Aggressive policy, stocks get a boost. Sellers deal. Ab inbev of is selling carlton united for a 11 billion. And an ipo of its remaining asian unit is still in the cards. And a downed drone. Oil snaps several days of losses after President Trump says the u. S. Has downed an iranian drone. Matt, good morning. Matt we are less than 30 minutes away from cash trading across europe and in the u. K. Take a look first at the 10 year yields. A big debate today about whether the fed rate cut, almost a foregone conclusion, will be 25 basis points or 50. As a result, the yield continues to come down. Up a little bit today. Still, if it is a 50 basis point cut, expect to see the yield fall further. Look at futures. European equity Index Futures pointing up. Dax futures gaining. Cac and ftse gaining also. the markets have faith in the original statements from william. The asian equity market getting a boost from officials despite the walk back. The market buying into the idea that perhaps there is a little more than 25 basis points in july. Not convinced of 50. Certainly, we see a live conversation in the market. The markets seem to be wanting to go along with the narrative that maybe there is more to it than 25 basis points. Equity markets getting a boost from the risk on narrative in the market. Let us go to the other side of the gmm. Commodities. Brent. And this is in contrast to what we see the rest of the week, the general direction of travel this week has been downward. We do see a bit of a turnaround today partly because of the risk on and the markets are talking about a more generous fed but also because of the tensions in the middle east with President Trump saying americans have downed an iranian drone. Let us get to the markets. Mark cudmore is in singapore. I want to start with the question of the day. Years sincemarks 50 the moon landing and we have a question. Ooned theme will the fed take a small step or a large leap . We are inughly where terms of market expectations. Mark i think the market is hoping for a giant leap for fed policy but there will be only a small step. After yesterday, it should be 0 . I see no chance of 50 basis points unless we get a black swan between now and the fed meeting. Coming out to clarify williams comments. Williams comments. I thought it was an important and unusual move where they did not want to market to get the wrong impression. Bullard,dovish member, said 50 basis points is justified. Where why know we are having this conversation. Fedsms crazy given the clarification. Tonight, the blackout communication grid starts so unless we get a bunch of fed speakers today saying 50 basis points is it likely, then we are not going to get 50 basis points unless we get a black swan. If we get a black swan, the whole game changes for every other asset. Quickly jump in here with an m a headline. Pioneer foods it looks like it says pepsico making a purchase offer for it at 110 south african rand a share. There is so much m a news, a flurry including ab inbev with 11 plus billion dollar sale. Is the effect of all of this cheap money . 25 the feds or is cutting Interest Rates of an economy growing at 3 with unemployment below 4 and wage growth twice what the core inflation figures are. What will this do to the economy . Is there concern about overheating . Mark i dont think there is any concern over overheating. I think come i have not checked from last week, the gdb inder kick gdp indicators are under 1 . Unemployment normally spikes after a recession starts. We do know there is softness in the unemployment. Looking at the moving average from the last two months, it is coming down a little bit. And the phillips curve has not been working for years. Think the idea of overheating economy is not a risk at the moment. I think there is a chance that all of this cheap money does cause a problem with assets. For the last decade, there has been a large disconnect between inflation and real economy growth. Last decade come around the world, we have seen lower growth rates and we saw precrisis. Era forwe saw the best financial assets. There is zero risk of the economy overheating. Anna and where does that live us leave us on oil prices . Renewed bounce of political tensions. In the on peoples radar bond market conversations . Experts, it seems the risk of some kind of middle east tensions is underpriced in the market. Concern if we do get a full on military escalation. The strait of hormuz are so it is so important. Would then have no other avenue to fill the gap. There are other things going on. At the refinery in the u. S. And the spread between innt and wti could grow coming weeks. Towardswe will get back nine dollars. Eastnk we see middle tension causing crude prices to go up. I think there is still concerns about the end demand. Until we get a u. S. China trade deal, it continues to be a concern. It does not look like there is loads of progress there and we have other trade problems on the margins. Think the end demand is not there at the moment. On the supply side, there are concerns and that could cause as like at some point. That could cause a spike at some point. Matt got it. Expectations for the next gdp, next friday is 1. 8 . That could move a lot in the next week. Mark cudmore joining us out of singapore. You can join the debate on todays question of the day will the fed take a small step i. E. ,iant leap in july, 25 or 50 basis points . Let us get the bloomberg first word news from debra mao in hong kong. Debra the u. S. And china has spoken for the second time since the two sides of called a truce. Beijing washington and spoke over the phone. President trump reiterated he tariffspose additional on chinese goods if he wants. President trump has distanced himself from a send her back chant that broke out during a campaign rally. The president said he was not happy when he heard it and disagreed with it and felt badly about it. The ok parliament has moved to stop a no deal brexit. Toryrry lawmakers 30 lawmakers have rebelled. Hammond divideip party orders and abstained. Global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Anna thank you, debra mao. Up next, we speak to Pekka Lundmark after secondquarter earnings beat the highest estimates. Bloomberg radio is live on your mobile device and the digital radio. This is bloomberg. Matt welcome back to bloomberg markets, this is the european open and we are just about 15 minutes away from cash trading across europe. The earnings news decidedly better today. Certainly from fortum. The Company Posted secondquarter profit that beat analysts estimates. Uniper how will the combination work . Joining us now on phone is the ceo of fortum, Pekka Lundmark. The earnings clearly much better than the street had been expecting but the numbers have your a backseat to discussions with uniper. It looks like you may need to prepare a hostile takeover bid . Want to speculate on anything like that. The important thing is we have agreed with the new management of the company that is now in discussions and we will continue. We believe that fordham and fortum and uniper working in close alignment would be wellprepared to deal with the future landscape and we are looking forward to those discussions. But more than that, i do not want to speculate. Matt what will you have the officials that control half of the board seats and are saying you have not given them enough job security commitments . Do you believe you have done that . What do you need to do further . We have met with employee representatives and the newest members of the Management Board as well as the supervisory board. Theave explained in detail various steps to move forward and we understand very well the importance of the employees and stakeholders in Oil Companies and especially in german companies. And of course, Going Forward, with these talks, the interests of the employees are of particular importance. A what do you make sticking with this topic, do you think you would go ahead with this deal even if you did not have the support of the unions . What do you think the finnish Prime Minister will make of it . Finnishirst of all, the fortum. Nt owns 50. 8 of the government has said several times that we are not the political will for them. We are a normal business. Normal investment. So, from that point of view, i believe the likelihood that they would somehow be involved in this is extremely low. But once again, we understand the importance of unions and we have agreed that the discussions will continue. Of course, the discussions will be taken through the new Management Board but employees are an extremely important stakeholder in those discussions. And we are certainly convinced and confident that we will be that isfind a solution ultimately good for all stakeholders. Anna just getting back to the business exactly of your earnings, i want to get your take you do not create the earnings estimate that analysts come up with what you do seem to have exceeded what they came up with. This was actually a combination of multiple things. In allimproved a result of our business segments. Achieved a good portfolio. Situation hydraulic has been increasing increasing our hydro production. In ouro the result russian business has been pretty good. We have higher capacity payments and clearly lower debt provisions. Multiple things. Not one particular thing driving this improvement. Matt most importantly, for not just your business that others in the market, what do you expect for the shortterm, the midterm, let us say wholesale electricity and carbon prices in europe . Pekka we do not publish our price estimates but it has been interesting to see that now when it comes to this price, it has taken a drivers seat in the oil Price Development. This is because of the new dts directive that came at the beginning of the year with the market stability reserve putting the market into a deficit. That has driven the price in just a couple of years from 45 28. 50 and this is starting to push through some well needed call to gas switching. It makes the price more closely coupled with gas Price Development then Coal Development which is clearly a supporting factor in the overall Price Development at the moment. ,nna ok, thank you so much Pekka Lundmark. Ceo of fortum. Keeping an eye on fortum shares. And we will add some of the other stocks we are watching including tech shares. Like her soft expectations. The broad story is the fed and how generous it will be with rate cuts when it comes to the end of this month. More on that shortly. This is bloomberg. Anna welcome back to the european open market. Start ofo go to the the equity trading day. Let us go to elizabeth who is focused on bmw. Influencingrnings the sector. Youabeth, let us come to first. We know a little bit more about management at bmw. Us theynight, they told had picked the head of production. With that decision, they are butrly going for facility at the same time, he has been injecting more daring technology into bmw as well as navigating the cost challenges. Matt what about the tech sector do we expect it to go the other way . Microsoft yesterday reported earnings that eat analysts analystsexpectations. Shares could certainly welcome some good news today after they were the worst performing sector yesterday dragged down by sap. Sap was a gloomy picture yesterday. The stock isike going to pop at the moment. Calls for 1 or 2 . Matt thank you very much. Latest stockll the stories from our Equities Team go. This is bloomberg. Until thenute to go start of cash equity trading this friday morning. Let us look at how markets are positioned. The msci asiapacific up. Encapsulating the optimism that seems to have infected equity markets in the last 24 hours. Suggesting there could be more than 25 basis points to come from the fed. They did not directly say that. A market seems to be running away with that expectation. Despite the new york fed walking back some of the comments from williams. U. S. 10 year yields on the chart. U. S. Futures pointing higher. As the fed narrative giving a boost to the markets. We will see if we get any read across the earnings story. Narrative is expected to miss markets in the European Equity market session. The new york fed walking back some of the dovish comments from williams. The market seems to be running away with this narrative that maybe the fed will be more generous. Mark cudmore says there is nothing to it. The market seems to want to test of their pricing. This is the equity market picture. 0. 4 on the ftse 100. The gains ino see equities and drops in the yen. The pound volatility in recent sessions. , there was news flow around brexit. More today. Yesterday, the vote in the house of commons was what pushed the pound up. The sectors. T broadly speaking come the big narrative around the fed it is obvious to see because there is no sector in the negative territory. Financials firmly in the green. Showing some areas of green. I suppose we are set up for a rebound in texas got in text stocks. Tech setting up to positively react to the open delivery by microsoft. Int we do see some rebound tech stocks but it is not happening in sap. Let me to you about some media stocks. Itv and bbc a great to launch a streaming Service Called brick box in the u. K. 3. 7 so see fortum rising after his earnings beat estimates. Gainingrs 470 stocks , 107 down. Almost 51 to the upside. Anheuserbusch a gain or after a unit sale and reports that it is still considering an ipo of the budweiser aipac unit it shelved. Text docs on the plus side but look at the you but look at the losers. Because 0. 4 percent but it is such a big company on the stoxx 600, it is erasing the most points from the stoxx 600. That stock is down almost 5 after warning Market Conditions are worsening. That distinctly disappointed, stora. 0. 7 which is dragging on the stoxx 600. Anna let us talk about where European Markets are with our guest. Joining us now is andrew cole asset. Cket good to have you with us. Let us Start Talking about the fed. We saw dovish comments. It may cutthinking by more than 25 basis points. What are your thoughts . Arend think it would be andrew i think it would be pretty extraordinary. Would feel that a 50 basis point move is necessary. Bebviously think that would a sign of panic so i would be surprised if it was 50 basis points. To natural order seems typically be about 25 basis points. I would be surprised frankly if it was anything other than that. Anna global coordinated policy moves. Andrew we are clearly not there, right . Yes, we have seen some weakness in the economic data. To a large extent, that has been the result of an inventory overbilled. I am more inclined to think this is a midcycle pause rather than the start of something more dramatic. Matt when you look at the 10 year yield, we have had over the , a bull market here that has brought it down. There has been a Little Movement lately taking it out of range. As you can see from the chart. Where do you expect the 10 year yield to go . Andrew i think Inflation Expectations have fallen a long way. There is a search for yield going on and part of that is regulatory. Forcing pension fund and life companies. I think that has all had a structural impact. In the united states, you can still get a positive real yields. There are investors, particularly in europe and japan, that would bite your arm off for that. Is that in terms of Inflation Expectations, we are probably not too far off. Indont see a lot of value this. We are slightly more optimistic about the economy Going Forward and also because i think we have seen signs that core inflation and potentially heads higher from here. You do think inflation could head higher. Real yield in the u. S. As zero is what we are looking at and that is enviable from your from the standpoint of the japanese or the europeans. From their standpoint, real yield is very negative. What will it inflation do . Will the fed have to reverse course after the next cut . Andrew like the rest of us, the fed will watch the data. We have seen a particularly week Industrial Production data. Employment remains strong and remains robust. What we have had to some extent inventoriesbuild of from the beginning of the year. And in the auto sector, it has volatile. I am not about to suggest that it turns around on a sixpence and it is acceleration from here. But i do think we are a long way off from being in from thinking a recessionary environment would be required to justify the rate cuts priced into markets two or three weeks ago. Pioneering news 29 s climbing as much as after pepsico made a 1. 7 billion offer. In the context of what we are talking about with rate cuts and where the fight goes next what about what we see equities do once it the fed starts cutting . This point that cutting will be good for equities. Is it an insurance cut and not in the midst of a crisis . Andrew we have had Strong Equity markets to date driven by expectations. Downward revisions to earnings. I am comfortable we see this juncture. Mfortable i think analysts still have probably overoptimistic expectations about a rebound in corporate profitability in the second part of the year. You have risks from there and the risk that the bond market is overplaying rate cuts. We are sort of defensively positioned. Angerterm, we do not see recession. I think there is an uncomfortable mix right now for the equity market. We will keep you with us. Andrew cole, head of multiasset london at picket. Us. Ill stay with of next, trading wars. Wall street post the worst first half trading revenue in more than a decade. We will discuss that here on bloomberg television. Anna welcome back to the european open. Tradinges and of the day. Here is a picture of equities. It is all about the fed. U. S. Lenders reporting earnings this week. Still butd get lower share price reaction was mixed. Big takeaways the from the banking reporting season is dani burger. Morgan stanley was the last of the big six to report. A trading revenue drop of 14 and that was the steepest among the major banks. Across the banks, we