geneva to do the geneva motor show to get their take on what is happening with diesel and the trump tweets on trade. and then, he's going to the ecb. those two forces seem to be the two forces that are shaping europe this week. the italian election is interesting, but it will be much more interesting is the ecb was not sitting there going we are going really dovish right now, and to be honest, we probably unlikely to be exiting from stimulus anytime soon. thatresult of which, carries a massive bid, and that ain't going to change anytime soon. you have this dampening force which is driven by the ecb, making what could be an interesting italian story not a story even slightly. right. i think that's my advice to matt, if he's speaking to people about what trump may or may not do is that no one has the faintest idea. anyone's use should be treated -- guy: it's the same true of draghi? monetaryery clear that stimulus will remain until it's absolutely not necessary. and that is when unemployment is quite a bit lower, when they are absolutely confident inflation will return somewhere near to target. it will last another 12 months give or take. if any kind of shock happens, political or economic, they will err on the side of dovish nest. the ecb remains very dovish. matt: is it an interesting time to buy stocks in europe? they have gotten hit so hard over the last few days because of concern from investors who think they know what donald trump is going to do, and you make a very good point that obviously no one really does. the ecb, which we had almost started thinking of as turning more hawkish, is still run by draghi, and he will stay as dovish as need be. i think people are not buying european stocks because they have a view on what trump will or won't do. i cannot believe there is anyone who has the faintest idea, and if the reports are true, it was not a plan that had been a long time in the making, with all of trump's inner circle on the side. haphazard thane that. people are buying european stocks because they appear to be cheaper than those in the u.s., and economic growth is strong and looks likely to remain strong. thirdly, while the u.s. is at risk of turning and cycle, -- end cycle, that could put corporate margin that risk. we are at a much earlier stage of the cycle, and the end cycle pressures are not likely to appear for some time to come. i think it would be sort of foolhardy to either invest in european stocks or not invest in european stocks, because you have of you of what trump will do. right. rupert is going to stick around. we have plenty more we have to talk to him about. over at mercer. we will be talking about stocks on the move this morning. axa is falling. 15.3 billion dollars, the price. this is bloomberg. ♪ welcome back through the european open. we are 12 minutes into the trading day with stock on the continent down. let's get out of stock stories. for that, we go to nejra cehic in london. nejra: let me start with axa, one of the worst performers, agreeing to buy xl group. it's a 33% premium. it is axa, looking to buy a bigger price of the market. the biggeste insurance deal since 2015. so, axa heading lower on that. volkswagen lower as well. this around concerns about tariffs with the war of words escalated when it comes to trade. the ipo by the spring of 2019, but on the trade, president trump threatening to tax cars that -- freely into the u.s.. their stock is taking a hit. interesindustry group on the stx 600. buy atbeen upgraded to jefferies. guy: thank you very much indeed. some of the markets we are watching, let's talk about what's happening. affirmed awn 1.8%, little bit. we are trading down by around 1%. market analysis. let's go back to rome and back francine: weacqua. are joined by our guest. great to speak to you live, overlooking the coliseum. a nice and bit off of thing. talk to me about the italian election. >> good morning, all bloomberg viewers. francine: anti-establishment? >> yes, the results are antiestablishment. the majority of the vote, not unexpected. what's going to be discussed is together, combined, they have a sufficient majority to overtake them. people,job of rallying especially the south. the fact is, francine, italians are sick and tired of what hasn't happening over the last five years. 600,000 immigrants coming into italy. these immigrants getting paid a per diem salary. francine: is this an anti-immigration group? do you think this is pure anti-immigration? >> it's also that. it's also the fact that unemployment is still very high. millennials, for the first time come are taking a vote, because over the last five years, it took place in 2013. millions of italians had the right to vote. most of them were unemployed. 30% unemployment. in some places, 50% unemployment. francine: it's going down if you look at the numbers? >> on a gross basis. people perhaps are sick and tired of it. francine: what does it mean for the markets? you talked about this. i heard about a five-star movement with petey. -- with pd. a i do not forecast worst-case scenario, and the reason why is because of the fact on one side, we have the polarization of the vote. extreme right. people going very much antiestablishment. his party won the elections, the former government. able tot going to be under coalition. the coalition, if it is made, is going to last as long as the snow. >> that is what the constitution or the agreement says to that person? >> actually come ironically, it may go back. i will explain to you why. it, there is a sense of purity. we will not compromise ourselves. francine: none of the big parties run the anti-europe platform? >> i don't think so. people have come to the realization that they both have been proclaiming to the four winds in rome at the moment they got elected, they won. they were just asked to leave the euro currency. it is pure political posturing and has absolutely no sense. francine: what does that mean for reforms? what does that mean for the banks? you have nonperforming loans that the bank has to deal with. >> they have been doing a lot of the two up here yet largest, healthiest banks. i will set aside monte dei paschi for a minute. they have done a lot of cleaning up. murmurs have been investing money. the climate has changed. if you have a credit that is very difficult to collect, bankruptcies took 15 years. what has that done? it has given the appetite for foreigners to come in. francine: are you telling me that there is no risk to the market? >> actually, the risk to the the crazy coalition happens. a crazy coalition would probably be with -- they would be putting two molecules of hydrogen and one of oxygen. it's all going to happen. francine: they both want to be number one. pen, and in a chicken there are two roosters, and they both want to be the head rooster. unfortunately, only one can. not a huge fall. markets are used to having the home parliament and political crises. case.s a the news came out, the election turnout. they still have not counted the 4 million votes from abroad. they tend to be more towards the right. italians abroad, especially in south america and north america tend to be more conservative. get a boost. i think this volatility is going to stay here for a wild, maybe until the end of march. the best case scenario would be from monta relative keep people up. the former new government. francine: but we have a government by the summer? march? >> absolutely. we are not going to have a government. we are not going to have a government this month. i think what's going to happen actually is that it's going to be a government, but it will not last. what's going to happen this there's two egos. the other small parties. egos are going to be in love for 50 days, maybe. by june, it will be all over. the same thing as always again. francine: i'm going to send it back to you in london and berlin. a very fluid situation. the vote counting continues. we don't seem to have a majority. back in change. for the moment, it's all about egos, as marco put it, and coalition building. back to you. matt: the fluid situation. no clear winner. some egos at work. sounds like italy is business as usual. you can follow it on the bloomberg. tliv . the most out of what we have got as far as reporting on the ground for you on the italy situation. that diversifying funds is harder than ever in markets, you're not imagining things. the same bonds, stocks, and commodities, more and more like each year, leaving macro money managers without a reliable hedge. joining us now is our reporter, dani burger. still with us is rupert watson at mercer. someone great to talk about this with. i'm going to start with you. assets highly are correlated here? is this an ongoing phenomenon that money managers are having to cope with? dani: this is a remarkable thing. when we talk about what happened over the past six months, and we have spoken about this before, you can almost approach asset allocation, and for lack of better terms, manner. returned to profit. that is easy diversification which we have seen is starting to disappear. last month, we thought asset move together in tandem. the biggest jump in cross-asset correlation, the fourth largest since then, it's remained elevated in the top decile. this is remarkable because it's not just that assets are moving upwards, which we saw me last year, earlier this month. not only are they moving together, but in a violent fashion, which becomes difficult, because if you think of asset classes that typically diversification, as a hedge, that's becoming more difficult. i really like this chart because it shows the degree to which they are moving together and the degree to which that is a violent move. really finding difficult asset classes right now to offset each other. guy: this is a problem, isn't it, rupert? rupert: yes, it is, but you have to deal with it. we have been in a 30 year period, 30 year bull market. apple market is coming to a close. equities selloff, bonds may well be selling off because equities are selling off because of the bonds. not much you can do about it. you should not kid yourself that portfolios will be as diversified as they have been in the past. that are things you can do simple diversifying into nonlisted things, a good sprinkling of hedge funds, different issues. i think that particularly institutional investors don't need to be 100 percent liquid. in fact, most institutional investors have much more liquidity than they need in practice. if you look,e -- what are the least correlated assets? are there any places that investors can hide or hedge ? dani: nonlisted is something i have heard again and again. this is where investors need to turn to, look to private equity perhaps. when you look at something like em equities, that also is moving in tandem as well. wes really remarkable that are seeing assets now starting to react to geopolitical tension. we are seeing when we get talks, things are selling off across markets. things are reacting. it is a different environment. they seem content on charting their own path. they can get set off pretty quickly, it seems. there are finally reacting to geopolitical news. guy: the points i would make is that you mentioned that even emerging markets are heavily correlated. they are all going to sell off at the same time. it is not so obvious everything is quite as correlated. i would expect, over the next five years, say, for margins in the u.s. to come under pressure, undermining u.s. equities, but emerging-market equities are in a much better place because they are much earlier in the economic cycle. >> i feel like people have forgotten this long-term picture because we have gotten so used to easy diversification. low inflation world. we have seen not only bonds and stocks go up, but they have been uncorrelated. it's been this remarkable environment. we are not used to it. it's definitely a different environment, and we see issues with perhaps different funds shutting down because clients may be aren't used to this new volatile environment and what the returns are going to look like now. guy: does pass play a bigger part in the story going forward? rupert: simple answer is no. dollarslds even in yields fairly close to zero, and it is fairly difficult to -- it does not diversify. to do well ifhing other stuff does badly. which of course, historically, bonds have played that role. going forward is not obvious there is anything that can do it. cash in your portfolio, you will reduce the potential downside, but you will also reduce the upside. matt: all right. rupert, thanks very much for that. head of asset allocation at mercer. dani burger, always a pleasure. dani burger there from bloomberg, covering strategies for us. the deputy finance minister, possibly the new health minister, will join us for an exclusive interview at 11:30 a.m., as germany's new government is set to come together. this is bloomberg. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. matt: 30 minutes into the trading day. top headlines off the bloomberg terminal. gridlock in rome. for weekstill heading of coalition talks after an inconclusive election. back to work here in germany. the std's members back another grand coalition led by angela merkel. questions swirl over how long she will last and what her cabinet is going to look like. her potential successor is going to give us an exclusive interview later on today. premium bed. xlnce's axa agrees to buy for $15 billion, a more than 30% premium to friday's close. are we at the start of another m&a wave in the insurance sector? welcome to "bloomberg markets european open." i am matt miller in berlin alongside guy johnson at bloomberg's european headquarters in london. europe is bid this morning in terms of the sector story. we tell, oil and gas, technology trading well. there are interesting downside moves because we are seeing the auto parts sector down by .8%, down to the trump tweeted over the weekend and the german auto the european auto sector. that is manifesting itself. the axa stock is trading softer this morning on the back of the bid. it is a chunky premium that is being paid. will others be forced to follow? the insurance sector being dragged down by that. let's get a bloomberg first word news update. here's sebastian salek. sebastian: in the u.s., the trump administration is showing scant sign of altering his plans of steel and aluminum imports despite opposition from u.s. allies and republican lawmakers. the treated advisers -- trade advisers spanned out to spread the news. it will be put into effect soon. target ofset a growth around 6.5% of the national people's congress. that this is art faster pace. he has signaled plans to set the market below a deficit target of 2.6% gdp. the u.s. will dominate global oil markets. it satisfies 80% of growth for 2020. it keeps opec under pressure according to the international energy agency's latest report. it includes brazil and canada. tomorrow -- g toro's "shape of water" won. gary oldman was voted best actor for his portrayal of winston churchill in "darkest hour." impassioned arguments for gender equality and diversity. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. matt: thank you very much for that. let's get back to politics. germany's social democrats voted for the liturgical -- for angela merkel's next government. a real sense of political stability. joining us now is a fellow at carnegie europe in berlin. the author of the book, "the merkel phenomenon." thank you for joining us this morning. i was surprised yesterday by the margin with which the spd voted to join this coalition. i thought it would be very close , and get they agreed 66% -- 66% agreed to join a coalition. >> it shows a really strong win for the designate leader of the social democrats. germanyiring leader in of the future rallied around the rank and file. this is a skeptical party going into the coalition. very against it. towns and the villages and the city's rallied and got the party behind her. hats off. chancellor merkel, also something. matt: we are used to her winning and making the right decisions. it was odd to see her stumble over the past two months. of fpd has made a series blunders that was almost, call in nature considering their consistency for doing -- for failing. way toly is a dignified come back into government. with martin schulz kind of bowing out graciously. this is a highly contentious democratic debate, which was good for the spd. all out in the open. secondly, the old statements have been cleared out. a younger generation is coming in. it's not in the baguette for the spd. the grantor lycian weekends. the alternative fur deutschland is ahead of it. the party behind her has to rebuild the party. guy: judy, good morning. germany is in an interesting place. economically, it is rolling ahead. the economy looks solid, and in some ways, this will be the moment to take political risks because the impact is likely to be reasonably small. why is germany not taking political risks at this point when the backdrop is so good? since thee now, problem would be angela merkel, maybe she will take risks. the risk we are talking about is the reform of the eurozone. that is going together with president emmanuel macron of france. so, merkel can go out on a high if she chooses to, and that means putting aside her sense of caution and going for the big decisions like reform of the european union. she has a lot on her plate over the last couple of years, and she may just see the big decisions. matt: one of the people we talked about often as a possible iscessor to her is yes on -- another person. they are both pro-europe. maybe they do it in different ways. has she pushed him off the kos it looks like she will choose for the health ministry, which is a less prestigious post. judy: in terms of the cabinets she is going to construct, she has already chosen, it's a careful balance of the bulls, of very conservative people, it combination of reassuring the various strands in the party. thear as putting him in health ministry, that is a can of worms. fun -- jens has his work cut out. matt: she left her in her position as defense minister. does that make sense to you? does it look like the picture of success? judy: reforms have been unbelievably slow to push through. there has and enough manpower. not enough protective vests for the soldiers. they are totally unprepared. thewill need support from high command. matt: they seem to constantly get in trouble for the far right-wing anti-immigrant action. judy: this has been a recurring element. another recurring element of the armed forces is they don't even have the aircraft to transport humanitarian aid, let alone personnel or equipment to places they want to get involved in for conflict prevention. they received 37 billion euros a year. the military response, let's assume there is a crisis. let's talk about this coalition. is it a coalition built for crisis or is it a coalition built for spending money? i am curious. reformked about european earlier. i did not see a lot of european reform being talked about when it was created. chapter of the , so it's is woolly opened all sorts of interpretations. that's the first thing. secondly, we have got to watch how the social democrats will move. they hated playing second fiddle to angela merkel. them, they want to have an identity. they want to make policy. is merkel given free reign to make policy over europe? she gives them rain to make -- reign to make other foreign policy. very tight.e held it will be interesting to see if merkel does give whoever will be the minister for the social democrats, more maneuver. the social democrats can go back and say we are no longer in this coalition. something to contribute. will this coalition back mr. weidmann to be the next head of the ecb? me?: you're asking i think this is a tough question. i don't think the finance ministry will be either. i think maybe next week, we might know a bit more. guy: judy, thank you very much indeed. great to get your take. judy dempsey, fellow at carnegie europe, joining us from berlin. still with us, rupert watson. offgoing to shift gears talking about europe. let's talk about you margin markets. you and i were joking around at the break what we would have in the portfolios if we were to have options, and you said your big regret was not having more em. europe is fine. europe is going to outperform a little bit probably. the u.s. man to perform from an equity point of view. your sense is if you want outperformance, you need to go to the emerging markets. rupert: yes. we are overweight emerging-market equities, and we are overweight emerging-market bonds and have been overweight, both of them, for some time. for 1.5 years or so. i think emerging markets will outperform over the next several aars and potentially by reasonably significant degree. if you look at emerging markets relative to developed markets over the last 12 months, they have outperformed massively, and that might give you cause to caution. if you go back to the start of the equity recovery over the last seven or eight years, emerging markets have massively underperformed. the emerging economy has underperformed as they struggled with controlling the build up of corporate credit. they got themselves into much better shape financially and in relation to inflation and currency values. guy: if the dollar were to gain ground to significantly, how significantly would that change your ideas? rupert: it depends on what you mean by significant. if you are talking, i don't think that matters enormously. if you are not talking about a massive surge in the dollar, i think that would be an alarm. broadly speaking, i share the the dollarost of will not do a huge amount from here going forward. are going to hear you now because rupert is going to join the radio team. looking on to carry -- dab team. joining the matt, you are off. matt: that's right. i'm going to miss you on bloomberg radio today because i'm heading to the geneva talk about trump's tariffs not only on steel, but possibly on cars as well. the trade war that he thinks is ball willasily when a be a real discussion. plus, the future of diesel is going to be huge for the auto industry. by the way, do not miss our exclusive interview with jens spahn. most likely, he will be germany's new health minister, although a lot of people talked to him about a possible successor to the chancellor. he is quite young right now, but very successful indeed. you can see that interview at 11:30 a.m. u.k. time. up next with guy, as axa agrees to buy xl, are we at the start of an m&a wave in the insurance sector? this is bloomberg. ♪ guy: 46 minutes into the session, let's talk about stocks on the move this morning. here with the mid-caps, nejra cehic. nejra: this companies getting the most in over a year after predicting sales and ebitda margin growth in 2018. it is the best performer on the stoxx 600 right now, up over 11%. on the downside, ultra electronics. it sa