Everyone to warn about a global crisis. And david crisis cameron using the market to confirm he is not a closet brexiter. Along friday for u. S. Markets. If we take a look at where the pricing is taking us, we are absolutely flat. Giving this, what is it . An interview . A fireside chat. He is such a fascinating professor at harvard. Questionsk difficult and go places a lot of people may be would not be willing to. He is a libertarian professor at harvard. Looking forward to that. There was a flat trade in equities going on. In japan, you had gains. Shinzo abe is talking about putting this off, that is good. You can see the dollar unchanged. Interesting to see the South African rand losing even more ground against the dollar. You can now buy 15. 5. Then you see crude. Over 50 a barrel. Now coming back from that. The rand and crude are telling you, stay away from risk assets this morning. Put your barbecues, as guy says, on hold. The friday before memorial day absolutely dead. The bond market shuts early. Takes his is anyone private jet. It is a little different this year. Fed chair janet yellen is set to speak. The half of rate increases. Expecting dovish comments. The tail is the market is the tail that wags the dog. They are all the expecting a 28 chance rates will increase in june. We are looking at a 51 chance he will increase in july. That is not too far away. I dont know janet yellen has to be particularly dovish. Guy we have seen this play before. Speakers saying, we are getting ready to raise. Dontose trades, they look so good. The muscle memory is kicking in with the market. I get your point about detail wagging the dog. Is the market warned . It feels like youve got to people in the room and they are not really talking to each other. Some intelligent conversation surrounding this. Ourim not saying conversation isnt intelligent. European fixedof income at a black rock. What are you expecting . Fedt i think before the was unhappy about how dovish we were pricing. We were literally not pricing any rate cuts for this year. Very little after. With the pricing now, around 50 , they are relatively happy. They think of themselves as wanting to have the option open. I dont ticket will be an active intention to change the market. Guy can she repeat what she said before . Her she need to repeat what colleagues have said . Does she not change pricing . Excludenk she will not a move. If you compare it to previous speeches, you could make the point that it could sound hawkish. Groundl find the middle and keeping it open. We will discuss other central banks. In a smart way, it is helping other central banks. The fed has to bank mandates. Looking at jobs and inflation. 5 unemployment, close to full employment. , close to the 2 target, shouldnt they be on a path to increase rates . Guest that is a good question. I will say, nobody really disagrees on the labor market site. If you look at various inflation indicators, you have seen a slight change. Mightould explain why she sound a little more hawkish than she sounded some weeks ago. If you look at the pricing of oil, you expectations, can see maybe the probability of two low inflation has been reduced and that will open the door for a summer move. Chart, cpi, if you look at the core number, it is above 2 . Pce, about 1. 6 . Oath of them rolling over. Are you worried at all about inflation . We hear from shinzo abe we are near 2008 crisis globally. Do you buy that . Ifhael i understand somebody is worried on global inflation. Look at the european and japanese experience. Here, very important with the destabilization in oil that we get a bounce. I understand they are very alert. I am less nervous about the u. S. What you said before about the labor market. Where core inflation is ticking along. I am less nervous about what you small correction. Guy talk to me about how the market will move in the u. S. They are nots worried about this. Keeping the curve. Me the trade on the curve. Where are you positioned at the front and in the middle . Michael the front and middle part is still slightly expensive in my thinking. We have a 50 probability for july. At the end of 2017, veryis not marry much much. There is the potential for correction if the data holds up. There will be the continued flow because of the low yields we have in japan and europe. Guy the trade is still on. Thank you very much indeed. Going to stay with us. Up next, we will talk about japan. The Prime Minister failed to get a warning on risks. There is one prospect they do agree on. Exit. Talkingident has been about it. We will take you to japan, next. Anchor you are looking at a live picture of the Brandenburg Gate as the germans prepare for a concert. Abe hasapan, shinzo failed in his bid to have group of seven leaders warn of the risk of a Global Economic crisis. He used his speech to highlight sluggishness. We suffered from the deflationary pressure because of the chronic and insufficient demand. It, we have the deceleration of the emerging economies which is bringing in a major sluggishness. Anchor it does, however, mention a brexit. Issued dire predictions korea the other leaders were not so convinced. Youve von they were not buying it. You see what a difference two years makes. You may remember when it was first introduced, he delivered such a message of optimism. Now, he is painting a grim picture of the Global Economy being the world is going to into the downward spiral like what we saw in the lehman crisis. He talked about the slowdown in demand. Concerns about emerging economies, as you mentioned. He called it the biggest risk, the shadow cast on these emerging markets. The Global Economy was the biggest theme. They also talked about ethics policy. Saying disorderly moves had no good impacts toward the economy and nations should refrain from currency manipulation. We will see how that goes. In terms of the sales tax, that is a question. He said he was going to make before the summer election. Whetherk to me about the brexit was the biggest concern. They talked about trump as well. Von trump was one thing. It had rattled some of the nations. Brexit seem to be a development. Brexit wasnt even on the list when it came to risk to the economy. In the official document, we are seeing language like posing a serious risk to the economy. This would actually reverse the trend when it came to greater global trade as well as investment. Not to mention the jobs created behind it. We heard David Cameron talking about this. He wanted another body to support their main camp. Pressed fortalks his case staying in the block. A deal worth 7 billion. Saying the agreement underlines the importance of the u. K. The pm having a pretty good week. He also got the victory when it came to dealing with the steel supply, oversupply in china. The g7 said they are going to tackle this issue. Governmentfueled by subsidies and support. Guy thank you very much. Yvonne man joining us. The president of the United States has just landed in hiroshima. We will bring you the pictures later on we hope. Lets talk about what is happening with the japanese economy. E is lookingbe\ at canceling the sales tax. This is the japanese curve, it continues to be a weird curve. Are we expecting fiscal policy to change . The sales tax to move . Michael you said this morning, cpi, the tokyo cpi slightly disappointing. If you look at the underlying data, i think you dont have to give up on abenomics yet. He will definitely deliver again. It is very likely before summer, we get the announcement the hike will be postponed. Curve, itk at the implies a low probability of success in the reflation effort. We think the long and is too pessimistic on the fundamental scenarios. Talk about the japanese curve, you always have to make the markets, one of the most official sectors. You have to take it with a pinch of salt. Anchor i wonder what you think about the spending climate. Obviously, here in germany, we are still in austerity mode. Cameron trying to keep that country to no budget deficit. E wantsother hand, abb to spend his way out of a dire situation. Do you think we have strayed inm the austerity readiness the g7 . My take of the theement is pretty much initial positions are unchanged as you described them. Germany and the u. K. Pushing for discipline. Some countries and especially japan pushing for more spending. Policy shouldat be more balanced, sustainability, everyone will go home and point to the things he is thinking. Yes, morese will say, spending. That weve got the german elections, i would not be surprised if we got moderate concessions. Tax cuts or infrastructure spending. To me, that is in the ballpark of 1 of gdp. Guy what is fascinating is the ability to sell long dated paper. Countries that were stressed by the credit story. Are you comfortable with this . Buying 50 year paper from some of these countries . Michael it is an interesting development. It shows the hunger for yield and the economic profiles in both countries. Guy but you are discriminating . Are not buying them on a buy and hold. It is interesting. I think some of the nongerman are steep. That is what makes it guy which are too steep . France, what we call;. Semicore. Compared to germany, steeper. Italian or spanish, you almost have to double. Germany, which does not necessarily make sense from a credit perspective. You could argue a 10 year bond is long enough. Shouldnt buy the 10 year and feel relaxed. Guy joining us from black rock. Next, minutes away from the market open. On the welcome back to op move. It is 9 00 almost in berlin. Watch today. Cks to Philips Lighting starts trading. We had an interview with the ceo, at 8 00 london time. ,he Company Raised money pricing shares new the middle of the range. 20 euros a share. Company at 3 billion euros. Selling off a 25 stake. What really, i i this morning was a line out of bhp. Talking about the real spark for copper demand which will be renewable energy. I guess the electrification story, Everything Else is going to happen surrounding the renewable story. It is going to be fascinating. The European Equity market story about to lift off. We have a live shot of the Amsterdam Stock Exchange as we wait for the Philips Lighting ipo. Markets not going to do very much. This as we await news from janet yellen. Guy good morning. Welcome. Youre watching on the move. I am alongside matt miller. He is in berlin. Matt has your morning brief. Matt put your barbecue on hold. Yellen delays traders long weekends i giving a crucial speech this afternoon. Jeff good luck takes she will be dovish. Market pricing agrees. The g7 ends with a whimper. Japans Prime Minister fails in his bid to have the group one about global crisis. One mention has been the brexit. David cameron using the g7 to commit to the eu. We will discuss the latest holing, politics and Market Action at 8 30 london time. Guy let me take to amsterdam where we are awaiting the opening bell of ipo Philips Lighting. There is a large hammer. There we go. [applause] up european markets opening. A delayed hit of the gong. It is friday the 27th. Lets show you what is happening with these markets. Lets put some numbers. Where up. 1 we are up we are down. 1 . Matt, we are waiting for the one thing, and that is janet yellen. Lets get details on what is happening behind this big topline market numbers. Nejra this is the stoxx 600 and how the Industry Groups are trading within it and looking at the imap on the bloomberg. We are seeing more red here than green. Asia, it was a pretty broadbased rally. Healthcare stocks and material are only in the green. How care up 4 . It is Energy Stocks health care up. 4 . It is Energy Stocks and financials. We are seeing Lower Oil Prices back down below 50. I want to get to individual stocks. Take a look at the u. K. 10 year yield. Were looking pretty flat at the moment. 1. 40 on the 10 year. There we go down one basis points on the u. K. 10 year yield. Lets take a look at some of the top stocks that we are watching. I am starting with philips. The ticker for the lighting is this that has spun off in an ipo today is light. I am taking a look at the original philips, raised 750 Million Euros is what we heard yesterday and that ipo. Lighting starts trading at 21 euros. A little bit higher than the ipo price. Stocks stocks philips appears to be gaining. Moving on to axa. The sale of its business will generate a loss of 400 Million Euros. It agreed to sell its u. K. Investment tensions to phoenix group. The transaction expected to complete in the second half of this year. Up slightly on that news. Roche looking at here, moving up higher at 4 . This is after the news after a group member of the roche saying it showed superior progressive just superior progression. Superior progression. Some good news on the drug, pushing that stock up. Matt . Matt thanks very much. I want to bring back in michael krautzberger. Michael, i want to draw your attention to a chart i have here. You volume. It is equity volume in gray over the last year. Here we see the last friday before memorial day weekend. I want to illustrate for everyone here in europe and around the world, how light volume is on this friday. Typically, traders, especially the big deal kind of traders, the ones who are doing well and can leave on a friday before a threeday weekend. The bond market is going to be slower because they close early. We have had some traders in new york, michael says it is dangerous for janet to speak today because liquidity is going to be so light. You think we are going to see big moves if she makes an interesting statement . Michael you have that potential. People making the same comment saying how can they possibly do a rate hike in september. If we start making that argument when she is about to give an enormous speech, i think we would be overdoing it. If she delivers a big surprise, yes she can move the market. As i said before, i dont expect her to rock the boat. Market pricing is appropriate. Looking too much, even for on those intraday volatility would be overdoing it. Heard someve forecasts that are surprisingly low for yearend treasuries. Mark grant yesterday forecast 1. 25 for yearend. Where you see treasuries trading in the near to midterm . Sixday forecast, probably not the most thing for the manager. Priceduly is a privately. I think the probability of the rate hikes slightly after underpriced. I would not be as optimistic, but i think i would express my bearishness more in maturities. The long end can be well supported by your. By europe. Guy the markets priced on inflation right now. The u. S. Picked up a little bit but inflation is fairly subdued. People think inflation is going to come back but when is it going to come back . Michael the pricing has corrected somehow. I think we are still priced a bit relative where core inflation is running. I think that is the same for example if you move to europe on a different level. Willnk the coming period be very interesting. Now the stabilization and oil, will see a turnaround. I think it will be very interesting. The applications on core inflation because we would say it is not meant to impact core inflation that much. Guy at one point this is a little bit high, but at some point where it would have to have this discussion. At one point at what point does the fed go we have to let it run hot . That is going to impact our capital in the fixed income trade. At what point does the market start having that come station . Having that conversation . Michael we are not there yet. Maybe we have to let inflation run a bit higher to make up for the flow rates. The market would seriously buy into that, they would have to price fiveyear. Fiveyear is quite a bit higher in many markets. I think at the moment they are more focused on it. That is one of the reasons why inflation rates have inflated risk return. I dont think they would allow it to overshoot. The actual threat potentially do it, i think recover could help us ask recover could help inflation expectation. Matt let me give your destiny get your take on inflation expectation. It is a global world and some of that is going to bleed over. We are having trouble the ecb is having trouble getting inflation up here. Is there any chance we see a pickup in Inflation Forecasts for the eu . Ask for theyou inflation forecast specifically, it is a move people expect that the inflation forecast the ecb will publish will go up. That is more driven by the turnaround in oil prices and futures. I think there would be a bounce. There would not be a bounce to make us all relax especially with core inflation in europe still below 1 . There is a long way to go before we can relax on that. On the other side, the ecb has Just Announced a major at least they are working on it. Guy what is more important, what yellen does . Or what draghi does . For up to five years, it is really all about draghi. Development, it becomes more important. The long and is really 5050. What is yelling doing yelling doing and the ecb. Guy do you think the ecbs maneuver is going to shrink . The politics in germany are increasingly important to ecb thinking. They are independent. They are going to make their independence very clear that they are aware of who their largest stakeholder is, i suspect. I expect the bundesbank is going to be interesting in that light. Michael good point. What do we think the ecb will do . We think there is a good chance that the next six months, we have a bit of a pauls because pause. It of a the credit to the private sector is improving. A natural case for waiting and do a little bit less. It might very well fit in nicely with the german election cycle without ecb doing Something Different as of the german election cycle. But because data is stabilizing. The only change will probably expect is the closer we come to end, which is indicated as much 2017 and will push that out more. Matt guys question is fascinating. We had last week in the u. S. , Robert Kaplan saying the fed does not care about the political situation and could raise rates into electionyear if they feel that is a proper move. Is the ecb more political . Especially considering the possibility of a brexit here. The ecb seems have more than just the fed simple dual economic mandate. It seems to be a political organization. Michael