guy: good morning and welcome. you are watching bloomberg markets, this is the european open. first cash trade session is coming up. i am guy johnson in london. matt miller is in berlin. what are we watching this thursday? the fed minutes signal the u.s. economy is strong enough to warrant another hike. the big question now, when does the balance sheet reduction begin? slipping on oil. opec and its allies support nine-month extensions but will members adhere to this agreement. brazil's embattled president.

protesters torched government buildings. is the market already starting to price in his departure? less than half an hour away from the european open and i am not sure if we will see ripples from brazil although that story is important and fascinating. take a look at futures, up across the board here. this is after we had new records in the u.s. yesterday, gains in youn stocks as well and so see european futures gaining here. also take a look at the bund trade. we have the yield coming off fairly substantially so investors are buying german debt right now i'm a pushing the 0.8. down to zero -- blowing out the u.s. german

spread. pretty ridiculous, our guests said as the german yields need to come up. that is definitely not happening today. the li na. that is something to talk about having an impact on the euro rates as well. greece is on offer. look at the greek stock market down 2%. you've equities broadly bid. the bloomberg dollar index is down by .2 of 1% and the yen is often the euro is bid. offing let'sthe talk about what is happening with the price of crude. let's move the gm and and show you what is happening. ent crude up i .8 of 1%, wti is up. let's get a bloomberg business flash. juliette: u.k. police have reviewed the u.s. for the king intelligence related to the terror attack in manchester calling it a breach of trust

that risks undermining their investigation. the new york times robust photos of the crime scene after u.s. security officials shared details that british police were yet to release. britishtish pri mme minister tha may will lead a group of seven gathering and sicily a day early to return to britain. may travels to brussels for a nato summit where she will urge the alliance to fully join in the fight against islamic state. too --ain, ukip it's bids to resume campaigning ahead of the parties following a positive. they will share their manifesto at 11:00 a.m. u.k. time. back torties will go leaflet hosting and/or knocking following the silence but will wait till tomorrow to resume their national campaign.

u.s. spies collected information last summer revealing that senior russian intelligence and political officials would -- were discussing how to exert influence over donald trump to his advisors according to three current and former american officials familiar. this at the conversations focused on paul manafort, inmp's campaign manager michael flynn who has been forced to stand down as the national security adviser. opec and it allies are poised to extend the production cuts for another nine months after last year's agreement failed to clear a global supply what or deliver a sustainable price recovery. russian energy minister alexander novak has set the extension could be discussed in vienna and could include an option for another three months. similar to masters accord that included the option for next or six months. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg.

matt: the u.s. job market is hot. inflation is not. that is the dilemma u.s. central bankers face right now as they wonder why low levels of economic slack are not raising prices. fed minutes released last night suggested june hike is still firmly in play area bloomberg spoke to robert kaplan who said a number of free hikes this year depends on how the economy evolves. case for this year three rate increases including that we did in march is a good a case for this year. the economy evolves more slowly, it could be less, if it evolves more strongly, it could be more. by bloombergoined cudmore.tegist mark we did see a little bit of buying in treasuries which i thought was interesting but buy on the news,

sell on the rumor or vice versa. that case.nk it was there is a few bits going into the meeting but there might be a hawkish surprise if there was a clear definition of apply in to hike a couple more times this year but it was a bit of a nonevent. we are expecting a hike in june and probably one later on this year but no more firm planning. for balance sheet reduction is what confuse the market. it showed there is a very gradual plan but there is a definite plan and the market was not entirely sure how to react to that. overall, this was largely a nonevent. we are talking it to death this morning. we came in today in asia and no one cared what the minutes said. they read through them but it was not a driver to gain markets. matt: we have a great chart here, the fed dual mandate. for bloomberg clan to

want to check it out. unemployment continues to come down in the u.s., 4.5% or less. getting having trouble above 2%. phillips curvehe start to work? have written many times i do not think it is going to work anytime soon. technology has changed and we will have a sustained time of relatively low inflation. we will get inflation spikes but i do not think we will have sustained high inflation for the foreseeable future, not on real terms. we might get through currency depreciation. technology is changing the game around the labor market and technology is changing the game around the commodities markets are both those things are the two biggest rivers and inflation and we will not get sustained

inflation and we will not get sustained higher yield levels. we can see the 10 year yield go higher but i do not think we will go back to the levels we were used to in previous eras. guy: that will be an issue for the ecb as well. that could be something of a problem. the issue of the balance sheet. it appears we are cola sing around some kind of a plan on how this is going to work create it will start small and going to get greater in magnitude as the runoff gathers pace. when does a start, how do i prices in in terms of the timeline? mark: at the moment it is hard to place in. there is not a set start. -- maybe theed to start of next year. we know that can be derailed if there is any problem in the economy so there is no firm

timeline. the pace is -- maybe the start of next year. very gradual and it can be slowed if there is a problem. i do not think we should be using this too much to way into the rates futures too much but people are trying to think about and for the future but it should not be affecting prices too much today. guy: always a pleasure, thank you very much indeed, mark cudmore joining us. smart analysis throughout the day, looking for good things to say on the markets, it mliv . you can look at the tliv . let's turn our attention to what is happening in brazil. rocking theests brazilian capital. tens of thousands demonstrating demanding the president's removal from office. protesters clashed with police with -- in mid-clouds of tear gas. several ministry buildings were targeted forcing the evacuation

of public servants. ours bring in correspondent. this is starting to get pretty serious. the pictures overnight are dramatic. >> the pictures do look very worrying. whenever there are protests like these they are photogenic as far as news organizations are concerned and it does not look good. he is trying that to hang on and as long as he does so, then the consensus would be that the efforts toward ringing in brazil's essential reforms, tax reform, labor reform, pension reform am a that the market is looking for will stay on course. that is an open question and if the pressure mounts on him and he is unable to hold onto his power base, then there will be more of a movement toward his

replacement. that means a period of uncertainty and how much will those reforms stay on track. in terms of the possible replacements, who could they be and is there any evidence the market is trying to get out in front of this one. it is thinking after what happened previously that this will happen more swiftly and we could see a better outcome. here are some of the pictures we are saying. brazil will be back on track and we are seeing pension reform actually happening. a good point. brazil has learned some lessons during whichod rousseff was impeached. there will be a strong movement toward getting this done quickly if it is going to happen. as far as replacement is concerned, any number of names have been thrown into the hat. people are talking about

cardosso, the president in the 1990's before lula appeared on the scene. but it shows80's, you the sense or the extent to which people are speculating on likely replacements. some people have been ruled out because they are still under investigation on the ongoing inquiries into corruption probes and so on in brazil. it is a very clouded picture at the moment. this for bad is markets, how bad could it get, what do people expect in brazil? if it it could get bad becomes messy. that is the point. if here are delays, insists on hanging on when all the signals suggest he should step down. that could be the problem. the protests themselves have not

created that much turbulence. the big factor was when this latest corruption allegation appeared and that hurt markets a week ago. they recovered to some degree but not back to where we were a week ago by any stretch of the imagination. of shoes to fall in this story going forward. it feels like history is repeating itself at the moment. we're focusing on an ouster in brazil and focused as well as -- on the future of jacob zuma. we have this meeting coming up, record --here is a there is a possibility of him being ousted and the market is starting to price it in here again. are we getting ahead of ourselves because that has been the story of late. guest: we are getting ahead of ourselves if anyone is thinking that jacob sue myrick is about to be ousted. i do not think many people think that. what is going on here is that suddenly, the very discussion of

his ouster is in play. that may be something that time, during a period of it probably will not happen this year. to discuss that possibility. as a positive factor. if you consider all the other positives going on in south africa, where the economy is be getting to show some positive signs, we have inflation falling, the likelihood of interest rates and a rate decision today, probably no change but the likelihood of more interest rate cuts going forward that will reduce borrowing costs and south africa forl has a lot of carry traders. the yields are high on the bonds and that makes the rand an attractive play. we have seen some bullish calls on south africa and the past couple of hours. for yournk you

coverage, talking us through brazil and south africa. coming up on the program. with the general election two weeks away and brexit negotiations starting in under a month, we are joined exclusively by the ceo of lloyd's on their new brussels office and outlook for british and continental business. another big exclusive interview, we are joined by the ceo of vanguard in shanghai. making a special on -- announcement about the company's new venture. is 40 minutes away. this is bloomberg. ♪

welcome back. the european open 12 minutes ago until stocks start trading across the continent and in the u.k.. let's get the bloomberg business flash with juliette saly. deutsche bank may be close to settling a u.s. federal reserve inquiry into how billions of dollars moved through the bank and out of russia. according to people familiar with the situation, the settlement is being finalized and could be announced in coming weeks. the bank is still waiting for u.s. prosecutors to resolve a potentially more consequential investigation. and -- carsonalls block's said he will bet against listings saying up back in credit will send shockwaves to

the mainland economy. he told bloomberg he expects china's credit problems to reach the breaking point. >> it has been so much value destroyed that my firm belief is point, yourt some past sins catch up with you. you just do not know when that will be for china. juliette: that is your bloomberg business flash. very much indeed, joining us from hong kong. leaders will cut -- resume campaigning after a three-day break with an enhanced police and military presence on the street. we are two weeks away from the general election and brexit negotiations are set to start in less than a month. one company with the brexit insurance policy already in place in the form of a new brussels office is lloyd's. with us for an exclusive interview, the ceo of lloyd's. good morning.

your plans are progressing try you have thought about what brexit will look like, the city is thinking about it as well. in some ways you are ahead of the curve. how are your plans progressing and how well the -- is the city set up as we go into these negotiations? guest: we have chosen to set up a subsidiary in brussels. we can secure continuous insurance coverage for customers in the continent. or on the continent. that is pressing. i was to go through the physical setup of the office, higher people who are going to man the office, and that is progressing fine. of lloyd'ss 5% overall revenues. about 5% will have to flow through that subsidiary. it comes straight back to london. when we look at the overall impact of london, the city of london, and how we will still contribute, nothing changes. it is the mechanism i which we have to get that business into

london. a bit more cost and a bit of a less streamlined approach. guy: it sounds straightforward. my question is how much time have you spent, are you spending thinking about this, how much of a distraction is this from what you consider to be the raison d'etre of the business. guest: we were planning even before the referendum. we had to have a contingency plan ready. fundamentally after the vote, we had to start thinking seriously what we were going to do. that was incredible he distracting. we had to put a bunch of resources on to it and it meant we had to take some of those resources off of other new markets we were looking at, new ideas, innovation, we had to stop for a bit. can ring the

resources back to look at the new stuff again but we did have a bit of a gap where we could not invest all of our resources in time into some of the new stuff. does that mean you have resources to invest now in the new businesses, are you looking to expand by way of buying small tech businesses? guest: lloyd's is unique because we are a market, made up over 50 individual insurance players and we do not take acquisitions per se but we are looking very closely at what we need to do in tech of what the insure sector, what are they doing, how they might disrupt market. it will not necessarily be an acquisition because we are a market. what we are also doing is looking at other parts of the

world and where we are seeing growth. 60% for us, we can see that of growth is happening in a shed at the moment. we happen investing in that part of the world over the years and we will continue to look at that and see whatever -- what other markets will be attractive for that part of the world. i know a little bit of the history of lloyd's and the name and it is a fascinating marketplace. obviously, asia was a big part of the beginning of this company , this group. your'd you see getting revenue from now, where do you see that revenue breakdown in two years, five years? guest: we do see it shifting. if you think about some forecasts are saying that asia will have 45% of global gdp in the region by 2025, that is --re we have been focusing

why we have been focusing on that. i have come back from latin america because that is another area we have been having great growth from 2010 to 2015, over that time, -- mexico, colombia, we saw 25% to 30% growth. we do seem asked opportunities in those parts of the world because of the under insurance that is going on. countries,o these their insurance penetration is probably well under half of what the global average is. a great opportunity for us to go in and offer a special insurance products that we do and particularly when governments are investing in a for structure, they have construction projects underway, things like the chinese the belgian roads initiative. we offer insurance for a lot of that and that is where we see some of the growth in the future . while the u.s. is by far our biggest and most important business0% of our comes from the u.s.

we do see some of those other new emerging markets getting bigger and more important elements of our report -- our portfolio in the future. incident, data breaches are an area you have been focusing on. have you seen a pickup in interest as a result guest: of what happened? guest:-- as a result of what happened? guest: we have seen a pickup. first in the u.s. which is a major buyer of that type of insurance. the government wanted all breaches reported. in europe we are seeing a similar uptick because of the new data regulation that is coming up. mrs. will be fines on as if they have not handle data breaches appropriately. that put it on the board agenda, the chairs, all the board erectors looking at a very closely. for coming to see

us this morning. the ceo of lloyd's. the market open, futures pointing positive, it is thursday. the open is four minutes away. this is bloomberg. ♪

guy: welcome back. let us talk about were these markets are going this morning. to be honest, not a clear sense of direction. the fair value points us to around half a percent gain. ftse will be art. .5%.nd cac up around it is better than it has been. there is an upward bias. it will be interesting to see how these stocks breakdown. pulse ox go ex-dividend today. matt: 12 stocks going ex-dividend. tot is something you want put into play. i want to show the german high -u.s. yield spread. german yields coming down today and yours yields rising. a representative

from aberdeen asset management and he said, in his humble opinion, this is ridiculous. he thinks the german spread needs to come back. the important thing he pointed out is that it plays through into the price of the euro and other currencies. so important to watch. guy: absolutely. let us talk about where the equity markets are going. market makers marking london up. cac is expected to open more firmly, so those lines are converging as well. as i say, ex-dividends are part and parcel of this story. let us go and talk to nejra cehic. nejra: i am looking at the gilt market open to start with. matt mentioned the treasury b und spread across the european bond space. 10 year treasury yields are fairly steady after dropping three basis points. if we look at the 10-year gilts three or are down some

two basis points, 1.05%. that is the 10-year gilts yield. speaking of what malik talking about, i have tracked the 10 year yield spread between treasuries and bunds. i was reading that this is about the political risk pendulum swinging from the u.s.. it, iter way you look at could be bringing support to the euro. euro-dollar above 112 today and the euro also in a golden cross, by the way, something to keep an eye on. looking at the stock market open and how this is feeding through arehe industry groups, we seeing commodity producers really punished yesterday after moody's downgrade of china. we take a look. materials up .3%. it is financials very much leading the charge out of the industry groups and energy stocks fairly flat despite the

fact we are seeing the oil price at a five-week high purity stoxx 600 up some .2% overall. i wanted to show you the thing shanghai composite. we saw this edging toward its lowest close in seven months yesterday. the stocks closed higher. it has moved higher, up 1% above 3100. guy: thank you very much indeed, nejra. this is percentage change on your mov screen. what are we seeing this morning? bbva, lloydsemens, on the upside this morning. flip it back to what is happening with some of the other names as well. zodiac seems to be an m&a story in france. let us see what is happening on the downside this morning to run you through what the story is. amex ex-dividend this morning.

a whole bunch of socks this might. w morrison is ex-dividend as well. go. stocks it generally ex-dividend on a thursday. matt. bank may be close to settling a u.s. federal reserve into how billions of dollars moved through the bank and out of russia. meanwhile, democratic lawmakers have asked the german lender to hand over its findings on the handling of the russian mirror trades as well as banking on -president donald trump. joining us to talk about this, alberto gallo, and bloombergs michael moore. why don't we start with you and you can tell us about these two separate issues and the fact that deutsche bank is paying off its third massive fine this year to u.s. regulators.

the federal reserve is looking into this, but also the doj, and the doj is the one investors are focused on because that could be the biggest fine and the more consequential one given deutsche bank is already operating under a deferred prosecution agreement. michael: that is the one people are focused on through the federal reserve would certainly be nice for john cryan to get out of the way. he has been kind of checking through all of the boxes on the legal front over the last year. they said they are more than halfway through the major things they need to get through on their legal issues, but still, a lot to be done. matt: i'm going to jump into the -- guy: i'm going to jump into the conversation because this is something for a wider audience and i think it is important generally for context. the bbc is reporting that the british police has decided it is

going to stop sharing intelligence with the united states. 1945, there was a decision made, called five eyes, that many of the angle is often countries share intelligence, and it has been something that ked works very well -- wor very well for the decision by someone in the united states to lead pictures of the device used in manchester seems to have really angered some within the british security services and police force, as a result of which, this decision has been made ahead of a nato meeting of which theresa may, the british are likely to raise this issue strenuously with the united states. it puts further strain on that relationship. anyway, worth paying attention to. implications wider following what happened in manchester. let us get back and talk about what is happening with the deutsche bank story.

quickl, can you give me a line on this idea that donald atmp's business accounts deutsche bank is the subject of democratic interest? >> if you are deutsche bank, it is not the best time to had an issue involving russia and also be trump's banker. are a lot ofe political applications there. the fact that they are on the site in negotiations with the justice department, even if those have started, that is a long process, so, you know, the lawmakers have requested this information. we will what deutsche bank's response is. arehave to think that they reticent to hand over their internal investigation into this russia issue as well as client information. matt: alberto -- guy: sorry, jump in. matt: alberto, what did you think of deutsche bank in that

alreadyot -- it has paid so much out in fines. michael points out there is still a big one left to pay. when do they finally get these regulatory issues behind them? european banks have three issues over the last 10 years since the crisis. you know, it is the first one -- the first one was asset quality and capital. a second one is business models. the third one is fines and regulations. has onlyeutsche bank sold the first one. they still have to get a new business model. they are too heavy on investment banking, and they still have the isulatory problems, so it one of the restructuring cases in the european banking system that started latest compared to many other banks. they have a lot of work to do. i think it is a multi-your process. we are not just looking at this particular fine, but it is a whole business model restructuring may have to go through. european banks are a lot stronger. there is a turnaround.

guy: that is what i am wondering. market now more -- is the market now more tolerant of this stuff then when we -- than it? we were in the thick of it shows it is on the road to recovery. as a result of which, the height beat of trade on that is the banking sector. how much of that is now kind of acting as a much bigger distraction for the market rather than what is happening with balance sheet and restructuring and the regulatory story? michael: you see deutsche bank stock swing more than it used to because they did the capital raise and they have the backing and they have gotten the mortgage settlement out of the way and that was the biggest chunk on the legal side, so they have done bring things to calm the market a little bit and that gives them a little more room, but as alberto says, they have

bigger long-term questions. matt: all right, alberto gallo first solar manager and partners will stay with us. michael moore, we really appreciate your reporting there on deutsche bank and the banks in general. great to have you on bloomberg's thinking. i want to quickly take you through headlines we are getting from the director general of support for he sees nato as an anti-isis coalition member. the member, donald trump is trying to convince nato to also join the anti-isis coalition, although a lot of members of nato are already in this coalition. important, i guess, from the u.s.'s point of view that nato officially, almost ceremonially, back this anti-isis coalition as well. he is saying that is a possible action for nato, who

could adopt an action plan on contributions. they want other countries like germany to start chipping in gdp to a percentage of the nato alliance. we will continue talking about that and this manchester police issue between the u.k. and the u.s. as campaigns are set to resume tomorrow, we will speak to ben a -- ofo of its is more a company. how does vanguard shape the financial landscape? we speak with the ceo of vanguard, bill mcnabb. this is bloomberg. ♪

matt: welcome back to bloomberg "bloomberg markets: european open." oil has extended the gains, planning to a five-week high ahead of today's opec meeting in vienna. u.s. crude wti is now trading and brent isrrel, gaining as well. this is a three-month look, so it does not show you today's gains or last weeks, but you can see the uptrend. opec and its allies are poised to extend production cuts for another nine months after last

year's agreement failed to clear orlobal supply glut deliver a price recovery. the key will be to ensure all producers is to that new deal. ,> it is very important for all opec and non-opec, to participate in this agreement, to fully comply. it is very important, and now, we have a very good compliance. i strongly support the proposal. it is being put by non-opec moment verse -- non-opec members. supporting the market stabilization from of the beginning. i do not see a problem to do what it takes to create the market stability. matt: let us check in right now

on the equity markets. just about 15 minutes into the trading session here in europe. we have gains across the board. the ftse, kind of the weakest leak as the pound gains against the dollar. -- weakest link as the pound gains against the dollar. with anotherlied all-time high for the s&p 500. asian stocks rallied overnight with the csi 300 up 2%. the hang seng 1%. we are seeing the dax gaining .1%. the cac gaining .3%. the ftse a little bit less than .1%. overall, it is green on the screen. let us check in with nejra cehic for your mid-cap movers. nejra: let us start with intermediate capital group, the private equity firm. we have the full-year pretax.

the company said the fundraising and capital deployment is on track, so we are seeing this as one of the best performers on a 2008xx 600, hitting high, rising the most since november 20 16. on the downside, the daily mail dropping the most in four months. adjusted revenue came in a , atle bit of a miss profit down on challenging conditions. this one of the worst performers on the stoxx 600. outperforming on the downside by far is petrofac. 2009 low after a it suspended its chief operating officer and set up a committee to engage with the u.k.'s serious fraud office as it investigates the oil services provider. guy: thank you very much indeed. the nato secretary-general continues to speak. headlines.ing the a couple worth paying attention to. first of all, russia on the agenda. he says russia is always on the

agenda. i'm sure that will be welcomed by the u.s. president. he is saying that the manchester intel issue, we have reference what is happening. it does appear as if the british police, bbc reporting this, that there will be a suspension of intelligence sharing between the united states, at least that police level, relating to this terrorism incident. let us say with the u.k. and focus on what is happening on the political front. britain's political leaders will continue campaigning today after a three-day break, with the backdrop of a police and military presence on the streets. two weeks to go until the june 8 general election. we are likely to see different styles of campaigning after the worst terrorist attack on british soil in more than a decade. joining us on set is ben page, ceo of its amarin. -- of ipsos mori.

we do not know the effect manchester will have on polling. you have suspended your operations? >> as a mark of respect. ast, with the 2005 bombings in london you generally see report for the parameter of the day when these things happen. guy: and because this is so core competency, she spent years at the home office. may and her ability to manage this event will poll really strongly. issue is perceived competence and being in control, and being good in a crisis. these are the qualities that the british choose their prime ministers on, so we will see how they assess her reaction. on what i have seen so far, i am not expecting labor to start to carry on rising in the polls, which they were after the launch of their manifesto.

alberto, how important to markets is a big win for theresa may on june 8? what do you see that doing to assets like the pound, for example? alberto: the short-term story is positive because the market thinks that with a bigger majority, the pie minister will be able to navigate the brexit process better. we actually disagree. we think the long-term story would be even more negative if there is a higher majority. the reason is that we see lack of a plan for clear economic projects for the u.k. following exit, so there is a lot of discussion around the divorce, how long you see the kids, how much you pay for the divorce, and the positions of the u.k. are very far away from the ones of the outer 27 you members. there is very little plan for a post-brexit economy.

been caused by a lot of economic issues that have been lingering in the u.k. for many years. it is, if you want the symptom of the inequality of the divide between the southern and north -- the south and the north, between england and scotland, between the rich and the poor. in an economy to focus on finance and two and balanced -- too imbalanced. economically, these issues we are starting to come up before the attack. people have been focused again on short-term emergency issues. when they look at the long run, the government plan is pretty empty. how many people will malvo for the tories because they have something to lose? vote forny people will the tories because they have something to lose? they are going to do what they are going to do anyway? ben: what the dynamics of the

election have been of course is the main proponents of leaving the european union have been pretty much wiped out by the conservatives. the voters have moved en masse to support theresa may, and that is why she is riding so high in the polls. in times of crisis, people tend to support the status quote. although concern about the economy is starting to write, most voters are not as pessimistic as some economists about the long-term. they believe mrs. may is much more likely to get a good deal on brexit, the top issue people say they are voting on, and they believe she is the best leader and best on the economy. guy: what is this election about? ben: ultimately, it is about brexit, but public services like the nhs, immigration. the numbers are tied. you have to remember that the 2015 election, the number one issue voters said they were voting on with the nhs, and they did not choose labor. it is a mixture of things.

it is still economic competence even though the economy itself is lower down the list of priorities. guy: economic competence. let us talk about that for a moment. we have seen a series of significant u-turns, and they tend to have been related to issues that relate to money. you that wele to have this tick in the box for economic competent? -- competence? ben: she is being compared to jeremy corbyn. it is about not the detail, but perceived competence. , bothsair, in the of those leaders were equally likely to be seen to put up taxes if they won their elections in 1992 and 1997.

the reason, perceived competence. mrs. may, despite her self isorced errors in budgets, still seen by far as the most competent, because there is nothing writing into consumers pockets. wages are flatlining against inflation, and inflation is rising. it has not yet been felt. it has not moved enough to make people doubt the government yet. guy: u.k. consumer confidence has been rolling over for a while now. ben: the issue is these indices. you have to go back to what is normal because the british are negative. there you are. we are by the long run about average. [laughter] ben: that is the point, so we are not cheerful about the economy, but we are not particularly negative. guy: alberto gallo? alberto: real wages have been going down for a while. you can see that there is a poverty problem in the u.k.

there is 60 million people with only 100 pounds in savings. so the issue is that these people are being confused, and maybe too focused on immigration or europe. they are focusing on emergency issues instead of the long-term prospects for the economy. very little has been done for them. if you think about the plan, the manifesto is a lot about brexit. brexit is going to take a lot of the energy and resources of the government for the next two to four years. maybe more than the four years required. there is very little outward activity. productivity has been very sluggish. the u.k. economy as a good amount of jobs, but they are very low-paid jobs. households have been spending more because they have cheap credit. so these elections -- this election comes just at the right time to make people vote, as long as they feel happy, just before any of the bad news

comes. but the consumer squeeze is happening. says, economists are fairly pessimistic. matt: it seems like the economy is not first and foremost on voters minds. when you look at a poll from you gov, potential voters are saying brexit is the biggest one. nhs is the second-biggest, and the economy just recently .vertaking immigration this poll was probably done before last week, so what do you make of this? ben: that is precisely what we are seeing. brexit dominates everything. one of the things about brexit is that by forcing the country to make a binary choice, what you have got is a split that runs across party lines, and this is why, partly why it is so difficult for labor. there are things that unite both conservative and labor voters,

things like immigration, things like nostalgia for the past or , and those cut straight across party lines, but at the moment, the economy is not seen as the number one issue. the concern about inflation is there, but until it really bites, british consumers have had it hard for quite some time since the crash, and it is again coming down to a mixture of things. voters are voting on three things. the policies, brexit, the nhs, the economy, the leader, where theresa may's dominant compared to jeremy corbyn, and finally the party, the tribal loyalty, still seems to be there. it will be the biggest upset of all time of theresa may does not increase her majority considerably. matt: ok, think very much. ben page, ceo of ipsos mori. about so gallo, he will stay with us. -- alberto gallo, he will stay

with us. stoltenberg says intelligence sharing is of great importance and the u.k.-u.s. issue is just a bilateral issue. we will talk more about this. this is bloomberg. ♪ these days families want to be connected 24/7.

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to signalfed minutes the u.s. economy is strong enough to war into another hike. the big question now, "when does the balance sheet reduction begin in earnest?" slipping on oil. opec and its allies support a nine-month extension to their production cut, but will the members actually adhere to the agreement? an age old question. protesters torched government facesngs as temer questions. if the market pricing in his departure? welcome to "bloomberg markets: european open."

i am matt miller in berlin alongside guy johnson and bloomberg european headquarters in london. guy: let us talk about how equities are performing this morning. this is the picture we find ourselves with here in europe. broadly positive. not as strong as it was earlier on. futures suggest a more positive story. again, very little sense of momentum going forward. is the 40 best-performing market out of the majors brady stoxx 600, off by less than point 1%. british concerned over intelligence leaks on the manchester terror attack will be raised with president trump today. theresa may will address the issue at a nato meeting in brussels. that is as u.k. authorities step up their criticism of the u.s. for a breach of trust. for more, let us bring in politicals u.s. correspondent, kevin cirilli. he joins us from brussels. kevin, what are you hearing?? the bbc haseporting

broken off intelligence sharing with -- that the u.k. has broken off intelligence sharing with the united states. >> the bbc reporting president trump and theresa may are set to discuss this latest bombshell report that the british have stopped sharing intelligence with the united states surrounding the manchester attack, following photographs appearing in the new york times about the alleged perpetrator of the terror attack, of the ariana e concert in manchester. i'm told by an ministers and officials that they could very much discuss this at the nato summit in brussels, here in brussels later today. it comes hot on the heels, quite frankly, as administration officials have criticized the u.s. intelligence community for this series of leaks that they leaking from the white house. the backdrop to all of this is president trump's recent

decision to fire james comey, who was set to testify before the u.s. senate intelligence committee after the memorial day holiday, when lawmakers return from personal recess. that said, the president has faced significant criticism not only from democrats, but from republicans within his own party about the "political drama" that mitch mcconnell put into media surrounding the white house and the leaks around it. matt: this seems like the unthinkable, kevin. the u.k. typically needs u.s. intelligence much more than vice versa. on the other hand, donald trump of the has been critical intelligence community, especially when it regards leaking things to the press. how do you see this meeting going between the two leaders? here in brussels, i can tell you that this is the geopolitical portion of president trump's first

portion of the trip, focusing on religion, from the middle east to israel. ofe in brussels, at the head the nato summit, president trump and his secretary of state, rex tillerson, signaling they will raise the issue of the 28 nato counterparts not paying their fair share, as president trump puts it, in order to be part of the nato coalition. this is part of information up,ing, certain to come certain to be the second unscripted global event shaping the president's trip. the first being that manchester attack. now, of course, the politics and sharing of intelligence surrounding it. cirilli, thank you for joining us from brussels. he continues his odyssey around the middle east and into europe with the president of the united states. joining us, alberto gallo. forink it has importance the financial community.

much was made of theresa may's trip, the first foreign leader to travel to the white house to meet president trump, and there was an expectation that post-brexit, the u.k. would have a more special relationship with the united states. increasingly, that is looking more and more fragile. how do i back that into my expectations for what brexit and the post-brexit economy, as you talk about, looks like? alberto: actually, even before, you can see from declarations by u.s. officials that in reality, there was no quicker way to do a trade agreement. what this means is that in case there is no soft brexit, in k's brexit falls apart, because the in case brexit falls apart, it will be very hard for the u.k. to have a plan b. what this means is that it is bad to have no deal. what the government is saying is that no deal is better than a bad deal. that is not true. no deal would be really bad,

because the u.k. -- no: but how would no deal -- deal, if you are relying on the u.s. -- no deal, you are hoping you would get something done pretty snapily. the it looks as if transatlantic relationship between london and washington is feeling a lot more fragile. plan,he plan b, no deal looked even more dangerous than it did previously? alberto: it does, and even if the government gets a better majority with the u.k. election, there is still lack of a plan a to make the economy stronger after brexiteer the main problem is that the u.k., for the last many years, was the door to europe. without europe, it is just a door. these is 40% to 50% -- exports, you cannot easily replace those with the u.s. or china. china is a single digit number.

the u.k. effectively acted as an importer of goods, financial capital, and human capital. it is hard to -- matt: alberto? where do you go if you see nations starting to compartmentalize themselves, getting protectionist, cutting off intelligence sharing relationships? where do you invest in that case? alberto: unfortunately, we have to invest in times of populism and protectionism. this comes from ending -- exaggeration, using qe and monetary policy, increasing inequality. unfortunately, it is not going away true technology in the future will be even more unequal. it will polarize the wealth of a few people that create new technology, and it is going to make some jobs disappear, like

you think about truck drivers or taxi drivers. the trickle-down effect, the assumption that wealth goes down from the rich to the poor, is no longer working, even if it may have worked before. it is no longer working. inequality will bring more populism, and populism means protectionism. you have to be a lot more sensible. all of these things in the end are generally bad for investors that put their savings and bonds, because you get inflation or you get higher taxes or conflicts, commercial conflicts, military conflicts. you have to be very flexible. you have to be able to get away from benchmarks, you have to be able to short. that is what we have been doing, investing with a flexible approach to the bond market. matt: is this why -- if i look at a breakdown of the stoxx 600 into individual industry groups, i see that tech stocks has been the best performers.

is this a knee-jerk reaction for people worried about less globalized, more protectionist world? alberto: to some extent, you are seeing that even in the stock market. you are seeing the reflection, that growth, profits, and price appreciation are more and more polarized into fewer sectors. the real issue at the base of this problem is that the current economic system, particularly in the u.s. and u.k. -- the most free version of capitalism is failing -- it is very good at generating profits and growth, but failing to redistribute it. increasingly, you have a large set of the population which feels left behind. now, as long as you can focus these people on wars or conflicts or immigrants, then you may have a solid majority, but when the people realize there is no economic plan, then we have a problem. that is what we are worried about for the coming years. in the u k in particular, now economics are still ok. the consumer is getting

squeezed, but not strongly enough to overshadow the immigration problem, or the emergency in manchester, but later on, it could be clear that, without europe, without a restructuring of the economy, there is stagflation. that is where people will focus on the economy. guy: a couple of quick questions. first of all, this chart here what is going up on. they are not high-quality jobs. that is something we focus on. is noton core pce rising. how did the fed, which want to normalize policy -- and eight guess it does poorly go for the ecb as well -- how do these essential banks that want to normalize policy do it in a world when core pce is low, you down?employment is how do you deal with that as a central bank?

it is the primary mandate. alberto: this is not a normal cycle. in the past, we had normal business cycle lasting around several years. we prolonged a business cycle and tried to smooth it down with central bank puts. whenever there was a problem, we had government and the private sector issuing more debt, and ,his created growth never-ending growth to some extent. it was a longer cycle. now you have people that have learned and done jobs for which there is note demand anymore -- no demand anymore. demographics are not growing anymore and technology is not inflationary. we are not buying two cards each . we are probably sharing the same cars. it is better for the environment, but it is different. it is not inflationary. the target inflation rate is harder to get to. but it does not mean you should

keep interest rates low because by doing so, you encourage the same distortions that have caused the crisis were you encourage another financial boom which can turn into a bust. central bankers should normalize policy gradually, especially in europe, where interest rate are still negative, even though inflation is lower. alberto, really appreciate your time. alberto gallo, partner at an investment company, taking us through a lot of continuing issues and real breaking news as well. if you are a bloomberg customer, you can watch the show using tv as well as the video stream that you get from clicking on this link here. you can also follow all of our chart and functions on the right side of the screen after you click into that, and then you theclick at the bottom of screen as well and message are producers to be part of the conversation, so there is a lot you can do with tv , and we highly recommend to bloomberg

clients to click into one of these panels and start really interacting with bloomberg television or with bloomberg radio as well. up next, we are going to have passive power. we are talking about passive investing. how is vanguard shaping the financial landscape? mcnab,k to the ceo, bill at 8:45 u.k. time. this is bloomberg. ♪

guy: nearly 8:46 in london. vanguard's new frontier. they are launching their first subsidiary in shanghai. we are pleased to welcome the ,eo of vanguard, phil mcnabb who joins us exclusively from shanghai. good morning. that kind of did not really sort of tell us where we are going because tom mackenzie is with us. let me handed over to tom. tom: thank you. i will get straight to our guest, who as you say is the ceo of vanguard, and they have launched a offices in shanghai. foreignwholly-owned enterprise which expand your footprint in china, but it is coming at a difficult time. we have seen the selloffs in the bond market, the equity markets.

most recently, we have had a credit downgrade by moody's for china over their concerns about the country's that profile. what kind of challenges so that backdrop opposed to your business and your expansion plans for china? >> i think being from vanguard, i am by nature a contrarian. the fact that all of that is happening is a good thing for us because we have a very long year, and so, we have been studying coming to shanghai for quite some time. we expanded pretty dramatically in hong kong and have a representative office in beijing. the idea of coming at morelishing here to learn so that we can better serve our clients, not only here in china, but also globally, by understand the economy a little bit better. tom: what is the next logical step for vanguard in china? setting up a private fund? what kind of clients are you targeting? bill: the short answer is that we do not know yet. what we are thinking about, we

have some large institutional clients, and we are looking at ways down the road, as the markets open up, that we can serve a broader constituency, maybe even individual investors. it would probably be through some different kind of platform hat exists today. the only way to understand that is to be here. a lot of what we instructed the team is to use your time here to better get to know the markets, better get to know the regulators, better get to know -- serve our clients, if you will, but look for the opportunities to expand. i am optimistic. it will take some time to read all the factors you have described are certainly going to be constrained in the short run. tom: are you able to give us any kind of timeframe on where you might drive this? , ifil investors in china you could get a slice of that market, it would be huge. you have been having conversations with the regulators. what are they saying to you? bill: what they really want to

see are more open markets, more open capital flow, and very importantly, the development of a more sophisticated retail investor base. today, as you know, retail uy andors tends to b trade individual securities aggressively. the idea of having funds for them to invest in and take a longer-term perspective, has not taken will get your the regulators would like that from my capital markets development standpoint. i have heard over and over again from my contacts here that a good retail capital market space would add stability to the market, and add more sustainable growth opportunities for the market, so that is probably not a 12 month thing, but maybe three to five years, you begin to see these things evolve. you know, we are real students, so if you look at what alibaba did in the money market fund business, just three years ago, an online money

market fund. a very novel approach. it is the largest money market fund in the world. incredible uptake. no one would have predicted that could happen, so that is the kind of thing, that you know, as the student, you really look at and wonder how you can do something. tom: another question on many people's lips on china is whether the msci includes the shares in the next decision in june. is it time for that to happen? bill: i think it is time for that to happen. i do not have any particular insight. we have established a shares in our emerging markets fund, the ftse, and the ftse benchmark includes 1900 listed companies shares market. just getting exposure to this economy that way, in the largest emerging market fund in the world, we think is really important. waves whenused some

you opened up your online presence to be tell investors and some of the incumbents took a bit of a hit in terms of their stock prices. foresee a price were amongst asset managers in the u.k. as a result of your presence there? bill: we hope people are going to pay more attention to price. at the end of the day, what is really important for investment firms, always to remember, is it is not our money, it is our client's money. i tend to think of fees not as basis points or even dollars, but as a percentage of return. if you think about an environment where bonds are two to 3% over the next decade, and stocks maybe are six or seven, if you are charging your clients 1%, or 1.5%, that could be 25% of their total return or more. that does not seem right to us. if that is going to cause some waves, i am happy to cause those waves. us an idea ofive

what you might be targeting in the u.k. in terms of inflows and how much you might divide that up or expected to be divided up between the pacified and active the passive side and active side? bill: that he was so excited at all the online activity that was occurring. i would imagine it is going to be a slow build. investors to for think about using technology the way we are deploying it. aeat britain has not been technology based investment culture. most of what is done is still through traditional division channels. in the u.s., 90 plus percent of what we see comes online, so we think it will be slow, but, you know, a hope over the next two to three years, we would see several billion pounds invested. on the equity side, initially,

we are going to have both active and passive, and on the fixed interest side, same thing. my guess is there will be a better balance between that that there has been in the u.s.. in the u.s., it is almost all passive, as you know. in the u.k., there is a strong demand for active. we have never been -- we are not anti-active. one third of our assets are active. we are anti-high-cost. tom: what about consolidation in the asset management sector? a lot of analysts saying that is inevitable. it will happen. with thatuld agree conclusion. we think scale is really important. if you look at vanguard u.s., and you look at the decline in our expense ratio, that is a window into the economy that can be gained. i think other people are looking at it and saying the only way to compete is to be pretty significantly large. it is really the only way you can both invest in the service side and keep your prices really competitive.

tom: we have seen something of a rotation into european stocks. there is some positivity there with the fundamentals. some of the political risk possibly being taken out. a pullbackct to see or is there momentum to keep it going? bill: this is a question a lot of our analysts are looking at as well. i would suspect you are going to continue to see some interest in europe. the u.s. is very highly valued. the only sector, broad sector, of the market that seems cheap is the emerging market side, and of course, everyone is trying to to 18 out china's next 12 to 24 months, and that is holding people back a little bit in terms of investing in the emerging side. europe ends up being kind of the favorite place. tom: on the u.s., you have the fed tussling this dilemma between the improved job market and weak inflation, and the trump agenda potentially being derailed or slowed. nejra: i think the u.s. -- bill:

i think the u.s. market is fully valued right now. the thing we worry about is the market is essentially making assumptions that tax reform occurs, if a structure spending goes up, and regulation is tamped down a little bit through the probability of any or all of those things happening in the next six months is pretty low. that would tend to disappoint investors. we are very cautious about the u.s. right now. tom: bill mcnabb, ceo of vanguard, talking about expansion plans in china. they opened an office in shanghai. long-term, they may focus on retail investors. it will take time. they are talking to regulators. back to you, matt. much, tomk you very mackenzie, there with bill mcnabb, ceo of vanguard in shanghai. a recap of breaking news we have gotten in this program through

bbc are saying that the u.k. police investigating the terror attack in manchester has stopped sharing information with the u.s. after a series of leaks to american media outlets. we know that theresa may will sit down with president donald trump a little bit later, and they will likely be discussing this intelligence sharing incident. jens stoltenberg, the secretary-general of nato, just said in brussels that intelligence sharing is very important to nato members, and that the u.k.-u.s. issue is a bilateral issue only. he also is saying that nato is going to agree with his anti- isis coalition members to fully support, officially support the anti-isis coalition, which is becauseymbolic, most of them are symbolic anyway. he talked about in nato the terrorism and burden sharing that the u.s. had asked for.

a lot going on in the nato meeting in brussels that will be carried on to sicily, where i am going in a few minutes with the g7. up next, on bloomberg tv, it is surveillance. on radio, guy johnson. ♪

♪ francine: theresa may is set to confront donald trump using nato afters after intelligence the manchester attacked is leaked to the u.s. media. u.k.-u.s.facing the federal reserve. is the s&p beginning to split? and more cuts arriving in vienna as opec cuts oil production. good morning, everyone. this is "bloomberg surveillance ." i am francine lacqua in london.