While maintaining the price of Economic Growth . This is bloomberg surveillance. Im mark barton. We have headlines from the ecb. It says debt sustainability concerns have risen in the last six months amid a potential increase in yields. The ecb says risks to Financial Security stemming from Financial Markets remains significant, mainly because of the possibility of a rapid repricing in Global Fixed Income markets. It says an abrupt repricing could materialize because of spillovers from high yields in advanced economies, in particular te advanced economies, in particular the United States. The fed has raised rates twice since last year and policymakers are predicting two more in 2017. Unconventional stimuli are moving close, the officials caution that in the light of inflation and Global Economic risks, qe must be unwound gradually before higher borrowing costs should be discussed. We will speak with matt miller about this. A quick look at the markets today. The stoxx 600 is up by 1 5 of 1 . The german 10 year, a little changed, 40 basis points. The aussi dollar in the wake of the china rating cut by moodys, cutting the rating on chinas debt for the first time in almost three decades. The aussi is chased lower. And brent crude ahead of the 0. 5 ,eeting is up by 54. 45. Lets get to the bloomberg first word news. Reporter amber rudd says thousands of troops are available for deployment to help police guard Public Events around the country following the manchester suicide bombing. 22 people were killed and dozens injured. Authorities are now hunting for possible compasses. Prime minister theresa may announced Intelligence Analysts raised the u. K. Terrorist threat levels from severe to critical, the highest level, for the first time in a decade. Our assessment is not only that an attack remains highly lightly, but that attack might be imminent. Debt ratinginas has been cut by moodys for the First Time Since 1989, reduced to a1. This challenges the view that the nations leadership will be able to rein in debt, while maintaining the pace of Economic Growth. The authorities have recognized the risks at home with economic leverage. Account to thento point where we think leverage will increase more slowly than in the past. These measures will not be enough to completely reverse. Reporter and Philadelphia Fed president Patrick Parker says june is a possibility for the second rate increase of 2017. , this comes as futures pricing suggests most expect the move went the fomc concludes its next meeting on june 14. First and foremost, i continue to see three rate hikes for 2017 as appropriate. We have one under our belt and given my forecast right now, we will talk about that during the moreim sure, icy tw see two over the course of this year. Global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. This is bloomberg. Mark . Manus President Trump has not pope francis at the vatican. This is his first overseas trip since taking office. He will meet italys Prime Minister and president later. Trouble that come continues with his first budget being dismissed. Vitor constancio is in rome for us. Given the opposing views of trump and the pope on a number twossues, do you think the managed to find Common Ground . Kevin well, the pope and president meeting in vatican city in st. Peters basilica, exchanging gifts this morning, as it is morning in rome. The president gave the pope books, including a book with some of the first writings by dr. Martin luther king. The pope, then giving the president books on family, gospel, and here is where it gets interesting, on the environment. The environment is one of the key areas of differences between as president and the pope, who has been outspoken as an environmentalist. He did not publicly bring up their differences on capitalism or immigration. Youll remember in the summer of 2015 when the pope came out against the then candidate Donald Trumps rhetoric on building a wall. The president will also be speaking with the vatican secretary of state. Ess of course, is the pop more political apparatus of vatican city. This is where some of their differences could emerge, privately. They did meet privately, including melania trump, who wore a more traditional vieleil. Mark meanwhile, the attention turns to the president s fiscal agenda. The 2018 budget was unveiled yesterday. To what extent do we have support for this budget and how will this budget differ from the ultimate edge it, when it is from the ultimate budget, when it is argued amongst lawmakers . Kevin not much of support at all. A lot of republicans came out in congress, saying the budget is dead on arrival. Last week when i spoke with mitch mcconnell, he laughed it o ff because of these proposed entitlement cuts to a host of entitlement programs back in the u. S. , noting lawmakers do not follow through on any president s Budget Proposal, republican or democrat. Democrats are against this and several republicans are against this. Primarily speaking, this is another way for the white house to set their agenda moving forward. Clearly, they showed their priorities, they want to cut entitlements and boost military funding. Mark thank you, Kevin Cirilli. Medecin, whon jean joins us for the hour. Thanks for joining us. Today the ability of donald trump to push through his agenda is becoming more and more difficult. What impact will that have across Asset Classes . Right now, if you look at markets, for us, the investors, ay has changed in the sense that the options are now trying to reach a deal with passive reforms. Within the we see is fixed income market or on the Foreign Exchange market. All the trump relfation trade has vanished. Mark it has or not . It has. So, what is left. Is the economic backdrop Strong Enough . Absolutely. We see a synchronized growth around the world, which is supporting many markets. But many markets as well outside of the u. S. That is important for investors right now. But also what we have to keep in mind is, looking back to what happened with obamacare, there was a failure, followed by success. We should not completely rule out any kind of reform, or any political effects being implemented. Right now i would say you can only factor it as a kind of additional positive element. In a way, it is quite positive for investors. Mark so, what do we invest in . You highlight the fact that especially in the u. S. , the market has been driven by technology stock. Have we seen the gains in technology . Who might take the baton from here . Isthe key word for investors diversification in the sense that when you look at the nasdaq, it has been moving theer annually 80 since start of the year. There is a limit. Probably what investors should do is not to get rid of the sectors, because you still have strong growth coming from technology stocks. Obviously, you want to diversify ,ut of the top five tech stocks which are the market capitalization to the bottom 250 stocks. Therefore, look for ideas in the smaller companies, like for example inside the u. S. , as well as outside of the u. S. Beyond that, i would argue that you can diversify your portfolio. Dont just be focused on Growth Technology companies. Look for more value stocks and here you can obviously factor the eurozone, banking stocks, or even gold and resources. Mark jean medecin, Investment Committee member at carmignac gestion stays with us. Stacarsoneak with block. Earnings beat analyst estimates. Astax profits fell 3. 10 business and food costcutting overcame weakness in the clothing unit. Morgan stanley says it will cut back on using recruitment bonuses to poach business and costcutting established financial advisors. Ubs signals similar moves and they will honor existing recruitment deals and include start dates by the beginning of december. The company is developing new recruiting policies and plans to roll out a new digital tool this year. The u. S. Justice department has sued Fiat Chrysler over claims the diesel power pickups and suvs had Illegal Software. The claim alleges that nearly 400,000 vehicles were equipped with so called devices. The company is reviewing the claim, but is disappointed the suit has been filed. Mark the ecb says debt sustainability concerns have risen in the last six months, stemming from a potential increase in yields and political uncertainties. The ecb is publishing the annual stability review. The next meeting is on june 8. Mario draghi will get the chance to discuss his view on the matter when he gives his speech in madrid. Frankfurt and in will be interviewing Vitor Constancio shortly. Talk us through the primary concerns in this semi annual Financial Stability review. Matt well, the primary concerns are that debt sustainability will become a problem with the rise in yields in certain areas. The fed is expected to raise rates two more times this year closer ecb is getting and closer to discussing the possibility of normalization of policy. Interestingly, the ecb, unlike the fed, has talked about the importance of unwinding qe before it thinks about borrowing costs. That will be something they will be talking about in the press conference. Im about to run over to the ecb to listen to the rest of the Financial Stability review. Also, a warning in the Statement Released about banks preparing for brexit. The ecb, saying get your preparation done early. There are important to the Financial Stability of the Banking Industry to have all your ducks in a row before brexit happens and be prepared for any possibility, as far as outcomes of the talks. Mark bloomberg wrote this great story today, draghis lieutenants as the ecb braces for exit strategy debate as we approach this critical june 8 meeting. It seems as if draghis two main lieutenants are delivering a different message. Peter perez on one side and ben walker on the other. Does this highlight the difficulties of the unwinding of draghis Stimulus Program that he faces through the end of the year . Matt in one sense, it does. On the other hand, if you are in a position like mario draghi you want to hear differing opinions before you make of your mind. So, he has got one guy on the dovish side and one guy on the hawkish side. These are his right hand and left hand me. It will be interesting to see what Vitor Constancio thinks. The last couple of times i interviewed him after a Financial Stability review he told me a couple things about his view on inflation. You thought we would be close to the ecbs target rate in 2018. I will see if he still thinks that. I interviewed him interestingly, about five months ago and there was concern that u. S. Prices were going to drop. That did not really happen. Ecb wasd, he said the ready with continued Monetary Policy support. The question this time will be, are you going to be able to make that commitment as you get closer and closer to normalization after tapering bond purchases in april . Will he be able to keep up that safeguard for european lenders . Mark matt, we will speak to you later. Matt miller, still in frankfurt today. A fascinating debate, isnt it, jean medecin . Where do you stand . Is there a risk of keeping Monetary Policy too lose . Too loose . Or is it, keep it loose and wait for inflation to pick up . You dont want to make the mistakes of the past, tightening policy too soon. I think this is a work in progress. In a way, it is supporting the equity markets of both countries because right now we have very accommodative Monetary Policy and probably, it will going for quite some time, even if the Monetary Policy might be gradually less accommodative, but still accommodative. What is fascinating with what we are hearing right now from the ecb is that they are laying the ground to give them a lot of thisbility to deal with normalization policy. A few weeks ago we heard the report that unemployment was higher than what the official figures suggested, and therefore, they expected core inflation to remain moderate. The strength of the euro will contain inflation. That gives the ecb a lot of ammunition to precisely time the normalization of the Monetary Policy. Mark how tricky is the path, jean . The worry is markets could misread your mi intentions and financial conditions tighten and you are not achieving what youre aiming to achieve. How difficult is the past, not only for the ecb, but for the fed as well . We will stick with the ecb. I think if we discussed the fed, they succeeded in blurring the picture, and therefore preventing a more stressful financial condition. As far as the ecb is concerned, even if we are talking about the danger of rising rates and the stability of the region, we have to keep in mind that the level of yields we are heading, either with debt in france, germany, and even countries like italy or sprain, the currency of yields is a lot lower than the average cost of their debt. Person gap. 5 so, obviously, there is a little bit of room for rate normalization before triggering any kind of stress. Mark jean medecin stays with us. Off in, will be fed jump june . That is the big question as markets anticipate the move. Patrick karger says next month is a distinct possibility. This is bloomberg. Mark breaking news out of france. French president macron will seek an extension of the state of emergency. The Emergency Powers have been in place since 2015 and are set to expire mid july. Yesterday in the u. K. We were informed the terror alert has gone up to the highest level, critical from severe, the first time in 10 years. President elphia fed Patrick Harker says june is a distinct possibility for the u. S. Central banks secondrate increase of 2017. Investors are awaiting the release of the minutes from the fomc meeting. Markets are anticipating a move next month. Based on strong economic outlook, i continue to see three rate hikes for 2017 as appropriate. We have one under our belt and given my forecast right now, we will talk about that during the moreim sure, i see two over the course of this year. K are we with an two are we within two more this year . It is a distinct possibility. The fed is more resolute towards hiking rates. And now there are more reasons for that. One is obviously Inflation Expectations. Two, when we look at the growth of the economy, obviously, we have this synchronized growth pattern, which is supporting the feds Monetary Policy and normalization. Third, the first two hikes we have seen recently have not really triggered any kind of tightening of financial conditions, which is also playing in the feds hands. Down fed fund futures came because of what was being perceived as a crisis in washington. There were days of bad headlines for the president. Expectations came down. They have come back up again. Derail the fed . Yes or no . Jean that is a bit extreme, but the fed will factor politics in. It is very clear there is a fine balance between the normalization of the Monetary Policy and the pace you might expect on the one hand and what is happening in washington and a very aggressive fiscal stimulus will impact the way the fed is looking at the normalization of the Monetary Policy. The two are not separated, but derail is too extreme they were. Mark you mentioned inflation. Inflation is undershooting the 2 target. Are you comfortable inflation is on theare you comfortable inflas on the right path . I am comfortable that the deflation fear is over. It is very clear, wherever you look in the world, that we are seeing the Inflation Expectations reoccurring and the actual inflation number gradually grinding higher. The their important thing the important thing to understand is the end of inflation does not mean we are on the verge of a very strong inflation acceleration. Positive we are in a environment for investors right now because we have Inflation Numbers which are neither too hot, nor too weak. , staying withecin us. 15 days to go until the u. K. s general election and political campaigning was suspended after the deadly attack in manchester. We will focus on the u. K. And the brexit negotiations. That is next. This is bloomberg. Mark lets get bloomberg first word news. Arehousands of troops available for doughboy meant to help police guard Public Events. 22 people were killed and dozens were injured during the manchester attack. Theresa may announced analysts had raised the u. K. Threat level to critic or for to critical for the first time in a decade. A further attack may be imminent. Trump has met the pope. That was his First International trip since becoming president. Is due to meet the italian Prime Minister later. The first budget has been dismissed by critics as a fantasy. It would negatively impact many of the working poor who propelled him to the white house. Chinas debt rating has been cut for the First Time Since 1989, the move challenges the view that the leadership will be able to rein in debt while maintaining the pace of growt