♪ >> boot morning, this is daybreak euro and i am lizzy burden in london. asian stocks are higher as focus turns to inflation data. treasuries steady, a whisker

away from 4.5%. former st. louis fed president james tells us markets should expect three cups this year. but he says the fed does not need to rush. more of our exclusive interview this hour. israeli officials signal optimism on talks with hamas. prime minister netanyahu warns that a day has been set for the invasion of the southern gaza city of roff up. good morning, welcome to tuesday. the prospect of three fed cuts this year, whatever james bullard says, is not looking likely in the eyes of markets. ahead of tomorrow traders are pricing only to cuts. first in september. with fewer cuts it puts pressure on the earnings season to drive the stock market rally. not a lot of fireworks on equities and you have futures pointing to a slightly higher

opening this morning on wall street, but not so in europe and if we flipped the board, let me show you treasuries because this is where the action was. 10 year yields highest since november. we will bring you more in a moment, but they are at 4.4 percent. euro-dollar is one away as we await the ecb decision. looking at the path ahead, june looks like a done deal in terms of cuts, so finally a look at brent crude over $90 a barrel as geopolitics dominate. the latest on cease fire talked shortly, but if we analyze these markets, they are looking ahead

to inflation data out of the u.s. with conviction almost three a quarter-point rate cuts dissipating. we heard from neel kashkari saying he expects price pressures to ease. we had st. louis fed president james saying he expects monetary authorities to stick to their cautious strategy this year. >> labor market is not red hot the way it was one year ago. it was just crazy hot and they had to keep paying, let alone try to find new workers, so it's not that red hot but they are still having to compete to find workers. >> take the committee and chair at face value. best guess is three cuts and of course, data can go one way or another, but that is the best case. lizzy: for more let's bring in

our strategist, garfield reynolds. if neel kashkari is right and there are no rate cuts this year, how much would that rock market? >> it would rock the bond markets and throw into doubts not just this year, but year as in the fed penciled in six rate cuts by the end of next year. if they don't cut this year does that mean we only got three over that span? that will seriously affect where yields can be and there are going to be in investors whose positions get heard, they get forced out. that will hurt the bond market. equities show with strong optimism surrounding, they are

not worried by higher bond yields, provided they can be sure companies are going to go on doing just fine, economy is strong, and companies could benefit. concern would be we've already had some impressive upside surprises on the earnings front and you need to see that going on happening if yields back up further, valuations are high. higher yields means valuations can't really go higher. you need the earnings part of the picture or at least optimism tuesday stronger because nvidia shoots the lights out and so does the tech space.

lizzy: if we focus on today, how braced should we be or yields to go higher? >> skew is for yields to go higher because of data and strong undercurrent from leaders at the fed that even in the face of strong data expect to cut three times. so they are playing out a world where they are more relaxed about the potential for inflation, so kind of what that is telling you is growth will remain high, they are willing to risk inflation going higher, recipe for higher yields at the long end, we might get outperformance from the short if they cut as much as they've said but the long and looks like a

dangerous place to be in a world where the fed has stopped worrying so much about that final mile in the inflation fights. lizzy: fed driving over bumps toward cuts and garfield let's talk about japan because we've had comments from the boj governor upon the path to inflation and traders are on tender hooks ahead of the cpi report. could that push the yen and trigger yen intervention? garfield: it could. you can look at the comments today which were the semiannual report about where monetary policy is going. underscored potential that they could move again sooner rather than later the current positive trend continues. that is a signal to japanese

bond traders that yields can go higher. they moved higher even after the initial move down following strong option, so that is to some extent the boj playing defense against a strong epi by signaling they are willing to go tighter, even if the fed is not going to go as loose as thought, that might restrain the yen. the threat of intervention is going to need to be there. if we get a blowout cpi figure, hard to see how yen does not go past 152 for a while and might go higher unless there is some concrete moves ministry of finance in japan, maybe it is jawboning and rate checking as they referred to it, checking

the", ultimately intervention asked to be on the table given where the yen is sitting going into the cpi report. lizzy: 151 point 88 is where we trade. garfield reynolds, thank you for that update and now let's zoom out to broader markets. ishika is on standby. what is happening? >> tsmc is the biggest story in asian stock markets 20, shares rising more than 4% to the highest on record yet again. cross the 800 taiwan dollar mark because chipmakers got 11.6 dollars in loans and grants. they will build a turned factory in arizona and it will focus on two nanometer chips as president

joe biden tries to reassure critical technology and tsmc has been on a tear really. it is hoping that the index's in taiwan will lead gains in asia. the index rose more than 1.8% actually and 75% of gains came from tsmc. that story is tsmc. we've seen its market cap cap with south korea, widening to the most since 2003 because of excitement. the other story today was chinese stocks, for the china enterprises index, it rose more than 1.6% and was helped by the chinese online gaming stocks. so china approved 14 important online games including mega man 11. that pushed up stocks.

and it pushed up tencent. some of these names distribute these titles in china. flipping the board looking at japan as he spoke to just now, helped by exporters today, nikkei and topics index and exporters of course are getting help from the week yen. everyone is on watch for the 150 two psychological level for yen intervention. we have standard chartered saying you know, japanese authorities are not going to move before the u.s. cpi reports, which brings me to the most important story, the u.s. cpi report. asia stocks are gaining ground day ahead of the u.s. cpi report on wednesday. lizzy: thank you. we are very excited for the u.s.

cpi report, plenty more on the docket today. nine :00 a.m., ecb bank lending survey. you remember the chief economist at the ecb philip lange cited this last summer saying how much of a role it plays in the ecb analysis. expectation is it will confirm lending conditions are not deteriorating rapidly and that should give room to proceed, cautiously, when they start lowering rates. expectation is june. at 6:00 p.m. london time u.s. treasury will sell 58 billion dollars of three-year notes, so that auction. then later, numbers for airbus and boeing deliveries. boeing has been in the spotlight for the wrong reasons, so deliveries have been slipping further behind airbus. interesting to see the gap.

get a roundup of stories you need to know in today's edition of daybreak. the lead on the bullard comments on fed cuts, still three says james, but stories on blackstone and a deal to buy out the beauty skincare brand. they have ubs to attain full ownership of its china platform by swapping its holding in credit suisse with the beijing government investment. you can get those stories by going to dayb on your terminal. coming up, israeli officials signal optimism on cease fire talks, ministers threaten to bring down the government on those talks. the latest from the middle east. stay with us, this is bloomberg . ♪

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lizzy: welcome back to daybreak europe. senior is really officials say progress has been made for a cease-fire in gaza including release of hostages and prisoners. it has drawn criticism from the far right who threatened to bring down the government. we have got bloomberg's bruce einhorn. tell us what progress has been made? bruce: well, what we know is there have been comments from senior israeli officials that are the most upbeat when it comes to prospects of a cease-fire. the defense minister said that progress on the war allowed israel to make difficult decisions to return hostages. i think we are at an appropriate point.

they were comments from israel cats who said they were optimistic when it came to the prospects of a cease-fire. this is a major change from as recently as last week when we heard comments that israel thought there was a gap between israel and hamas about a possible cease-fire. one thing to keep in mind is what we are hearing some optimistic comments from is really officials, a senior official of hamas tells bloomberg there are no talks scheduled, that there is no imminent cease fire ahead. there has been no progress. hamas has been recognized by the u.s. and eu as a terrorist station. lizzy: that denial pushing up the oil price again. meanwhile, looks like an invasion is going ahead though israel says there is progress on

cease fire talks. why? bruce: still uncertain if and when there will be an invasion. there was a report from the ap that prime minister netanyahu said there is a date set for an invasion. the prime minister is facing pressure from members of government in particular, far right members who want further escalation and action and have threatened to bring down the government if there is not. for instance, national security minister said if there is no attack, there is no further action, the prime minister would not have a mandate to serve. so if there is no further

action, it could jeopardize netanyahu's government. he has a slim majority and there's a lot of pressure from others within israel. so if he does not proceed with the invasion than his day in office, the length is up for question. that said -- the united states is pressuring israel and hamas. officials say americans are putting more pressure to get a cease-fire to get humanitarian assistance. lizzy: exactly. international and domestic pressure. bruce, thank you for the update on the situation. it is protecting the shekel as were spending sores. coming up, net banks outgoing

ceo says south africa remains a destination irrespective of the outcome of selection. our interview next, this is bloomberg. ♪

♪ >> we are invested in china because we see long-term potential. transition is taking place, now is the time to invest, to be part of the transition and future growth. >> investors are looking for growth companies that they have been hearing about and seeing, that is to munich >> secondary market growth. >>we are underweight china, the real estate going into consumer confidence, business confidence,

started to see net in lows, starting to see policy is coming true. lizzy: hsbc executives speaking to bloomberg at the global investment summit in hong kong. staying to banking, net banks outgoing ceo says south africa is a destination irrespective of the outcome of the election next month. joining me is bloomberg's jennifer. what is the reasoning behind this? jennifer: the big thing mike brown was telling us was his base case is in line with polls which suggest the ruling party is going to keep a majority or form coalition government, meaning continuity of policies. this is important if we look at the biggest issues facing the country. take a listen to what he told us. >> most analysts would say gdp growth for the next two to three

years is between one and one half percent but at the same time most analysis says the problem is costing us 3% of gdp and logistics is costing 3% of gpt. if we resolve those through public-private partnerships, certainly a gdp growth extra. south africa growing at three or 4% is a different economy then one or one and a half percent. >> do you see that continuing? you've been part of the leadership community in south africa. we do not know what is going to happen with the election, but does the private sector have the ability to step in where they can given where the economy is right now? >> initiative has been led by martin kingston and i think many of the hard yards are showing results.

if you take energy, that he achievement in these engagements has been deregulation of energy supply in south africa and the ability for private sector companies to generate energy at scale and many large projects are underway that connect to the grid in 2024. runway is open. as a way of solving the crisis in our country, i do not think there are many alternatives, so that will continue the respective of the outcome of elections. jennifer: mike talking about energy, one of the biggest issues facing the economy and country. there is also transport issues, crime and corruption. mike is a part of a business leadership community trying to help step in as the private

public partnership to get things on track, but his messaging is important we think of him as the outgoing ceo of a big lender. he has been at the helm for more than 14 years, came in as the financial crisis was happening, exiting at a precarious time. this is important we think where south africa is, it is on the gray list, so that is affecting investor sentiment, affected foreign direct investment last year. this perspective was despite what we see on may 29, potentially this economy in this country is on track to solving the biggest issues to any growth here in south africa. great to get his perspective. he has been that banks ceo over 14 years, most of his career.

interesting perspective on not just financial sector, but the outlook for the country more broadly. lizzy: lizzy: important interview, excellent reporting. jennifer will be followed across those elections. we thank you. great to see you as always. quick check on commodities here, we've been discussing geopolitics with bruce einhorn and they have been rumbling oil markets. boil at a five month high because of supply and heightened demand. the volatility coming back to the situation in israel, gaza. progress on cease fire talks says israel, hamas denying that. rent crude at $90, wti $86. gold still at a record high of more than 17%. no exact obvious trigger, but

you've got heightened geopolitical risk. central banks led by china and traders bracing for the u.s. cpi print tomorrow for the future path for fed rates. coming up on the program, the weakest quarter for property in germany since 2011. live report from berlin. stay with us, this is bloomberg. ♪ her uncle's unhappy. i'm sensing an underlying issue. it's t-mobile. it started when we tried to get him under a new plan. but they they unexpectedly unraveled their “price lock” guarantee. which has made him, a bit... unruly. you called yourself the “un-carrier”. you sing about “price lock” on those commercials. “the price lock, the price lock...” so, if you could change the price, change the name! it's not a lock, i know a lock. so how can we undo the damage? we could all unsubscribe and switch to xfinity. their connection is unreal. and we could all un-experience this whole session. okay, that's uncalled for.

>> good morning. this is bloomberg daybreak: europe. i am lizzy burden in london. asian stocks edge higher. the treasury's steady after the 10-year yield hits the highest

since november. a whisker away from 415%. james bullard says markets should expect three cups this year. the fed does not need to rush. we will bring in more of that exclusive interview this hour. plus israeli official signifies optimism on cease fire talks with hamas but prime minister benjamin netanyahu warns a date has been set for the gaza city of rafah. good morning and welcome to tuesday. it looks like fed cuts, three of them this year. all of this rapidly dissipated despite what james bullard said about cuts. now that the only two fully placed in the first not starting until september. so you have seen the impact of that through the market as traders await this if you have the u.s. tomorrow and it puts pressure on the earnings season

to drive the stock market rally. you just pointed to a slightly higher opening stateside there. looking for another opening here in europe. you can see the action in treasuries. 4.4% is where we are on the 10-year yield. the highest since november of the latest fed speak, off the latest data, out of the u.s.. we will have more on why that 4.5 sent -- percent level is so important. the question is really how much divergence they will be between the fed and ecb paths. they have all of that geopolitics happening in the background. i was cease-fire talks actually progressing. now let's assume out on asian markets.

we have the community on standby for us. what is happening where you are? >> i will begin with the granular stuff. the world's biggest chipmakers -- chipmakers saw shares rise 4.6%. great news. 11.6 billion in grants and loans from the u.s. to open a third facility in phoenix, arizona. well it will cash where it will be reducing the chip technology. all of this as joe biden tries have critical technology built in the u.s.. that is helping drive up the taiwan index. that is taiwan's stock benchmark. they are up about 2%.

they are also climb into a fresh record high and across the new taiwan dollars mark for the first time. the other part of the market that was interesting is china's stock. thanks and china index rose as much as one was of a resent bearing gains traders are happy there are not any serious or worrisome headlines. the index is getting a boost for online gaming stops after china proved 14 imported online games. tencent helps distribute the games. moving onto japan, we saw exporters helping there as the end remains we. we are watching that for the end. it is expected that japanese

authorities could intervene. you can see that japanese authorities are going to hold on before meeting ahead of the u.s. cpi data. the pushes of the dollar. we see what happens to the end then. that is on the watch. over to korea, we have the kospi index lower ahead of elections. the markets closed tomorrow. we will see if the current president can win a majority in that market. asia overall is up ahead of the cpi numbers on wednesday. let's see how they trade tomorrow right before we get into that key data that will be live. >> we thank you and we have been

listening to governor ueda of the boj speaking in parliament. he lies coming from the boj. he said he doesn't think negative rates are needed for the time being. it is vital to support the country with monetary policy. they may slow the unwinding of easing if the stock hits the economy. they may speed up, reducing easing of the positive cycle is stronger. they say there is a downside risk of the big price deviations that has gone lower but monetary policy fundamentally says this is not meant to control fx rates. the governor speaking in parliament. we are listening to the ski lines for you at a tokyo as we watch the end currently at 15 189. the level we watch for is 152

for a potential intervention. that u.s. cpi report and its impact on the dollar crucial to the yen story. after some other stories making the news this morning. the embattled french i.t. company here seeking 1.2 billion euros in new funds and aiming to cut its debt by at least half. in a restructuring plan presented to creditors, bloomberg said it is seeking to convert about half of its borrowers into equity. once hailed as the rising star of france's tech industry, they are struggling under a wall of debt after 3.6 billion euros are due by the end of next year. elsewhere, elon musk has shrugged off a labor dispute in sweden. the conflict with unions over the carmakers refusal to sign the collective bargaining agreement has been going on since october and since the initial walkout, more than a dozen units in sweden and other countries have blocked tesla.

that includes mere collection and delivery, trash pickup and handling tesla's at port. most quote say the storm has passed. germany is moving ahead with a sweeping -- and let the ruling coalition wants to order hundreds of armored transport vehicles and two additional navy frigates. it is part of germany's press to modernize his military following russia's ukraine invasion. just sticking with the property sector, we had the worst first quarter since 2011. deals for offices and warehouses as well dropped 19% compared to a year ago. before we got oliver crook with us from berlin.

another dark spot in the german economy here. just how bad are things in the german sector? >> i am always the doom and gloom report from germany. this is where commercial property. we look at big deals, they are trying to of the big portfolios. that figure is even higher. we are talking a 15% decline in terms of those kinds of moves over that time. we look at office space. this is not an exception here in germany. prices fell 10% last year. that doesn't sound that huge when you are about what this market is dealing with. i interest rates, a booming economy. 10% was largest client in office-based prices on record in germany says they started collecting the data back in

2003. we know this is about interest rates. slow down here in germany. that is work from home. according to the institute that does all of these economic surveys across germany, they see there is going to be a lot of demand for office space in germany by 12% by 23. no matter what happens, there is a demand question about whether or not it will decrease by 12%. >> ever since you have been germany, things have been a bit bleak. when does it become a conversation on the ecb which meets later this week? >> i think it is already a conversation. you have to think about the key to all of this. it is a key question for them. if you have massive issues on the real estate sector, it will bear on price stability.

there one mandate. the third is their supervisor to the banks that are holding a huge amount of these loans. for your area banks, they have 1.2 trillion euros of credit with commercial real estate as collateral. that is more than a percent of the loan book. that is mostly concentrated in germany and in france and what is interesting is in germany you know get the pricing, you'll get updated appraisals like you do in the u.k. and the u.s.. you don't really have as clear an idea what is going on so it is a concern for investors and ecb. we understand that senior ecb officials are looking at different ways they can add more measures for banks to boost their resilience to what is going on in the market right now. 40% of their private lumber was to signal. it is the smaller players in germany.

that was one of the neck that absolutely decimated. the concern for the smaller institutions. it is a smaller player that people are really concerned about. >> we thank you for that update. i stay with property stocks. this is after plaxo stepped up his bet on the industry. there was largest commercial real estate owner financed a partnership or roughly $10 billion. european defense companies have been making a fine start to the year themselves. they have benefited from a boost in expenditure across the continent alone russia's invasion of ukraine. that spending could rise. you had nato officials saying

the eu nations will need surveys that defense budget to meet that renewed threat from moscow and for more i am joined by deliberate economics. lovely to have you back. what are the proposals here? is that the political appetite in europe? with last year there was some or we reached a record $2.2 trillion. after years of limited defense spending, european nations are stepping up. that is up from four. on the other you have china driving to gain attention. the threat of beijing moving on. there is a political appetite

and more military spending. >> what would it mean for debt markets? >> we at bloomberg economics looked at two different scenarios. all about what could potentially happen. there has been at least 2% of gdp and in the much more extreme scenario, they raised rate defense spending to 4%. it was feasible even though it might be painful. they could struggle to increase defense spending. the public debt was already high. it could go to 179%.

the u.s. is already at 3.3%. if they raised 4%, they could go up to 131% over the next decade. this is just total commitment here over the next couple of years. it could be higher than $10 million. we thank you, that is the latest from bloomberg economics and now some of the stories making news this morning. bloomberg has used that ubs is in discussion to retain full ownership of his china platform. all of this from beijing's state asset management. in return it would sell part or all of his position in credit suisse securities.

limerick has learned that blackstone is nearing a deal to take lots of pain private. sources say the equity for making up with the billionaire owner for the buyout. i vote is been a fan of the hand cream. james bullard expects three rate cuts this year. we will bring you more from our exclusive interview on the global investment summit from hong kong, next. stay with us. this is bloomberg. ♪

>> james bullard says he is expecting three interest rate cuts this year as inflation moves toward the central bank target. he has been speaking exclusively

to haslinda amin from hsbc's global investment summit in hong kong. click i think at this point you should probably take the committee and the chair at face value. i think the best guess right now is still three cuts this year and of course the data can go one way or another but that is the base case. i think it has been a very successful policy. the policy rate increased a lot during 2022 and inflation fell went a bit the second half of 2023. last year at this time, core pc inflation would have been 200 basis points higher than it is right now. that is the committee's favorite measure. you are looking at a very successful policy with a pretty strong economy. a lot of things going right for the fed right now. >> so powell has been by so far?

>> yes, i think he has been by so far. most of that was in 2022. then he wore the fruit in 2023 until 2024, here. >> can we talk about how the fed is data dependent? what exactly does that mean and which data in particular is he looking at? >> right now, i think it is mostly the inflation data because on the real side of the economy, things are going very well. you can argue about why were they are going very well. the committee doesn't really have to worry about that side. i'll have to worry about is getting inflation back to the 2% target and they have come a long ways back already. it was for 20% and now to 20%. that means you only have .8% ago. some people are saying the next

report will lead to core pc being only 6% on a month basis so you're starting to get close enough. i think we have an update right now to justify the first rate cut. maybe not a whole string of rate cuts. >> we talk about how the u.s. economy is very strong. would you say the risk in the u.s. economy right now is inflation? >> i think that is right. >> why is the company so resilient? not too long ago we were expecting a recession. 100% preston on the recession but here we are with a very resilient economy. >> lester at this time you had to be a failure of silicon valley bank and other banks, smaller banks around the country. that was over interpreted to mean the u.s. was going into recession. i don't think it was ever a good

story to tell because yes, there banks failed but they are only a small fragment of the total making and the total intermediation sector in the u.s. economy. so i think that card was overplayed and not only did the u.s. not go into possession in 2023 but the economy actually boomed in the second half of 2023. so you have a really strong outcome and then that just continued into the first part of 2020 for here. although i would say would be closer to the trend and not way above trend. >> that was james bullard speaking there. plenty more ahead. this is bloomberg. ♪

>> my base case scenario is that inflation will continue to fall this year and i jot it down in march that we would have two principles over the course of this year. that was my base scenario. but if we don't see any of the and inflation moves sideways, i would ask the question of why we open interest rates. >> neel kashkari there. you are seeing impacts on markets from the latest fed speak. if you are fed cuts being priced this year. investors seem fewer than three cuts priced. 60 basis points have cut roughly for the rest of the year. that is about 2.5 cuts this year.

you can see the comparison to the expectations for the ecb and now it is looking like there are possible fed cuts. that should have a packed -- an impact on the currency as well. could this change the game after that jobs data must mark it just looks like you have a shadow being cast. speaking of which, actually mid-day darkness fell across north america yesterday as a total solar eclipse raced across the continent, that is a spectacle through the clear skies. starting a long legs and because mostly clear pacific coast and any for texas and 14 other u.s. states before exiting into the north atlantic there in newfoundland.

i must confess i was asleep but those images absolutely stunning. up next, markets today, stay with us. this is bloomberg. ♪

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quick this is bloomberg markets. i am anna edwards. with cash trade just less than an hour away, here's what you need to know. james bullard tells us markets should expect three cuts this year but says the fed does not need to rush. we will bring in more of our exclusive interview this hour. japan's currency covers the critical turning point and a 33 year low. we will bring you live comments from the boj