next

you would expect the ecb to hold even. the ecb has no qualms about that.ed euro for kit. this is trade weighted. i don't know if you would rather look at that? kit: that chart is less awful looking for the euro than the euro-dollar chart. the euro has gone down less than the dollar has gone up in the last few weeks. look at thise i and say, this isn't such a big i think, ok. we could get a bigger correction in the euro if we really thought there was a big risk of this falling apart. you tie that right now to the position that the market hasn't gotten rid of the long market position yet. will probably see that with percentage points lower. almost a come what may when the dust settles, particularly if we get into a discussion about a discussion in september or october. thank you so much, kit juckes stays with us. talk is back the on. we are in washington for all of the latest developments up next. this is bloomberg. ♪ ext. this is bloomberg. ♪ thestian: let's get bloomberg business flash. softbank has dropped the quest people-- according to familiar with the

-- to warrant ecb change.that leave the ecb in june? valentin: june may be cutting it a bit too close. we really want to know what is going to happen. the plans that the five-star and delete have agreed to -- and the league has agreed to has to be voted on. chipresident has to in as well. in terms of timing, ultimately mid-june may come very soon. for the ecb, they may want to have more clarity on what is going to happen in italy before they announced to the markets that qe is going to come to an end. july is another option for them. i don't think the selloff in the btp market will continue an aggressive fashion. ecb will find comfort in the fact that there are institutions in italy that may restrict to a degree all of these inclinations by the new italian populist government. the result -- as a result, that make indeed result in less of a tightening of the financial conditions in italy. anna: just a brief word on emerging-market currencies. this chart talking about a trifecta of concerns for emerging markets.

it will involve the ecb one way or the other. a view on this situation. >> there have been sanctions before. in there listed agreement. whateverexpecting that happens -- in the agreement. very meaningful impact. >> ok. there is a big summit in the market, of course. it is important. what is not agreed with the summit, next month, probably not agreed for some time to come, depending. you have put down some proposals in the way the unit needs to be proposed. >> not the perspective of my speech. i talked saying what technically it would be -- what would be necessary to really move toward very solid monetary union working smoothly about theng doubt whole project. technicalard some proposals but did not discuss, on purpose, the political saying of what i was from that perspective here at it is for government to make the choice. i think the vested interest of both countries is to move union. with the monetary else passes job because you will move on. if you had to change one thing, one thing differently, if the ecb had done think death

let's move on to the ecb. it will have to be mario draghi, it would have to be led by the european central bank. people think about mario draghi saying back in 2012 whatever it takes to shore up the euro area, to prevent the crisis, that is what he would do. that led to the massive bond program. we see questions hanging over italy. one thing about this situation is if the government wants an outright monetary infraction, it has to do two things. ask for it, and promise new reform. global wasair of s&p on in the last hour. he says everything is moving in the wrong direction. let's listen to what he said. ecb would do whatever it takes if the governments concerned did whatever it took to bring the fiscal house in order. is the are seeing potential government going in the other direction and saying we have had it with these fiscal restraints, we need to move back to some form of expenditure he policy. yvonne: if i am an italian voter looking at this turmoil around this change of government and the populism, if i

and 1.9% raise is good for the ecb -- ecb. inflation, lifted the core rate rose to 1.5%. the inflation rate. this is italy germany, the yield differential. coming up a bit today. a bit lower on the news of tariffs being lifted. 2.4%, below the levels we saw the other day. a drop of 50 basis points a few days ago. the yield blew out to the widest it has been. best it has been in years-- ubs asset management skeptical. i want to talk to you about the euro. it has come down in the wake of the trump caret decision. it is down by a 10th --tariffs decision. it is down by a 10th of a percent. worth month since november 2016, down by 3.2% because of the data which is slow down lost momentum and the political situation in italy and spain. i want to tell you about deutsche bank, shares have followed to a record low. 7% is the decline today. stoxx 600 bank index performer this year. it is the worst stoxx 600 bank index performer in the last months since the u.s. business with what on -- since the bank was put on a list of troubled lenders monitored by the fdic. still revealing news

ecb got rid of him.e back of that, berlin gave the ok to italy to go fire up the printing presses for qe. time, the ecb cannot replay that performance. if they undermined politics in they, it would embolden populist and increase their support in the next election. ecb's hands are tied. italy would be right to remember the rules someone said and the ecb i think we'll just and by and let the markets impact things. mark: what about berlin, brussels, what can the eu do to eu win outthe anti- of the populist sales? >> direct responses, berlin and brussels, their hands are tied. if they speak out against internal politicians in italy, that theist will say stooges in berlin are trying to control our domestic politics. can throw a bone to the migration crisis and come up with immigration policy at the upcoming eu summit at the end of june. eu is so far away from a migration policy that they will not have anything to unveil. they may show solidarity and provide funding for italy which history and the brunt of imm

alix: and the fact that the ecb would buy it.ital, they are already buying more than they should. david: whatever it takes. alix: what is the winner? brooke: western asset management. they were short italian bonds. basically the opposite side of the coin. they are now taking profits on these short positions because they believe yields will stabilize and we will eventually see a way out of this. those longold italian bonds to maturity and maybe get out of this. david: the second story, this is morgan stanley. wealthorman has a good management business and wants to make it better. he has a plan to do it involving blackrock. he has touted the fact that you can get a better deal with morgan stanley because they have allowed in. -- aladdin. brooke: it is basically to point out outliers in people's portfolios. you may not know you are over positioned in risk, but look at what you are holding. ubs also has this technology. morgan stanley thinks it is a better position because it is fully integrated into its platform. david: that is for

how that be taken the ecb?be taken positively and i don't take it seriously. any doubts about the euro being the common currency of the member states is producing new tensions in the market. you see that if you look at sovereign spreads. they are reemerging. the ecb has some years ago stabilized the situation. it has not solved the underlying problems. there is a debt problem, a debt overhang in many countries. banks still need to be put in order in europe, more than in the u.s. and other countries. europe still has homework to do. on discussion about reneging the current system are questioning its liability is really going to be negative, not just for italy, it is not to be negative for everybody else. is going to impact negatively on the euro. this is something europe cannot afford. guy: it talk about the u.s. economy motoring on. is that because we have had extra fuel put in the tank and the form of this fiscal push the has been formulated by the trump administration? and how long does the last four, do you

bonds in euro are bought by the ecb.yt needs to be downgraded one notch and the ecb cannot buy the bonds any longer. actual will cause damage for italy. in thegoing to be beginning of this saga and there will be a lot more bunds on the road. manus: hold that thought. this chart,ing in the spacing of the banks this week. ago toto go back a year a conversation with one of our last guests. italy was in the midst of bailing out europe, and they created the backstop. we are panicking would be the theention at the start of week about banks, and we shouldn't, because the backstop is there, nothing to worry about. they have done that, but there is a limited amount they can do. once credit rating agencies put you under negative, you could statusinvestment-grade and the world will be getting rid of italian banks stocks. tremendous weight. it doesn't matter how big the markets are. move in onean direction in such a large amount that can overwhelm anyone. the entirely in corporate structure can go below investment grade and it can b

the ecb is going to an qe this year.ly next year, there is a scarcity of bunds, they realize they can't do qe forever, so they might end qe. then you she an upward movement in bunds. i think the treasury-bund spread should compress. michael: if it does, it it is probably because their euro is rising. the piece of the puzzle that is absent from a look at relative spreads between the usd and the euro curves, swap spreads have been deeply negative, which makes it hugely expensive for euro or japanese investors to hedge out currency risks buying u.s. treasuries. it looks like a 2% or 3% nominal yield, so a japanese investor looks worse than local currency yields. jonathan: when does it get more attractive for foreign investors? guy: december or so, there is a sot of market plumbing asset that no one can put up or understand. everybody is sticking with me. priya misra, td securities, .ichael purves, guy lebas coming up, the auction block. mnuchin has a record-setting first quarter for borrowing. more on that later. yousef: --

and the ecb on the 26th of july has a key meeting where it's supposed to be telling the market what it would do in terms of tapering later this year. so elections later in july would throw more uncertainty into this mix. >> is italy the same kind of potential contagion economically as greece was? greece as you noted was tied to the german banks people didn't worry about greece, they worried about the solvency of the banks that had debt from greece on the books. is italy a similar story >> no, no, it's much worse in a sense. if you had an italian exit from the eurozone, that would be worse than greece. obviously the greek issue came in 2000 just off the financial crisis the concern then was that the ecb wasn't acting as a backstop. the market does know at the moment that the central bank is buying italy, can continue buying italy so there's a reinvestment point, which is important needless to say i don't want to worry viewers out there in the u.s. unduly. but at the end of the day we are in uncertain times at the end of the day there will be further backstop by policymakers but this ele

the ecb owns about 15% of the italian bond market.xed out on what they could bay of the german bond market the ecb is massively involved in the european sovereign market, even more so than the u.s. is. their balance sheet is around 30%, 35%, in the u.s. it's 23% and falling. you're right it's the bernanke policy but on steroids >> will it work? >> will it work? that's an excellent question it will work in the short-term if you're asking whether the ecb has enough to keep everything contained, relatively stable, yes. the other thing is for a long time italian ten-year yields were well below u.s. yields. that fundamentally doesn't make sense. part of what we're seeing is actually adding some rationality back to the market, just because the move as you see on your screen is so big, people might be making a bigger deal than it's worth >> listen, i hear everything you're saying. when we say stuff like the biggest intraday move since 1992, you know, that's kind of a big deal >> sure. it is. absolutely keep in mind we had yields at all-time

in my mind, the ecb will end qe this year. you know, this year, early next year.here is a scarcity of bunds. they realize they probably can't keep doing qe forever, so they might push back the high, but actually end qe. then you should see upward in bonds. treasury bonds spread should start compressing. >> so, if it compresses at this point, it is because the yield curve is rising, not because ours is declining. the piece of the puzzle that is absent from a look at relative spreads between the u.s. and the euro curves is that cross currency swap spreads have been deeply negative, which makes it expensive for euro or japanese investors to hedge out currency risk buying u.s. treasury's. -- u.s. treasuries. it looks like a 2% or 3% nominal yield actually looks worse than local currency yields. jonathan: so, when does it start to get more attractive for the investor? >> it is hard to say. cross-currency swaps have been negative since december or so, since the passage of the u.s. tax law. there is a lot of market plumbing aspects that go in that no one can fully predic

it is a horrible thing for the ecb, with the ecb started focusing on inflation.ave to look at the output gap. how strong is growth? is growth -- the growth potential -- they will have to ask the question mr. greenspan asked at the fed decades ago. for how long can you have a goldilocks environment run? strong or solid economic growth, no inflationary pressure -- this does not argue at all for monetary policy to change. the only thing we might see is the further unwinding of qe. but when you think of traditional monetary policy tools like interest rates, i do not see that the ecb would start hiking interest rates anytime soon, because there is no reason for them to destroy the current goldilocks environment. caroline: how these extraordinary measures continue and history repeat itself. brzeskiresky -- carsten , glad to have you joining us from a sunny amsterdam. still ahead, president donald trump's tweet on sunday triggered speculation that his meeting with kim jong-un could be back on track. ♪ caroline: it is time for the bloomberg business flash, a look at some

i don't think the ecb is really in a position -- neither should the ecb really worry about this in a direct sense. the ecb will worry, rightly so, about the macro picture for overall europe, the profitability of all europe, but they will be concerned with the monitoring mechanism within usually -- within italy and possibly broader europe were to be broken again as a result of banks not feeling as confident with extending lending. haidi: we are going to have to leave it there, but certainly italy at yet another inflection point as the struggle to form a government continues. alessio de longis joining us on the line, appreciate you joining us on this memorial day holiday. the united states is said to be willing to discuss a deal with europe over claimed illegal subsidies given to airbus. benjamin joins us now in washington. what do we know and what is the timeline for getting some sort of deal? benjamin: as you mentioned, this news is breaking on monday from our european colleagues. basically this could signal a possible shift on behalf of u.s. trade representative. that would be signi

the ecb and the fed are on to the game. while we are likely to see volatility with respect to energy prices specifically, metals as well, what is happening with core cpi, deflaters,pi or pce those are sticky components. frankly, wages. wages are a key component, that investors have been watching for years for signs of life. will we see wage growth and how will that filter through? david: this friday, the labor report. today, core pce and consumption. a chart shows core and headline. the yellow line is 2%, the magic number. is white is core, the blue the headline. core at 1.88%. we are getting close. vince: we are getting close. while the fed looks at core and the rest of us look at cpi because that is where we shop and spend our money. when people say energy prices and such do not filter into core, eventually it does because manufacturers take that into account in terms of pricing. we are seeing pricing pressure filtering through, retail and we are seeing core bump up through avenues. the fed is close to target. europeans,

push against the ecb significantly?llenges they make against the european union, brussels will reply with the rules and revis attempts to change treaties have failed. look at greece, for example. vonnie: there was a moment yesterday when it looks like conte would not be the pick. how do you think the discussions went? why did conte and it being the what to enter the president's chambers today? >> there was a wobble because the italian media carried mid--- carried many reports about his curriculum, his studies abroad, the extent of stays, including new york university. all of that seems to have been brushed aside by the very fact that he has been summoned to the palace. vonnie: we can't wait to see the outcome. thank you for your wonderful reporting. later, conversations with david rosenstein, with the ceo of lockheed martin. this is bloomberg. ♪ live from paris, i am caroline hyde. vonnie: from new york, i'm vonnie quinn. time for the latest business flash. will spendnologies more than $15 billion in r&d and capital exp

it's a complication for the ecb.t the same time, if it does come in the fall, at the same stopthe ecb was seem to their acid purchase program -- we will see how that goes. the broader index, lower. have a look at the market, 2%. it's a widening spread between where you are and italy. the german bund, now down 34 basis points. 34 basis points. ceilingd asia, we are new zealand stocks down about 1/5 of 1%. the aussie setting up for a nasty open, given what we have wen with the oil price, as continue to see crude edge lower. japan futures, we are seeing an upside of about 80 points. perhaps we could see a bit of a silver lining, but korea futures, also headed the opposite direction. dave: have a look at currencies. 1.1628.rading at about have a look at the lira. we talked about a little more confidence coming in, off about 2.3%, dollar-brazil. the equity index, they are also getting pole-axed overnight. you talked about oil, yvonne. yvonne: let's take a look at how doing.ties are wti, falling for a fifth straight day. w

it is not h manus risk, but the ecb has not started -- a tremendous risk, but the ecb has not started. and edgerton, thank you, and gina thank you. i am going to say goldilocks. here in the u.s. and there in europe. inflation, not enough. david: markets not overreacting right now to anything. you have to say that mario draghi has a lot of weight on his shoulders. we'll see if we can keep it going. alix: maybe mr. carney can call him for lessons on communication. are talking about his performance yesterday. coming up, more on what flattening yield curve could mean should markets we worry about a potential recession. we will discuss with david kelly from jp morgan. live from new york and washington, this is bloomberg. ♪ alix: u.s. yield curve flattest in more than a decade. the spread is on the lowest since 2007. take a look at this terminal here. at this rate of speed to the decline, you could see an by september. joining us from massachusetts is david kelly, j.p. morgan asset chief strategist. what do you think? i am not freaking out about it. i do think we will see more movement upwa

it no longer has access from the ecb buying the debt.lian fiscal position has improved, but the spending plans being put in place is a massive increase in the deficit and who will fund that? where is that marginal by going to come from italian debt? you can see spreads go up quickly from here. s in the european equities story? very -- about the growth story, the tailwinds, the good news story in europe and that that would come to bear later in the year. to that end, he felt the ecb might make some moves earlier than we anticipated and that is good news. would you be shaken in any european calls this morning? shaun: we have been unconvinced by the recovery in store -- recovery story in europe. we saw soft data come through, but the hard data didn't follow through. we have seen a european disappointment on data this year. we have been underweight european equities and since the french election, european stocks have underperformed jack's -- japan stocks. i am not convinced the european story is here. strong compared to other regions, so we

francine: paul, does the ecb need to step in? central bank's action to come in and calm the markets. will they? paul: i do not think they will do anything prematurely. it is not their job to talk about politics. you have got to be, you know, thinking about the rules that underpinned the currency in terms of debts and deficits, and the policy is decidedly against that, then the ecb is not a guarantee, right? francine: if you look at italian banks, saying if they did not have a panic, they would be much stronger than they were worth 2, 3 years ago. do you agree with that? apart from the fundamentals, they are ok. alian: the fundamentals are proven, but i would not go as far as to say they are ok. they are getting better. it would be great to outpace the reforms across the whole of europe, not just in italy. but yes, they are in a stronger position than they were pre-credit crisis, absolutely. as far as i am concerned, it is too early to look at the italian banking sector. but there is a degree of improvement. but today is all about

the ecb have got themselves in quite a spot.y don't want to let the market know of any fixed date when they are going to be removing the qe. they want to leave them guessing for now. they would really like to push it further back into the future. he'll be working very hard not to leave anything on the table for the markets to digest. if the euro is unchanged today, he will be very happy. the market will certainly be looking for any hint that he is going to commit to september as the beginning of the exit date. he will try very hard not to give them away. guy: bank of america seems to be heading to $100 a barrel for oil, is the market ready? mark: i think nowadays, with the shale outfit, $100 is going to be a chiefly -- extremely difficult to achieve. the saudi's have done a great job of keeping the opec to group together, but $70 is already a very attractive label to start increasing your oil output. $100, i don't know how the saudi's could keep the group together, plus the excess supply. i could be proved wrong, but i just don'

will this cause consternation within the quarter was of the ecb?lexis: we will get a rebound in the inflation data which may be affected by the weather and the timing. it is a bit of a headache for the ecb who will want to finish qe by the end of this year based on the fact that the economy has unreasonably good momentum. this is a global issue. we have seen weaker inflation data in the u.s. and other parts of the world because of technology, globalization, and so on and so forth. by the end of the year, we will have enough evidence that inflation is trending upward and that should be sufficient for the ecb to say enough with qe. what happens when the federal reserve continues to raise interest rates, does it put a fly in the ecb life -- point man -- appointment? , the fed ise world a large and influential central bank, you have a great deal of stimulus coming out of the bank of japan. in total, we are in a highly accommodative environment and i do not think that should deter the ecb from their own pathway, which is, if the economy has reasonable m

i will the ecb deal with it?oing more slowly than they are at the moment? carsten: i think it is a one-off. a strong economy, we have mr. said toast week when he the view to the capacity issue, the supply-side issue, the european economy is not having enough capacity. issue ticket couple of months, and then we should see the economy gaining more speed again. for the ecb renault, it is fine. the only question will be -- it will there be any impact on inflation? i do not think it is happening. the june meeting, with the ecb said, its projection for 2020 and their inflation forecasts. revision, wenward see a more dovish ecb. the boe,ore get to with the ecb, they have been very article when they managed positions. neither side has been a vocal about it fact that they have the curve come receiver within the even thoughurve, the ecb is printing money while the fed is tightening rates. draghi has set, as far as forward guidance is concerned, the position away from the immediate outlook signaling the end of positive easi

draghi of the ecb.aid the ecb is going to say, no, no, no, we want it done our way, our way or the highway. >> well, that's not what the ecb did with greece or what they did with ireland or cypress. they basically said, we're going to turnoff off, you're not getting more euros unless you join a program guess what the program is? raising taxes, cutting spending. the exact opposite of the program that these two guys who got together in the coalition would like to do so this is the new europe the new europe is one where the ecb is the muscle man. they come in and basically can sort of make -- i think -- painful outcomes for voters if they decide to go too far away from the center, and i'm more convinced that's what's happening in italy, and, by the way, that's much more dangerous in italy than it is in a place like greece, cypress, or ireland. italy is bigger and integrated into the market. the market is correct to be nervous, particularly in the italian markets, because that's where pressure puts and thre

with the ecb it is similar. they are confident in their outlook for inflation. data from germany and spain today support their outlook for inflation, and inflation hitting their forecast for 2018. they are proceeding with ending qe purchases by the end of the year and focus on forward guidance in terms of where they will hike next. the volatility in terms of hiking for the euro, italian sovereign risk, oil prices, these will not impact the paths the central banks are on. we need to see much higher dislocation before that threshold is meant. ramy: i am getting a sense of a bit of stability. i want to ask how anxious you are -- i want to hop into the bloomberg terminal and show you this gtv chart. this is called, stress likely on the way. this is the bank of america merrill lynch global risk index. on the right-hand side of your screen it has jumped below the flatline, 0.12%. you can see the past tension levels, the 2008 financial crisis, the 2011 possible global rift, as well as what is happening in 2016. where are you in terms of anxiousness? ed: you can complim

and hasn't the ecb insulated that risk anyways? mr.nak: if you start getting populist movements, you might actually get more issuance of debt and it's going to do going to putt's pressure on debt. jonathan: it hasn't made a massive difference on the long end. market,stated in the just walk me through the idea here. i guess fundamentally you have to ask not just one question about btp's, you have to ask another about bonds. what is more underpriced, bonds or egp -- atp? you highlighted a opportunity just on a relative value basis, whether you are or italianbonds bonds or spanish bonds and compared u.s. treasury's, u.s. treasury's really stand out on a global basis and so you wonder about how i can rates really go just in terms of relative value of flow of funds? think there's an opportunity to own treasuries versus bonds and play that compression trade overtime. jonathan: you agree with that? full in the idea you have some pretty heavy fx hedging costs. mr. rusnak: those are coming down a little with the dollar strength i do think right

francine: is the ecb worried about german bunds?g to be reducing by hans partly because in probably because of these concerns, they are more vulnerable. francine: what does it mean for the markets. could it take a rest of the market down with it? jim: i think the damage will be limited. there is no doubt that these conditions are more of a headwind to risk. headwind and more volatility because of it. tom: bring up this chart quickly. i just through this up. this is the german two-year. francine, you are absolutely on. 1, 2, 3, 4, 5, 6 sessions rolling over to a new record low. to me, the negative yield story of europe versus this craziness in the u.s. is once-in-a-lifetime. francine: is it once-in-a-lifetime? jim: the last time 10 year treasury yields were at these levels was seven years ago, and the 10-year bund yield was 3%. 0.55. is we are once in a career. francine: where are we now? jim: in terms of optimism? francine: let's go optimism. jim: i think credit is going to be ok. i think it widens this year because of higher yield.

the ecb has not yet signaled when it will wind down its bond purchase program. exclusively with two members of the governing council about the policy path. let's begin with the interview with the bank of france governor. first, we will have to decide about the end of the net asset purchase traders. i already said whether it will end in september or in december, it is not a deep question. we were very clear about the sink we think -- of the sink equencing.- the s what i explained is that we will give additional guidance before the end of the year about the timing of this first rate hike and about its contingency. let me explain about the timing well past, meaning at least some the contingency, and to be contingent on the inflation. we will see exactly how we formulate it. we are predictable but we are [indiscernible] say some quarters, could we have seen that for six months or could it be nine months? >> english is not my native language but i understand it could be several triggers. >> three or four? when you look at the main concerns are challenges for the ecb,

alix: the ecb. and so are banks. us.nutt is staying with this is bloomberg. ♪ alix: taking a look at markets, it is all about risk off. taking a look at the 10 year, moving higher by eight basis points. money moving into the dollar and treasury yields. joining us is dean curnutt. when you come in today, what do you do? first, we are encouraging clients to dust off hedging plans. hedging has been something that has been out of favor thomas certainly see the balance of 2017 which saw one of the lowest volatility environments we have seen in 50 years in the s&p 500. during those times, you get a little lazy and forget that risk can occur all at once. we have expertise in helping people use options based hedging. it is time to start looking at ,hings like vix call spreads receiver options on treasuries, which is effectively betting that duration to treasury yields will rally in a risk off, which is what they are doing today. those have been very cheap hedges to own. they have not been affected because the market has been eff

guy: one of the biggest buyers of the ecb is ecb. do they worry about credit risk in italy? are a rules-based organization. what is the ratings agencies going to do? if italy passes a budget with a fiscal deficit of 6% or 7%, that will move the ratings agencies, and the ecb will not have a choice and will not want to have a choice anyway. guy: do you think conditionality gets put into it? >> i'm not talking about conditionality. i am just saying that right now the ecb can only buy the bonds that have a sufficiently high rating. if italy falls below that threshold, and this is not going to happen tomorrow, then the ecb has to stop buying. guy: keep an eye on what happens in terms of how much they are going to spend and who is pulling the trigger on that spending. isabelle will stay with us. the biggest event today is the presidential forum happening in russia, the russian president speaking alongside his french counterpart and the head of the imf. russia's central bank governor has called for structural reforms to accelerate sluggish --wth, stop of calling stopping short of c

we still have not seen the ecb play out.will probably get out of quantitative easing this year, start raising rates next year. we've seen that movie before and we know how that plays out. jonathan: you think the risk is in the risk-free asset? george: yes, right now we do. jonathan: we'll wrap up this program and the themes through this week and looking ahead to next week. would you short btp's or bunds into year-end? one or the other? what does the performance come from? what would you short? george: b.t.p.'s. jonathan: lisa? jonathan: b.t.p.'s. jonathan: -- george i'm going to : short bunds. jonathan: would your take u.s. high-yield or e.m. credit? george? george e.m. credit. :jonathan: mike? michael: i'm going to be an outlier. i wish you would have said e.m. local. i am going to take high-yield. jonathan: there we go. after the big debate, i thought i would pose the following question. what do we see first? what do we see first, 4% or 2%? 4% or 2%, what do we see first. on a 10-year treasury yield. 4% or 2%. george? geor

the ecb could be an important element of that.ght blatant discrimination against the likes of italy would not necessarily be consistent with the monetary framework in place at the moment. nothing has been legislated for in italy a lot of the senior ecb members have spoken about the fact we need to wait, we need to see what becomes law in italy and make the judgments i don't see any change in the way in which the ecb behaves in terms of the end of qe, again, you could argue they would be encouraged to end because they're given tacit support for what's happening in italy. at the same time if the macro economic conditions more broadly deteriorate, i think it's inevitable there will be potential delays in which they reverse their current stance >> we heard from the italian central right governor yesterday that the economy is in good shape and fully self-sustaining. in terms of the european wide perspective, are there economic indicators overcurrented about a -- you're concerned about >> we are watching closely across the whole of the

>> the ecb only can buy about 30% of any country's debt. they're getting close to that with italy they have about 700 billion of total italian sovereign and corporate debt one of the real dangers here is if for any reason that italy leaves, and redenominates its currency, the ecb would take a tremendous hit that could bankrupt them unless the other countries put up more money. >> we're out of time what does this mean for u.s. stocks what does this mean for investors at home? >> i think the biggest impact for u.s. stocks is the strengthening of the dollar. i think it could go to 1.14, 1.12 and this would have a major impact on the equity markets in the united states as far as earnings of our international companies. >> always good to see you. hope to see you again soon >> thank you >>> when we return, show us the money. show us the money. a new ranking of the 25 highest earning hedge fund managers, we will tell you who they are and what the top names are next. >>> and later, amazon and walmart holding shareholder meetings on the same day we'

that is purely a reflection of where the ecb is. qe, but more partly continuing on that reinvestment in finance over the last few years. the italians have been quite clear. worryne: you could also even if these parties implement 20% or 30% of what they promised, it is giving money back, it is things that would not be good for the kind of -- for the coffers in the treasury. is it sustainable? guest: we will have to see. if i may make one point on the spread. i think one of the reasons why this spreads so far have not moved that much is because if we go back 12 months, if this came up months ago, i have absolutely no doubt the spreads would be 200 plus already. back then this is the bogeyman scenario that you could possibly paint. key point why the spreads currently only move in a relatively small fashion is because the key policies vis-a-vis's the euro, and therefore for the underlined fundamental foundations for the system seemed to have changed. i want to stress of the seem. one year ago the market would have been convinced if thes