The u. S. Are drifting apart. What will the future relationship look like . Sys manytish airways of it says many of its Computer Systems are up and running. Onl stocks see turbulence the massive failure . Matt less than a halfhour away from the european open. Lets take a look at futures in the markets that are going to open and trade today. London is closed, not because of the computer failure, but for a holiday. Here you see the euro stocks futures unchanged, dax up just. 1 , cac down about the same amount. Check out the bunds. Looks like investors are selling off german debt, pushing the yield up. ,ight now trading is at 0. 35 not a huge amount. It still looks pretty blown out. Just want to know get through an hour without talking about bitcoin. Aussie dollar down, iron ore in the tank. Aussie stocks are also lower there was an attempt to runiit it up, but volumes are below the 30 day average, asx down. 7 . When it comes to the commodity side, this is where you are seeing a little bit of a storyline. Back in the 50s, up in the 100s just three months ago. You can see the commodity complex lower, below 50 for oil. Net long positions rose the most this year through the back end of last week. Ande trade at 49. 71, gas iron ore a little bit lower. Thats the shape of gmm. Volumes are anemic to say the least. Lets get you the first word news with juliette saly. Juliette manus, north korea has conducted another missile test during condemnation from south korea and japan. According to south korean ,fficials, the missile, a scud was fired off the east coast and kilometers for japan. It comes days after World Leaders vowed to take tougher measures against the Nuclear Weapons development. Angela merkel has given her strongest indication yet that europe and the u. S. Under President Donald Trump are drifting apart. Speaking at a Campaign Rally yesterday, she said reliable relationships forged since the end of world war ii are to some extent over. The comments come after trumps and brought the u. S. To the brink of exiting the paris climate accord. Meanwhile, u. S. President trump called out the Fake News Media in this series of twitter messages following his nineday trip from saudi arabia to sicily, in which he did not hold any conferences. He said, it is my opinion that many of the leaks coming out of the white house are made up by the Fake News Media. The u. S. Homeland security secretary has said he may ban Laptop Computers into and out of the country. The comments come amid continuing terrorist threats to bring down airplanes. His agency wants to ban mobile electronics larger than mobile phones. South african president jacob bid to oustised a him. It decided yesterday not to vote on the noconfidence motion in him. Pressure has built on him to quit following his decision to fire the finance minister, a move that sparked public protests across the country. Has said secretary there are potentially more soft takes at large in the investigation for manchester. Speaking to the bbc, she said until the operation is complete, we cant be entirely sure it is closed. The suicide bomber killed 22 people at a concert in britains worst terrorist attack in more than a decade. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Matt, manus. Matt thank you. The Federal Reserve bank of San Francisco president John Williams says three rate hikes this year make sense, because the u. S. Economy is close to the twin goals, and the central bank needs to aim for growth that is not too hot, not too cold. With our attainment of our goals close at hand, it is more important than ever for Monetary Policy to work toward the goldilocks economy. Not too hot, not too cold. We want the porridge to be just right. Matt joining us for more is mark cudmore. Mark, is the amount of tightening underpriced by the market . Overpriced . Or is it just the right amount . I think it is nearly the goldilocks price. Were definitely pricing in one hike in june. The comments back to that up. Its the next one the market is still debating. The fed are guiding toward three hikes, but its important to remember that three hikes will be more than the whole previous decade put together. So i can see what the market is taking a little while to fully grasp in and price this hike, even if it is likely to come. Manus looking sharp this morning. Like the blue and white collar. Lets talk about slippage in personal consumption expenditures. I dont think it is goldilocks at all. Have a look at this. Is a slow dissipation. The moment is fading in terms of inflation. I definitely think there is no sign of runaway inflation. There is a worry about the economy overheating in an inflationary sense, and i think there are longterm, structural, disinflationary pressures in the market, and i dont see them going away. However, i do think the market can cope with another hike or two. Growth is certainly strong, employment ok. What i am saying is i think another hike or two will be the key game changer when it comes to inflation. It wont run away either way, so why not hike while they can to get results with extra ammo . Matt mark, south Africas Jacob Zuma has beaten a bid to oust him, again. What does this mean for the rand . It was very strange. Nearly misinterpreted by the market. The rand actually rallied quite suddenly on the open. It is very low liquidity, but there were some trades. In fact, they didnt even hold a vote on a noconfidence motion, they dismissed it, which means he will survive in parliament. Its looking unlikely you will be removed from power anytime soon. I do find the strength in the rand quite strange. The economy still looking very negative, the current account deficit, while improving, is still 3. 5 of gdp, which is quite bad. Unemployment 27 , creeping higher. Overall, south africa is not looking too happy, at the rent has been quite strong. I think now this zuma possibility of being dismissed is being removed from the market. People are focusing on longterm fundamentals, and the longterm fundamentals arent looking positive. Matt all right. Excellent stuff, thanks for joining us. Mark cudmore, macro strategist. You can follow his Market Insights at mliv. You can see his rant commentary. Exclusiveome, our interview with the San Francisco fed president. This is bloomberg. Manus just gone 7 42 here in london, 2 42 in hong kong. Juliette saly standing by. Juliette manus, British Airways has said many of its Computer Systems are running again as the carrier pushed to recover from a Massive Technology failure that disrupted hundreds of flights and stranded thousands of passengers worldwide over the past two days. They will run a full schedule today and intend to operate a full longhaul schedule from heathrow. Meanwhile, a strike called by unions in italy grounded 200 flights. It was to urge the government to nationalize airlines, which would put into administration after years of losses. The government has already ruled out the option, and is looking for a buyer, while unions are negotiating working conditions during the administration period. Saudi arabia could attract tens of billions of dollars in Foreign Investments in the arab worlds biggest stock market, if it is added to the msci emerging market index. Thats according to the Deutsche Bank ceo for the middle east and africa. The bank anticipates up to 35 billion of inflows. The comments come as it pushes to diversify its economy away from fossil fuel. That your Bloomberg Business flash. Manus. Matt thanks very much. Juliette saly with your news. The bond market is signaling policymakers will hike in june, pricing in more than 90 odds. But bets on the fed could be whipsawed tomorrow as we get personal consumption data. Two days later they get manufacturing survey, and the week culminates with weekly payrolls. Right now, the bright spot of the economy. Haslinda amin joins us from singapore with the special guest. Said, lots of you data to digest, all coming soon. Some are saying that the fed might be moving too much, too fast. Lets get perspective from the San Francisco fed president , joining me here. Welcome. Great to be here. Haslinda you are still hawkish, looking at three rate hikes, and youre not even writing off four. Why the optimism . I think the data is very good. We are adding 180,000 jobs per month, twice what we need to bs sustainable level. Unemployment should be going lower for the rest of the year. The economy is doing well, with good momentum. We have a way to go on inflation goals, but i am optimistic about the economy. We need to continue the process we started of getting Interest Rates back. Haslinda lets pick up on inflation. Why arent you that concerned about weaker inflation data . The inflation is influenced by a lot of different factors, and we have seen some transitory things push inflation down. But i look more broadly over the last couple years, i see inflation measures moving toward 2 . We are still a little bit below that, but with a Strong Economy growing at a good pace, i think that is going to give us a usft to inflation and move to i think 2 within a year or so. Haslinda if you continue to see inflation below 2 , when you have to rethink that you rate hike . Well, im not saying what we will or wont do, but i think our strategy is a good one. Its gradual movement of Interest Rates back to normal. Even today Interest Rates are very low. We still have over four chilean dollars in Balance Sheets. Over 4 trillion in Balance Sheets. Its a process of gradually moving back to normal. I am comfortable with where we are and where we are going. We dont want to let this expansion run to hot for too long, because that creates risks on the other side. We are trying to get it just right, make sure we dont get the economy to an unsustainable point. Haslinda dr. Williams, if you see another round of week inflation data, do you think you will still achieve the 2 target by next year . Is that realistic . I think we will get to look at the data carefully, see what is causing the inflation to move. We had some movements in the dollar and oil prices that influence that, trying to look at what the underlying inflation is. If the inflation data disappoints regularly, that will definitely go into my thinking about whats right. But on the other side of the coin, like i said earlier, inflation data is soft, but gdp growth, employment growth, those are looking better than we expected. To benefit balancing act. Weaker data on one side, stronger on the other. Because they are offsetting each other, it hasnt changed my view. Haslinda sorry to be pushing you on inflation, but if inflation remains weaker, you are meeting to say you will be more tolerant of it, if it continues below 2 . No, thats a good point. I am watching to make sure that we see signs of inflation trends moving back to 2 . I am absolutely committed to reaching 2 , and being there on a sustained basis. There is a background to this. We have been below inflation for seven or eight years, and i do worry that we dont want to get embedded inflation expectations. So you are right. I really do want to see inflation get back to 2 . There is clearly an important factor, but i dont want to overreact to onemonth data. Its a careful analysis. If there is a trend not moving in the right direction, if i saw signs of that, inflation trends moving flat or sideways, that would call for a slower path of rate increases. Haslinda my colleague was saying about the data will be coming up payroll, manufacturing if during the downside, would you have to rethink first of all, i am datadriven, data dependent. But we do want to not get too caught up in onemonth data. We saw that with employment numbers that can be volatile, with factory numbers, so again, dig into the data, have our team study all the reasons for why things are moving, and then come back to, what does the mediumterm trend look like . We dont want to get too caught up in a given month or quarter. What is this momentum . Like i said, we have seen ups and downs in the past, but the last three months, six months, 12 months, the economy has continued to grow. In the long run it is sustainable. Haslinda earlier you said fundamental views have not changed. Does that mean your outlook, which will be submitted for the june fomc, has no significant changes compared to what you suggested in march . What i am going to do is get my Team Together and we are going to pore through all the data and reassess all my forecasts, weather is unemployment, gdp, inflation i dont have an answer for you today. But fundamentally, gdp growth has been my prediction was it would be between 1 and 2 , similar for next year. Number,tly, that q1 clearly that is in reverse from q2, looking strong. The data on unemployment has been stronger than expected. We will take all of that into account, put it together, and then i will post my new forecast. But i think in the big picture, if we dont talk about temps, we are on the same good, sustainable trajectory id like to see. Haslinda what is the biggest risk for the u. S. Economy right now . There are a lot of risks out there, and the typical one i would highlight is factories outside the u. S. How is europes economic recovery going . What happens in japan, asia more broadly . Those have big effects in the u. S. Watching the developments in china, asia, europe, making sure we are seeing continued, good momentum. Obviously in the United States there is a lot of uncertainty about tax policy, and others, how they will end up. That is something outside the feds control. I just watch those developments, as everyone does. But those could clearly have an effect on the u. S. Outlook over the next few years. d want greater clarity about those proposals, and that will be something i will incorporate. Haslinda you touch on china, saying it is what you are watching. Are you concerned about the slowdown . Some are concerned about the slowdown in china, because its a ratcheting down of growth which is exactly what you should expect and should be looking for. En to six,rom to thats a sign of realism, feasible growth. What worries me in china is not the steer or not this year or next year, its the pretty significant buildup of debt and risk in their financial system, which poses more of a risk over the next five or so years. China has been able to manage those risks and come up with ways to get through that in the past, so im not sitting there worried about a hard landing right now. Im just watching how they manage. Haslinda i want to touch on the Balance Sheet. 4. 5 trillion. When do you see that cut . At the end of normalization, what are we looking at . What is the end goal . First of all, my view is that, as we have said, we will start the normalization or shrinking of the Balance Sheet once the normalization of federal funds rate, which is well underway. Step,irst step, the baby toward later this year. That will take several years to take place. It wont be us selling assets, well allow the assets we have to mature and decline organically over several years. I think that is one of the most telegraphed haslinda is there i will get to that. I think thats a process that will happen in the background. It will be boring, hopefully. There is an open question you are asking, which is how big will the Balance Sheet be five years from now, when this has all happened . That is something we havent decided on. It will be much smaller than today. The question is how much is the best a house in the u. S. Banking system . 10 years ago the answer was 30 billion. They willure, probably be easier to conduct Monetary Policy better if we had several hundred billions, but its not a question of will we reduce the Balance Sheet, its more, will it have Something Like 2 trillion, 2. 5 trillion, Something Like that. Im not making decisions. Thats the sinking that i think is the thats the sinking that i think is the right way. Haslinda this preoccupation with whether the fed will move, good or bad . It just it is. [laughter] we know its important for the u. S. Economy, the global economy, and people have become accustomed to that. Again, i think my goal would be to see Monetary Policy become more boring. As we normalize Interest Rates, get out of the large Balance Sheet and the unconventional policies, people wont be so caught up in will they or wont they, they will understand the basic strategy of responding to change in circumstance. We arent there yet, but maybe we will give it some time. Haslinda thank you for your insight. Matt, the president of San Francisco fed, live from singapore. Matt thanks very much. Haslinda amin in singapore with John Williams. Monetary policy, for some, will never be boring. And for others, always has been. For us, fascinating stuff. As he was talking about the possible size of the Balance Sheet, he said may be in five years. Maybe a few hundred billion euros, maybe 2. 5 trillion, the fed hasnt decided. Interesting. They will let it decline organically rather than selling assets and doing that at the end of the year. Coming up, the market open. You are on bloomberg. Futures are unchanged. Manus a minute away from the start of european trading, futures set for a lower volume in the asian session. 30 lower than normal. London is closed, so that is where you are going to see the cash market, which is what we are waiting to open. T