A conflicte is between the politics and the economics here. To my knowledge, nobody has asked for clearing to move from a business standpoint. A very warm welcome. I am anna edwards. S they met in june. They discussed, and they were divided in terms of federal reserve, the Balance Sheet. They are sticking to the gradual pace. We dug deep into the roots of what is going on. Anna loves this chart. The story of this chart, this is about the influence station Inflation Expectations from the fed. Saw, there wasu this view inflation was going to return and there were more officials who viewed the risk waited on the upside. That has shifted. There are now three cardmembers who think the risks are to the downside. This is about a shift in expectations. This is the doubting thomas factor. Anna they dont understand why inflation is so weak. The timing on the Balance Sheet, an open question. Morning, theres seems to be lots of say and not a lot to show for it. The geopolitical tensions that exist. This is where we are on asian equities. A bit more appetite for the yen in recent days. We saw the Emergency SecurityCouncil Meeting taking place. Manus a little bit of a shine coming off gold. Clear and present danger to the gold trade, it is on the downside. Oil is managing to geek out a gain, up 0. 7 . Rebounding from a four weeks long week slump. The news coming from french catering company. From a revenue side, they are cutting outlook. Organic revenue growth, 1. 52 . Lets go to the first word news. Juliette the u. S. Has threatened trade ties with countries that continue to do koreass with north following the test of an intercontinental ballistic missile. Saying, nations are not doing enough to rein in conjunction reign in kim jungun. Li na is prepared to use the full range of capabilities to defend ourselves. Considerable our military forces. We prefer not to have to go in that direction. Juliette the European Union and japan have overcome their differences on car and farm exports. It paves the way for a Free Trade Agreement between two partners that make up a quarter of the worlds economic output. And the eu president are expected to endorse the preliminary deal today. Venezuelas president has ordered an investigation into violence that took place at the opposition controlled national assembly. Progovernment militias stormed congress during a special session. Four opposition lawmakers were injured in the attack. Global news, 24 hours a day, powered by more than 2700 journalists and analysts. You can find more stories. A little bit of a mixed session. Strength, downen by 0. 5 . All markets now in the red. The asx 200 is pretty flat. Gains coming through in india. The first week we have seen the limitation of the gst. Drop we saw, weighing on energy in the region. Petrochina has also received a downgrade. Stocks, interesting to watch. All coming under pressure. A lot of regulatory concern, but also bonds are expiring. Bonds, up seven points 4 7. 4 . Exceeding target production at a mine. We saw exports rise 9 from a month earlier. This was thanks to coal shipments rebounding sharply and the uptick in iron or. Quite a good pickup coming through. Quite a months we have seen a trade balance coming through from australia. Thank you very much. The minutes, the all important hurting that happened. The minutes from the june consensusows the fraying at the u. S. Central bank. Lawmakers see gradual Interest Rate hikes as appropriate. Foc highlighted divisions over the timing, as well as unease at recent week inflation readings. Mike mckee has the details. Investors wanted clues as to when the fed might start normalizing its Balance Sheet and when and if policymakers might raise rates. They got neither. Most of the discussion centered around not when the economy would be ready for a taper but when wall street would. Preferred to announce the start to the process in a couple of months, a few suggested a nearterm change could be misinterpreted. Although investors have bet slowing inflation would not slow the fed move, that did not seem to be the case at the june 14 meeting. Several expressed concern toward the target might have slowed. Controlling prices as reflecting idiosyncratic factors. Like cheaper cell phone plans and prescription drugs, not to mention oil prices. They expect those to have little bearing on inflation over the medium run. For now, the forecast of one more rate increase seems on track, although whether on september or december is an open question. Ther topic, corporate earnings growth. Michael mckee, bloomberg. Joining us to i suppose look through all these minutes welcome. A lot to read but not a huge amount of the relent reaction in the market. But they are still on a gradual path. A tighteningct process. What did you make of the minutes . Thene thing going on is Balance Sheet. Impact ofustment, the extending the Balance Sheet was pretty close to zero in the real economy. It mattered a great deal for asset markets. For the real economy, almost nothing. The impact of unwinding the assets, likely to be close to zero. , theyters for wall street care a great deal. Macroeconomists, not so much. The big issue is Interest Rates. The question on the chart you are showing earlier. Is the u. S. Going to achieve, in mark carneys phrase, a skate fromity . Away away deflation . Or not . The time after trump got elected , we were of the view, as were s, this iss and other finally it. The last couple of months, there has been a softening of that view. Not at escape thecity, the overvalued, trajectory for Interest Rates will be muted at best. Anna what are you getting from the market as to how they perceive the Interest Rate story . U. S. Treasury, early on, the end of june. We have seen that big surge. Up 2. 3 . Is this the market finally listening to the fed and taking it seriously what they are saying . Even if the most meeting, they were last then convinced . A softening of use. Fort what the prospects growth are, inflation. And therefore just rates. That change in view, for me anyway, and it is true in private growth are, inflation. And consulting, it is a change in views on the trump administration. It is all about the physical splurge. Will he achieve it . It is not clear whether he will. Manus this is one anna for earlier. Bank lending about and the united states. This is just weekly data. You can see the uptick on the righthand side. Perhaps there is more demand out there for Bank Borrowing right now and unit states. And get me wrong, the u. S. Is growing and growing more rapidly than probably other g7 economies. The question is whether there is enough impetus there to really break out. To break out decisively away e of the sort of mir slow growth, sluggish yields. President hs after trump was elected, we were of the view, yes, this is it. It is all to do with, can he achieve the things he set out to do . Interesting you say, for macroeconomists, you are perhaps less worried about the unwinding of the Balance Sheet. What this is, he says, get ready minskyther key moment moment. Irrational exuberance. Get rather for another moment like this. There are consequences. The myth allocation of resources is the primary one. This goes to the repression of volatility. Get ready to be rocked. On the asset side, 100 . Those volatility numbers are ridiculous. Again, it will matter for asset prices, absolutely. Whether it matters for anything else remains to be seen. If we are overly exuberant and markets, if there is too high a tolerance of risk. Manus the fed are worried about that as well. The s p or anyat of the trends, the prices in those markets at the moment are increase inn a huge earnings to calm. You areby growth, or cutting corporate taxes. Huge,doesnt come out those prices are too high. Anna stays with us. Youve got donald trump, stopping on poland on his way to the g20 summit in germany. Abe is set to hold a news conference. Manus and protesters plan to hold a rally in hamburg korea this as World Leaders head to the city for the g20. How warm welcome from warsaw. What to expect from President Trumps visit to poland. This is bloomberg. Manus welcome back. It is 6 18 a. M. Here in london. Juliette standing by with the business flash. Juliette Capital Management is weighing a plan to purchase a stake in commerce fake. Cerberus has not made a final decision on the size of the holding. Representatives declined to comment. Deutsche bank is preparing to move large parts of the trading and Investment Banking assets to frankfurt in response to brexit. According to people familiar which isplan, the plan still being finalized will probably be lamented over the next 18 months. A spokesman declined to comment. Tesla has reported quarter by quarter shipments declined for the second time in the past year. The maker delivered more than 22,000 vehicles in the second quarter. In addition to stoking fears about whether demand has peaked, the figures cast doubt on tesla can pull off a production ramp for the cheaper mdoel 3 sedan. U. S. President donald trump is expect it to receive a warm welcome in poland. He has much in common with the current government, including nationalist approaches and a skeptical view of the media. s currentolands policies have put them at odds with the eu. Good to see you. Why is trump visiting warsaw first . Is this a mutual affection for one another . That is exactly right. The president is expected to have thorny talks when he gets to the g20 in germany. Before then, he is going to visit a much more friendly audience. He is going to spend some time in warsaw, it is sort of more like his version of europe. Crack has been able to down on the media, something President Trump has done in washington and the u. S. Poland has tried to restrict immigration from migrants coming through to europe from several muslim majority countries, another thing President Trump has done back in the u. S. This is more trumps version of europe. With issues to deal like Climate Change and trade where he will be more isolated. Trip here. Rt his anna the polish president making some of the right noises on radio, saying all in once longterm contracts with u. S. Suppliers. There could be some business to be done. America has america first. Poland has economic patriotism. That sets them apart a little bit from the rest of europe. What is this tell us . Withericas relationship europe has been frain ever since President Trump was elected. He had negative things to say about some of the leaders in europe including uncle merkel in germany, saying her policies on immigration were insane. He also spoke negatively about france and he old out of the paris climate deal, saying he was voted to elect pittsburgh and not paris. Manus thank you very much. Great reporting their from warsaw. The European Union and japan, they have overcome their differences on farming, cars and exports, paving the way for a Free Trade Agreement. Ba, today, Prime Minister the eu japanese Prime Minister, you and others were second to endorse the agreement. We just heard the report in terms of trump touching down in poland. Sets up a confrontational stance. Who is he cozying up to . Youve got that eu ready to do a deal with japan. There is a lot to discuss over the next 24 hours. The mood music when trump was elected, he is going to start to unravel some of that momentum toward globalization that has been in place for 200 years. Jgdphare of trade in increasing. Give or take world wars and the last eight years or so. Any people, including ourselves, concerned with the election of trump, antiglobalization ticket fore, taking the those numbers would start to fall. Now, looking less likely. There are other players in this market, too. Are huge players and have their own momentum. I am interested what happens when you put one set of populist policies against another. Lets talk about europe, japan eu signing the this deal. A lot of appetite because of the recovery story. The euro seems to have stalled a little bit. In our view, there is cyclical strength in europe. Standards, at the moment, it is doing pretty well. Probably has legs for another six months or another year. But, underneath that, there is a structural problem with europe which remains and has to do with the accumulation of debt. The peripheral economies. As long as thats there and unresolved, we are going to come back down. Manus macron has four or five years, somewhat someone say he has two vendors to deliver. Anna next, backing britain. Clearing activity staying where it is. City, Holding Annual events bringing together of members of the city. Lots to talk about in terms of where u. K. Financial services go from here. Deutsche bank has a different take of the one in frankfurt balance of howard. Next on bloomberg. Manus you are looking at a live shot of tokyo. You are looking at the dollaryen, pretty flat at the moment. With the g 20 starting . But see how the markets are showing 30 minutes into the day. Nejra is kicking it off with the asian session. Nejra we see little bit of weakness in todays session. But 2017 has been good to this benchmark, riding up 17 this year. This chart, though, showing the trend line. One strategist says if we see the trend drop below that line, we could see declines of up to 10 . We are a little bit softer on asian stocks. And Energy Stocks are leading those declines, despite the lift we have seen in the oil price on the back of that inventories data out of the u. S. I wanted to show you the correlation between e. M. Currencies and commodities. They used to move together most of the time. Not anymore. That correlation has dropped to the lowest since january of 2014. I know you mentioned the dollaryen, but it wanted to show you another technical chart. Is it teetering . Will the dollar be fleshed out . If we drop below that trend line, that drop in the dollar against the yen could be swift. The the chairman of barclays told me he is confident much of the trading involving the single currency will remain n centered in london after brexit. The thing you have to remember is london is the eus financial center. It has been built not over decades, but over centuries and therefore, it is not easily replicated in one place. Or even in a number of separate places. Replicatedas to be in any tangible way, it would take a long time. You would need an awful lot of buildings to replicate that. For for example, if the worst came to the worst and we were not allowed to do eu or euro related activities in london, you would have to move the bank the size of barclays out. It is pretty material. We dont think thats likely. The right thing for the eu and u. K. Is to retain a significant portion of that in the u. K. Therefore, we are looking for a Free Trade Agreement, some neutral access to each others markets. Were also looking for the Regulatory Corporation to ensure that. At the same time, if anything has to move, we cannot move things that size in two years. Therefore, we would be looking for a period post that. Anna do you think a Free Trade Agreement by march 2019 is doable, that timeframe . Ideally, but if there is some form of transitional arrangement, it gives time to solve that problem. Anna what role will the equivalence play . Some suggest you should not rely on it because it can be withdrawn. My personal opinion is face to face productivity will largely move into the eu in a domestic sense. Crossborder activity may not. The g20 has a policy of open capital flows. So, why would that change too much . We are pretty confident that quite a degree of wholesale activity, even clearing activity, etc. , some management will remain in the u. K. And london in particular. A pause isat necessary here. Whether that happens quickly is another matter. Anna we have talked about clearing. We have talked about a lot in the chancellor, the bank of england, all making the case for why clearing is the best case. Is it that kind of logic that will make the decision, wherever it is made brussels, frankfurt or will other political factors come into this . I think the issue is a conflict between the politics and economics here. To my knowledge, nobody has asked for clearing to move from the business standpoint. Because it is actually working very efficiently the way it is. You know, the transaction costs onehe Interest Rate is the basis point, simply because the scale is so a. It is true, if you say the euro aspect of that has to move into the eu, you lose the benefit of the multicurrency effect. It would be less efficient and more costly. If you then say, lets open up our multicurrency system in the eu, but you keep the multicurrency system in the u. K. , which is much bigger, that would be more efficient, but less efficient than it is today. And the one you are moving will be difficult to be economic. Personally, i dont think it will work, aside from anything else. So, this is really political, rather than economic. Anna does that explain what the ecb is saying . They seem nervous to have such a large amount of the euro clearing business on their doorstep, out of their oversight. You can understand that. If they have oversight over it, they should be able to accommodate it. Anna so, there is a role for ecb oversight . I think so, for euro activity and u. K. Activity. Yesterday. Mcfarlane theres one line in there, which is, its political, rather than business. That is the personification of the economic risks. The he spoke about eurozone oversight of the Financial Markets in london postbrexit. Deutsche bank does not see things quite the same. Deutsche bank is said to be preparing a retreat from london. The london would move large parts of its trading and Investment Banking assets to frankfurt. Manus the strategy would be implemented over the next 18 months. It would be reviewed of the brexit scenario changes, which is one of the most interesting lines in the entire story. Lets get to frankfurt and our banking report of. They always have an option there on the back of the clause. Deutsche bank is merely joining the fray in terms of preparedness for the worstcase scenario, or is it a branch change . That is a good question. Changes, preparatory the decision has not been made yet. So, it is in line with the other banks preparing for the fallout of brexit. What it could mean for the business models, but it seems placeale of change taking is beyond that. They have in march they unveiled a new strategy focusing on germany and europe and this seems to be part of it. So, it is more than just brexit preparation. In my view, it is a strategic reconstruction. Anna so, how much is this going to change the bank . Compare this to what other banks have been telling us. Steven well, london used to be, or still is, the trading heart of Deutsche Bank. And beginning to move assets would mean moving them out of london. I think the character of Deutsche Bank, which has said it wants to be more german, is beginning to change now. This is the first step in a series of changes that will take place over the next months and years. Other banks will do this, too, of course, but they seem to be moving less eu business. John mcfarlane said eu facing staff would probably have to move from london to the eu. But whats going on in Deutsche Bank seems to go beyond that. Germanloombergs banking reporter steven arons, joining us. Erik, when you listen to the interview by the way, great interview, anna that is the risk. Here is Deutsche Bank joining the brexit preparedness with an option for a uturn. But it manifested itself very clearly in terms of the data. Pmi, things are shifting. We were warned this could happen, but it has taken a while to manifest. Erik absolutely. The way that is measured in official data, like gdp. In the u. K. , and across many countries, there is a widening gulf. Case in the u. K. Right now. The pmi picks up surprisingly for many, including myself after brexit, but it has softened a little bit recently. The underlying softness in the real economy is much more pronounced than that. We are looking at the outlook for the u. K. Over the next two to three years, its dire. Anna dire . Erik we are looking for growth rates anna does some of that come from the Financial Services sector and what we have been discussing with John Mcfarlane . Some of that, but that is marginal. Underneath that, you have a long run. Productivity is the holy grail of macroeconomic policy. Productivity in the u. K. Is worse than it has ever been in our history. We have no solution to it. At the moment there is nothing out there that has been discussed. Is speaking corbyn this week about education and training. Route, but i dont necessarily see it for the productivity problem. Thats a long story, that one. Unless we can get out of that, outlook for the u. K. Is grim. Manus there has been a shift in the rhetoric coming from the bank of england. It has been 10 years since we they a rate hike are only two others in that category. Saudi and go the bank of japan. So, i think they might raise rates. If you understand mark carneys th intentions, then you are a smarter man than i. Because i dont. He sometimes talk about there is no need to raise and then one week later, we might raise tomorrow. It seems to be very volatile, that forward guidance. Could be over interpreting. Heers say actually, this is is trying to introduce trade in the market. All of this, step back a little bit. What are we talking about . Maybe they will reverse the cut they put in place during the referendum, which was a futile gesture in my view. They might reverse a futile gesture, which will be futile. Unless something happens that is decisively different from that. Are we talking about moving away from zero into territory like 3 or 4 rates . No, we are not. Not now, not for the next five or 10 years. We are not moving out of this pattern. Manus not out of this pattern, but there is an issue and it is inflation. They are debating the propensity to run hot. That we dont seem to be having the same level of acceptance on running hot in the u. K. And we looked at this yesterday, which was domestically generated inflation, anna found the chart. It is not that bad. Its not. Most of the inflation within the u. K. Is imported, courtesy of sterling, which happened after the brexit referendum. Jangle the nerves of the consumer at the heart of the u. K. Economy when it is difficult to start brexit discussions . Why jangle the nerves right at this wrong moment . I agree with the sentiment, but if i were in the bank of england, i would be saying, i can see where we are. We have a massive amount of consumer debt. I would like to get to a situation where we are not there anymore, please. Where house prices are at fair value, where consumer invested in his is reasonable. Anna and they have tried to employ the other things. Absolutely. Britton stays with us. Breaking is coming through. Commentary coming through from the polish defense minister, talking about the purchase of Patriot Missiles from the united states. A memorandum of understanding to purchase missiles. This was after the news agency land was reporting that this morning. Manus we have more news from the German Foreign minister as well. Later in the day, we have an interview with jeremy corbyn, the leader of the labour party. If you are a number customer, you can watch the show on tv. And you can influence the conversation by asking a question in the ibchat at the bottom of the screen. Anna cutting ties with qatar. Stops short of imposing sanctions. We bring you the latest from the doha dispute. That is next. This is bloomberg. Manus 1 48 a. M. In new york. As futures, pretty flat. Still trying to decide what is the next the substantial message from the fed. Will a shift on the Balance Sheet . Lets get to juliette saly, standing by. Reporter severus Capital Management is weighing a plan to purchase a stake in commerzbank. They are considering building a Minority Stake in purchasing shares on the market. They have not made a final decision on the side of the holding and they could pursue a different strategy to capitalize on the industrys improving outlook. Representatives from both severus and commerzbank declined to comment. Deutsche bank is preparing to move large parts of the trading and Investment Banking assets from london to frankfurt. The plan, which is still being finalized and would be reviewed if the brexit scenario changes, will be implemented over the next 18 months. A spokesman for Deutsche Bank declined to comment. Raven howard asset managements main hedge funds suffered its fourth rate monthly loss in june. According to an investor, this puts the Macro Hedge Fund down 5. 2 this june. That is the worst loss since it began trading in 2003. A spokesperson declined to comment. That is your Bloomberg Business flash. Anna the four Nation Alliance meet itss response to demands has been negative. However, the Alliance Stopped imposing freshsion sanctions. Speaking in london yesterday, the Qatari Foreign minister said silencing his nation will not resolve the problems of the middle east. We must lay out any and all legitimate concerns and discuss the claims and allegations. And we must engage in a constructive dialect. Qatar stands ready to engage in the negotiations process with a clear framework and said they president s that guarantees our sovereignty is not impinged upon. Anna joining us is alaa shahine. What is the main highlight of the cairo gathering . Alaa well, definitely the first thing was the alliance announcing that qatars response was negative. One day before the meeting there was speculation that there was some compromise in the works that could bridge the gap, and we could see some conciliatory gestures, for the beginning of a solution, but that was not the case. The next thing investors and analysts were watching for was whether the alliance would impose sanctions. When there was nothing in the statement, and the question and answers section was dragging on, there were no sanctions. In fact, one analyst we spoke to pointed out the fact that the alliance did not even set a date for its next meeting, which points to a lack of consensus on what the next measures that they are planning to take. Yes, that was the main takeaway. Manus just on that note, good morning to you, what are the next steps . If there is no next date, it does not seem hopeful. Qatar is upping their production of liquefied natural gas. What happens next, alaa . Alaa these countries have a lot of cards to play. Any escalation doesnt come just as a price to be paid by qatar. If you tell your banks to pull money out of qatar, or impose more financial sanctions, it is also bound, to an extent, to hurt Financial Institutions in the other countries. Andou escalate further, people are speculating about the possibility of suspending qatars membership in the gcc, or expelling them. As far as we know, this requires a unanimous decision, or a leaning at least. Which means leaning in other countries like kuwait, and causing a rupture in the block. There why in theory, are measures to be taken and there is escalation to be done, but in practice, it is very costly. Anna thank you very much. Alaa shahine joining us with the latest on that cairo meeting. Lets bring back erik britton into the conversation. Is the lack of cohesion at the gcc in this crucial part of the world, crucial time given geopolitical tensions elsewhere, give us a sense of instability . Right, and momentum in Commodity Prices and oil prices, there is issues on the supply side, which from the gcc and elsewhere, too. Venezuela comes to mind. Issues that dont have much to do with economics, but a lot to do with politics and political instability. There are also issues on the demand side. Youve got europe in a corrupt swing. You got the u. S. Doing ok. And then you have china, the Largest Consumer of commodities, accelerating rapidly right now. Manus what is going on with commodities, because we looked at the bloomberg Commodity Index and it is valued at 4 to 4. 5 . This is interesting. Hans was pointing at yesterday that last year the oil spiked. And a bit of weak, rough rice. We are on high fiber diets here. This is something that seems to have gotten away. Catching up with they sort of move at an arms length between hard commodities and is off commodities. Lag quite often, and that could be what we are seeing now. Anna erik, thanks for joining us. Erik britton, director of fathom financial consulting. Manus weve a couple stocks to watch and a couple interviews we will bring to you. And thatn exclusive, will come in at 8 00 a. M. , london time. Anna just one hour away from the start of european stock market trading. Sodexo has got to be up on your list. Cutting down the full year organic growth for a second time. Manus and we were going to get the numbers from associated british foods. We have got abs coming in with numbers. Morgan stanley says there is a week u. K. Market. Anna we have but airbus there as well, lending a 22 billion chinese art of. 6 56 in london. Manus up next, the fed fragmentation. The Central Bank Minutes show a divide. We discuss with steven major. Manus mets show growing division over when to start the unwinding of Central Banks on sheet and how to tackle lowinflation. Ties. Working trade the u. S. President is in poland to discuss security ahead of the g20, the eu in japan close in on trade agreements. Manus frexit retreat. Moving large parts of the London Business to frankfurt. Ti uks andi berkeleys berkeleys chairman. Issue is a covenant between politics and the economics here. To my knowledge nobody has asked for clearing to move some of the business staff. Tous youre welcome. Oomberg daybreak europe data out and breaking news around corporates, lets get to the data. Chairman manufacturing orders rising 1 weaker than estimated. Estimated to rise white 9 . The increase is driven by investment goods orders from abroad, the increase of 1 . Coming in less expected but it is an increase in the factory orders. The bundesbank addicting robust growth adjusting for seasonal swings and asian rose by 1 after falling and revise percent in april. Revised 2. 2 in april. Growth in theomic region and the bundesbank is predicting that lively manufacturing demand within the country and abroad will contribute to strong growth. Numbers coming out of germany. Back to growth and that number but not as much as had been expected. On the corporate side. Manus baby foods, this is the trimark. Operating profit is ahead of forecast thirdquarter revenue. There was a constant sales expectation, primark sales to be expected at 10. 3 . The number is favorably ahead. Primark is saying we are 10 ahead of where we are year on year. Primark has held down their prices in the u. K. Despite the sourcing costs and that will be a boost to the sales. You think of the u. K. Fashion market for fashion retailers, like for like sales in the u. K. , fashion retailers fell in the first five months of 2017. That was according to bdo. Abf, a. B. Foods owner of primark is bucking that trend. Up 14. 45 . Anna lets look at where we are and the equity section, castrated less than an hour, and positive territory but not next. And gettingcks 50 some decent gains this morning. The picture in asia was a moderately weak one. At the start of the program we were saying generally looking at the markets this seems to be so much to say, so much to talk about. Seeo not exec ac exactly a safe haven trade because of tensions around north korea. Today is a digesting the fed kind of ride. Manus lets look at the risk radar. It is moderately phlegmatic. Word energyavorite stocks were lower, dollaryen, the markets tried to decide this made on the Balance Sheet. Steven major will deliver his divinity in regards to what happened in the fed, the dollar at 113. 11. Gold is coming a little bit lower down. 8 of 1 . Anna oil prices has got a boost in the morning section up over 1 . 45 a barrel the markets were threatening to break down through that yesterday. Not minded tore agree to further production cuts. Lets look at the closings in a couple of markets, the s p asx in australia is flat. Manus a quick look at the bonds, futures down seven ticks on bond futures, you can the rally continue and that is a question for steven major. Stocks are higher and bonds are lower. Lets get across to juliette saly. She has the first word news. Juliette thank you. The u. S. Has three trade ties with countries that continue to do business with north korea following pyongyangs test of an intercontinental ballistic missile. That is the Administration Says china and other nations are not doing enough to rain and kim jongils regime. Also making it clear that military action remains an option. Of ourfull range capabilities to defend ourselves and our allies area one of our capabilities as lies with our considerably military sources. We will use them if we must but we prefer not to have to go in that direction. Poland has agreed to by the Patriot Missile system. The deal would not have possible with that President Donald Trump who is visiting warsaw. The memorandum of understanding would see the first hatred missiles reduced i raytheon delivered by 2022. Union and japan have overcome differences on farm and car exports, the accord ceciliay cecile mel stremme paves the way for a grimace between partners that make up a quarter of the worlds economic output. And two others are expected to endorse the deal today. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. We are seeing the closeout of markets in japan and australia, a stronger yen weighing on the nikkei up four point. 4 of 1 . We have seen a big switch out coming through from chinese stocks today particularly those listed in hong kong and the hang seng is pretty flat in late trade. Having a look at some of the stocks we have been watching, that 4 in decline in wti futures weighing in energy players, petrochina received a broken downgrade. The stocks listed in hong kong and china cut date coming under selling pressure. Resources closing higher by 7. 5 . This is a Global Lithium provider and it came true with its june targets from one of its mine succeeding target production. The only piece of data we have got through out of asia in terms of major data was the us trillion trade balance and it was we saw trade surplus of 2. 4 7 billion aussie dollars. This is thanks to the rebound we in ironn an iron ore or. Exports rose 9 from a month before. A trade surplus for us still you. Anna thank you. Juliette saly with the latest on the markets. The minutes of the june policy meeting show consensus is fraying. Policymakers continued gradual rate harks hikes. Debatethe fomcs highlighted divisions over the timing of the Balance Sheet reduction as well as the unease after the recent weaker in flex inflation readings. Steven major is the head of fixed income, great to have you with us. In terms of the minutes, there is this debate about when they might start the Balance Sheet reduction, how divided is the fed look to you . Of the quite a few members want to do it. With they cannot say with any it means. Is what im suspicious of the overconfidence that this can be done with these. With ease. There are people out there who seem to think they know what the applications of a runoff, it might mean nasty for curl curve for high yields. Inhas not been done before my lifetime anyway. It may have been done 50 odd years ago. It may actually have applications for a risky asset classes, does not mean much for treasuries and my opinion. Anna with all the conversation about how it might take place, the speed at white at which it might be done, all of that conversation is not going to be enough to settle us in markets. Steven they cannot possibly know what happened when they start this process which is why they are starting and across in a gradual fashion to test it. Like any new policy it has to be tested. The tests can last six months, 12 months, it might interrupt the path of increases in the short rates. The fed funds and going up. That might have to stop while they monitor the impact of the theff if there is any from Balance Sheet. Imagine if they do this and there is an accident somewhere in the world as liquidity is withdrawn and the market moves to medically. They cannot possibly now. I think it means that rates are almost were they need to be an they sit there for some time. And the 2. 3 to the 2. 5. Inflation, the challenge to get inflation up to 2 is a struggle. There is this shift, we looked at it earlier, this is a message from the fed. The number of officials who view the risk of inflation being on the upside has changed significantly. Judged the risks are tilted, you have three of them saying the risks are tilted to the downside and that is massively different to where we were at the start of the year. This is the conundrum. Stephen welcome to the real world. They finally realized. Manus i am with you. Inflation they have expected, i would have thought after five years of systematically overestimating something that did not happen you start to change your thought process. That is what his is happening. Making an adjustment for their previous error. That is what is happening. They have realized their models and their approach has constantly overestimated the inflation. Near the phillips curve him a most people recognize we may want to think of others a bit more carefully. How often does this work . What certainty can you have that unemployment will result in a certain level of wages . are you convinced it no longer applies or applies to such a degree it is not boosting wages . Maybe it applies that the global level and it is impossible to generalize. Is you may be one sector tighter than another. Think it isi ridiculous to expect some instant increase in wage pressure because you hit a certain level of unemployment. Anna but we see the fed about inflation, where do you put rates by the end of the year . Steven ; we have been moving hours up. 1. 9 for 10 year treasuries, the fed has one more hike in it this year. And maybe another one next year. It does depend on the timing of this down sheet runoff if it ever stops because we still do not know. Our forecast, we are forecasting a central tendency on a very flat curve and we are in a 230, 250 range. You have a recommendation to eat by u. S. Tips. Which are spiking higher. Directing this is a good trade versus bonds. My 10 . Why ten . Steven the increases have lifted the real yield so the real yield is a function of inflation. Globally we would favor ing u. S. Tips. We are shorting the ultralong part of the curve and looking at favoring the front end of the u. S. Curve. Anna you are a little bit nervous about, the fed should be nervous about the unwinding of the Balance Sheet, does it make sense to you given the risk you have highlighted, does it make sense to set out a plan of what youre going to do and when and stick to it or should you be more dependent on what is happening in the data as you would be when setting Interest Rates as a central banker . Steven the more you give away the more goes into the price and the more you explain. I am thinking about the greenspan conundrum period. The 10year rate did not move, it stayed in a 4 , 4. 5 range. With the Balance Sheet theyre trying to avoid as little disturbance as possible. As i said they do not know. At least with rates you have previous cycles you can look at, you can see the rates going up and down. With this one it has not had the before. We cannot possibly know and to be overconfident is dangerous. I think being pragmatic and doing it very gently is the right approach. We will wait and see. The best i can get out of this is the idea that maybe rates have to stop going up while they are testing the runoff. The market is structurally changing. Anna most of britains euro activity is staying in london. This is bloomberg. Anna well welcome back. Lets get a bloomberg is the . Weighing a plan to purchase stake in commerzbank. The private equity firm is considering building a Minority Stake by buying shares on market. They say cerberus has not made a final decision and may decide to pursue a different strategy to capitalize on the industrys improving outlook. Representatives for cerberus and commerzbank declined to comment. Preparing to is move large parts of the trading and Investment Banking assets it looks in london to frankfurt in response to brexit. According to people familiar with the matter, the plant which is still being finalized and would be reviewed if the brexit scenario changes will probably incremented in the next 18 months. A spokesman declined to comment. Euro club iss safe according to the gentleman you interviewed. Interview,clusive laying out his plans for britains financial relationship with the eu because of brexit. The right thing for the eu and the uks to retain the significant proportion of that in the u. K. And therefore we are looking for a Free Trade Agreement, some mutual access to each others markets. Steven major is the head of research at hsbc. John mcfarland talking about the risks, maybe i am being disingenuous but the opportunity you might get negotiation in terms of euro clearing but the risks from brexit are manifest and changing and that is something the bank of england is having to deal with on a continual basis. Have you shifted your thinking, on tvst time you are in, you say you do not expect to change in rates in the care until the end of next year. With all the flipflopping and the comments and the various comments you have seen, have you shifted your view on the bank of england shifting rates . Steven no. Nothing has changed. The bank of england may be introducing some twoway risks, there may be a bit of trying to move forwards to do the work for them. Has really changed. It is complicated for the bank of england because the data was exuberant and that post brexit time, but we are looking at the repercussions and looking at the debt and consumer debt, credit card borrowing and what is happening at the Housing Market and with mortgages. The bank of england has a huge amount of incoming data and ultimately, i do not see how they can be sure how inflation will get much higher. Maybe inflation is peaking already. You do not forget the forwards are indicating a move towards 4 inflation surely after brexit. What happened that has gone through that. The market moves very quickly to build and the expectations of something that is going to happen. The gilt market is not going to do anything, sterling is not going to do much. If inflation does not go beyond what has been put in the price. You do not buy the idea that this will turn into inflation. Where is the Pricing Power of labor and the u. K. Is not unique in this regard. It is a global phenomenon. It is happening everywhere, happening in the eurozone and asia, the u. S. Musso there is a bit of pressing power. Anna you think it works with a big lag. It is part of the story. It is not something that the bank will worry about. There is only a few years where they let inflation run hot before carneys time. We had inflation pushing for percent to 5 . For twoere overshooting to three years on inflation. That is the kind of bank of england we have. There is a different discussion because of the economy and credit. Maybe because of our overindulgence in cars and mortgages. Lets talk about the European Central bank. Any bund traders up there, listen to this. You have been complacent about your long positions and shaken from your tour poor. How was an aggressive move, we fully priced for any nuance within the European Central bank of for the next six months, 4. 5 . Steven it will be known as the centrist shot. Shock or scare. Manus i like centrist shock. Trouble is with these zero tendency bond market is that it does not take much to shake them. I have asked the question what could possibly go wrong with the bond market. Everyone was expecting inflation to stay will which it probably will do. Everyone knows the ecb is cornering the bond market, they are running out. It is only a matter of months andre they have to alter as they change the rules. There has been the safe haven that came from the french election. ,hat could possibly go wrong more buyers and sellers. We have just seen what can happen when everyone is the same way around. And mr. Draghi has reminded us that he might change. Nobody i meet can honestly bunds are fairt value. Have a centrald tendency toward 1 . Valuation is important. Well talk about the fundamentals in the policy. About the starting point . If you buy something expenses, the risk is to go down. That is all it is. Anna where do you see bund yields . I have wondered how we will get there. This is a wakeup call. I do not to get has to go in a straight line, it probably spends the summer in a range as you have the issue and the ecb will not do much. At the end where closer to 1 then to zero. Manus you heard it here at daybreak. Anna the conversation on brexit antinues, bringing you interview with jeremy corbyn. A lot more on the market open. Guy good morning and welcome. You are watching blooper markets, the european bloomberg markets, the european open. I am guy johnson in london. Matt miller returns tomorrow. Fed fragmentation. The fomc minutes. 2 divisions on when to start unwinding the Balance Sheet. Is that september the most likely start date . Possibly a contentious g20 in hambu