Welcome to bloomberg daybreak europe. Im an edwards. Manus im manus cranny. Igion belligerent belligerent market moving markets, dollaryen. Continues, of words give Rex Tillerson talking about a threat between the u. S. And its allies. They go for more drills in response to north korea. This is what we were looking at this morning. You can see those short positions on dollaryen are dropping, not aggressively, but the wilan shows you that we have turned up words on dollaryen. The question for the markets, where do you want to be . Continuation of what we saw yesterday with the and and gold getting a boost. Interesting how this props up against the central bank in conversation. Money going into the yen. Well talk more with jeremy stretch about that. Ill show you where we are on haven assets. Talked about old in there for you. Thats gaining ground this morning. , u. S. Equityf this markets not expecting to go all the art at the start of their trade. Yesterday things flattened out it eating july 4. Income markets and oil as well. Look at bond markets. As you say, u. S. Treasury comebacks to look back to liquidity. Treasuries. Yen, the question for the fed, what do they say about Balance Sheet reduction . With a go for it for the next Interest Rate hike . Number 2 10 of 1 . We have broken those gains. Interesting to see russians saying that they are opposed to any cuts coming from that opec meeting, looks set to us take place later. Lets get bloomberg first word news with juliette saly. The u. S. Federal reserve could give clues about whether it will begin reducing its 4. 5 trillion Balance Sheet before another rate hike. Inicymakers lifted rates june, signaled one more hike this year. This bulb out how it would begin to gradually unwind. While janet yellen said the process could begin relatively soon, she left the precise timing and secret in secrecy, a mystery. Russia said to be pushing back at deepening Oil Production cuts and will oppose the idea at an opec meeting later this month according to russian government officials. One said any further supply reductions so soon after the existing agreement would send the wrong message to the oil markets. Opec members host and nonmembers. East, qatare extended to respond to a saudi inspired list of demands. Answer toer their kuwait, but theres been no indication of what it contained. It includes cutting ties with karen and closing al jazeera. German Prime Minister says he expects the saudi led alliance to reject qatars response, but they cannot be expected to simply back down. The u. S. , the july 4 fireworks spectacular has gone often customary extravagance. The events honors independence day, with this Years Program features singers melissa average and hamilton star leslie odom junior. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im juliette saly, this is bloomberg. Seen a bit of a rebound in Late Afternoon trade here in asia. This morning was about responding to the nissan launch from north korea. Youve seen in many cases higher by about 1 10 of 1 . The yen giving back some of its gains. Australian market to the tune of one percent. It rallied strongly yesterday. Turnaround on hong kong. Above that crucial 25500 level after it limited yesterday on concern that the runup had gone too far too fast. Selloff being a suggested. Chem set was one of the biggest decliners yesterday in the region. And rebounding a little bit the hong kong session today, up by over 1 . There a south korean dispense company. You can see its down by almost a percent. Back ofed 16 on the this want yesterday. Flight Center Strong performing in australia up by . 10, after it expected fouryear profit at the top end of its revised target range. A lot of concern about whats at the north korea geopolitical tension for south koreas stocks. Btvat these stocks, g 1041. If theres concern to the north korean launch could impact south korean stocks, they are coming up strong. This white line is the copy over the course of this year. The blue line is the world index. You can see that this has outperformed, also this yellow line showing Foreign Investment in korean stocks. Over 9 billion so far has flown through from foreign investors. The kospi of course as we know come rounded up the first half of the year at a record high. We could see downturn yesterday. It was off. 6 of 1 , but its coming up strong. Juliette, thank you very much. The u. S. Has confirmed that the rocket launched by north korea was anay intercontinental Ballistic Missile. Rex tillerson called close a new escalation of threat to the allies, that will be brought before the un Security Council. Session thislosed afternoon. North korea is expected to dominate this weeks g20. President trump will meet with his chinese counterparts. Lets bring in stephen engle. Good to have you on the program. How is this concerned id icbm test a game changer, that in this standoff between north korea and the americans . Thats the big question. Ive lived my entire adult life in asia, 27 years. Ive seen a number of these kind of redlands from north korea. We to get complacent, sometimes shrug it off, market do as well. It seems a is time, now that they do have the capability with icbm to reach u. S. Soil with a potential Nuclear Warhead, thats a game changer on this table. The threat alone in the eyes of pyongyangs mind is, big are getting chip if you well. The question though, moves on to, does this lead to negotiations or does it lead to military conflict . \ thats the end game. North korea saying it will not discuss its nuclear or Missile Programs unless the United States scraps its threats the pyongyang burress perceives from washington. It even talked about sending a frequent gift to the United States in commemoration of the july 4 independent day celebration. Theres a high possibility that north korea will soon conduct another nuclear test. The u. S. Is not backing down. The pentagon has been a number by theements north and the u. S. The salve not backing down. Talk about that. Whats really on the table, youve got Rex Tillerson calling for global action. Whats a real possibility of movement on this . You have the status quote where the north will continue to build up its arsenal. You have attentional military three, you have a real push to get the six parties, or at least 23, to the table and discuss the un Security Council, they will convene behind closed doors later wednesday, as requested by nikki haley, u. S. Ambassador to the u. N. China and russia have also issued a joint statement, as she and put meat. The call of dutch on the north to halt its nuclear test, Ballistic Missile launches, start stop largescale military exercises. Said the icbm test pilots u. S. Security council resolutions. You can bet theres probably more sanctions being proposed behind closed doors later. But again, will china be on board, and how does beijing want to come down . How hard do they want to come down pyongyang . They you very much for the analysis. Stretch, here with us in the studio. Good morning. Good morning. Hauschild local tension play out in the markets . Weve seen risk assets talking about at the top of the show. That youd the yen is funny, the central banking story also plays in here. How do you see the world through this geopolitical lens . Bloomberg. Com youre right, youre these two conflicting elements pulling markets. It was fascinating yesterday, when we do see the announcement the icbm came down briefly but it was a brief reversal. Markets rebounding. It is something the market will keep in its back foot, back thinking. In the context of a broader perspective, markets are very much focused on how Central Banks are going to change policy direction. The concept for the bank of japan is stashed seeing this as a leader. Accordingly, the and since this it will trade accordingly. Shows the this which past five days. The basket. Its behaving its what i identified yesterday. The markets are not concerned about its imminent attack, but progress. Diplomatic one thing that struck me, all of a sudden you have Rex Tillersons quote, global action. America first and the movement away from the world. Its ironic. They need china, they need south korea, they need their global neighbors. And a sense, the u. S. You can maken lots of statements on the campaign trail, argue that making America Great again or putting it first is the campaign which plays well with the base and gets elected, but once you are in power, political reality kicks in. That you cangnize make these statements. But political realities are rather different. You do need that. Clearly in the context of the g20, it will be fascinating to andhow the negotiations relationships particularly between the u. S. And china play out. Thea is a big player in context of north korea because of its support for the regime in pyongyang. We have trump meeting putin. There will be so much in this g20 to analyze and ink about. Theres also the trade story that grumbles on here, for markets and this is crucial. We see this coming to europe ahead of the g20 to try and hammer out a trade deal to between japan and eu, four years in the making. It seems as the trumps opposition to big multiplayer trade agreements has galvanized enthusiasm. Can they be material, can they make a difference . Absolutely. There has been a difference here. Theres the underlying fact we have a long castration for the multilateral trade deals. We see that the contents of japan were were talking about for56 years of negotiations. Cap this may prove beneficial in the trade side. That may harm to paid relations between japan and the eu. In the context of u. S. And the u. K. , and future trade relationships, trade negotiations there are lots of issues in play today. Also in terms of future trade negotiations, which will be taken from some of these agreements. Its a relationship of expediency maybe thats not the right word. Of the in trade surface United States. Exactly. If you look at that she wrote an oped trade when he talks about this, the country should intensify cooperation. Toan a contributions security, stability, and prosperity in neighboring countries. It hasnt always been that way. Germany makes machines, they pluck them to china, china turn churns out to goods. It is a symbiotic relationship driven by fear. To an extent. I think there are similarities in terms of japan china and germany. Offsetting that is the u. S. In the context of theres germany, china whatever editor put together this morning. And vice imf versa. Yellow is china to germany. Clearly there is an important relationship. Even mores but important for the two nations, how those trade relations are mutually beneficial. Mark trade deals are designed to achieve to make things mutually beneficial, to provide aggregate growth which will provide populations. Thats what tourniquet negate trade negotiations achieve during the trump regime would argue bilateral negotiations of the best way to do that. Bilateral relationship with the you are necessarily in a position that of course is one of the key issues in terms of trade negotiations. If you have a degree of holiday, you will probably both get a beneficial outcome. If you will impart much stronger than the other, that outcome may not be quite beneficial. One of my colleagues on the subject of china german relations, saying they will be wary to be picked off. Obviously germany thats why conversations take place. Thank you jeremy stretch. Will be joined we have a ukrainian fryman finance minister coming on, it 30 u. K. Time. Coming up on daybreak find out why theresa mays elections answer could pave the way for a more business friendly eu divorce. Moving in on subject this is bloomberg. Welcome back. Thats a shot of hong kong. Tensions whichal are rising in the region, you have some markets getting up one half of 1 . Business flash. Ceo has welcomed brussels giving gridlines to the state bailout to the worlds oldest bank. We spoke to bloomberg after the embattled former european approval to receive private 5. 4 billion euros in age from italys government. Process, we did entertain talks with regulators for quite a long time. I think the outcome is what the bank needs to look forward. For the first time in 17 years, taking assignment of easy sanctions for europe and asia. The comic has signed a contract with a local importer to offer suvs mainly in the toronto area. This is the Market Leader in europe and china. That isg to rebuild your Bloomberg Business flash. Thank you. U. K. Prime minister theresa may greater leverage to lobby softer brexit. Affected by the interview to direct the eye of the about 60 of this the right to the citizens in the u. K. Is a top priority, while 72 so the governments main challenge was to negotiate a new trade deal. We will get clueless on the strength of the british economy. Registrations that might 00 a. M. U. K. Time. Jeremy stretch as the head of this at cibc. He is still with us area its interest its interesting how every day talking of directors about the desire for members. I dont know who is more diluted. Maybe you can tell me. The judges talking about the need spoke an agreement comes close to replicating this market. I dont see the europeans delivering Something Like that. The markets perspective is going to lose friends. We have other to reconstitute sterling trading against the u. S. Dollar. We are now in that range. You see this to the fore again, weakness in the data, services manufacturing. For straight month for the time in six years as well, that underlying pressure opportunity. We still move on the data, how reassuring. Sounds very british. I got this for you. In the Bloomberg Intelligence created this. This is domestically generated come inflation try to microsoft. Bloomberg. The point is you need to. 75 cgi to generate inflation for cpi at 2 . While this talk of rate hikes . If you think rates are not going to go lower, that means the next one will be a hike. Its been 10 years apparently today. Difference are going here and elsewhere, the next one will be a hike. The question is now markets are trying to look to where those hikes come through. I think now we are getting to a scenario where markets are too ambitious if in terms of anticipating hikes. The next move will be higher but there are a lot of headwinds. Disposable incomes come all these variables are key elements in terms of the process. For once in a protracted run effects in terms of high wages come i think the bank can and should look through immediate inflation headwinds. How the market interpret a one quarter of a percent rise . Lets say this morning in the guardian we should expect a rate hike at some and come all doesnt have to stay because brexit. It goes on to say the pickup an investment index words is roughly balanced. Thats towards were carney flip flop flipflopped over last week. There is this movement on the bank of england, moving towards potentially higher rates. What would one hike signal, the beginning of a new processor just market i dont think it would signal neustar. We have to member year ago we some emergency rate hike. In a sense of humor first that, the bank would necessarily be saying thats emergency policy stimulus put in place for fear of what could have happened, even though its no longer necessary. Its not necessary same in exactly the same way that we need a deposit rate. Its removing emergency stimulus. Jeremy, thank you. On the program. Coming up, latest of elements from qatar, responses to society block, to demands. Welcome back. This is daybreak. The dollar is against the yen there is not an overwhelming sense, but a little bit more appetite with the geopolitical tensions. You look at the dollar yen and you are seeing some weakness, but dont want to overdo that. You see theit and it is strengthening and the so slight there and and the racist point jump with a little bit of a flight to safety. We are seeing a turnaround from earlier on the index and a little bit of weakness in australia and gains. There is the Industry Group breakdown and you have the gains and a bit of there,s in the defensive withverall gains in asia the yields. Commentary,at the the trade and the treasuries may be focused on the fed minute. There is a twoyear study and this is missing expectations over the past few months and that is a little bit of a flattening of the curve and thereis holding below and is a long run of games as the russians are set to oppose the the cityn cuts and theysts are watching infits in the jump of prices the later half of the year. There is a new and edition of daybreak and this is the front cover. The United NationsSecurity Council meeting is being held after the international Ballistic Missile test. We have kim versus everyone. Me is that the markets are upset of that the lack of diplomatic progress. They think it will take war or recession. The political tensions failed and we will see where volatility heads to with the crisis and moodys cut the Credit Outlook the arabncerns with neighbors. Thist your clock set for and the official plans will. Tart shaking the sheet will it be before or after another rate hike . Repliedsaid they have to the rights time with the list of demands and the foreign charges that the nation supports terrorism. Andt is important for us for the security of the rest of the region, but should not be it is in the blockade and all under the banner of fighting they think they will meet this with international sympathy because of the antiterrorism measures. Good to see you. Plans toa set of increase the production and this andhat hundred million tons one the big producers in the world. Be doingears to messages and that have announced the have lifted the moratorium and i think they were doing a bit of sequencing and it has. Een intensive yeah. Where having a problem and were trying to speak to mohammed on skype. There is production in the eye of the storm and the plan is to cut off trade and diplomatic ties last month and they said againhis holds imports an