Planned sales tax increase the o suzuki shares cross increase . Suzuki shares crash. Who is next . That is the big question. We are going to kick that around. We need to talk about the fed. The markets are paying attention to these guys. They dont have a vote. Why is the market listening . Matt this is really what is moving markets around the world. We saw asian markets down. The u. S. Cash trade was down on this. There is a political event in washington, d. C. Where all three of those nonvoting fed members are speaking. I think the reason the market is listening is because of shock. They are not only saying june, not only do we expect two rate increases but possibly three. Both lockhart and williams said two or three. That is pretty astounding since the market was only expecting one at the most. Interesting what is is, where do you go to for information on the fed . This is one of the things im looking at this morning. The functionk at on the terminal, the probability of the june rate hike has increased. If you take a look at the front end of the u. S. Curve, it has come up a little bit. Nobody really believes the u. S. Curve is a predictive indicator. The only person weve got right now is janet yellen, and that is the voice we need to hear from, isnt it . Matt yellen and fisher, her vice, have been silent. Those are the two, or really any Voting Member could really move the markets. The probability chart is a good place to look on the bloomberg. It is interesting to look at the spread. I wonder if that is predictive or if its more of a sign investors arent finding yield anywhere else, and so they are piling into u. S. 10years to store their cash. Guy that is the argument i would make. This is why the u. S. Curve is not such a great predictor. The predictor everyone talked about years ago was something people paid attention to. Said, its having an impact on global markets. We are seeing that in europe. Lets take a look at the bloomberg and show you the weei function. Its predicting we are going to have a soft open in europe. The ftse 100, down by 0. 5 . 0. 9 . X, down by it looks like we are going to see a soft opening in europe, and its rippling elsewhere, isnt it . Matt absolutely. Check out across Asset Classes. Movement, a lot of it driven by those fed speakers. Obviously, the oil markets are moving by themselves, but we are seeing the correlation break down between oil and stocks. Itthe beginning of the year, was a oneforone move. If oil was down, stocks were down. You can see the dollar getting contraction on the back of those fed speakers as people try to play into that possible divergence in central bank policy. Lets get to bloomberg first word news with tom mackenzie. Japans economy dodged a recession last quarter as gains in government and Consumer Spending compensated for a slide in business investment. Gdp expanded by an annualized 1. 7 in the three months at the end of march, exceeding all forecasts in the Bloomberg Survey of economists. The october to december quarter was revised to a 1. 7 contraction, worst in the previous estimate of a 1. 1 drop. Suzuki motor shares have plunged after the company said it used an improper method to test the fuel efficiency of its vehicles. It widens a scandal for the countrys Auto Industry that first originated with mitsubishi motors. Suzuki is scheduled to brief the 8 00 a. M. He issue at u. K. Time. Most inces rose the chinese cities in two years. That as gains in secondtier cities surpassed advances and larger in larger hubs. To 120umped almost 64 2 billion. Beijings third highestranking official says hong kong should participate in chinas development as part of the so called a belt and road project to build a network of roads, railways, ports, and pipelines across asia and europe. Zhang is in the territory and to leaders that hong kongs prosperity is important to china. Bernie sanders has won the democratic present primary in oregon. Meanwhile, Hillary Clinton claimed victory in kentucky. Oregonsump won republican primary, though he had effectively clinched the gop nomination. Former rivals ted cruz and john kasich remained on the ballot in the state. Global news 24 hours a day powered by our 2400 journalists around the world, and you can find more on bloomberg at top. Matt . Matt i feel the need, not only as a u. S. Citizen but an o hioan, to tell everyone it is kasich. Members sayreserve two rate increases may be warranted this year, as inflation picks up. That pushes back against expectations that the central bank will delay action. The key thing is that these are projections at a point in time. They are not promises. I dont know how many rate increases we will have. My assumption is two, possibly three are possible, but i dont know. It depends on how the economy evolves. I actually think 23 seems reasonable given where the economy is, given the job growth we are seeing, the inflation data we are seeing. Guy joining us now on state, steve jacob sent, cio should we listen to these guys . Not really. They did the same thing ahead of the december moving and disappointed all of us. To a large extent, what is going on now is the fact that , you haveis very high the dollar coming off a little bit after being down 4 . In thesaid rightly earlier segment, i think its about yellen. I think its about fisher, and i think they sit on the opposite side of the table. Fisher has been raring to go for a long time, and yellen is more defensive. What they are trying to say is that june is not really live, but it is live in the sense that i think july i dont think theyre going to move ahead of the brexit. The only probability we need to look at is the likelihood of no fed hike. After these comments, it moved from almost 50 for no hike at all in 2016 to only 25 . Clearly, the market has taken their words to heart, but at the same time, do you know at the bestperforming asset class is this year . Guy gold. Aeen fixed income in relatively 50 50 portfolio. 30 years, up 3 . The s p is flat. Guy i want to talk to about the bond market. I think the bond market has a few questions it wants to answer. Lets kick this around a little bit. Matt i just want to ask about the fed. I wonder with the view of the fed is outside of the u. S. I so rarely get to leave those borders. We saw a richard fisher, Robert Kaplans predecessor, continually do this throughout his tenure, but he had very he never dissented. Do you think that when williams and lockhart go out to do this kind of thing they do it in concert with yellen or at least with her approval and knowledge . Is this part of the game that they play . Steen if you ask them, they will claim to be dependent on their own minds, but i think the Communications Strategy is very close to yellen. She was responsible for that before becoming chairwoman. I dont think they have a plan. I think they are totally confused, and they will remain confused. The u. S. Economy is not Strong Enough to carry the hike, and if they do go ahead with the hike, the inevitable thing is that risky assets will have a terrible time for the balance of the year. A kid at refusing to go to dinner and the parents who keep telling them they have to go. Guy one final question, the bond market if we believe yellen and yellen is willing to let the economy run hot for a while, and if inflation starts to creep back in there are some signs it is starting at what point do bond market vigilantes go, you are eroding my capital. I need to be in front of the fed, not behind the fed. When fixed income no longer gives a positive return, that will be the line in the sand in terms of believing the fed. Until proven wrong, fading the fed has been the recipe throughout the last few years. To discuss with you, steen jakobson. Then dodged a recession and less court are thanks to spending. We are going to go to tokyo for closer look at the numbers next. Guy welcome back. 43 minutes past the hour. That is what london looks like this morning. A great guest coming up, as you can see. The market called lower in london. Lets get you a Bloomberg Business flash. Here is tom mackenzie. Tom burberry reports a second straight drop in annual earnings and announced plans to save 100 Million Pounds a year. Adjusted pretax profit fell 10 . Costompany also says saving goals will be achieved by 2019, adding that 2017 earnings are likely to be near the bottom of the range of estimates. The u. K. S demand for companies trenchcoats and other products slowed from new york to nanjing. Sab miller reports its fullyear earnings that missed analyst estimates. Adjusted pretax profits and did on march 31 and fell 16 . 4. 6 billionected dollars. That is as the brewer is due to be bought by ab inbev and was settled with charges related to operations and costs associated with the takeover. Group, chinas biggest maker of Home Appliances, is raise its stake in the german industrial robot maker kuka. The takeover offer will be subject to certain conditions. That is your Bloomberg Business flash. Thanks very much. Japan managed to sidestep an official recession in the last quarter with the economy growing 1. 7 . Annualized gains in government and Consumer Spending compensated for a slide in business investment. This comes following a revised 1. 7 drop, contraction, in the previous quarter. Usombergs tokyo chief joins now. Tell us more about what has been driving growth, and how much of this was boosted by the fact that it is a leap year . Yes, as you say, consumer and Government Spending were the main drivers for the strong headline figure. Economists have largely said that the headline figure masks the weakness that is still weak evident in the economy. The leap year affected play a huge role with an additional day year,ear compared to last allowing for more spending to be calculated into the data. Capital spending continued to fall, which shows Business Sentiment remains weak. Companies are reluctant to spend, which would be a concern for Prime Minister shinzo abe and Haruhiko Kuroda who are counting on this to kickstart the economy. Guy lets pick up on that point. ,s a result of these numbers does policy change at the boj . Does policy change for abe . Capex is not there. What are they going to do to get it there . Yes, so the debate is still on about whether Prime Minister shinzo abe will push ahead with the consumption tax hike plan later this year. Kkei reported this morning that he decided to postpone it, but the top government spokesman reiterated this morning at a News Conference that the government stance officially has not changed. Willlation is that abe make a decision on this after. He g7 summit next week for boj governor kuroda, the situation remains largely the same. He passed on a decision to ease policy further at his previous meeting, which was seen by economists as a gesture by the central bank to urge the government to do moronic part more on its part given the limited tools the central bank has in its arsenal. ,uy our tokyo bureau chief thank you much indeed. Lets get the view of steen jakobson. A potential surprise. What do we see delivered, if anything . Toen its hard for them deliver anything. Historically, it has been a weaker currency that has been the concern of the bank of japan. Monetary policy and foreignexchange policy in japan is a little rattled. What comes next . I think what comes next in japan is hugely important not only for japan but the whole economy. We have all tried not to do with japan did and have done exactly what japan has done, and so we need to monitor the situation in terms of stimulus in china and what happened in Monetary Policy. Toave no idea what they need do beyond this, because i dont see anything that can help them. Fiscal expansion will do something in the short term. Japan fundamentally needs to convert more people to speak english so they can get outside the country and do business. They need to activate participation in the labor force, and they need fundamental japan. I have been in japan. I think they need to pursue a strong yen policy. Guy for structural reform purposes. Steen if you have a political system that is inept and impossible to drive changes through, you have to bring them through external factors. The strongest external factor will be a strong to stable yen currency. My advice would be for them to pursue a policy of stronger yen, and through that, activate the Business Environment to do better in terms of innovation and getting fundamental changes. You are long the yen, right . Yourstandable from investment point of view you would want them to do that. [laughter] is it possible for them to pursue a strong yen policy without reversing course on Monetary Policy . Steen is it possible to maintain the yen as a strong currency . I dont think these two things are excluding each other. Matt they surely havent been. Remember, the u. S. Under rubin had a strong dollar policy. The only thing they ever did sell the dollar against the peso during the peso crisis. Youindicated business, arent going to get a free ride in terms of policy changes. That works towards easing the currencies pressure. You need fundamentally to change. They dont have the incentive structure. The political system continues to be overweight the rural areas and underweight the industrial areas. Anetary policy is at standstill, and that is why it is dangerous what we are observing with japan. Whatever they do next could be desperate, and that will be bad for the world. If they go along the lines of fundamentally addressing what is the real issue, i think the real risk at the end of the day is that abe is out of business by the end of the year. He is, as much as i am, at a loss about what to do with policy in japan. Germany, paying attention to that one. You very much. We are minutes away from the market open. Up next, we are going to take a look at potential corporate movers. Burberry is deftly worth checking up your the numbers dont look repeat or the cause and were the stock goes next, dont and sunnys bright here in berlin. The german capital, so far no protests at the brandenburg gate, though surely they will come. It is 7 55, just minutes away from the open. 7 55 in london, i should say. 8 55 in berlin. Stock initially , but it has global exposure. Hong kong hit burberry hard. You know the trenchcoats. It seems as though people are not buying them off the racks quite as quickly as they used to, profit sinking to the tune of 10 . They warn 2017 is going to be at the lower end. They are taking some big steps to try to cut costs to the tune of 100 million per year by 2019. They are looking to hand cash back to investors. The stock keeps on sinking. There is a concern about exposure to china. We are expecting burberry to maybe 2 her from 1433, or 3 . Chinan eye on kuka as buys into this robotics maker. Watch out for kuka. Guy four minutes from the market open. It looks like we are going to see a negative start. It looks like we are going to open down 6 10 of 1 . Keep an eye on burberry. As caroline was saying, up next. Was saying, the market open up next. Guy good morning and welcome. You are watching on the move. Im guy johnson and i am alongside matt miller. Matt has your morning brief. Matt thanks very much, guy. They do have a view. Why is the market paying attention to the feds William Lockhart and kaplan. Japan dodges a recession. Consumer and Government Spending bill helped lift a growth. Both help lift growth. Aftersuzuki shares crash the carmaker used an improper method to test the fuel levels. Who is next . We are Just Moments Away from the open, guy. Guy futures are pointing to a negative start in europe, reflecting that fed conversation matt was talking about. Lets show you what these numbers look like. Are pulling lower and starting to open up now. Unchanged,00 is were waiting for the ftse 100 to open. Lets get the details on what stocks we are watching with caroline hyde. Caroline lets dig in with the imap function on the bloomberg to show you what Industry Groups are on the move. Because it is a risk averse, risk off sentiment right now, guy. The reason, the United States. They are worried the sales tax might not be halted, as was hoped. The United States is talking the talk when it comes to two or even three rate hikes this year. What does this mean in terms of the Asset Classes . Does that still mean money going into equities . We still have the stoxx 600 up by. 4 . Materials are the worst performing, up by. 8 . We can see across the board, banks are falling by 0. 5 . Risk of person with money risk aversion with money moving out of equities. Moving on to the dollar. All of that talk about the prospect of rate hikes coming from dennis lockhart. Dallas Robert Kaplan of thing we could see this sooner than expected. This is driving the dollar higher. This is the world currency ranker on bloomberg. Every single currency is lower than the u. S. Dollar. There is still somewhat speculation about the future of south africa. The aussi dollar and the yen lead us lower as well. Lets get into the equity markets, though. Lets look at what is happening when it comes to your earnings. Hong kong, hurt burberry. Adjusted profit was down by 10 percentage points. They warned us this year they were going to look that much prettier, and it is down 1. 9 . They are handing cashback to the Investor Base with a buyback of 150 Million Pounds, and 100 Million Pounds per year to be saved. But still, they are not buying the turnaround and the exposure to china that this company has. They have one foot in hong kong, as the Chinese Traveler dials back. This is a german robotics company. They want to up their stake to 30 and by so doing, they value the company at 4. 6 billion euros, a 36 premium. Of ss, you saw the likes e, the utility home in the u. K. The four guidance looks a lot stronger, guy. With that, we send it back. Matt let me take