Transcripts For BLOOMBERG Bloomberg Go 20160524

Global equity markets looking pretty decent, firming up in europe with the ftse up about 48 points. Futures positive in the United States. Yields on the 10 year, pretty much unchanged at 124 1. 84 . Look out for that. Table at the moment, 146, its a stronger pound. We will get to that. Then imac of about. 4 . The brand down for the sixth straight day. The lira strengthening down to 297, the Turkish Central Bank cutting its rates to 945 . Lets go to indepth coverage of our top stories. Guy johnson in london, where mark carney talks brexit. Matt miller in frankfurt. In brussels, where finance managers meet on greek simin demokan. Jonathan the bank of England Governor Mark carney is testifying this morning. Guy, the momentum seemingly behind the remain campaign. What is mark carney have to say . Guy he has the responsibility to stand up and make clear the risks that are associated with the referendum. Hes not backing down on that. Everything you said today felt very caveated. It wasnt the kind of fireworks story that we were anticipating, but mark carney was not pulling punches. Was interesting in terms of the way the market has interpreted what he had to say was he talked thet the idea as the sum of recent slowdown that we have seen coming through. From the u. K. Economy is attributable to the markets and ability to respond it. The market is therefore taking the pound little higher on the back of it. We also had a full out earlier on coming out of the telegraph. Really pointing to a significant lead now for the remain cap. Camp. The pound, even before mark carney was speaking, was rocketing higher on the back of that. Is market on the fx side only data, but it does appear as if that gap is beginning to grow. Maybe dr. Carney has less to worry about. Jonathan yesterday the treasury put out a report on the shortterm consequences, four quarters of slow growth. They didnt assume what the central bank would or would not do. Did we get anything on what the appropriate policy response would be . Guy i dont think he was going to be clear on what the policy would be. You can understand why that would be the case. If you are a central bank governor, you want to commit to a policy response. You dont know what the actual reaction will be. You dont know how the economy will go. In some ways, you can argue the treasury is the correct way to go. You cant really deal with any detail because you dont know what the story is going to be looking like, and you cant perceive what the central bank is going to react to. That will be the message you get from carney as well. Jonathan guy johnson, thank you. ,avid to london from frankfurt moody has downgraded Deutsche Bank, and it has ceo john krantz speaking is live speaking his mind. He came out fairly and badly after this downgrade. That yet another bank ceo we are hearing from on bloomberg tv today. Saying that he thought it was ridiculous for movies to downgrade their debt to just two steps above junk. In his words, they have enough capital to pay their debt four times over. You could take a look at the dd have 144ion, they billion in total debt. If you look at their capital, he could be using different definitions. He has been through a lot lately. He just had a shareholders meeting, he has a lot on his mind as far as litigation concerns. David matt, this wasnt the only news about Deutsche Bank we heard. There was also news of an sec investigation, maybe some fixing with other banks. Also, they are named as a lawsuit, they have several legal problems. Is there an end in sight to the legal difficulties . Bonds are one story, theres a classaction suit they are. See more. Ited to the sec investigation is about mortgage bonds or agency passthroughs that Deutsche Bank traded baton of. They were the biggest trader two toe fed on the first ease of these agency passthroughs bonds. Thats one issue that is a markdown issue, didnt mark them in time. The other issue is a classaction suit which Deutsche Bank has seen a timeout. They paid out 14 billion in fines and legal fees since 2012. One of his main goals, which he has repeated it a lot in the past few days is to put an end to these suits. He hopes he can end the biggest ones by this year. David thats matt miller, coming to us. Vonnie time to go to europe. Finance ministers are meeting in brussels to conclude greeces bailout review, the most recent bailout review. We go to ian wishart for more. They have been a disagreement about what greece should do with 360 billion of debt. Any agreements after the last few weeks . Ian absolutely none. There is far apart as they have been for months, really. The disagreement is on the european side, they want still sohave conditions on greece the debt relief only comes once greece fulfills certain conditions. The imf wants a lot more security, a lot more confidence for investors, so the debt relief would be decided now, it would kick it automatically. There is no sign the two sides are going to agree. The imf technically doesnt need to be involved in this program, but a lot of the european nations want the imf on board. Extent,to a certain does this work to greeces advantage . Greece can just tiptoe out the door and continue on its merry way. Ian its funny, weve gotten used to seeing these big latenight summits in brussels develop into big arguments between the greek government on one side and International Creditors on the other. As a totally different, because greece is just sitting back watching its two parents a squabble over whether greece has done enough to give the money. Get a sense, greece is always going to get this 11 billion innds before it needs to pay july. In a way, this argument is not immediate, its very important, really that the decision is made sooner rather than later. Vonnie ian wishart, thank you so much. Jonathan lets talk turkey, bring in simin demokan. We have had a couple of rate cuts, let me bring you up to speed. The Central Bank Cut the overnight lending rate to 9. 5 , top of the record or top of the rate corridor, expect to buy the majority of economists. The overnight rate is left unchanged. The lira continues to strengthen, but it began with that Cabinet Reshuffle and a little bit of surprise over the deputy Prime Minister. Talk me through it. We saw market relief rally early today when the prime announced his new cabinet. Investors were eagerly waiting to hear the fate of the deputy Prime Minister. He is in charge of the economy. They wanted to know whether he was going to stay or go. That he isunced continuing his position as deputy Prime Minister. This is extremely welcome by the Financial Market as they trust him. He has long been in charge of the economy, and the finances well in turkey. Then we saw the lira strengthening against the dollar. It gained around 1 . Before this announcement, the turkish lira was actually nearing record lows. Per dollar. Ss three and welcome announcement from the Prime Minister designate in there. Jonathan ive been looking at mix onkish lira, and the dollar lira has been ticking higher. Turkishrtainty over assets continues. That volatility is very much sourced by politics. Where do we go from here . Does the president continue to try and consolidate power away from the prime misters role to the president s role . Simin 100 . That is the Prime Ministers main mission. He has been saying this. He is saying that hes going to be changing the constitution to a president ial system. This is exactly what the president wants and loyalists, which the new Prime Minister designate is says this is his number one mission. They will be following this through 100 and try to change the constitution so his grip on power becomes tighter. Demokan joining us from the stumble. Coming up on bloomberg , the importance of dividend growth. We revealed what the aristocrat index is, and why its time to start paying attention to it or it. Toid joe staley joins us talk economy, and later, Morgan Stanleys Ceo James Gorman joins us in a bloomberg exclusive. Find out he is how he is putting work money to work in china. More , is next. Jonathan this is bloomberg , on Jonathan Ferro. It features in the United States positive, doubt futures of 50 points. Futures up by 54 and. 50 points. Deutsche bank trading high as by their credit downgrade. Switch out the board quickly, cable through 146, it looks like the remain campaign is building some momentum at the polls, yield unchanged by the 10 year at 124 . Treasury, it big auction today over 20 billion worth is the rate hike projections really start to get recalibrated. An auction is very much in focus. Wti down by. 4 . Heres Abigail Doolittle. Abigail we do have shares of best buy down sharply after the Consumer Electronics company put up a big firstquarter earnings and sales beat, earnings by 27 , 14 Quarterly Earnings beat in a row. Secondquarter guidance for earnings is well below consensus , investors are not liking that with the stock down 5 . Theres a big shortage. It could be under pressure, in fact, dan binder saying a new product cycle is required to create something of earnings upside here in the future. Skipping to the other side of the pond, we do have imperial brands, the u. K. Based Tobacco Company trading higher in the market today. This after barclays upgraded the shares to an overweight from an equal weight and simon hill says he sees margin upside of potential here. The stock is down relative to the s p Consumer Staples sector over the last three months, there could be catch up potential for imperial brands. Coming back here to the u. S. , taking a look at another Earnings Report we have full Brothers Trading nicely higher here in the premarket that comes with the u. S. s largest luxury homebuilder did beat firstquarter earnings estimates yesterday. A nice beat by 11 . They made . 51 per share for 38 growth yearoveryear. 28 brothers is down relative to a homebuilding sector down 6 , there could be catch a potential here for toll brothers. Returns have been about dividends, fairly. Take a look at this chart. If the s p 500 aristocrats index. If you havent heard of this, it tracks increasing dividends every year for at least 25 consecutive years. The companies that do that are on that index. Its outperform in the s p, which is the wide line year to date. You can see that spread slowly increasing. On the other side, a Huge Hedge Fund cutting its fees on some hedge funds just to keep investors on board. Joining us now is mark lehmann. You have the hedge funds cutting their fees to keep the money in the game and investors are desperately looking for returns. Whether you get it from reducing your fees or youre going off of dividends, that chart is the spread carrying on like this. Mark companies have been hoarding cash for a long time. Investors are waiting for other them to do something with it or give it back to them. Thats a famous example of with carl icahn apple recently. They made it happen. I think companies are really finding if they find a place to invest the money, theyre going to do that. If shareholders are going to force the issue, maybe dividends will be a place to return the money. Regulation and other things are causing companies to curtail their investment. We need to find a way to spur that investment, and of dividends or the way to go, its telling you they think they cant find a place to put the capital. Jonathan you look at this massive hedge fund, one of the oldest, one of the most wellknown, also one of the most extensive. Forget you and 20, we were talking about 2. 75 to 27. Thats been brought down. Do think the pressure continues to build on these hedge funds to cut fees if they underperform . Mark i do. Weve seen that in mutual funds and other places. If you are not going to outperform, thats the best game in town. 220, even higher than that. If they are not going to perform and fewer and fewer funds are doing that, theres when we loss of pressure and less allocation for some of the asset allocators to that asset class. In a low return environment, where most people would accept a high civil to return, 20 of 9 is to present and change. 20 of 30 , which is what some of these people got in the 90s made sense. Right now, thats not make a lot of sense. Vonnie dividend growers is a price to perception to perfection. Thats where people have been going instead of bonds. Mark i think thats right. You very low environment, can buy mcdonalds or countless names where you are seeing low singledigit growth, and i think people are very excited about that, even with the alternatives are. It is crowded, but as long as these companies are performing in the dividends are growing even ever so slightly, thats a great environment. David basically, investors are agreeing with the companies. We dont have that many good ideas to invest in, we would rather give it back to the shareholders. They say we are not sure the company is doing that good at all. Mark i dont know if that is a virtuous circle, but i think in this environment, where yields are so slight and companies are having a hard time, the noise is getting louder. I think that companies are listening. In an environment where congress is not getting along, where regulation is kind of going the way its going, which is not getting any less, i think companies are deciding hoarding cash is not a sign of strength, giving it back to the investors is. Jonathan is piling up on data sign of strength . We saw the story about cash on Balance Sheets, but you have to put the debt column there is well. The amount of debt that is piling up on the other side. Mark thats part of it. In a low rate or no rate environment, going down your Balance Sheet is the right thing to do. In an equity market where theres not a lot of velocity and capital raising, that we see him of putting debt on a no war low rate for 10 years, 20 years, 50 years is seen as very prudent by boards and companies. Thats what theyre going to keep doing. Jonathan mark lehmann, staying around. Vonnie coming up, tech difficulties with the nasdaq under performing this year. There are areas of strength. Check out this charge. Mystery stock is jumped more than 4 year to date, and some people say the gains will continue. We reveal that winning stock, next on bloomberg. David the nasdaq has been a flooring underperforming because tech stocks have been down. Performance of a tech stock up for percent. The question is, can you guess which one it is . Its sales force. Mark lehmann thinks that still has room to grow. Salesforce has done well, but its been spending a lot of its revenue on marketing. Some people wonder if they can keep up with that pace. Mark i think they will keep spending their money on marketing. As they grow, the percentage of revenue they are spending on marketing is decreasing. So this quarter, their operating margin was up almost 300 basis points. This extraordinary. Its all 14 . Its up almost 14 . The ability to leverage that the starting to show through. I think that companies doing a great job of bringing that to the bottom line. David do they have further to grow within their marketplace or they going to move into other market places . Mark both. They did a nine figure deal this quarter, and a couple last year, but a nine figure deal, thats extraordinary. As well, the cash flow is growing over 40 . For a company this large to be doing that is really telling you they are executing, and their strategy is really taking off. Vonnie the continued success continues to be them keeping the market to themselves. How are they going to do that . There are not that many barriers to entry to what they do. Mark there is not. But this is a company of great scale. Theyre goi against Companies Like oracle and sap and other large incumbent vendors, and gaining market share from some of those players who are little less nimble and are busy making lots of acquisitions and doing a poor job of integrating them. Salesforce. Com has great opportunities to gain share common with these nine figure deals, they are not only going in to large business, theyre going to Big Enterprises and governments and huge corporations. And thats accelerating, and they are bringing that to the bottom line. That one of the things made this possible is the cloud. Its been growing dramatically. We have a chart to show with a cloud is going. You see the white line shows its growth, and although the yellow bart chart actually shows the momentum is starting to trail off little bit on cloud growth, where do you think its going . Mark i think its a force that will not slow down. There may be times that relative growth is going to slow down, but the cost and benefit is just extraordinary. And the ability for them to leverage that, for companies to leverage that were seeing it with Amazon Web Services and all over the place. That slow down as you describe is only because of scale. Its not anything to do with momentum. Vonnie Amazon Web Services is providing infrastructure for the cloud, anyone who operate in the cloud, is like field joke its not the cloud, its just some of the elses computer. What gives them any advantage . They all have to eventually. The cost benefit is extraordinary. The on premises cost is a thing of the past. Theres just no way you compete. Amazon web services, google services, microsoft, you are seeing the people have an breach that early. Salesforce. Com, their old logo was the ghostbusters sign through it. Thats where we are headed. David mark lehmann, thank you for being here. Ceo jesp, Barclays Staley sat down with us and revealed what he thinks the public is too pessimistic on the global economy. More go is next. Jonathan this is bloomberg , im Jonathan Ferro. Top of the screen, sterling assets up. 8 . The Brexit Campaign with one month ago until the june 23 referendum, and remain if youre looking at the composite poles is building some momentum. Sterling is pushing higher as well. The pound up by. 8 . Statistically, that is a rare are move that something you are saying with the aussie dollar. Cable is very much on the move on the back of the momentum as Governor Carney addresses lawmakers in the u. K. Brent crude down by another point percent a. 5 . Thats the longest losing streak since january. A softer session for commodities, stronger and firm for equities. Lets get some first word news now. Human remains may hold the answer to questions about what caused the egyptair plane to crash. A forensic official tells the Associated Press that body parts suggest there was an explosion on board the plane. Examined thoses remains. Other Officials Say they believe terrorism is more likely that equipment failure. In france, every oil refinery has either been shut down the labor dispute or is suffering severe destruction. It led to fuel shortages across the country. French workers are protesting plans to reduce overtime pay and to make it easier to fire employees. President obama pushed back against vietnam today on its human rights record. Hanoi, the president said he still has concerns over the way vietnam treats its own citizens. Obama United States does not see to impose our form of government on vietnam and. The rights i speak of i believe are not american values, i think they are universal values. Written into the universal declaration of human rights. They are written into the vietnamese constitution, where you have the right to assembly, the right to association, and the right to demonstrate. Vonnie the president noted that vietnam barred some of the people the u. S. That invited to a meeting. Global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. Thank you,jonathan vonnie. Governor mark carney has been testifying over concerns that the potential of the u. K. May leave the European Union. He discusses the consequences. There is, in our judgment, not just my judgment but the judgment of all the numbers of the committee, there is a degree of uncertainty at the moment. We see it in the uncertainty indicator. The question is one has to be careful and humble about the exact mapping of that uncertainty to direct impact on underlying economic variables. Jonathan consider the fed chair going in front of congress, thats what this is kind of life. Tom keene is joining us from bloomberg surveillance radio, with the exception of this is a lot more tense than it has been in the previous testimony. Tom you could feel the tension wonder, june 23, you where it will be june 10 or 11th. I like what richard haas said this morning, its a shock that no one can see coming. You really wonder what could be the shock they could adjust or amend it either way as we go to the 23rd. Jonathan this friday, its a selfimposed quiet time. Tom mind is to cook cork in it. Thathan moving up to point, if the polls are anything to go by, very much behind the remain campaign. The sense that you have is it working . Tom i dont have an opinion. I think its such a unique domestic moments that people outside just we cant get a true handle on it. On very nervous to opine what i think will happen within the gritty united kingdom. I just dont think im qualified to do it. Says thisrichard haas is political fragmentation. There are two big local questions to be answered. One is the uks future in the eu, the other is the president ial campaign as well. If one is looking more certain than the other, tom you wonder what tomorrow will top the day before. Sides, we are beginning to frame how ugly this campaign will be. Theres a grand american tradition of ugly campaigns. Its nothing new to have brutal president ial campaigns. People in england are appalled by the length of the president ial process. If its this much fun now, i cant fathom where will be where we will be starting labor day. Jonathan many people are appalled by the substance of the campaign and the u. K. As well. Its been ugly, ugly, ugly for both sides, and i wonder if that has a Lasting Impact on the economy. The amount of uncertainty that has been built up globally around these theres no question about these uncertainties in america in the united kingdom, and for that matter, and austria coming over and affecting the economy. But to a person, every interview suggest that the subpar gdp we are seeing i did a chart donald gdp. Trian the animals. Of austria. Just as a rule of thumb, its weaker than it was 10 years ago. S the heart of the matter is weak Economic Growth is leading to all of this upset, which falls over into the markets. And into the stuff we look at every day. Jonathan tom keene from bloomberg surveillance radio. Thank you. No self and poor no selfimposed quiet time for tom keene. David now to a bloomberg exclusive. Barclays Ceo Jes Staley spoke earlier this morning with francine lacqua. Go live to brussels. What to jes staley tell you about the world as he sees it today . Francine we had a very comprehensive conversation, about 15 minutes long and we talked about risks and negative rates. He was telling me that this is a big tight and shall experiment. Its a mobile experiment. He doesnt know the endgame from negative rates really is. I asked him about china and the brexit concern. In the global economy, we clearly have to adjust to a drop in commodity prices. I have a lot of confidence in chinas ability to manage the transition in the chinese economy, and i think actually we all may be a little too pessimistic on the outlook for the global economy. I dont quite see the risks they are. I also believe that the Banking Industry is so the risk d erisked from where it was before. Theres trading done by institutions that have very little capital. The Operational Risk of those institutions trading through primary dealers into those most liquid markets, its a little esoteric, but thats a risk think we all need to keep our eye on. Francine that would be systemic . That would be something that if people dont keep an eye on, connection to bring the system down again. Jes we need to be focused on the most liquid markets and the players that are leaving the liquidity in those markets and how much capital to they have , and atheir positions how will the market adjust is one of those get into trouble . Forcine what will it take investors to rerate european banking stocks . Jes a view that we now have pretty stability in how realtors will deal with banks going forward, thats the most important thing. We need to believe that we are at least at the beginning of the end of the Regulatory Environment for european banks going forward. I think we need to believe were at the beginning of the end of the conduct issues. Whether its rmbs in the United States or ppi in the u. K. , there needs to be a sense that we have a vision to some pretty stability around the Bottom Line Results of banks. Francine do you feel is a level Playing Field . Jes i think the regulators have an enormously difficult task of reregulating this vast complex industry, the Banking Industry. To trythey have a goal and make it a level Playing Field between home countries and post countries in european banks and u. S. Banks and asian banks trade is not one to be perfect, its not perfect today. I have confidence that the regulators want this to be a level Playing Field, they will make the course corrections as we go to allow that to happen. Francine we are a month away from the brexit referendum, do you feel theres a discount on barclays because you are in the whirlwind of possible brexit concerns . Jes for sure, the markets are being impacted by the uncertainty of this vote. It is an historic vote, for sure. Has said in his letter, our view is that the best thing for our customers and our client in the u. K. If the u. K. Votes to stay part of the European Union, but for sure as we get to that date, the uncertainty will impact Financial Markets. You have ao contingency plan in case brexit happens . Jes we manage the bank to deal with all contingencies, we are very comfortable with our ability to manage any stress that will calm our way. The clearly, we hope that the u. K. Stays in the European Union. Francine are you planning or is there a plan b to move bankers . Jes we plan for everything. Francine is there a concern that somewhere like berlin or paris or frankfurt becomes number one in the Financial Center of europe . Jes the history of london being one of the worlds greatest Financial Centers is very important for the u. K. Very important for barclays, obviously. We look forward to our presence in the Financial Centers of the world being new york and london. Can you see how cautious jes staley was when talking about brexit . He says given the polls are suggesting the u. K. Will decide to stay within the eu, hes a little bit comforted by that, but he certainly wouldnt comment on whether they would move bankers outside london, and he wouldnt comment on whether he thought london would lose is number one place as a Financial Center and Financial Capital in europe. David cautious undiplomatic. I want to go back one half step, when jes staley says the biggest risk is this lack of liquidity on the part of people trading in some the biggest liquid markets, and that this is a Systemic Risk, you have to pay attention. Did he give you a sense of who these players are, and what could be done about this . I tried to get him more on that after the interview pointing ton he was was basically regulators need to make sure they do the job properly. This also has to do with the fact that maybe some of the investment banks are shrinking to a point where we dont assess risk as much as we should. We are in a better place and he told me three times we are in a better place than we were in 2008 right before the fragile crisis. Its either regular chinese to step in or watch for Systemic Risk, so that could be in these liquid markets. Because they are liquid, people dont tend to see exactly whats e, and he seemed to point to some of the effects we look at day in and day out. Jonathan francine, he referred to zero and negative Interest Rates as an experiment, being very diplomatic. As an investor, you are looking at Company Prices 0. 53 times book, what did he have to say about that and what was the message for investors . Francine there was one clear message. He has been in the job for six months, that every thing is going to plan, but he is not going to say that he has been doing a great job so far because he wants to give himself time to turn the company around. When speaking to him, it seems he wants to give himself at least the year to make sure that things really are going to plan. Remember, barclays in the First Quarter did a little better on the trading side than some of the rivals. But it comes from a very, very low base. If you beat your rival but your rival is doing really badly, guess it would be prudent not to say everything is rosy. C and to be ok, but he just wants to make sure he sells capital seems to be ok, but he wants to make sure he sells these points. Jonathan you can find an interview will on full on the bloomberg terminal and on bloomberg. Com. We continue to bring you more from Morgan Stanley Ceo James Gorman, he reveals how his company is putting some money to work in china. David this is bloomberg , im david weston. To know the top of the 00 hour, we are joined by Charles Schwabs chief Investment Officer at Liz Ann Sonders. Vonnie concerns over chinas recent slowdown could be overblown. This is according to Morgan Stanley Ceo James Gorman. In an exclusive interview with stephen engle, he expressed confidence in the worlds secondlargest economy. Have a listen to what he had to say. James its the second largest economy in the world, its growing last year and six when i percent. Whether thats exactly right or not, it certainly growing at a thandemonstrably faster the rest of the world trade the thirds largest economy in the world with japan has negative growth. Forced largest is germany with 1 in the largest is u. S. With about 2 . I will take six plus percent any day. Percentagewise, yes, its slowing. China accounts for nearly 35 of growth. How about the unvarnished view on china . Saying the debt problem at the banks is far worse than anyone is reporting. Upwards of 22 of outstanding credit she says the chinese Banking System will go in pl npl by the end of the year. Needing big bailouts. Npl is going to rise. The chinese economy is a complex , enormously complicated set of things going on, moving from an export led economy to a domestic demand economy, moving from a savings economy to consumption economy. All of these changes are going to happen without some bumps, and the npls is going up. Arefour big chinese banks tremendous earning engines at the same time. You have a 33 joint venture, which is the maximum allowed, the brokers joint venture. Before that, you have the sec before the five years ago, would you ever consider, given the complexities in this market, going alone if they were to raise the ceiling to allow you to have 100 . Was a joint venture pressure to joint Venture Partnership the best way to go . Wees over the long run, like turning control the businesses we have around the world. In the medium term and short run, we often got into markets in a joint venture type structure. You get the advantage of the local expertise, its a Great Institution its been a Great Partnership or Morgan Stanley. What would be your expansion or headcount plan for asia . Where you looking to grow . James asia has been on the back foot, and i think with rates rising you will see further liquidity coming of the markets here. Im not sure there is accelerated growth in asia relative to whats going on in the u. S. Longtermaid, we are buyers, if you will, of china and of greater asia. We have a tremendous operation here in china, and of course, across hong kong and the rest of the region. That was Morgan Stanley chairman and Ceo James Gorman with stephen engle. Interesting to hear the two back and now berkeley ceo Morgan Stanley ceo, both saying we are counting on china. David the question is what part of china are we counting on . The part thats regulated heavily in keeping their hands on all the triggers were the one thats trying to liberalize and get rid of that. China is going into different directions. Jonathan there was a phrase about the paralyzed volatility in the First Quarter. The source of that, a lot of it was from china. The fed is feeding into that with a stronger dollar and at the forefront of everyones reading today with a wall street journal piece. The very idea that if the pboc scraps that policy to have a market to terminated u. N. Fix, and the idea that they would just sit the u. N. Fix based on what the authorities saw best david they wanted more purposes,for domestic so they tried the market and it didnt work so well and they backed out. Jonathan thats going to really adjusting. If you expect the fed to high can you expect the stronger dollar, look out for whats happening with the currency in the u. N. And look at what happens at the fix as well. Immunity based on the market moves. It could be completely the opposite. A fantastic range of interviews right here on bloomberg. A firmer session for global equities, the ftse up by. 8 , over 100 points. Futures in the United States are firmer as well. Switch of the board very quickly, lets get to the other Asset Classes. Cable at 14614, sterling assets stronger on the back of a series of polls showing remains getting some momentum ahead of that referendum on june 23. Up next on this program, is the federal data dependent . We look at Economic Indicators that might be points of contention if the fed were a hike rates this summer. Off the charts is next. David this is bloomberg , im david weston. Its time for off the charts. We keep hearing how data dependent the fed is, but which data . That, abigail is going to show us the chart. Making Richard Jones is a really interesting point here when we take a look at a chart of both Manufacturing Index and also gdp, we see that both are moving down. So not necessarily hawkish, you would say that would not support the fed raising rates, and it certainly does not support all of the bullish fed speak we have seen recently. The Manufacturing Index is close to 50, thats the dividing line between contraction and growth. David the blue line is . Abigail this is gdp and this is manufacturing. David this is in terms of positive sentiment. Abigail if he goes below red handed signals we are in a contraction. David this is neutral. Abigail so to speak. It is certainly pretty close. As we were thinking about before, we are now on the information age. Technology does require fewer workers. David this is manufacturing. Abigail perhaps we are moving away from less of the made in the usa, as much as many people dont want to say that. When we take a look at a chart of manufacturing and services, we do see that most recently, services in blue have started to outperform modestly the manufacturing in white. So perhaps services will lead the way in this information age. But the bigger point here is probably the big decline out of 2014. Theres little question that the economy is not quite as strong as it had been before. To june ofou go back 2014, its substantially below where it was. At 52 or so now. Abigail exactly. So to the point of whether the economy could handle a rate hike, this data may not support that idea. David with these data shows a slowing economy. Probably not so hawkish. Abigail probably not so hawkish. David which data will affect their attention to. Jonathan, back to you. Jonathan we are joined by Liz Ann Sonders from Charles Schwab. Find out when she sees a rate hike coming and how she is managing the recent commodities slumped. Firmer,es away, futures down futures up 63, s p 500 futures up about. 4 . The rally continues in europe as well. Softer throughout much of the session, a tick higher with wti up. 25 . The performance in the fx market is sterling, cable at 14611. With the briggs a campaign at the forefront of everyones mind ahead of the june 23 referendum and remains, building some momentum. David rate adjuster, athletic dealing with negative rates in japan. Find out how they maintain profitability, despite the challenging environment. The stronger dollar continues to weigh on oil prices while gold is captain its longest losing streak in more than two months. As the commodity market comparing preparing for a summary hike . Vonnie the key demographic of brexit supporters have flipflopped, deciding to support david cameron. David welcome to the second hour of bloomberg. Im david weston with Jonathan Ferro and vonnie quinn. We have a great second hour of , ahead of us. Jonathan were joined by Liz Ann Sonders for the next 30 minutes, and then later, aflac us how amos will tell the company is trying to adjust to negative rates in japan. The adventure of whats happening globally with futures firmer here in the United States, of 131 and dow futures as well. In europe, the dax is comfortably through 9900 points up by one full percentage point. Switch of the board into the bond market with 10 year yield unchanged at 124 . A big auction at two years coming later. 26 billion worth of supply on the front end, to your auction is one to watch ahead of the potential next rate hike from the fed. Cable is up. 8 . The briggs a campaign and focus and remains with the momentum and a bit of a turnaround in the oil market in the last 30 minutes, wti is pretty much unchanged at 48 and . 14. Lets get Abigail Doolittle. Abigail in the free market we do have shares of best buy down sharply after the Electronics Consumer company beat recorder firstquarter estimates. But guided Second Quarter earnings well below estimates by as much a 24 . Sticking with electronics we have shares of sony trading down in the premarket after fullyear profits fell short on waning demand for smartphone chips and it looks like the overall net income could decline by 46 in fy 2017 on continued uncertainty around smartphone demand. And lastly, in retail we do have another stop down sharply, dsw designer shoe warehouse, the company slashed its fullyear earnings view, its been an ugly quarter for retail and it looks like its ending that way with this negative report out of dsw. David i think in going to take it, it was ok, abigail. Patrick harker speaking about the feds next move yesterday. Watch what he had to say. I cant give you a definitive calf for how policy will evolve, i can easily see the possibility of two or three rate hikes over the remainder of the year. David Fincher Janet Yellen is set to speak in harvard later this week, and again early next month before the fomcs next meeting. Joining us now is Liz Ann Sonders, Charles Schwab Senior Vice President and investment strategist. How busy is the summer going to be for the fed . They going to raise . Liz ann you have to take them at their word. I have to give a shout out to a friend of mine. He was the Vice President where i went to school. I do think there may be a problem with too much transparency and too many words, it gets confusing the markets to some degree. They have clearly honed in on the message about june or july. I think the briggs a vote is the key to whether they often to wait till july. Is a lot of assumption that they would not move in a meeting that doesnt have a press conference, which is july, and they can always add a press conference, and possibly the reason why they are being so vocal about the possibility of june or july is to give them the wiggle room to move into july having telegraphed it sufficiently and doing it at a time when theres not a presser. David to put yourself in the position of janet yellen, you are on the one hand trying to keep some flex ability because you dont know exactly where the economy is going. On the other hand, you dont want to surprise the markets. How do you balance that when you are trying to communicate what you are likely to do . To ann they are attempted do that right now. She has sort of corralled the troops, and whether or not they are collectively an agreement whether she just corralled the troops and said this is what we are doing, get the message out i think if they raise rates in june or july and people are surprised, they havent been paying attention. Vonnie it took all of that rhetoric in the last week and a half to move expectations from literally zero to 32. Liz ann the fed minutes a started that process, and that it was reinforced by the messaging. I think they do have to do that. I think they are trying to gauge the markets for whether or not this is going to be unsettling like it was in december. Vonnie do you see a time before we get back to normal Interest Rates and the terminal value with the fed begins to be quiet again, were transparencies and so transparent . Isnt so transparent . Move in id like to that direction, maybe not to the lack of transparency we had in decades past. As a mentioned, corralling the troops a little bit, trying to hone the message may be with fewer speeches, but more pointed in terms of what the messaging is i think that would help the uncertainty factor that has come into play. Pre1994 ihe got it straight going forward, it was all about the feedback loop, the idea that the fed steps forward, the dollar markets backup and they snap back again, do you think we broke that loop . Az ann its a little bit of chicken and a negative, is it a rhetoric by the fed that causes movements and currency which in turn leads to tightening financial conditions be in the credit markets and yield and volatility, or is it the other way around . Our financial conditions tightening, timidly starting with the currency avenue get the same thing, that causes the fed to be able to be more dovish and back away. We have been in this loop for a good year. Where you get these tighter financial conditions that allows the fed to back away, and then financial conditions loosen in the fed steps back in. Its critical i think we stay in this cold zach we have been in for some time. Culdesac we have been in for some time. I think we finally started to see some stability in the currency markets, a relatively stable dollar is the best of all worlds for the u. S. Economy and market and i think global economies. The volatility in the currency markets, which in turn leads to disruptions in the credit markets and volatility in the equity markets i think that would keep us in the loop. What i like to see more stability . Sure. Whether thats going to happen . Not so sure. David we are relying on these banks. Liz ann all the weight has been put on Central Banks. Its a global phenomenon. The absence of any meaningful fiscal policy in the u. S. Has put the onus on Monetary Authority to fix what ails us. Im not so sure they have all the tools to do that. Vonnie lets say the fed does move in july, june or july. Then we have towards the november election, does the market and become uncertain about the elections . What happens in that scenario . Thought thats a the fed would like to get another rate hike in significantly before the election. I have heard many people say the fed is never going to tighten close to election or even in an election year, there is no history to support that. They have done it plenty of times. Lets say this is a unique election cycle with a bit more uncertainty, not just because of the unique characteristic of the folks running, but its your ear eight. We dont have an incumbent. Eight is actually the most from with volatility. Its the only year or the u. S. Equity market on average has been down. I think they are probably reflecting that natural uncertainty, within the additional uncertainty because of how much more chaotic this election is likely to be. Jonathan the yield curve, in get as section we twoyear bond. Those notes, 26 billion worth. At the moment, its an ugly for the last week for the front end. Do you expect that to continue . The factor onnn the long and has been the differential on where we have been from a rate respect of an Economic Perspective on the rest of the world. When you go into a negative rate environment, that really incentivizes a lot of Global Investors to come to the u. S. I think a lot of that downward pressure or cap on the long end in terms of yield has been the thing that has been more important in conspiring to flatten the yield curve. The 95 basis points or wherever we are, we are quite far away from an inversion, which i think would send it a significant red flag about the economy or the market. David Liz Ann Sonders, Charles Schwab chief investment strategist, she will be staying with us. Vonnie lets get first word news. According to one egyptian official, there are signs of explosion brought down that egyptair jet in the mediterranean. Officials told the Associated Press that human remains suggest there was a blast on board. But he cant say there is nothing to indicate what caused an explosion. Egypts staterun news Agency Denies that whole report. Egypt and officials of sent terrorism is the most likely expiration for what happened and not equivalent failure. After praising the new warmer relations between the u. S. In vietnam, president obama is using the second day of his visit to promote greater freedom for the countrys citizens. He said in a speech that better human rights would improve vietnams economy, stability, and regional power. The bank of England Governor Mark carney told lawmakers its his job to tell the british people about the risk of leaving the European Union. He denied accusations that he was coming to likely involved. He defended the forecasting saying a brexit could lead to recession. Global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. Jonathan defending the Central Banks independence as well, its Governor Carney versus the mpn north east somerset. Its a soap opera. Vonnie the finest line where the central bank in a political issue becomes intertwined. We had that in the u. S. Frequently, but not specifically. Up, we have ang commodity crash, gold falling for a fifth straight day, find out how the rising and slumping commodities are impacting global markets. Thats next on bloomberg. Jonathan this is bloomberg , im Jonathan Ferro. Gold seeing its fall is drop, Brent Futures down at one point higher with the potential of we do close lower later today for the longest losing streak since january. Liz ann sonders from Charles Schwab is still with us. Whats happening in the commodity market and whats happening with rates in this thirst for yield . Were looking at the potential for a low thats continued because some of the suppliers are busted by whats happening in the rates market. Think the recent pullback in commodities at this stage may not be anything more than just technical. You saw and unbelievable lift off the bottom. You saw the reversal in the technical, we got overbought. I also think sentiment has come into play more in the gold market come in the commodities market, even in the currency market. There are vehicles now through which any investor can get exposure to those Asset Classes. And when that happens, you are more at the mercy of crowded trades, and crowded trades. But if it was a factor more than anything else. I wouldnt yet right off the recent recovery in commodities, i think this may be just a blip. Is commodities fluctuation driven largely by the dollar . If you look at the markets daytoday, if the dollar goes up emerging market and commodities go down and the reverse is true. Liz ann yes and no. Recently youve broken the inverse correlation between oil on the dollar. You can go through time when you dont hold a traditional correlation, but certainly during the big up move prior to 2008 in commodities and conversely down and in the recovery weve seen recently, generally you saw that inverse relationship. You can see that break down as we has recently. You say this may be a blip, do you also include oil there . Could pretendh i to be more expert on oil than anybody else. I do sense that there is some semblance of a sweet spot, where you have enough of the recovery that you have to breakeven particularly for u. S. Producers and shale. That varies region to region, and certainly down a 25 you are well below breakevens. And the news to deal with the default stock which is still a part of it. You get up to a level thats above break even to keep that production part, but you dont yet hurt the consumption part, which is 69 are in by convention, you need that little bit of a sweet spot. Whether where we recently were or still are is in the sweet spot range, got to think something more like 50 is better than 25. But i think more stability in prices, thats been a factor in terms of the implications for consumption. What surprised a lot of people is that the crash out at 25 to. Result in a big surge of consumption. We didnt get that windfall for the benefit. I think that skepticism is sustainability of low prices on other also a much smarter and more conservative consumer that is not going to take that windfall and turn it into immediate consumption. Spot, there is a sweet and not sure if 45 to 50 is the range. Jonathan as a consumer unwilling to spend, does that translate into a smarter one . Liz ann they have been burned, even though by largely deleveraging the private sector has passed, debt levels of come down to much more regency reasonable levels. I dont think were going to go back to the kind of debt fueled consumption we have seen in the past. I think maybe its not smarter, but its certainly more conservative and maybe out of fear more than anything else. David do you think there has been a permanent change were relatively permanent change in the attitude of the u. S. Consumer, or is this more matter of were going to get our Balance Sheet and pay down our debt and then the conceptual pick back up . Liz ann i think its a relatively permanent change. If you look at Household Debt as a percentage of personal income, not only is that below the longterm trend line, its actually sitting on the predebt trend line. If you look at debt servicing costs, incredibly easy right now. Most of the metrics that defined leverage on the part of households suggest they are in a position to spend more. I think were going to have a cap on that by virtue of the muscle memory of what they went through. Cycle onhe debt super the upside, we are still in the aftermath of a, even if the metrics around leverage suggest that the consumer is back in relatively healthy shape. Whether i just wonder a thomas in the mainstream economy has the whole view of the u. S. Economy very wrong. Once it started producing 9 Million Barrels of oil a day, Lower Oil Prices didnt necessarily mean thats good for america as it may have done in decades previously. A much we have become bigger factor in global oil production. Therefore, it had a bigger impact, whether it was from or from job growth. The aggregate numbers are still relatively low. Is au look at oil and gas share of total u. S. , its only about 4 . The bigger weight if you just look at the s p companies. If you look at jobs, its still a small fraction. But thats where the growth in the excitement had been. When you have, even if its a small piece of the aggregate that had been the fastest grower , you are seeing that, contraction, i think that feeds into confidence. Vonnie where would you be in this market . We saw people recommend dividend growers, if you like all the good ideas are closed. Liz ann we are pretty conservative, we have a neutral rating on equities. You want to still have a cyclical bias, dont snag up to defense, but overall, keep your exposure to no more than a normal risk exposure. Jonathan Liz Ann Sonders, Charles Schwab chief executive strategists staying with us. Final thoughts with Liz Ann Sonders, and later, trading around money little global events. The brexit referendum is more than a month away, find out how to treat it using etfs. Returns. N , vonnie this is bloomberg , im vonnie quinn. Jonathan time for the top trending stories here on the bloomberg terminal. I guess low fees is the new returns. Vonnie this is my pick this morning, and i know you have a great one as well, as as david. Tudor investments is one of the most expensive hedge funds, trimming its fees. Good as that. As the fees were a little higher than that at tudor because it was providing such big returns. Now were looking at Something Like 2 , 2. 25 and 25 of profits. Dan, Hedge Fund Industry more broadly have had to carve to 15 . Even is that unrealistic . Liz ann if you look at the aggregate, its no longer to win 20, i think its 1. 717. There are funds that have had to go to a one in 10 type of model. In a return to constrained environment, last year by many metrics was the hardest year since 1937 to make money. It was not a single asset class that had returns in double digits. I think some of what hedge funds were there to provide is access to Asset Classes that provided that excess return, when you constrained that across the board and you have opportunities for traditional manager or through a basket of etf to do the same thing at a much lower cost, the pressure is on. I dont know whether we stay in this environment, we could eventually be at the point where you hit that crescendo, and that sets up an opportunity for that cadre to do well. The other mistake investors make is they think of hedge funds as an alternative asset class. Its just a vehicle for getting exposure to any number of Asset Classes. If you have a long only u. S. Equitybased hedge fund, that your exposure. Its not this separate, distinct thing. Its a vehicle that sometimes can provide unique exposure in Asset Classes not reachable, sometimes it gives you exposure similar to what you might get in a traditional investment. David you hear about two and 20. Thats the list price. I was at a Hedge Fund Conference on a panel, saying we discount all the time. It depends. Some big institution comes in, were willing to do something much less than two and 20. You can negotiate the deal. Jonathan everyone has been trying to get into the Hedge Fund Industry for decades. We just at a point where its gotten so big that it became the market, where several decades ago we was a Little Corner of the market with big names who used to outperform it. We didnt hear much about the strategies, it just got too big. Liz ann im not a believer that we are the beginning of the end of the industry. Space, wethe retail are over stored. I think we may have been over hedge fund. Vonnie is it individual funds of gotten too big . Strategy, and industry can be as big or as small as demand for being in that industry is. Is. Its just about the brilliant managers. Liz ann sure. Thats why many of them have closed their doors to new money, because they want to manage the asset size and the ability to continue to be nimble. The bigger problem is some of the small players that came in trying to ride that wave, and they ultimately hindsight came in at the wrong time, when the ability to generate returns thats been more of the criticism that you hear, where smarterthe martyr managers are saying i look around the folks managing the money, they dont really have the goods. A longereres also term structural challenge. It hedge funds are basically compensation mechanism, its how much you get commented a for the money, that compensation mechanism make sense when there is high growth, high yield, high returns. When you take those returns down, you cant make out. Liz ann if there are the remaining hedge funds that are able to aegon significant theyns, you could argue can justify a higher fee structure. Think youre going to see that parcel of managers that are able to generate those kind of returns shrink. Liz ann sonders, Charles Schwab Senior Vice President and chief investment strategist, thank you for joining us. Coming up, the brexit referendum is less than a month away and the growing theme is trading around these Major Political events using etf. Find out three ways you can join in on the brexit action, next on ,. Okay, ready . Whoa [ explosion ] nothing should get in the way of the things you love. Get americas fastest internet. Only from xfinity. Jonathan this is bloomberg go. In europe, firm with the dax surgeon high by 1. 4 . The at next market moving along. A weaker euro story, down by. 4 of 1 . I want to talk you about u. K. Assets. If you look around brexit, gaining momentum. The sterling, found pushing 1 . Er, up 5. 9 of the yield curve looking interesting. A little bit higher, around two basis points. Why . Because of the u. K. Does remain in the eu, potential of rate hikes are around the corner. Just about one hour away from the opening bell on wall street. Here is what you have to go, shares plunging this morning after forecasting secondquarter profit that trailed analyst estimates. Best i announced the departure of their cfo, effective at the june annual meeting. Deutsche bank ceo says his bank has never had more capital and could prepay their debts many come over, responding to a Credit Rating cut by investor services. Europeanceo says investment banks are losing control of their own rivals in a bloomberg exclusive. Vonnie first word news time. Lets get you updated. French investigators raided the as part of anis investigation into tax fraud. 100 investigators took part in the raid. No, yet. Human remains may hold the answer to questions about what caused the egyptair plane to crash. Body parts suggest there was an explosion on board the plane. They have examined the remains. They are denied the report. Other egyptian Officials Say they also believe terrorism is a likely cause. The long security lines at u. S. Airports are leading to a shakeup at the tsa. The head of Security Operations has been replaced and the new head is running los angeles and new york jfk airports. News powered by our journalists and news bureaus around the world. Get through those airports, you are ready for anything. Jonathan thank you. We will hear from banks and what theyre looking at this morning. Analyst at Morgan Stanley, check this out, exploring what it takes to be the next 100 billion tech company. Lets work out a fundamental ticket is to first place. What are you looking for . Keyes we are looking for three main points, one, large market opportunities. Two, a bottleneck that will break the ability to get into that value, so it will let that demand start to flow, and three, most important, a funnily mechanism that will create one or two clear winners in the market and will growth the Big Companies and allowed to get you to the 100 billion market company. At 18an you are looking times and 6 billion in net income and that is how you get to evaluation. For company what they do specifically, will we see enough growth to get a company from zero to that point . Keith there are a lot of secular themes in technology right now. We talk about big data, the sheen learning, virtual reality. Lotproblem we run into is a most the crew to big vendors in existence today, google, amazon and microsoft, who have big public clouds, where a lot of the functionality is going to be run out. We are looking at where you can find the next big thing, the next 100 billion Dollar Company and we point to three potential Marketplaces Technology trends. Pbased applications, another is Security Market and the third is the most longterm thinking, the ability for information workers like myself to be able to create applications ourselves, Development Tools for the masses. Jonathan your points on infrastructure, i find that interesting because can the start of be a company that does that question mark a lot of people look at the alphabets of the world and say, they have this on lockdown. Anything that comes in the kind of business will come out of those large companies. Is that not the story for the future . Keys we do agree with that. Part of the reason we look at capbased is that infrastructure , one, is the commoditizing proposition, and it is about how we provide a set of functionality and add a Certain Service level for the least price. And it will be the scale of the economy that drives the market. You have a couple investors that invested a lot of capital to grow large global scale utilities, like amazon, google who has really invested over 15 billion in to get the global utilities in place, so itll be hard to see an upstart thunder this up at current, given the amount of capital needed to catch up to existing vendors. On the other hand, applications is a much easier area to disrupt. It is driven by innovation. If you have a more innovative solution, you could add a lot of value into the equation and continue to innovate on that value and create more efficiency and effectiveness of the business or consumer processes that you are trying to automate with those applications. Jonathan final question, i think this is the most interesting point going poet, who is to say that the companies that could produce these results will go public . Keyes we point to three ofdors, each tied to one these key themes that are already public. For applications, were pointing they have the biggest customer base. We think they target over 60 million information workers today with a broad range of solutions. In the security consolidation been athe network has good job of consolidating demand in their core domain, which is network security. If they could broaden their view to the Security Market, they could be a large vendor overtime. The final vendor is a recent ipo company, and they have created an easy to use application and workflow engine that uses mostly developers. If they could broaden it to all information workers, of which there are millions, that could be a big opportunity overtime to get that toolset into the hands time. Lions of people over those industries with think of the best shot in terms of Public Companies to become that next software vendor. Interestingally report from Morgan Stanley. We appreciate your time. Thank you. David we will turn to one of your favorite stories, brexit. Etf has become a popular to that, and that includes brexit. What are etfs telling us about how investors are positioning themselves . And if you want to get in the game, how can you do it . Eric is here to discuss it. Tell us, if we wanted to that, how would we do it if we wanted to bet, how would we do it . Derek we are seeing the most shares with 2 billion, about 400 million a day, so it is the lion share of the u. K. Category, but we are seeing Short Interest and it has tripled about what it normally is and there has been a spike in the past week. Most people are betting against it or for brexit, but you have to member that sometimes people that on rumors sometimes people bet on rumors, and we saw that would result, people bet way before the impeachment and after, it went down, so there was a lot of hot money, but ew you straight up is probably the most popular way to go, long or short. David we put that interest rocketing up in a chart, but what i am perplexed about is it seems that the momentum is the other way right now. Eric that is right. I think the Short Interest may be them playing the hype in the newsbecause remember, the sort of focuses more on the negative side and the fact that it could happen and you see that the u. K. Etfs down a couple percent this year, so they could be playing that or they are taking a long shot bet. A lot of people play the impeachment couple years ago and lost, so people can bet the wrong way. Vonnie what are likely components of the etfs and what differentiates them . ,ric in the case of the ewu these of the companies you know and love from the u. K. The Biggest Companies get the most waiting. There is another called the wisdom tree, which is an intriguing play, and not only does it short of pounds, which people think it will go down in brexit, but it goes along exporting stocks, which should benefit from weak currency, so this would begin toward Consumer Staples, energy msn financials. Of ways, aboutad 10 ats that focus on the u. K. , but i always go with watcher weight, look at the stocks and holds a look at the sectors and what they are to be did too. David what if you wanted to plan etf doing with the european economy and markets . Make, theymistake to mistake with europe really means, so vanguard europe etf, bgk, has for 2 million. People may not realize how much they have. On the flipside, the eurozone so there are different types out there. Even in International Developed , so mostbout 13 u. K. People will feel the shock if there is a brexit. Vonnie the performance of the etf has almost nothing to do with the outcome, right . It looks like the outcome might it has more to do with what it looks at the outcome might be. Eric that is right. The key is uncertainty. If we see a lot of volatility, performance could be all over the place. Typically, we see the most theon right before referendum or election. Occasionally, there will be a relief rally or something after. In japan and india, we sought to rally extend months after when it was positive. This seems like most of the case of the actual happen up until the boat. David thank you, eric. The pound showing real strength on the back of the momentum. We will keep an i on the fx market throughout the session. Coming up, the biggest hurdle. Japan yielding negative returns and how is the company adjusting to mitigate the impact . We will be joined by the chairman and ceo, next. Vid this is bloomberg i am david westin in the hewlettpackard green room. The short you catch what you miss at 4 00 p. M. Eastern. Vonnie you are watching. Loomberg i am vonnie quinn. Shares of best buy falling in premarket trading. Second quarter profits missed estimates. They also announced the departure shannon maccallum, who has been instrumental in the turnaround. Ratings,bank credit the debt rating was lower than two levels from junk. The longterm deposit rating was. Rom ato a3 they face mounting challenges in carrying out turnaround. Had morehas never capital and could repay their debts many come over. Chinese billionaire is taking on disney. He says the Worlds Largest Entertainment Company should not have come to china and it is no match [indiscernible] they are launching a chain of theme parks. Disneys Magic Kingdom parked go opens next month. I sense a sequel. Battle of the theme parks. [laughter] jonathan thank you very much. Shares of aflac took the hit. Negative Interest Rates in japan. Japan makes up 70 of aflacs revenue. Three analysts have downgraded the stock. Aflac ceo joins us now, dan amos , great to have you. I think there is an understanding on how your business works because negative Interest Rate monitor but not straight away. They matter depending on how long they exist for. Where are you currently . Dan the downgrades are based on price because we had some very well. We hit an alltime high, we in thed the best Quarter Company history, so we are well positioned. The thing that has happened is we had the feeling that Interest Rates were going to continue to drift down, so we invested 70 of our money in jgb early on, so we aware positioned so we are well positioned this year. We have bonds and we have hedged them, so we are well positioned. These interestrate have got to stay low for long period of time to have an impact on this to a great degree. It will probably hit the other interest companies, certainly the like before it hits us because our products and not interestrate sensitive and the third sector products are, so we feel we are wellpositioned and we will have a great year this year. Forie the three downgrades just a couple of dollars and then down to mark performs. So the stronger yen is also helping and not setting a little of negativect rates. Explain what would happen if it reversed. Dan we always said, look at our company excluding the yen, but as vonnie but it is in japan. You cannot say that. Dan we collect the money in the end, they are clients and there will be translated at the end of the corridor is when it is affected at the end of the quarter is when it is affected. Income play in, so we always talked that way, but certainly that yen strengthening, it averaged 1. 21 last year 121, and this year, about 114. That ultimately makes the dollar ultimately,ase, so that has helped us to some degree. David tell us about your business. Why is so much centered in japan . Dan we went over to japan in 1970s, the Second Company to be licensed. First after the war. They did not know what to do about Health Insurance. They had national healthcare, but what happened with that single payer system in japan is they have gone from no copays and deductibles to 10 to 20 and out to 30 , so they have these copays, deductibles that have got to be patently introduced hospitalization policies that help cover the expenses. Today, we ensure one out of four households. David boy. Vonnie the interesting thing about japan is it is a much older population. At the same time, more women are having more babies. We did a story yesterday about the Record Number of babies. It has to hit you in two different places, right . Willwe hope the population grow in japan. That is something we are worried about to some degree. Population. The for example, japan posts, which is really the Largest Insurance Company in the world today, started selling our products a couple years ago when that has anded our business grow diversify in terms of a larger policyholder base, so it continues to do well. David what are other areas of growth outside of japan . Predominantly concentrated on the u. S. And in japan. When i first came to ceo 20 years ago, i knew there was more like insurance we did not have numbers on Health Insurance more Life Insurance in the u. S. And japan than the rest of the world combined, so i decided to Start National advertising and building those positions. It has worked very well. One of the things we try to do is get the millennials more involved. Millennials are very social conscious. One of the things we have done in the United States is we had the aflac Cancer Center, one of the top 10 Pediatric Cancer Centers in america, and we have given over 100 million to that Cancer Center and almost two thirds of it has come from our agents giving it out of the commissions, so it sends a message that we are socially remember, all that matters with us in terms of shareholders is to make sure we make our returns , but if we can be a broadbased company that makes life better for people, we think more people will want to trade with us and by our policies. Vonnie does it carry as much weight in japan . Dan it does. We have 90 name recognition in the United States and 97 in japan. [laughter] dan amos. Ank you, brexi congratulations on the corridor. Jonathan coming up, which companies have the best returns this year. Battle of the charts, on bloomberg. David this is bloomberg. I am david westin. Time for my favorite part of the show, battle of the charts. Abigail, you go first. Come on. A doozy of aave macro chart. It offers a snapshot of the u. S. Economic and financial system. In purple, gdp, the economy, in whites, the velocity of money and then in blue, wall street and the s p 500. 40 years into the financial crisis, all trend along well. And then the financial crisis happens, see a huge divergence for the first time. I would argue that it represents the feds accommodation and actions to save the system. All that money pumped into bond buying sent the money to a record low, but it took us out of the great recession. Gdp stabilized and risk assets go to alltime highs. He couldcenarios where see of the convergence. Lets take a look at the bullish and optimistic, which should mean money shoots back up as it begins to change more quickly in the economy and the s p 500 can hopefully hang on to those. Vonnie its going in the wrong direction, isnt it . Right. right now, it is going in the wrong direction. Record low, so much liquidity but the optimistic reading of it , technically, there are up tos reasons to believe he could see it spiked higher, which would support the s p 500 and economy at record highs. Vonnie oliver . Is not as chart colorful, but somewhat interesting. [laughter] vonnie great sales pitch. Oliver pretty cool. Im looking at the most under loaded stocks. It is admitted cap stock it is the midcap stock. Lets show a little love. This is the p e ratio in the blue. The white line is the performance of the midcap sorry, s p 500 minus the midcaps. What i want to highlight is this it may not look like much but you have an outperformance in the midcap stock this year, and it is not abated thing related to cap size, so they have not seen the same relation relative to the s p 500. You have historic s p 500 up until acaps little change the past 24 months. If you drill down into some of the internal in terms of the market in the sectors, you get an interesting sector. There is one that stands out, big cap financials have done very well. David give us time to vote. Vonnie oliver had me at somewhat interesting. [laughter] that said, i give my vote to abigail. Jonathan abigail as well. Oliver, i am so sorry. David i am sorry, too, but i think this velocity of money is interesting so i go with abigail. Vonnie coming out, we will bring you more exclusive sound Morgan Stanley ceo. Find out how the referendum will play out and how we positions his company. Jonathan this is bloomberg. Financial markets. Risk on, equities in german high, up 1. 5 . Deutsche bank gaining much, despite their downgrade. In the fx, dollar yen looking at what is happening with that risk. You look at the finance minister in japan, some intervention. The yen down by about. 4 of 1 . A look at u. K. Assets with 1. 4 Percentage Points and the pound gaining and remains, getting momentum ahead of the referendum on june 23. Some risk and futures higher in the u. S. We can you down to the market open. We count you down to the market open. David we are just under 30 minutes a way from the opening bell in new york. I am david westin with Jonathan Ferro and vonnie quinn. Coming up in over 30 minutes, an interview with the vice issident, a man that perhaps second to mario draghi and they have a big meeting next week. We will talk about brexit and easing the quantitative is working over there in europe. Everything is talking about it. Vonnie a few thorns in their side, not the least of which is brexit. Well see if they come to an agreement. Joining us for the hour, jpmorgan strategist. It is time for the three stories that matter to markets most right now. We will chat about this. At first story, Deutsche Banks rating, lower than german banks unsecured Credit Ratings. Banksponse, deutsche coceo said that his bank has never had more capital and could pay their debt for time over. Were not going to ask you about specifically Deutsche Bank the financial community, but are there risks s,en it comes to financial european and u. S. , and would you look at the debt the financials as an opportunity . In the u. S. , financials seem from aeasonably looking fundamental standpoint and it is hard to see were additional. Trength would emerge certainly, financials of banks are under a lot of regulatory pressure and Deutsche Bank is no exception. In the absence of a move by the fed, a catalyst like that that brings Interest Rates higher and makes it more profitable as a is probably not particularly priced in. Since that happened, should that happen, it is hard to see were that will materialize. Of course, europe is back in the news and we want to go back to thanks have, but not gone to the deleveraging process that the u. S. Banks have gone through, so significant upset is difficult to see overall. Jonathan the point that ahead of the bank has to come out about the ability to repay debt talks about the conversation around Deutsche Bank currently. You think more equity has to be raised and what does that mean on the other side and for the debt . Standpoint, it that thanks, if you look at Investment Grade banks, which is where most of the banks are, but they have been underperforming the overall Investment Grade space, so it is a reflection of the fact that they are really not a tremendous amount of upsets. We are not looking for the u. S. Banks will looking at any sort of dramatic to tear your mission but in the absence of a specific cause of the catalyst, it is hard to see with the upside will be. David all eyes are focused on john cryan. How much of it is within his ability to make a difference or how much or is he just going to ride out the storm . Oskana i do not really want to be speculating, but deutsche a negative beard since the crisis, so perhaps it of its own ande it is a european bank, so the issues that are somewhat over the issues in europe overall and wall ofay add to that worries. Specifically for john cryan, yes, it has to return to profitability and how is that going to happen when regulators are so focused on all banks . And the Interest Rate environment is emitted. Ahead of number two, the open, the direction of the chinese currency. It is down at 1. 2 amid a potential rate hike and the u. S. A dangerous streak that has not been seen since january. If you look at what is happening with the chinese currency, reports of wall street journal said that they will abandon a marketbased approach. That will make your life a lot more difficult. Where does that currency go . Oskana life in fixed income in general has not been easy. We have abandoned everything we ever have known. Frankly, with respect to the goes somewhat with the fed in the feds policy and with respect to currency. It makes me want to be some what of a quarterback but say, look, the fed should have moved probably as early as a couple of wass ago, when the yuan more stable and the effect from valuations may be would not have been as difficult for u. S. Manufacturing, etc. If this continues, this may be one of the things that the tires the fed from moving because now we are in the territory and we will talk more about this, but we are in the territory where the fed has to move to preserve credibility as opposed to move because of the economic fundamentals, which may have been the case when youre two years ago. Vonnie which may have been the case one year or two years ago. Vonnie does the fed really believe that . It is data dependent. Oskana but it has not been. We are seeing inflation move up, even the pce. Even the pc, which is what they watch in terms of inflation expectations, is on track to be year, so wefor this are definitely seeing, even information on the grade of trajectory, so the fed is definitely running the risk of losing credibility and something they are considering because remember, the april meeting was dovish, but the minutes that came out from the april meeting are sounding hawkish, and this is the time to catch up with Market Dynamic and the currency is moving lower in china and that may derail that. Vonnie how have you been looking at the inception of chinas bond market, the story yesterday about how ridiculous in most is that people can basic on something ridiculous . When you consider investing in china bonds . Oskana i think there is definitely a market for that. World. In a yield starved it is somewhat worrisome to the extent that there is tremendous amount of government meddling, but we live in a world where markets are subject to central bank and government meddling. Last year, we were in a situation where the government basically pervade certain executives from trading forbade certain executives from trading markets, but as long as the price reflects the risk, there is potentially a market. David our number three story is england, testimony would you kate lawmakers today. It features several clashes of anger in less than two weeks since they warned of a potential recession should the u. K. Leave the eu and ill put you on the spot, jon, is this really you are british, is this real . Is there a real threat to the independence of the bank of england . Or is this just theater . Jonathan absolutely yes. They said he should be fired. They think he has gone too far and deep into the brexit debate. There is simply that the bank is being kept down to the referendum of scotland a lot more than the eu and u. K. The treasury has put out a report saying that the projected outcome, if there was a brexit, would be negative growth. With an asterisk and asterisk they may have an underline for the monetary response. The bank of england has failed to follow up and sit with the response would be. They said the economic consequences would be dire and ok, then tell us what the monetary response of the and they have not done that, so their view has open them up to criticism. The economic consequences may be dire, but i would say that the political [indiscernible] are possibly the Biggest Issue on the table because the economic consequences may be serious, but they can be worked through and markets can reprice, etc. The psychological and political consequences are more complex because at the end of the day, it is a vote of lack of consequence in traditionalism and the vote in favor of nationalism. David as you talk about economic consequences, to the u. K. Or europe, how does it compare . Oskana probably to vote. The side that is for brexit and the side against it, they have come up with compelling arguments with respect to why one should or should not vote for or against it, so i think the consequences are not clear. We do not know what they will be. It is very clear that traditionalism is out of favor and the brexit can pave the way for other countries within the eu to try and do the same. Jonathan i would like to get the comment on market mechanics. The idea that brexit is somehow a systemic is not obvious to me given that there are no domination risks and it is a breakaway from a trade union. Systemic risk, do you think some of the commentary around this has been some kind of south self fulfilling prophecy that the u. K. Does vote to leave that eu and other consequences that come about will be worse because of the commentary we are seeing . Oskana maybe, but it could be the other way because if the u. K. Leaves the eu and the sky does not come crashing to earth the following day, then perhaps a lot of the focus around this will receive and people will start to deal with real issues on the ground. To me, the bigger risk is this lack of confidence that the u. K. Make ultimately be exhibiting by leaving the eu and what does that mean for other countries who may wish to follow in that path . Will remaina aronov with us. We will go over to abigail for stocks that are moving. Abigail we have a couple moving on positive earning reports. The number one luxury homebuilder did the earnings by nts per and perhaps it will turn around. The stock down sharply 20 over the last year. Another stock moving higher a sealant and it he said company, beating earnings by 29 , making 1. 19 per share. To stock up nearly 20 year date. Turning to analyst calls, the best note titled this morning from an analyst has got to be hold is not a strategy. Twitter towngrading a sale, so a bearish call below consensus estimates and siding advertising fatigue and a tough other factors. Ng another stock trading lower on an analyst downgrade is vmware. Citing outperform a lack of catalyst and overhang from the dell emc deal, so up a little bit on the year but down today. Vonnie fascinating. Thank you. Time now for bloombergs first word news. An egyptian official says there are signs that an explosion brought down that check in the mediterranean. Forensic officials tell the Associated Press that human remains as there was a blast on board but they cannot do it caused the blast. Ap reports but egyptian Officials Say terrorism is most likely the explanation failure. President obama push back against the and him on the human rights record. Obama said he still has concerns over how vietnam treats its citizens. The United States does not seek to impose our form of government on vietnam. The rights i speak of i believe are not american value, universal values written into the universal declaration of human rights. Into thewritten vietnamese constitution, which states that citizens have the right to freedom of speech, press and have divided accessing information, the right to assembly, vonnie to association and demonstration. Theyresident noted that barred members of the u. S. They had invited to the meeting. Smoking among adults in the u. S. Fell two Percentage Points last year to 15 . The cdc says the last time there was a similar drop was from 1992 to 1993, when it fell 1. 5 . Global news powered by our journalists and news bureaus around the world. Thank you. Coming up, the ecb issued a warning of Interest Rates due to markets on emerging economies. The ecb Vice President joins us with more. Investing based on speculation of when the fed will raise rates is futile according to jpmorgan analyst management Oksana Aronov. She believes investors are following the greater series. Talk me through that theory. The theory is what the markets were engaged in in the runup to the real estate crash, which is basically the belief that i can buy this overvalued asset because it there will foolishe someone more who will take it off my hands at a more overvalued level. Traditional bonds, without a doubt, have their place in portfolios, and we see that only see volatility in the markets. However, lets not forget that when you purchase of bonds, you are taking on a number of risks, duration, credit, liquidity and a number of others. The only thing diversifying for us, versus equity and other parts of the markets have been Interest Rates. That is essentially extremely, extremely limited in terms of the ability to continue bailing out portfolios, and that has nothing to do with anyones the one where the rates are moving higher, sideways are lower. It is. Back to that globally, nearly fully deployed global indices, if you look at the global index with em debt, yield not even 1 . What are you really looking to make in that part of your portfolio . My point here is that, instead of trying to tie your entire Investment Strategy of fixed income to the Central Banks delivering returns, lets think about that persecution differently and think about the trends prevalent in the market, which is lack of liquidity and perhaps Exchange Liquidity for yield. Lets inc. About that we need to redefine what risk means. Is it more risky to buy an asset that is priced for perfection as a postal one that is undervalued and can take a lot of pain in terms of credit volatility driven and rate driven . What markets would you go into and what would be worth the risk . Oskana these two not need to be completely liquid opportunities, but there are interesting things to do in commercial real estate t,nding, private credi looking at market opportunities, not only from a long on the standpoint from a short standpoint. If you talk to a fixed income manager and ask where the best opportunities are, there were usually answer from a long view standpoint. And going to buy x,y,z, the reality is they have become so much more diverse in terms of geographic accessibility and instrument variability that we can express use in a variety of way. I am urging investors to just rethink what it means to be diversified, owning a bunch of exposures to a variety of sectors, even global, and that does not make you diversified because markets are highly correlated. Vonnie when you say private markets,d fixed income we will not just let you go. We will ask you more specifics. Stick with us with Oksana Aronov. Coming up, Morgan Stanley ceo also saying that concerns over china are overblown. He explains why, next. President on the Central Banks newest warning to markets. David britain will likely vote to remain in the u according to james gorman. s in an interview, he expressed his concern about what could happen to markets if they were a brexit. Country, always, each each area will do it is in their best interest from what they should. The u. S. Considering raising rates will be mindful of what is going on around the world, but theyre focused on what is right for the u. S. Economy and we have a diversion strategy. ,egative rates in japan negative rates in parts of europe, but that will not hold the u. S. Tack at this point. How about in the u. K. . Is brexit the risk . James the first question is will it happen . That answer. U have james i do not, but the polls suggest the less likely, the more likely. The british have uncommon common sense. At the end of the day, my guess is they both stayed. There is a twoyear transition period. It will have some impact on Global Investment banking, but that comes up increased expenses. Meaningful. At i am more concerned for the markets. Frankly, for the sake of the European Union, which has been an extraordinary success over 70 years. Tinkering with that model does not seem to make a lot of sense. That is potentially risk the longevity of the eu . James i think it is moving into a period of further uncertainty. We saw it initially with the scottish vote and a great the state, now we see it with your exit. I suspect they stay. It is testing the strength of the union, which has been remarkable success for seven decades. The slowdown in china is definitely testing the resolve of policymakers. How do you see the potential impact of the credit binge that we have seen and the slowing economy, possibly leading to a banking crisis . Do you buy into that . James there is a lot loaded in that question. [laughter] lets take a second part. James lets take the first part about the slowdown, which is something we quarrel with. On a percentage base, you are right, a 10e chinese economy is trillion economy, the secondlargest in the world and growing at 6. 9 percent. Whether that is right or not, it is growing at a rate that is demonstrably faster than the rest of the world. Is japan withest negative growth in the fourth largest is germany with 1 and the largest is europe with 2 . Soill take that any day, percentagewise, yes, it is slowing. China accounts for nearly 35 of. Lobal growth are vonnie that was james gorman. Till with Oksana Aronov just getting your thoughts on fixed income. Comment, as i was listening to his comments that the u. S. Will continue to do what it needs to, i think in the case of brexit, having a will leadimpact the two dated dependents. I think [indiscernible] they meet next month. Looking forward to those events. The opening bell, that. Futures positive across the board and a rally in europe with the dax up 150 points. Jonathan i am Jonathan Ferro. Moments away from the opening bell. Dow financial scorecard, futures up 91 points, s p 500 firming up, up about. 5 of 1 . In europe, up 1. 5 and the opening bell is drinking in new york. Europe moves toward the close. Really gaining. I will get to the cross view, euro at 1157, weaker euro story. People at 145. 92. Significant depreciation in the session. Brexit can pen getting a little momentum may be. Up two basis points. 26 billion scheduled for the twoyear from folks added the fed meeting next month. 48. 28, sos a let about 25 minutes into the section and lets cross over to Abigail Doolittle for the markets. Abigail we have a nice opening for u. S. Stocks. Green for all the three major averages, up as we can see across the board. This follows the Global Equity rally, a bit of a risk on project. Finance shows, the best in the stoxx 600 and that turns over to the Financial Sector in the u. S. One of the top performers is Morgan Stanley. This could reflect bullish comments from the ceo, who earlier today did tell bloomberg that he is positive about the wall street is this an to stay tuned for better performance as markets recover, so shares trading higher. Also how jpmorgan, along with citigroup and bank of america trading higher. Taking a look at one technology carrying a little bit less well, twitter, down more than 1. 5 . It has to be one of the best analyst note titles that i have seen in some time saying, hope is not the strategy. They downgraded the shares of twitter to neutral. And heonsensus estimates cites advertising fatigue, along with a tough road ahead. Suggesting it could be a tough road ahead for the shares of twitter in todays session. Vonnie thanks. About 10 tesla down this year. They went public in 2010. They turned a profit and one quarter. They remain bullish on the company. Among those with the buy rating on the stock are analyst from Morgan Stanley and Goldman Sachs. Does happen to be the two banks leading teslas announcement to sell about 2000 in stock to fund production expansion. We are joined now from michigan. Is there any suggestion that there is some kind of breaking down of the chinese ball between the analyst and Investment Bankers here . Know, there is no suggestion that they have had conversations with whom they should not be talking to. When you have two investment banks that of the underwriters for most of the issues, if at all, and they are also significant shareholders and they have analyst recommending the stocks, might investors be aware of this when theyre looking at recommendations and looking at the stock and deciding what they will do . I think this is good information. Vonnie you would imagine they should. By the disconnect because there are nine buys and strongly held convictions by analysts at Morgan Stanley and Goldman Sachs and company has not proven much so far. This is a controversial stock because you have a short position, people who are investing and saying what you are saying, that they have never a lotoney, they will need of cash to get their cars to market and at the end of the day even though they make cool electric cars, the margins of the carmaker is not that great. That is the bear case. Is aull case is that it powerful brand, disruptive technologies, and Morgan Stanley thinks that these electric cars to selfmselves well driving cars effectively to the ridesharing business and that tesla could dominate that transportation, therefore, the longterm here is where the value is an do you buy now and ride out the ups and downs against the payoff later . Jonathan this story raised a lot of eyebrows last week. The question i want to ask is, is banks say that chinese intact and reinforced, but you get a sense from the other side of the deal that the company, when approached by the banks, turns around and says, weights, but you have got to sell on their company. You get a sense of that . David it is really difficult to analystselists are selling the deal because they are not supposed to, but if you are recommending on a stock record for it goes out or in the days afterward, that is helping the clients of the underwriters is afault, if it recommendation. It does raise questions for a lot of investors and some of the people in the Legal Community that i talked to said, this is within the law, but can you raise eyebrows and ask questions . Yes. David we always make a disclaimer, we are reporting was something to do with bloomberg, we know, but at disney, do the analysts routinely and prominently display whatever their relationship is with the company . In the reports, they do disclose they have relationships and that is one of the points we make in the story. All of the information is disclosed that they have relationships in terms of underwriting. That is always disclosed prominently, whether or not these banks have units that dont shares in the company is disclosed someplace, maybe in the fine print and that is why we did this story. People generally know that the big banks are underwriting the stocks and have research departments. At this together, you have a bullish analyst at one of the firms, the large shareholdings from these banks and in the Goldman Sachs case, it is direct and in Morgan Stanleys case, it is the Fund Managers that have trade trading. Vonnie real quick, will they get this sealed on . Will they have to keep more stock on their books to finish it out . Get the think they will deal done. There is a lot of enthusiasm for tesla even though the shares are down this year. There is anticipation for the model 3 so i think they will. David thank you. That is david welsh from michigan. Coming up, the ecb issued a warning over growth concerns in emerging economies. We bring you an interview with the Vice President vit constancio, next. David this is bloomberg. I am david westin in the hewlettpackard green room. Coming up, code chief Investment Officer diego. Brilliant interviews right here on bloomberg. Now, tobank chiefs and the ecb where they have issued a warning over concerns of growing slowing growth. Matt miller just finished constancio. H vitor matt the jealous, jon. Very cool guy. A lot of interesting things to say. We talked about the risk of brexit, use of macro tools to deter asset bubbles and we talked about negative Interest Rates and their ss on Bank Profitability. Vitor we have to consider all the facts of negative deposit facility rates and not policy rates, and the other measures we a Monetary Policy. So it is not only the direct fact that the deposit facility and negative rates may have, but the fact that this is the start of a Monetary Policy that achieves the following of the exit. In the first place, it has an Immediate Impact on the spectrum of money market rates bringing them down, and by doing that, it also impacts the medium and longterm part of Interest Rates, so it is [indiscernible] costder to bring down the of capital in general. Element ofroduces an increasing the velocity of Bank Reserves because by having that negative deposit facility rates, it creates something for the banks to lend around to each and that would need more liquidity to expand their sheets and to increase the velocity. Matt couldnt you go more negative than . Contributionsa because some of the banks have adjusted to that increasing credit or other forms of applying and extending their Balance Sheets, so this policy has limits, as we have said, and there are several types of considerations. That thereproblem are levels about which or below which, if you wish, that leads to a preference for cash and the policy would then not be efficient anymore and you get other problems, so we are very far away from that. Limits with the impact that these had down the road if they continue for a longer period of time to bankruptcy ability. Right now, and for the near future, we have to consider that the cost implies and is also part of a policy that has increased the price of asset. Had stimulated the recovery and the degree of nonperforming loans has alleased and if you take the overall effects of policy, it has been positive on the ability of banks. Matt very good news and there have been a lot of new policy, more qe, longer qe over the past be meetings combined with the rising price of oil, this decade closer to your 2 , almost 2 but lower inflation target . The last forecast was for 1. 6 in 2018, will we see a higher number than now . Vitor i certainly expect so. Matt how much higher . Vitor i cannot tell you the number just like that, but first, in the first place, to use here doing a certain number of months, we are subject to the effect of the development of commodity prices. So it is to be expected that we will have several moments of low, sometimes negative, inflation, and that will change and will start to change in the months and it will be easier and im confident that the forecast of next year will be above and it will materialize and will continue to increase for 2018, so our policies have been effective because according to , that without our policy, last year, inflation would have been quite negative for the whole year, so these these fx and we expect the policy to have trade matt so you expect higher inflation in 2018 . Vitor yes. Matt we are getting closer to and excitingtes, political topic, but they could also have serious financial ramifications on the European Union. Aeres, i wonder as regulator, are the european banks prepared in case of the vote . Vitor we think so. Banks are aware of the risk. Many have hedged as much as they can. Judging by the amounts of exposure that we identified there, yes, banks will be and if thisch happens, of course, we will have negative impacts. Matt how negative . Depends on many unpredictable reactions of actors and markets. One can expect some turbulence in the Financial Market during the period of time. Matt even more than the last six months . Vitor that was quite significant at the beginning of know, so we you will see. It is very difficult to predict the degree of the effect that will be produced by such an event. I certainly hope it will not materialize. Matt i wonder about the message you try and put forth. The bank ofnd, like england, warn people about the economic and Financial Risks that the vote on brexit would take . Vitor without putting numbers to that, the consequences are quite easy to read. Professionals in the Financial Sector, i am quite aware of them, and we of course also made them aware and have tried to ss what could be the overall impact. Matt is there a contingent concern . There seems to be a rising tide of antieu sentiment. Vitor there are risks for several types of reactions. That is one that would impact some segments of the population. There could be another type of reaction in other segments of the european population that we have to defend ourselves by deepening integration and keeping the European Union together. In that case, unfortunately without the u. K. , but that can beat certainly a reaction of many segments, so it is not easy. Also on that aspect of what could happen. Matt let me get back to so, there you hear Vitor Constancio talking about the possibility of the brexit, the possibility of the rise of populism in europe, which the ecb highlighted as a risk in the Financial Stability review. The reason that we are here today. It was front and center along with topics, along with Bank Profitability and negative Interest Rates. Lets start with growth in the eurozone. You get a sense that the brexit has not just weighed on growth potentially within asterix on the u. K. , that on the eurozone and europe as well . Definitely. It is a far broader issue than financial and economic. The ecb is very much behind the idea of a strong European Union, so for them it goes beyond. It is not like the fed where they had this simple economic mandate. Broader part of the experiment, so it is important to them that the eurozone stays together. However, as a regulator, their most worried, first and foremost, about Bank Readiness to deal if the u. K. Does leave and i thought it was interesting that he said, yes, he thinks they are ready and aware of the risks and ready with a plan in case the u. K. Goes out. Jonathan matt miller, thank you very much. Only a tiny bit jealous. Oksana aronov still with us. Looking at what is happening, mario draghi and the ecb have talked about the Balance Sheet to get back up to 2012 levels and their mission is nowhere near complete. How much bigger do you expect the Balance Sheet to get . as i was listening, what he is saying is not much different from what the fed is saying, which is we have diploid externa a policies and they have been affected to some degree. Without inflation last year, it would have been negative, but they are saying that there is no limit and that some point, the fiscal and structural part of the equation has to pick up in order to create meaningful impact on the system. Just in march, the ecb unveiled another program that included expansion of purchases of various assets, and there is probably expectations for more now that immigration the eurozone has been taken down from. 5 to. 2, but drinking it back to the realm of fixed income, which is where i sit, it concerns me somewhat that markets in europe are priced for nothing other than frankly deflation. When you look at negative Interest Rates and you consider the fact that you have an 80 surge in oil prices, that nonenergy inflation risks are potentially to the upside because services, even in europe, do have inflationary pressures. It is all about what is priced in, and no one will argue that growth in europe is extremely weak and anemic and im not disputing that, but i think that bond markets are priced decidedly for this information and anything other than that would be [indiscernible] david let me ask the frightening question, he says it is working. It does not seem to be working. At what point do we question the models . Maybe we are in territory we have never seen before. Oskana that is very possible, and i think last week, when the fed came out from the april meeting, what the market a sickly said is that they have seen the model and it is in the empty threats and promises. In the u. S. , it is threatening recession and telegraphing not back to the u. S. , so i think it is fair to put that in question. David thank you. Oksana aronov from jpmorgan fixed income. More of bloomberg coming up next. I am Jonathan Ferro and we are about 25 minutes in the session. Equities opening higher in the United States. The dow jones up. 4 of one percentage point. Discontinuing from the rally in europe. The decent morning for the boards and a decent morning for interviews, some really good ones. Vonnie more than decent with bank ceos. Too much,testing still having to defend their strategies and really push the case. David the thing that struck me the most, just daily saying that the biggest risk is a Systemic Risk because people trading in highly liquid markets are themselves not liquid, presumably talking about fx and fixed income. I had not heard that before. Jonathan we have also had a big debate, ahe brexit series of polls out wayne the lead. Especially if you look at the momentum in the market. Still growling quite significantly. Arney getting a little ruffled. Of course, we had that interview with Vitor Constancio, ecb Vice President. Jonathan the central bank has a challenge for sure. That does it for bloomberg. Very much. Bloomberg markets continues next with a rally in Global Equity markets. The dollar yen on the move and a significantly stronger pound to go with it. Are i am shery ahn. Mark this is a Bloomberg Markets on bloomberg television. Lets go straight to our markets desk. Julie hyman is standing by to break some numbers. Julie theyre surprisingly good. We are seeing this coming in at 19,000. Print it also meets the month over month again. New home sales have been lagging. This is aike surprisingly strong month for these numbers. Something to note, its a much smaller orton of the Housing Market than existing home sales. This is something weve been watching lag to some degree. Ive got a chart from Bloomberg Intelligence from the