Transcripts For BLOOMBERG Bloomberg Go 20160705

Us here on set for a talk about the boe, brexit, and his outlook for global rates continuing to grind lower. Global strategist will join us with his outlook for european banks in the second half of 2016. Again, the story is global yields. Jonathan record lows and its a remarkable story that we will continue to talk about. Lets check in with a Bloomberg Team with indepth coverage of our top stories. Guy johnson joins us on the bank of englands News Conference in the last 90 minutes or so. And the latest on the votes of the uks next Prime Minister. And if possible capital injection into italian financials. In new york, the latest on treasury rates hitting new record lows. Paul allen joins us on this weekends election. I want to bring in guy johnson the bank of englands new policy response. The significance . Guy he is essentially signaling a recession and this is giving the tools by the chancellor and he is now putting that into reverse. Saying tougher times are ahead for the k economy. It is very clear that it l be a command story Credit Demand store that the u. K. Will have to do with. Jonathan you talk about demand and they cannot really do anything about demand but they have to meet with supply. He talked about Monetary Policy about being targeted and the unintended consequences. It does not look like a governor really ready to pull the lever. Guy the Monetary Policy committee starts deliberations later on this week. He talks about unintended consequences and its code for we are a bit worried about negative rates and what they may end up doing. What he is saying there is that maybe actually the mpc may look at other things that he can do. He has the opportunity to cut 25 basis points as a gesture of goodwill, but nevertheless it looks as if that is not going to be the primary weapon he uses. Jonathan what is your take away so far from the reaction and policy response from the boe . About messaging and signaling as much as it is about policy formulation at this stage. He is signaling clearly that the Financial System is adjusting and will be there to support whatever the u. K. Goes through next. What he wants to make very clear in his tone and everything he has adjusted with his body lang which is calm and calculated and we are in control of the situation. Jonathan guy johnson, great to have you on the program. The lead Campaign Said brexit would create jobs. Executive for International Government joins us to discuss the latest on u. K. Politics. How many openings have we got . Im losing count. [laughter] lets begin with the race to be the next Prime Minister coul. Tell us about it. Ofn this is the first round about 7 00 where we are theecting announcement of the result of the first round of results. One candidate will be eliminated and then it goes to a second round on thursday and it will go down until there are two candidates. Jonathan there was a near of obsession, but there is momentum. John there are concerns and if you talk to people and government that they have not had the strongest track record in government that you might think, but she is extremely popular with the rankandfile. To most u. K. Voters, she is not really a household name. She was a prominent figure in the leave campaign. There is a lot of momentum with her and that was thoughts that teresa may run away with this and there may need to a coronation. There are probably 50 or 60 mps behind her. If she gets up to 80 mps, it would be very difficult for this not to go to the rankandfile. It is a process that would mean that we did not get a Prime Minister until september. Jonathan some of the job openings post brexit in the case, great to have you. A busy week for politics in the u. K. Im getting no sleep. John, getting no sleep for at least the next two years. Alix i went to bed at 7 00 p. M. Thomas to bea, so be that. Allies that, we are looking at a record low for the second straight day. We are hearing that italian officials are going to pump money for the second straight day. We had been picking that up for the last week or so that they has been an inclination by the Italian Government to put some money into recapitalizing the. What transpired in the last 12 hours has been that the bank has received state funds twice since the financial crisis, but it is burdened by a very large bad debt. It is just as record low Interest Rates are profiting across the industry. Alix the real issue has been what can italy legally do as part of the eu . Germany kind of killed that id, so legality is the key. Elisa there are rules that would allow state aid with little burden sharing by other stakeholders, such as predators and shareholders. The key really is now whether and will end up in brussels what decisions they are comfortable with taking and how much leeway is given to the government to provide state aid without some of the strings that might have to be attached. Alix that stock continuing to get hammered while other italian banks are getting relieved today. Thanks so much. David we are turning out to u. S. Government treasury bonds. New record low yield on u. S. Treasuries, even as we are getting ready for those minutes coming out on wednesday. Is the sky the limit on how high the prices can go . One shot can make a difference in the life of Global Investors as you well know. Andstory is about brexit the uncertainty from the fallout on brexit and how much of an impact that will have on Global Economic growth and u. S. Growth. Combine that with a search for a positive yielding asset and you get a mad dash into u. S. Treasuries. Wheres the bottom . No one really knows. The question is how low can yields go . David we do have minutes coming up from the fed later this week. What are you looking for in the minutes . Susanne they will reflect a cautious fed, because they were still concerned about the slow and disappointing jobs growth that we have gotten for the may jobs report. Then hastive since shifted and has shifted from when will the fed raise rates to how much of an impact will brexit have in the u. S. And what can the central bank do about it . David thanks so much. That is suzanne barton. Now we will turn to australia and paul allen joins us from sydney. They had an election, but they do not seem to have a government yet. When do you expect the results of this election . Paul it could be days or potentially weeks. Votes arrived and they are not going to get those counted in an afternoon. There are seats in the lower house and the magic number that she knows you when government. Number will let you when government. The seats to form a majority government, but he needs support from minor parties to get over the line and negotiations could take weeks. David paul allen, great to have you. Lets go to Abigail Doolittle for a look at markets. At ago we start off with the abigail we start with the equity markets. Gas is down and its a second session it is down in a row. Looks like the brexit recovery hopes have faded a bit. Indiceshasing manager revised upward. It looks like the auto sector is leading these declines for the German Cartel office. The risk off in equities, we have the commodity complex trading down. Wti crude down 2 . One of the worst day since last thursday, but it still stands out that opec revised its production for june. We have been talking about the record u. S. Bond yields and we in the the 30 year here u. S. At a record low, not just on brexit recovery concerns but also the payroll report on friday. People are worried we will have another dismal report for june. David we have headlines outside of the business world. Mma saudi arabia is the latest target in a wave of terrorist attacks. A suicide bomber killed himself and security personnel at one of islams holiest sites. Two other bombings caused minimal damage. In baghdad, the death has gone up from the truck bombing. 175 people were killed and almost 200 were wounded. The Islamic State has claimed response ability. Responsibility. President obama will campaign with Hillary Clinton for the first time today. He will join hurer in charlotte, nor killin north car. Donald trump will also be campaigning in the state later today. Global news 24 hours a day, i am amit chandra. This is bloomberg. Jonathan coming up on this program, the prospect of another recession. L the bank of englands cuts be enough to support the economy . Jim karen gives his brexit resolution and outlook for the second half of the. Year. From london and new york, this is bloomberg. David this is bloomberg. Bank of England Governor Mark carney wrapping up a News Conference over in london. D the u. K. Has entered a perio of uncertainty and economic adjustment. We will not be able to fully offset the market volatility that can be expected while this adjustment proceeds. Guy johnson is back with us in london and jim caron is here and is responsible for a little over 400 billion as an asset manager. Set the scene for us for what exactly mark carney did and said. This is the first part of the reaction from mark carney. Action, whichc in is different from the mpc. This is issues surrounding banks and leverage ratios, etc. , and this is where he is starting to tinker first of all. He has reduced the countercyclical buffer. The banks have a hold and have tightened during an economic cycle. He is taken those back down to zero. What he did do is acknowledge the fact that there may be significant available to of Credit Demand. This is the first part of what he is likely to lay out over the next few days because the Monetary Policy committee starts over the next few days. We are getting the response that may come in the form of rate cuts or other qb. This is the first part of the puzzle. David he was quite specific about what he meant for terms of available credit. Guy he is basically saying that we are going to be making sure that the banks have the capability to lend lots of money into the real economy. This is not going to be a Credit Availability problem that the uks going to suffer from. He is just making absolutely sure that that is not going to be the case. Demand is going to be the real picture. He is going to try to spur demand using other aspects like the cost of money and take around with a whole lot of other things. This is just the start of it and we will see plenty more from the bank of england over the next two days. David the bank of england governor says theyre going to have 150 billion in more Credit Availability. Is that going to work for them . Is that a good tool to use right now . Jim right now waiting to do something and they need to reassure the markets and that is what they are doing by making liquidity more assessable and available. Europe is doing much of the same thing with their own programs. The number one thing that you have to do is you have to make sure that liquidity is available and accessible and its plentiful. That is one of the ways that they try to calm the markets down so there will not be liquidity shortages or squeezes. That is where prices really gain traction, so they want to avoid that. Jonathan we should look at todays meeting and News Conference as a focus on the supply of credit. When the Monetary Policy committee meets, that is going to be a price of credit story. We are 50 basis points. When you cut rates in the eurozone, there has been a focus on the fx channel. Not much of a move on the fx channel for cutting rates, considering the huge adjustment we have seen on sterling. My question is what is the point of cutting bank rates . Jim it is more symbolic and communicative of this point. You can cut the cost of credit, but will you increase the demand for credit . What we have seen in this recent slowdown that weve been having in the markets is that credit is plenty available and cheap and Interest Rate are low, but two people have a lot of demand for the credit to actually invest . That is really the missing link. David you draw a distinction between uncertainty and ambiguity. Apply that analysis to what mr. Carney is trying to address right now. Jim when we look at uncertainty in the market, we think of normal distribution and that there is one very likely outcome. When we think about ambiguity, what we are saying is that there are many outcomes with near equal probability of occurring. But that does is that when we think about the markets and we think how is this going to unfold, there is goin a multiple group of events that can actually unfold. Carney does not know which ones are going to take hold. The one thing he does feel couple with is that this is going to create some kind of financial stress. In order to have that off advance, we need to flood the market with liquidity so you do not want to wait for the event and address it. You want to make sure the event does not ever occurred by making sure there is plenty of available liquidity in the markets. Jonathan just to reflect on the structural issues in the u. K. , you have a record current account deficit. I want to take you to the gilt market where yields are at alltime lows. For holdings of the gilt market are at an alltime high. Do you anticipate that to change in a radical way in the coming year . Jim i think it is went to take some time, what you said earlier with the fx channel is key. Those two are connected so if you get sterling to weaken enough, then those gilts become more attractive. I can by the guild bonds. I think those two are connected right now and they are not going to happen all in tandem. We need to see the currency and sterling weaker. My argument would be around 1. 2 1. 25 . Even though there is a current account deficit, i think it is more of an event of getting the currency weaker to make the bonds more attractive. One has to happen first and then the second. I want to think guy johnson and jim caron is going to stay with us with his view on whether global bonds can keep going after the best months since 2008. This is bloomberg. Alix the rush to safety continues. Jim caron from Morgan Stanley Investment Management is still with us. Take a look at my bloomberg and all. Says it it is basically a chart showing the record lows we have seen and japan, germany, the u. K. , and the u. S. This was yield curve is now negative after 50 years. What is the breaking point . When do we stop . Jim good question. It is want to sound very simple, but it is supply and demand. One of the things that is out there right now is that as governments buy back their own government bonds, there is less of that available supply in the markets. Many people still demand it. When you say pension liabilities , where are you going to get a positive yield . In the u. S. , where we expect the dollar to be a little bit stronger, it still has a positive yield. The 10year note is around 1. 3 on1. 4 . It is still positive compared to bunds. What is interesting is to think why there is such a need and such a demand to have these bonds at such low yields. The view is that there is a higher risk premium being assigned to these and bonds offer some safety. There is some guarantee that if you buy a quality bonds that there is your principal b ack. At this point, its the best the market can do. Take a look of the u. S. Yield curve, that just continues to flatten. Deutsche bank now sees a 60 chance of a recession based on the yield curve. What do you see . Jim when we look at yield curves and flattenings, we have to think about the context. We have to ask why that occurs. It typically occurs because a fed is hiking Interest Rates. They height a lot and front and curves hike up a lot. What we are seeing here today is not a bear flattening where rates are going up. What we are seeing today is that the front and twoyear is pinned and it is a backend yields collapsing. I do not leave those recession signals are as strong as they were in the past because the causality of it is making the curve flat. David very briefly, what is the one Asset Classes benefiting the most . The money has to be going somewhere. Jim emerging markets. Local emerging markets are up 10 on a yeartoyear basis. Emerging markets needed this extra boost and they are getting it. Alix great to get your perspective. Thank you so much, jim caron. Banks and european the 5 trillion d currency market that has serious volatility. You guys be good. Ill see you later [ bark ] [ bark ] bye. See ya pal. Ever wonder what your pets do when you leave home . [ laughing ] aw you cutie pie. Aw. Aw. Aw. Aw. [ barking ] [ washing machine running ] partys on know what your pets are up to with xfinity home. Xfinity. The future of awesome. See the secret life of pets, in theaters july 8th. By switching to xfinity x1. Rio Olympic Games show me gymnastics. X1 lets you search by sport, watch nbcs highlights and catch every live event on your tv with nbc sports live extra. Im getting ready. Are you . X1 will change the way you experience nbcuniversals coverage of the rio Olympic Games. Call or go online today to switch to x1. Jonathan from the beautiful city of london and to our viewers worldwide, this is bloomberg. Not so beautiful along the cable rate. A pound rate near fresh low against the dollar in london. Abigail, get us up to speed. There is a risk off tone and we see lots of selling and equity markets. We do have the british pound down to levels that we have lasting in 1985 with brexit uncertainty lingering. The u. K. Did offer its First Successful guilt auction today. It was the auction of the fiveyear guilt going off at a record low of 0. 377 . Another measure of success was at 1. 8. So a very successful auction there. Despite all this uncertainty, we have the ftse up. Speaking of record lows, we also have the 30 year yield trading at a record low around the uncertainty of the brexit. We do have the big payrolls report out on friday. For may, there was a shocking 38,000 jobs added. Investors may wonder whether or not the headline number of 175,000 jobs can be hit or not. Will there be another shocker . David we have headlines from outside the business world. We go over to emma with first word news. Emma it is the first test for the five people who want to succeed british Prime Minister david cameron. 300 conservative members of parliament will vote on a new leader today. The candidate who receives the fewest votes will be dropped from the race. Theresa may his favorite. Benjamin netanyahu has opened a four nation tour of africa. Is first stop was uganda where four years ago his brother was killed by leading a daring israeli mission. He is tried to drum up business for israeli companies. He will also travel to kenya, ethiopia, and rwanda. A new poll shows Hillary Clintons poll over donald trump has narrowed. Clinton leads trump 4640 . The same poll had clinton with an 11 point lead. Global news 20 for hours a day powered by journalists and analysts in more than 150 countries, this is bloomberg. David time now for the morning mustread. Bloombergs legal enforcement reporter joins us on his latest story. Of fivenow the fate barclays traders charged in london with fixing the london interbank rates. They cannot reach a verdict on the other two. Dimons appearance marked a fall from grace from one of the british banks most successful and controversial figures. It was also a defining moment in the history of the firm he came to personify. Since his departure, barclays has struggled with false starts, crippling fines, and lackluster performance. Is it really over . Does this mark the end of convictions . Liam that slightly overstated. Of the individuals being tried for found guilty, but another to have a hung decision. And there is still the possibility that they are going to be retried. It never seems to be quite over. David after we have gone several years and hundreds of millions of dollars, has it changed basically and how these banks do business . Liam i think it was a watershed moment in british banking to be honest with you. That kick started this era of scrutiny on banks. In 2012, barclays became the First Institution to become find over libor rigging. The was a huge amount of frustration at the Banking Sector, but very few individuals or institutions were punished. Libor opened the floodgates to this huge fines to the Banking Sector. It was not just libor. It was rating of the Foreign Exchange markets and commodities. To personifyrfin peoples views of the Banking Sector at that point in time. It was it profound moment. It was also profound moment in history barclays, which at that point had been a real Success Story in british banking and one of the few institutions that never took a bailout. Had been a hugely successful individual who turned barclays from a midplayer to one of the largest banks. Since his departure, it looks like a very different from. Firm. David there were some higher ups implicated and mentioned in these trials. Is there a sense that the indians all got in trouble but the chiefs got away with it . Liam this is something you hear all the time and there is a legitimate amount of frustration on behalf of some of the traders. Thever, to defend investigation, they can only really go on the evidence they have got. Quite frequently the evidence lies with the traders themselves sending emails and getting on phone calls and discussing the stuff. Top,if it comes from the if the evidence is not specifically there, it is hard to prosecute individuals, even if people suspect these guys were essentially doing just what they were paid today. David these three individuals have been convicted. Do we have a sense of what sentence they will be in store for . Liam the first conviction was tom hayes, who became the figurehead and the poster boy for the libor investigation. He really had the book thrown at him. He originally ended up getting a sentence of 14 years and was later reduced to 11 on appeal. There have been trials and the u. S. And some employees were actually given one or two years. There has been a real spread of potential outcomes. With the u. K. Sentencing guidelines, they are facing multiple years in jail. We expect the sentences to be quite long. David many thanks, liam. That is liam on joining us from london. Jonathan the name of the bank is the thirdlargest lender in the poster child for the problems in the italian Financial System. The stock down 14 yesterday and down another 9 today. To discuss the troubles in duckes. I kit how does the story and and does it come to any kind of conclusion this year . Kit probably not this year in terms of an end. The Interest Rates are not zero and rates are faster. They all gradually get smooth the way. Stop laughing is all i can say to that because this is going to be intractable. You look at the italian banks and think without faster nominal growth to help things along the way or without an alternative source of income from a positive starting point rate, i cannot see anything other than lets put some more money in and then what . Jonathan for people not interested in the politics of this, it is the same story from 20112012. Italy using article 52 of the bank failure rules that allow temporary stay a. Id. It is the periphery versus the call all over again. How did those two differences reconcile this time around . Kit im not sure they reconcile very differently from where we have been. On the a big expert Banking Sector in that sense. Thestart having some of depositors and some of the bondholders and the banks start taking a hit or someone comes in and bails them out. You bail out or bail in to a greater or lesser degree. That has been the same choice in portugal and in greece and in cyprus. We go on with this issue and that is why i try to take a view from quite high up and look down , this problem is about a choice of who fills in the gap where week growth and rates leave a whole . Alix the debt tells a different story. There is a chart on my terminal that shows monte passkey equity and you can see it is below the february lows versus yield on publicly traded debt. At one point it was over 8 and now it is 4 . This is odd to me. What does that tell you . Kit that tells you we are in a very odd world in terms of lending. If the debt of an italian bank is 4 but the Interest Rate that the italian bank in charge is much lower than that, then it tells me that is still in a deal of trouble. That is a large part of it. The fact that bond yields would is notrecord low of debt because the Eu Referendum came out with the market from the result. Innd side of the story every market around the world, it tells a different tale from the story of growth in equities. Case,ense, in italys equities tell you what is going on. Alix we are having a probability issue. Is the debt saying we are not having a solvency issue was the debt talking about how investors want yield in general . And investors want yield the concerns about the individual bits of the funding of the banks have not yet exploded into genuine fear that people are not going to get paid coupon and principal back on time with debt. Jonathan the message from the equity right now is that the mps is trading at 0. 09 of book. Bloomberg intelligence crunched the numbers. One third of uncovered bad loans. For anyone watching this program today in the fx market, there used to be a playbook here. When you saw the risk off nature in the banks, it meant something for the euro. It does not seem to mean anything for the euro at all anymore. As that link been broken completely . Kit i used to run a bit of a casual model with a view of fair value of the euro that had a lot of these yields in them and a way of gauging risk. It does not correlate for a much anymore. Correlatesnt, euro better with bond yields than that. It does not migrate to the Foreign Exchange market. Im still concerned about the migration or the feedback loop in terms of what this means for growth. The escape is always the same. Get an at Banking Sector economy on the road toward sustainable publicsector debt toward Sustainable Growth . David did is david westin over in new york. One last question from the United States perspective. We have had expense with bad banks and we tend to go to consolidation. Is that out of the question for italy . Is their consolidation that could help them . Kit there has been consolidation. Crossborder consolidation has been harder to pull off on a sustainable basis, but there will be more consolidation. You had be easier if the eurozone as one economic with one central bank and one federal system and one way of moving money around. That is a whole different story. We will get some but not as much as you would get in the states. David kit is staying with us. The pound his a 31 year low. Sterling extending losses after worst twoweek drop in more than seven years. Are more losses to come in the second half of 2016 . That is next on bloomberg. This is bloomberg. Alix this is bloomberg. I am alix steel in the hewlettpackard greenroom. Jamie steagall joins us with his outlook for the rest of the year. Emma heres a Bloomberg Business flash. The company that brought you the 20 is getting a new owner. Hostess brands is selling a majority stake of its affiliate. The deal is valued at 725 million. Hostess emerge from bankruptcy protection and since then has been owned by apollo management. American landlords who built businesses by owning a massive amount of homes are selling. They will no longer fit their business models. Current tenants are given the opportunity to buy. Blackstone has but about 50,000 of the homes in the last four years. It is not a great time to be a banker in london. Executives and recruiters predict that bonus pools will be cut by at least 25 . Of the uks decision to leave the eu has slowed down dealmaking and another round of job cuts is likely if business stopped pickup does not pick up. Alix september 11, 1985 the last time sterling was this week against the dollar. Jonathan 131. 37 is how we trade. It is an adjustment to a political shock quite clearly. Adjustment is the word that everyone is using and i wonder when it gets critical enough that people start using the word run. How far away is that and what kind of move do you need to see . Kit quite a lot faster than anything we have seen now. And eventually fall to 125 against the dollar, i would see that as an adjustment. 125 and nextbelow week or so, you would be getting much more aligned. That is the pace of the move that would alarm me. If you got back to the 105 level , we went a long way in september 85. That looks overdone to me in terms of the move. Something between 120125, moving away from fundamental fair value is like dollar yen trading at 125. In perspective, we are not there yet. The overwhelming consensus is that it was an orderly move. Rate cuts talk me through that. The question i have in my mind at the moment is what is the bank of england achieving to a rate cut, cutting bank rates from 50 basis points to 25 . What do you get out of that . Point, youre making sure you are getting more cheap funding into the Banking Sector and making sure liquidity is wonderful and its part of that process. You want to make sure that market policy stays a, live in the face of a weaker pound. I do not disagree with the central pr printable. Inciple. At this stage, a range of measures such as funding to lending, thing specifically targeted to ease Lending Conditions to people who want to borrow are more effective on lending. If ever there was a country where perhaps some fiscal easing to improve and for structure, provision of services, all those thatng lists and hospitals are part of the root cause of the referendum result, perhaps that would be a good idea, too. Alix what we are not seeing is the euro. It is pretty much flat against the dollar. If you take a look at the chart in my bloomberg, im looking at the eurodollar versus the five year real rate. That blue line line is the currency marker and you can see the euro moving higher against the dollar. The white line shows european fiveyear yields move higher against the u. S. Do we see that cap converge, meaning a stronger euro in light of all this uncertainty still . Kit i do not think so, but ist i think that one shows falling on the contagion impact of what is going on in the u. K. The fact that real Interest Rates are supported in the euro is that it is basically not moving very much. Its a good bit stronger than i think he wouldve suspected if you read the first note i wrote a few weeks ago. It is doing better than i had expected for precisely that reason. U. S. Real yields have fallen faster probably because they had a little bit further to fall. From here, i suspect we will in a rangedollar and arrang for a number of weeks and we will reassess where we are in the u. S. Economy and the european economy, if the. Sales u. S. Economy where it has, i think we will see a trade lower. That is very much for another day. There is no reason for the british people to think of a holiday. David separate three possible causes of the value of the pound right now. One is underlying value and number two is uncertainty. The third is simply trading. How much of those accounts for what were seeing right now in the pound . Kit the fundamental fair value defines to meet the limits of where we can go. Have a simple vision, 25 below the bubble and round about 150 is kind of really extreme outside of that. It is not a big driver daytoday. In terms of trading, i thought that the market taking shorts 150 ande the pound to really through people out last thursday night just ahead of the results coming in. We are getting fresh shorts put on and that drives the volatility. It is the uncertainty that drives the gilt market. It is uncertainty that is already hitting sensitive areas of the economy like construction. That is doing 80 of the damage to both the economy and currency at this point in time. Jonathan great to have you with us on the program. Thank you very much for joining us. Coming up on this program, we take a closer look at which italian bank would benefit from a capital injection. That is next bloomberg. From london and new york, this is bloomberg. Alix this is bloomberg. Time for off the chart and its all about italian banks. Abigail this one is really amazing. This is the ftse Italian Bank Index and we see tons of volatility since 2009. Right now we see the index hitting record lows. The reason behind this is that italian banks are saddled by a mountain of bad debt. Whatuestion though is makes this longerterm chart interesting is the idea of this approaching the bottom. This could possibly be approaching a tradable bottom. It is something to keep an eye on. Alix the distinction between equity and the debt market what that ends up telling us about italian banks. Abigail have to look at my notes on this. Blue and the equity in we see the fiveyear Corporate Bond and white. This bank was rumored to go bankrupt at this time. The yield spiked and the equity started to go down. The bigger point is that it makes more sense to be a bondholder. Equity holders have gotten shaped by 75 and there is a report that there could be a bailout of this bank. Alix profitability versus consolidate insolvency. Much more coming up on bloomberg. This is bloomberg. The bank of england pledges to do whatever it can to ensure financial stability. Italy is set to inject capital intos thirdlargest bank as they head to the worst year. And treasuries begin the week where they left off. Record lows. Fresh 1. 39 on the tenure. David welcome to the second hour of bloomberg. Jonathan ferro is joining us from london. The United States are returning from our long holiday weekend. Was nice you sent us good wishes. Jonathan my pleasure. I got the day off. I took a holiday. Do not worry about that. I will take the holiday. European equities staring at a second day of the clients, potentially. Low in the bond market yields alltime low. Unbelievable move in the treasury market. A gloomy outlook for the global economy. Citys globalby economists. Looking forward to talking to him. Right now, lets check in with our Bloomberg Team what indepth coverage. Latest on the vote for the next Prime Minister of the u. K. Dan is covering a possible capital injection to the banks. Here in new york, the latest on treasuries hitting the new lows. Jonathan the central bank watchers worldwide, the attention on the bank of england. His third public appearance in just 12 days, here is what he had to say. The u. K. Has entered a time of uncertainty and economic adjustment. The bank of england will not be able to immediately offset the market and economic volatility that can be expected while the adjustment proceeds. Jonathan some of the risks, post what post brexit fallout has begun to crystallize. Lay out the fallout. Happy to see the readjustment we will see. The banks in theory have more money to lend. Trying to which money down the credit channel. Whether there is demand for it we will come to that later. What comes next, the fiscal element to all of this as well. The equities market, very much an adjustment in the fx market. We switch to the focus of the policy. Only hints from the policy commission . From governor carney, i think we have some hit. He is talking about unintended consequences. That is code for concern about negative rates. We have 50 basis points to play with. How much of that will he use is the question now. Point, can 25 racist we offer 25 basis points coming that is the question. The deliberation starts at the back end of the week. The treasury, also out there as well, trying to make clear it will play its part. Interesting to see what will happen there. You bring up toolbox that bank rate is the longest two out there. Well aimed and well targeted onsures, when i was there measures used before and not used before. Incentivizing thanks. Two incentivize incentivize ranks to make sure there is a shortage of credits. I come back to the issue of concernor credit in the that it exists clearly within the industrial and service whether or not they will be investing in new people, that is the question here is that is what you need the credit for. Will they want to use it . The attention of global and local analysts is on this. Race, where are we . Now,at is happening right members of parliament are voting. We will get a result around 7 00 p. M. We will see one person dropout each round. In terms of knowledge, the bias is toward the first two. I do not think enough people outside the u. K. Know enough about, but getting a lot of traction domestically. There is a lot of momentum behind it. She is seen as the pure candidate. She was saying the day she becomes Prime Minister, she is the one with the strongest background as well and spends a lot of time she is a woman we will hear quite a lot more about. Thank you very much. The candidates matchup come you wants to do it straight away. They are looking at the back end intentionally to start next year. We will get familiar with the candidates to understand when they would like to trigger and begin formal discussions with the eu. The longer you you wait, the more of an argument you can make for potentially at risk rally. I agree with you. Ly is set to consider were joined now. This is also a case of politics. Italy wants to save its banks and the eu has ruled that you might be able to do that. Exactly. That is the reason were having discussions going on between rome and germany in brussels. It has been going on for at since the european summit last week. A crucial stick point, this aspect of competition rules. From our reporting that would italy is trying to illustrate is this is an exceptional situation. Banking shares have an clobbered. One bank in the spotlight right is a bank that has lost more than 70 of its market cap. It has already been bailed out twice by the government. Stions now are century centering on a return bailout. It willat are the odds happen . What is the likelihood of any of that really happening . I would think it is very strong in the 10th that the last it the government needs is the worlds oldest bank. Only number three in terms of size right now, but frankly it cannot afford to have a really bad situation blowing up. At such a crucial time. There are obviously political reasons for mr. Who has a big referendum himself coming up in october when he is asking voters to approve these reforms. They have got to find some sort of a back that. They already have an emergency 150 billion euro liquidity that they can draw down, but they need to find a longerterm solution very soon. You can see the stock continuing to get hammered. Why dont we go to treasuries . That is a good idea. Now, record lows on the 10 year and the 30 year u. S. Treasury. Normally, we really look hard at those minutes that may affect markets. Do we expect any significant coming out of the minutes . Fede expect to see the cautious. At the same time, the narrative has changed. People are concerned about brexit. That has been a game changer. Twofold. Brexit has open up a can of worms. People are concerned about political risk. People are putting a forward spin on it and looking at the next jobs report which comes out on friday, two the if that will give them some clues to what the fed will be inc. A later this month. It is too about brexit and about growth. We have played the game for quite a few months now, are they going to tighten or ease . Are we passed this . People, it is like a zero chance of increase. People are thinking they are more likely to cut for the next couple of months than to actually raise rates. That is the is the head cannot ignore what is going on globally and the concerns that investors have an investors are seriously concerned about growth and the impact that will have on the u. S. Economy. The engine that is driving growth, we do not know what the outlook is based on the fallout. Thank you so much. It is time to go to Abigail Doolittle. She will look at the markets. Abigail a risk off day for the Global Financial markets. We see this in the equity markets, a lot of red. The german down 1. 8 . It appears that brexit recovery hopes are fading to we have seen confirmation of those stating in the british pound trading down in 1985. 1 , last seen it appears that brexit uncertainty has truly returned. We see commodities trading , copper as well, copper is down, concerns about demand continuing to take red metal down after a rally. Also, we do see the u. S. Treasury yield trading down. Are seeking a haven in the brexit uncertainty, plus add of the fed minutes. Lets not forget the job payrolls report on friday. David thank you. M a in london. Emma in london. Emma a suicide bomber killed security personnel in one of islams holiest sites. In iraq, the death toll has gone up from the truck bombing in bag that. At least 175 people were killed in almost 200 were wounded. The Islamic State claimed responsibility. In australia, they are counting the vote in an election that has failed to reduce a clear winner. C needed for a majority government. Australias Election Commission has just started to count more than one million pallets. President obama will campaign for Hillary Clinton at the first time today. President obama remains wildly popular among them at. Donald trump will also be an painting later today. Global news 24 hours a day powered by more than 2200 journalists and analysts in more than 120 countries. This is bloomberg. Thank you. Coming up on this program, italian banks to record lows. Up next, an economist at the has what it takes to support nations banks are from london and new york, this is bloomberg. Alix hardest hit is italys thirdlargest bank, shares hitting a record low, and unbelievable rise in the stock. Is the Italian Government considering injecting fresh capital into the bank. A senior economist joins us from new york offices. You wrote the italian banking issue and the senate referendum the october are one of biggest nonu. K. Risks today. Why do you say that . We have to start with the fact that italy is systemic the important. It is not like greece. It might be too big to fail and too big to bailout. By definition, the major issue for europe as a whole. Side and theg political side, tempers are rising. Im glad you brought in that factor. Claims on italy francis claims to italy is about 300 billion. It is not an isolated event. Absolutely. U. K. ,compare italy to the it willes country undoubtedly spill over to other countries. Alix the question is how do they do that. Use articlepared to two, is that going to do it . What will it be . Abilityow if we had the to put banks on a clean footing to recapitalize them in can actually, we move beyond these issues in the Banking Sector that could hats supercharge the economy. The new rules in europe has made it a lot more difficult for the states to step in. So according to the rules, it is one of the limited states. Bank debt versus the equity, the equity keeps falling where the debt yield back in february it was over 8 . What does that tell you about the profitability problem . In general for the Banking Centers as a whole, markets are telling us they are worried about profitability above the issue of solvency. It is also because systemic concerns in europe are lower than they were in the past. Panicnot see wholesale that it is a sign of concern some of your major banks are seeing the sign of volatility. David stay with us. Coming up, how Monetary Policy suggest from the u. K. Departure and will it put the fed on hold for the foreseeable future . We will discuss that next. This is bloomberg. David earlier today, we heard mark carney talking about a. Ougher Economic Outlook according to citigroup, the uks at risk of a recession by the second half of the year. Growth to 1. 3 for 2016. Ar more on the fallout, citigroup economist is still with us. Take us through the aftermath and do it in three stages, for the u. K. , europe, and the world. That is the right order in terms of the size of the impact. In the u. K. , we have already seen some of the impact in the months. Likely to be reinforced through the outcome at the end of june. We expect that in particular, the most uncertain and sensitive parts of construction, bank lending, durable purchases will hit quite hard. We will see a domestic economy int goes into a recession the second half of the year. The uncertainty in the u. K. Is going to be protracted. Line, it, second in will still be a negative effect. If we go back to the pressure crisis, as it did not have immediate implications in terms of the institutional factors, almost to zero at the time and impact onee a similar the most uncertain sensitive areas in the eurozone. For the world as a whole, it will be tied to financial conditions and then uncertainty. Our current best guess is the impact on the rest of the world will be more moderate, including in the u. S. David you see some factors pointing toward firming. Ahead of brexit, we had a couple of things lining up. In the u. S. , we saw the expected rebound and in china, we saw something similar. Of aseeing some signs multiyear slowdown that was about to it is up slightly reversed. We are stepping away from the big contractions we had. Some uncertainty is presumably going away. The spanish election maybe not a worse out, either. Think brexit puts all of those back into doubt. More about global trade numbers, what do you see and what do they tell you . Even on global trade, we have seen an extreme weakness relative to gdp growth. Trade growth has been even slower when it used to have a multiplier of roughly two. Starting to show some signs very though we did not see a further confirmation of slowdown. Overall, we have very little hope we will the a major rebound in part because of a number of underlying elementals but also a sign of the emerging. It will put a damper on role trade. We will see. David finally, jobs coming up riding in the nice states, home for now the numbers . What are you looking for . You have a major shift away what we are clearly looking of the fed looking at the hiking mode. If anything, the job numbers will probably only tell us a potential case for easing. David thank you. Great job. Oil points to a big move slower, crude off by 3 . We will speak to an expert on the second half of the year. You guys be good. Ill see you later [ bark ] [ bark ] bye. See ya pal. Ever wonder what your pets do when you leave home . [ laughing ] aw you cutie pie. Aw. Aw. Aw. Aw. [ barking ] [ washing machine running ] partys on know what your pets are up to with xfinity home. Xfinity. The future of awesome. See the secret life of pets, in theaters july 8th. Jonathan lets get straight to Global Financial markets for you. A long weekend on wall street, futures here in europe, bank also lower for a second straight day here the bank index down by 1. 81 . Down by 1. 73 on the session. A new 31 your love. You have to go way back to sit down by 1. 37 on the session. That is the headline in the act the market. 10 year yield to come, and 30 year yield setting fresh record lows in todays session. 1. 39 is your yield on the u. S. 10 year. Lets wrap up the action outside in the business world. Thank you. Hungry is pushing back against European Union and its refugee felt it. The eu plan to share the burden when it comes to sheltering refugees. Minister called the eu plan abuse of power. Benjamin netanyahu, and towards africa. Years ago, his brother was killed during a rescue mission. He is trying to drum up business. California, michigan control celebrated. The spacecraft needed almost five years to make the check. It will spend 20 months around the Solar Systems largest planet. Global news 24 hours a day powered by more than 100 2600 journalists and analysts. This is bloomberg. Jonathan focusing on the commodity markets, the crude for wti. Thexclusive interview with uss biggest independent or traitor. We sat down with the ceo. There is still a very weak fault level. The u. S. Has a lot of oil there and we still have the of the lady in the u. S. To quickly import. Yes i think the stock levels will come down but no, i cannot see the market really roaring ahead. Jonathan joining us now in london, Energy Reporter at large. Great to have you on the program. Stocks more specifically, you see the stock level is starting to draw and that is the we expect to happen United States, we see a drop in inventory. Inventories down more or less at the same pace we would expect. That really continues faster, we will have a problem of too much oil again. Looking if anyone is or sensational headline, you will not get it. Yearend 2017 . Indicating Oil Prices May increase on the 10, the next 18 saudi not really arabia will later seat. Market, a gradual and gentle increase in prices. Thinksend of 2016, he prices will be at . 25 per barrel. Alix if i take a look at the oil market, the biggest risk is the oversupply of gasoline. Stocks are shooting off despite the fact that everyone is driving here the concern is that at some point, they will say, i will not work that much anymore and we get filled up back of crude oil inventories. What do you think . You are right. Refinersasoline that say less for crude oil. We build inventories of crude oil and prices go down. It is very surprising. Winter. In summer is the highest of the months for one of the things that is happened is demand was very strong in the first half come the first four months of the year, and we thought was continuing based on weekly numbers from the United States. Numbers, a more detailed view. They overstated the amount of gas consumption and the reality was the amount was lower. Jonathan real insight, someone lifting lid on the whole market exactly what is happening. Company structure itself around this . We know the story of the last two or three years. Cut costs and build a big moat around the business and hope that oil comes back. What is the story right now . One thing that is very interesting as we are beginning to see integrated oil companies, think about chevron, giving the green light and take many years to come back and they will also take billions of dollars to come through. Today it was announced come in almost 13 billion expansion, and over the next six to put almost 13 billion, a lot of oil, big oil companies, they can deliver, a sign of confidence that they can bring the cost down so those were get 60 per barrel. We begin to see incremental supply, that will make it a lot more difficult. Jonathan the reserve replacement ratio and thinking, we have got to do something about this quick . I think that is one factor but i do think maybe an exceptional case, a huge reservoir, but i think the key factor is companies have been , how weto lower costs can do the same thing but lower cost. We are beginning to see the enough time to solve a problem and the problem will be solved. Jonathan a beautiful project. Heavier, thank you very much. David. Could put together jupiter and oil. That was very well done. It is time for bloomberg trends, a look at the top stories being read on bloomberg. The one that caught my eye yesterday was about u. K. Construction. It really struck me, it went from positive to negative but more than that, it fell more than five points. We have been talking about what brexit might mean for real estate, this is an early indicator, and it is not good. Jonathan looking at the index, they were all in negative territory. In the Residential Housing sub index, worstperforming, falling the weakest since 2012 p lot of whether youre in the market or not, you own residential property, you will be looking at those numbers and will not like what you see. Alice not at all. In this area is cyclical. A lot of speculators coming in. This is where the effect will be. David there might have been speculation and that is why it reacts so quickly. Think looking at that particular survey, 80 of responses came before the decision of the European Union. We will have to wait for the july number because responses we came before the actual decision to leave the eu. To me, the story indicative of the future is what is happening with standard light, suspended trading on u. K. Real estate fund. Not just any old fund. 2. 9 billion pounds. Suspended trading that had a series of redemptions. The view thatat decision to leave the eu, how real estate would hold up. Some kindle see it as of opportunity, or would they pull out . It is early on and it is just one story and we have another one in the last four hours. The Investment Properties trust is frozen as well. Looking at those indicators, it looks like you will see demand get hit with those funds are anything to go by. An important interesting point that you make sure it on the one hand, people seem to be nervous about the Real Estate Market and on the other hand, they will buy more real estate and they did a few days ago. It couldve gone either way. It looks like investors are getting cold feet. Jonathan it looks like that if you look at those funds. A clean read on what the post brexit situation looks like. The situation now, even more uncertain perhaps that was on june 22, come out on the other side, who knows when they will get a resolution to what we saw from the bank of england was the risk as far as they are concerned. The uncertainty may begin to crystallize. Outscored if you have a fund that does not want redemption, that has trickledown effects in the other parts of the market. You are all reading on terminal two, my trend has to do with a really cool story. Wantsegian salmon farmer to farm fish in a cargo ship. This is really the story of the decade, the massive demand for salmon, that protein, and not , down 7 to a lot of people are resorting to using fish farms at sea. A lot of countries in regulation and you have some guy wanting to farm it in a cargo ship. It is a booming story. I wonder what they will put on the menus. In the United States, we are specific about where we get our salmon. Jonathan i will go straight to the bloomberg and pick out this story and read it on the commercial breaks. David coming up, a tough six months for hedge funds. The industry reported its worst performance since 2011. Trade becoming too crowded and fees too high for things like this . Graduate school of business professor will be weighing in next. This is bloomberg. Alix coming up later, Jeremy Siegel will be joining us. His outlook for the rest of the year. And the the company that brought you is getting a new owner. Affiliate ofaded the investment firm. Bankruptcy protection three years ago. Since then, it has been owned by not a great time to be a banker in london. Bonus for that the city passes investment banks will be covered by at least 20 percent. Eu decision to leave the have slowed down dealmaking or job cuts likely in september if client activity does not pick up. The rio detime janeiro gained s e johnsons offbrand. To convince athletes and safer carrying the zika virus. Matt thank you very much. The emergent Property Company slumped at your Standard Life investments suspended trading in its Real Estate Fund after a series of redemptions. Trust Investors Property also froze on extraordinary market conditions. Joining us to discuss is the columbia graduate business adjunct professor. Great to have you with us. This . To be begin with a series of redemptions. At what point do those make themselves assets in that fund . Where are we in that situation . Were almost there. Somewhere in the perspective, they will have the maximum amount they could borrow. By can meet redemptions borrowing money and staying out of leverage. Genuine generally has a way of having happening in an unhappy situation. Debt for . 70 of capital. Those are leveraged to do one, which may be far more than the intended to have, advertised for at stable income trust. Managers really have to slow it down on the assets. Jonathan you wake up, freak out little bit, take money out of the fund like this, always a big question after this and hanging around after 12 days or so. Is there a signal in this right here right now . Does it become real even as it becomes a real signal . It can and i think one of the is the that drives this notion of a price come on the level at which people will buy themselves something where neither the buyer or the seller must act. Go to put up,ey the biggest investment here in london, when they go to put that up, you know the kinds of people who will be out there. It gets marked down and the next property gets marked down and you will have others having to do that and the alternative to leverage it, what bank will leverage more against this pool . You start to get a concern, my gut feeling having seen this almost hysterical hysteria, the lady diana deathlike hysteria among people who did not expect this is a lot of this is driven by investors pulling out so that will not give you the from when where they are come it does not matter. David corns strikes me as more than that, also a hedge fund story. Hardly a day goes by where we do not hear about having to cut its fees or close up shop. What does it tell us about the overall Hedge Fund Industry . Over the last quarter, the first time in a little while we have seen money going back into the industry. What we have also seen is a sincere disenchantment with the and almostrformance more of the level of performance with the volatility and correlation third every dip and dive teams to be followed almost fundsely with the hedge managers equity long shorts, one of the great myths that will die is the notion that you combine individual assets that are so wonderful, they are not correlated. That is with the activist content. I do not mean to hedge because what Fund Managers equity long im whao different from the rest of the market. Are an activist on the board, the overall market decline will drive you down and edge willce of a true be an expensive mistake. I want to go to that point of the absence of shoe hedge. Im sure you will disagree, when you have a conversation like two and 20, it drives you to want to get really high yields. The only way to get high yield is take high risks in a and in a increasingly volatile market, you get killed. Reallyway of getting high yield is to buy illiquid assets and leverage them up. This has gone on since longterm capital has every mortgage in denmark and leveraged the heck out of them. Longterm capital losses largest actual return was just north war around it is point to around 1 8 asuspoint, to around 12 points. All the rest was leveraged and this created a story people should have learned from but did not. Buying an asset and leveraging the heck out of it is not enough of. I do not think anyone would mind paying for manager skill, but to get someone to buy illiquid asset, whether junkbond or the this particular Real Estate Fund, high levels of liquidity but a massive level of asset liability mismatch, and as i noted, above a 30 level of leverage. It is just a matter of time. David i love it when you agree with me. That is terrific. Graduate school of business adjunct professor, thank you very much. Coming up, u. S. Corporate debt further in the negative territory. We will tidy which company is next. We will tell you which company is next. David time now for battle of the charts. Alix steel takes on lisa appeared out as the homecourt advantage. Alix trying to figure out why what we have seen has not really made a glade throughout the market. Forward prices, that is with the market expects will happen. This is what the market is doing. A sharp devaluation in the u. N. Back in january, a big rise in the forward market. You have seen the dollar continued to climb but the forward market is not reflecting that. Because the market is getting more stable, that explains the lack of volatility. David that is terrific. Very interesting here you can do this. My chart shows the lack of intuition. Companies can borrow for free. Take a look at these Corporate Bonds in euros and the japanese yen. Bonds due in 2017, the yield is now below 0. 2 . Investors are essentially paying them to borrow money in euros for more than here. In the japanese yen, this is mine going to me and you see it from other companies as well. The race for safety is mindboggling. Jonathan negative rates on debt, it makes no sense. Turning capitalism on its head. My vote goes for lisa appeared david my vote goes for alex kirk do you want to break the tie . Alex lens it. In the next hour, jeremy talking about his outlook or the rest of the year. This is bloomberg. Quite a global selloff. Sours on economic worries. Jonathan the bank of england warns the brexit list has started to crystallize. False ambitions. Lowers is for you for your outlook. Fullyear outlook. David this is bloomberg. I am here with alix steel in new york, and Jonathan Ferro is joining us from london. And we want to check around the room with stock reporters. Julie hyman is here in new york at a look of what is moving ahead at the open. Mark barton is in london. I want to start with julie with the s p lowered today. Risk off is back on. You look at markets around the globe, concerns about Global Growth coming back after the big rally we saw in u. S. Stocks last week, the biggest we have seen all year. Individually, looking at financials down once again. We have a story in the Financial Times talking about though tightening at its Asset Management unit. Goldman has told the Asset Management division to tighten its belt because of poor performance at some of its largest funds. Folks have to cut spending and ban all travel not associated this is symptomatic of what is going on in the financial industry more broadly. Were watching tesla once again, some bad news on the delivery deliveringhe company 14,370 vehicles in the Second Quarter. It looks like it could potentially miss its fullyear. An ongoing issue. Shares are down 3 . Were looking at automakers and some of the early trading in the United States. Six companys overall were raided by the antitrust regulator. It has to do by the auto industry. Abigail . Starting off with netflix closing higher friday, down 1. 5 . On friday, a lot of positive chatter. Today is the exact opposite. We have shares downgrading. She is signing the potential for weaker and connect international growth. Shares could increase all on uncertainty. It has been a very uneven year for all the volatility between these opinions in the last few days and about 15 of the year. Also trading lower is apple, cut. Ts estimates he has taken his june and september estimates, a low consensus, he is saying a lot of consumers could be waiting for the iphone seven. Lets head over to europe with mark barton. Mark stocks falling for the second consecutive day. The index itself is down 1. 7 after the biggest week we gain since may of last week. 3. 2 . The exciting excitement is getting to my voice. Shares halted earlier, italy considering injecting much lender to boost its finances ahead of the stress test results of and two people familiar. I made you a lovely chart. Fallen007, shares have 99. 7 . We have got record lows for the pound today. Sinceo its lowest level 2005. Lowest level since 1985. Confidence of british executives wondering. Doubling here that is the big indicator of the day. Pmi, lowestwards, level in 3. 5 years. It is the biggest portion of this economy. This is something to watch out for in the next couple of months. Jonathan alltime low yield on 10 and 30s in the treasury market. 5 in the payrolls report on friday. To try to make sense of that, a professor at the university of pennsylvania joins us. Try and make sense of that for a spirit unemployment in the u. S. From me will remain south of 5 in the survey. 4. 7, what do you make of what is happening in that market versus what is happening in the u. S. Economy . What you say is right. What we see is to quality after , the strongestle the feeling of risk aversion is very high and they say, take me to the safest asset. Does happen to be the sovereign of japan and germany and the you 10 yield going down. The pound dropped 10 . You did do well in the u k bonds as a nonsterling investor. The demand for higher volume liquidity has been the story of the last two or three years. We are rewriting the textbooks. Teach them about what is happening, i wonder how you do that when the biggest buyer with some of these bond markets is completely priced incentive. What do you teach her students and tell them . You are ive been a professor 44 years and for 42, i said you cannot have negative yields because the lender can put the money in his or her part his or her pocket and get zero. Suddenly we see negative yields. Put 10,000 in your pocket but 1 billion is hard to put in your pocket. If you want highquality, and you say you just want security and principal, you are willing to pay the government 10, 20, 30 basis points for several billion dollars. That is what we see happening in the case of switzerland. Strongestfranc currency in the world, playing that down to minus one. With thenk United States at all. I do not think were in for a drop unless a recession and i do not see that. Alix when you have an s p soord highs, and you have it expensive, cheating now at 20 times faster earnings ratio, then you have the 10 year yield at record lows, what gives first . When you say 20 and youre perfectly right, that is 2015 earnings, which were as a happens in the Energy Sector. We had a recovery and the Energy Sector was negative earnings for the s p 500. That is very rare and it is supposed to flip back to positive, not very robust, what we are expected to seek 10 to 15 increases in the s p operating earnings, so we are really selling more 17 and 18 times this years earnings, and in a yedlin low yield environment and one the dividend yield of the s p is north of 2 , the dividend yield in europe is 3. 5 4 , even in the emerging market, good dividend yields. My thesis is people will be stocks for income with the bond market, we can see that is just not for the next may be an entire decade. We will supply investors with sufficient income for their portfolios. I see a longterm look at highquality stocks as in the place that investors will go to. 10 to 15 growth would be a happy story and earnings. It is not what were seeing recently. How much of that is topline growth . A lot of it is bounced back from the Energy Sector. That really moved negatives in 2015 and we have oil utilized between 45 and 50 was will bring positive earnings back. The dollar was a hit of about 5 on earnings in 2015 in this year, it will be more moderate unless we see another movement of as a result of what is happening elsewhere. Since brexit, think most are saying those reverberations were ramifications are going to stay the u. K. We look at Public Opinion polls and surprisingly, they moved more positive to the eu after the brexit vote. We looked at the spanish election that took lace right in the weekend after brexit here that was positive for the ruling power which was proeu noteeling is brexit will start a domino effect with countries leaving it. I think it is going to be britain passes problem and it is, no question about that, the yield might actually be stronger after brexit when people see what the result is rather than weaker. To wrap thingst up by talking about the markets. You mentioned the dividend yield. A question we have explored on the program before. Typically investors the equity markets was a place to go to capital return. We are seeing a significant return. Talk about the market and how well you would have done a few chased the yield lower, and now the equity market dominate the yield standpoint. What are the consequences . You are bringing up something interesting, but in the short yieldse movement is for to move continually downward. It is pretty hard for me to see these will yields being there three to five years hence. I am not one of the people who thinks were getting back to six or seven or 8 yield, but all we move to or 3 , 2 is still a target inflation rate. U. S. Gdp growth, that should bring us to percent or 4 longterm bonds and europe should get there i think yes, the momentum players for a further drop in field, i would be wary if i were a longterm investor to say i am going to go to the bond market for capital gains. We are in a moment to move now with a sharp reversal. Thatncome story is there stocks are yielding much better for income. Historically can them historically, that has been a good time to stay and by equities. David jeremy, thank you for being with us today. Ahead. Up, tough road shares are down after it missed its secondquarter delivery forecast. Globalhead, president of strategies, he tells us why uncertainty is here for at least seven more months. This is bloomberg. Jonathan lets check out the markets for you. The situation globally. A fourday winning streak on the s p 500. Futures 11 point. Here in london, positive territory. Switch of the board very quickly. 130, we trade at 13067. 19 85. Er 9, in the bond market, treasury yields, an alltime low, another record, this is how we trade in the here and now. On the u. S. 10 year, down by six basis points self are in the session. Wall street gets to work after a long weekend. The news outside the business world. Saudi arabia is the latest target in the wave of terrorist attacks. The suicide bomber killed himself one of islams holiest rights. People in saudi arabia caused damage. At least 175 people were killed in almost 200 were wounded here the Islamic State has claimed responsibility. President president Francois Hollande conns government will again lead a measured a measure according to businessesuld keep with flexibility in hiring and firing tear president obama would hit the camp and trail with Hillary Clinton for the first time today. Join thedent will likely democratic nominee in charlotte, north carolina. President obama remains wildly popular among democrats. Global news 24 hours a day power by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Timeout for futures in focus. The best today jump since 2011. Joining us now is the chief strategist at bubba trading. Com. Are you buying this . I think here, we pushed the limit a little bit. Buyer. You need to be a more the talk of negative rates, more the uncertainty around the globe, the more money that will run into silver and gold. Still at 68 times. A little pullback, 19, 18 and a half. There is where you want to be. 42 . Up these we cants come unto they get out of the first sign of trouble, or are they thinking . I think you see a lot of people trying to jump in and the other thing that happened is the amount of leverage that continues to change. If i get them today and im basing on an extra a certain amount of margins, i am forced to liquidate. A lot of problems on sin the average guy. Think the major exchanges they are very afraid the markets could be in big trouble and have a lot of volatility, which they her troubleto see covering a major meltdown somewhere. Alice good stuff. Anyone who has covered this like i have no. Knows. Times are tesla we will look at what the maker deliveries met to meet its longerterm goals. David this is bloomberg. Tesla scherzer down. The automaker missed it delivery forecast to the second outlook. We are joined by jamie butters of Bloomberg News for welcome back to the program. News. Welcome back to the program. It was significant. For years, it was the most important thing. 79,000, saying probably but it really speaks to the fundamental ability to make and sell cars and get them delivered to customers so they can get money for it. Goalsave such ambitious with increased production overtime that have little hit cup every little hiccup magnifies itself. Really ambitious goals. What do they plan on doing for the next couple of years . The model three was very popular and well received. Industry atn the all to have people lined outside and put thousand dollars deposit on a car they had not been yet. Many of those. 500,000 cars a year in 2020, they are trying to do it by 2018. That is not long away. It is two years away. They have to go from making 50,000 to 200 and 500 and beyond. You miss a target, it makes it that much harder to catch up. David did they give you any explanation that would give us hope . Able were skeptical of that before this. With tesla is stressing is they had huge increase at the end of the order, the last month of the chorus, they are basically saying we made all the cars but did not get them delivered to the customer on time. That is fine. If they miss 500,000 by a quarter or two, it will not be that big of a problem. Butl unprecedented growth, it will be tough for them to get there. Alix does tesla have to raise more money in the future . Probably the biggest factor is whether they do the solar city deal. Whether they do the proposed wind solar city, rooftops or company that elon musk is the bigger biggest investment in investor in. To generatenot able enough capital, that i could add to the need. The overall state of the auto industry, we got numbers on friday. Good and not great . That is about right. Up from before but not as much as they were expected. We are still seeing a healthy economy in a healthy auto market but the full year, coming down and some of them are predicting we might not break last year passes record. Last years record. David thank you. Jonathan a move that the premarket, lets cross over to julie hyman. Julie downgrading Morgan Stanley to underweight from equal rate equal late. In theral pressures clinical latch how. In particular, the analyst says the reimbursement headwinds and weakening trends for the , thosed cancer drug shares taking a hit on that call. Banks morehing broadly and also from Morgan Stanley, downgrading and upgrading and you see those shares in line with those particular calls. Saying it will be just over half of the industry average. He can narrow the earnings growth. More confidence that he will achieve his goal in savings. Healthcare services someone cutting outperform the analyst there saying secondquarter results return to normalcy, lowerlevel shares are down by 1 . Jonathan european equities are down and futures are soft. Wall street back to work and the risk off in the Global Financial market. Solid. E a 31 year low. , this is bloomberg. Jonathan from london and new york city, this is bloomberg. Just minutes away from the cash open in new york. Soft, 12 points on the s p 500 down about one half of 1 . London rallying one third of 1 . Down is the dax by over one and a half percentage points. As you hear the opening bell in new york city, lets get to your fx market headline. Handle, down by 1. 57 . You have to go all the way back and look and a 31 year low, september 1985 was the last time the pound was this week against the dollar. Market, record low yields on the 10 and 30 year yield in the u. S. Clear but still down five basis points. 1. 4 is how we trade on the u. S. 10 year. Wall street gets back to work. Julie we are seeing continued selling, or resumption of selling in the u. S. , continuation from what we are seeing overseas. The risk off attitude and concern about Global Growth sentiment is coming back to u. S. Stocks, that in some valuation as people evaluate whether the risk we saw last week was justified given the fundamentals of the economy. All three major averages are trading lower. Are down bynasdaq about one half of 1 . Fiscal third and Fourth Quarter estimates were cut by citigroup even though they still. Ave a buy rating they say there is potential for lower demand and currency volatility will put pressure on apple. They are down just 7 10 of 1 but because of the weighting of apple it has an effect. Banks have been declining in europe and here as well. We see the bond yields continue to push to record low levels. That is not great for the earnings power of banks like jpmorgan, citibank, and bank of america who are trading lower. Company isthe tools centering off its equipment unit. It looks like it may not be naher,g just yet but da that is why you are looking at a big decline. Whichy, Harley Davidson was up 20 on friday on what seems to be takeout speculation that did not have a particular source, is down 7. 5 . Bairds downgrading the stock from neutral to outperform saying there is no credible source behind the rumors, and shares are above the fundamental price target for those analysts. Jonathan thank you very much. That is the Market Action in the first couple of minutes of trading in the United States. As far as equity markets, we are talking about global cross asset moves. According to our next guest, he has said the feds action of following markets rather than setting the trend will continue. E joins us from los angeles you have been a critic of global Monetary Policy and response for a wild now. Looking at the policy response that emanates from the Federal Reserve and ecb, your first thoughts, what do you make of it . As ie first thought is have been saying on past occasions, the global Central Banks are using a monetary weapon to fight something which is a structural issue. Ast has happened to brexit you just talked about, is something that fundamentally changes the nature of uks relationship with the rest of europe. It has a big fall out on Global Markets and you cannot deal with that with just a bank of england decision to provide more liquidity to banks, or as i anticipate, cut in interest to. 25 overe. 5 the next few months. It is Like Fighting cancer with a headache or migraine medication. It does not work. You need to change the structure, have negotiations for the future trade relationships, and dealing with monetary weapons will not work. That has been the crux of my criticism of the fed reserve policy as well. That is why we do not have enough labor force improvement in the United States. We do not have wage growth but we have the stock market going up and home prices increasing. We create an asset price bubble but do not create a Global Economic recovery which is the Principal Task of a central bank. Jonathan the task of the central bank for many people is to provide a shock absorber between the here and the next move, being making the adjustments to address structural issues. What should the policy response be from the Central Banks in between that time when governments look completely incapable of doing anything . ,omal if you go look back before i come to answer brexit let me come back to december 2008 when the United States started quantitative easing and went to zero Interest Rates. Speaking at the London School of economics in january 2009, ben bernanke called it an emergency policy with the qe being reversed in the course of time. If the Central Banks truly do adjustment and structural changes are taking place, i will be all for it. What happens as it becomes more like a drug addiction. , theyever want to give up make pronouncements on monthly statements which make very little sense to me like they have been saying for the last months they are going to raise rates to times or three times, and i said, why not 10 times . The whole thing is meaningless and why taxpayers pay them to do that . They have to have a small adjustment process and immediately after that the Central Banks need to back off. We should have increased Interest Rates in the United States three years ago. If it causes a Market Correction that is because a structural change has happened and the markets need to correct. You cannot prevent that with more and more monetary easing. Banks cannot really do anything to stimulate actual demand. They can stimulate the supply of loans but not necessarily the demand. Are we looking at a situation where it has to be fiscal policy or helicopter money to jumpstart that part of the economy . Komal i do not think helicopter money will work because if you are lacking jobs, lacking income growth, you need tax credits. You need essentially ways in which the employment tax credit comes into being. You need labor market reforms and for instance, just as the italian Prime Minister is trying to do to get more power to hire and fire workers so the youth Unemployment Rate can come down. Help that, it is the Italian Government which has to do the work. Structural changes cannot happen because there is a gridlock and washington. The Monetary Policy just backs off. Which the fed has approached it is to say nobody else is doing anything, therefore we have to create more money supply, therefore we have to go to zero Interest Rates. My response is if you have tried different medications that do not shootyou do yourself in the head because that is the only medication left behind. If you do not have the proper medicine, do not do anything. David a complicating factor is the value of your foreign areange and i wonder if you looking at the bank of england right now possibly cutting, you said you thought they would cut. What does that do to the ecb as a look at a weaker pound against theeuro, and ultimately United States cannot raise the rates and have the dollar go through the roof. Komal those are timely questions. I expect the first to move is going to be the bank of england this month as well as next month so in two stages you go from 50 basis points toward zero on the key Interest Rate. When that happens, we have been talking so much about the pound 31. Ling below one dollar eventually i see it going 1. 15 21. 20 one the dollar basis. If the dollar get so week the ecb has to act and they have to create more quantitative easing, hats go into negative Interest Rates, then the euro moves from 1. 10. The fed cannot tolerate that so they have to cut Interest Rates and go probably toward negative Interest Rates. What we are seeing is a currency war that is being fought across the atlantic, and they are dealing with it with cuts in Interest Rates, repeated debasement of currency, and that is not going to cause Global Economic recovery. I like to say weak currencies are going to cause economic recovery. Should beg countries zimbabwe and haiti in terms of leading economic growth. Alix a dose of cold water on this tuesday morning. Komal thank you. Dalese offer a sweeter bed for hersheys . David this is bloomberg. Im david westin. Goncalvesy, george will be joining what did you miss. Coming up on bloomberg television, it is Bloomberg Markets with mark barton. Mark brexit crisis fairly wimpy if you look at the reaction to the u. S. Financial markets. Wimpy used to exist and i used to eat them. Executive chairman of the real estate focus private company, erik schatzkers interview with him. Ian taylor, he did say that oil is probably stuck around these levels. The latest on the boe and tory leadership taste race, london banker bonuses. The jew ever eat a wimpy burger . Did you ever eat a wimpy burger . Jonathan i do love a mark Barton Turgeon tangent. Can we really call them move on sterling wimpy . Mark talking about the u. S. Equity market that sterling is not wimpy. Jonathan mark barton coming up on Bloomberg Markets. ,he u. S. Getting back to work down across the board to one half of 1 . We do certainly have some risk off at the nasdaq as you mentioned, joining in the global selloff on equities. The biggest reason why apple cut itsre down 1 , citi estimates below estimates and that bearish view could be weighing on apple suppliers and we also have a downgrade of pacific crest. Whys saying the reason based on recent supply checks in asia, he thinks the demand for the iphone seven, the demand to 20 in the second half of this year versus the phone the year before. If this is true, everyone is talking about the iphone seven being the saving light for apple. That may just not be right. The big story stock, tesla shares are down about 3 after they preannounced their Second Quarter saying they delivered a little more than 14,000 vehicles versus estimates for 17,000, and cut the fullyear forecast to below 80,000 from between 80,000 to 90,000. A high bearish shortage of 26 . Some of to think that this is mispriced and kevin tyne and says this is exactly what tesla does, they miss numbers all the time. Chargesmerican express square and on deck. They plan to debut their own online loan platform. This is a really interesting story but it is a specific part of the market. What are they planning on doing . Debutingre planning on online loan platforms for Small Businesses and there is no way to compare them to square and on deck. Banks have similar products but it is a sign that more banks are interested. David who will be eligible . Goes tomerican express the cream of the crop so existing customers are who they are targeting. David people who already have a card . Jenny yes. David for what duration . Jenny they are shortterm loans, 30, 60, or 90 days. David this is for Small Businesses who need to pay vendors who may not except the American Express card, is that right . How big a business to you think this could be for American Express . i think it is giving them a chance to get more business spend on their card. David they have been in the news for losing the cost go business costco business. Nny they have said they are going to be more land century lend centric versus spend centric. David who are there specific customers . Jenny it is one of the few products that addresses this exact nash niche. Turf. S amexs david it is great to have you with us. Alix i want to turn to mna. Alex sherman is with us. What about the deals we will not be watching because of brexit . There are deals that are in process and they may or may not go as is. Sometimes when there are economic collapses certain deals in process are restructured. You may see a deal suddenly, a cash stock deal the percentages extreme even in the example, another bidder could come in over the top because lets say a British Company is buying a u. S. Company and the value of that deal is a lot lower because the move down in the pound or because british stocks have been crushed. Another bidder could come in and say it becomes a better deal. In terms of deals that have not been announced, you will have to amagine there will be a who element to this. Why dont we wait a little bit and see how it plays out . Alix also yahoo , it is happening. We will get the final bid for yahoo . Alex is this ever going to happen . Even this is not even really happening. Round 19 is tomorrow. I think it is the third formal round of bids. We should get more information tomorrow about who is still in and out. Verizon is probably still the favorite to acquire yahoo . It has the most capacity to bid theoretically high although verizon was the lowest bidder. Part of that is it is not really an apples to apples comparison on what they bid. They did not bid on the patents and real estate on the behest of yahoo . Sources with verizon say verizon is more than willing to bid for those if yahoo turns around and says, we want you to take the whole thing. Maybe it is more tax efficient or better strategy for them to sell everything in one. We will find out if verizon changes its bid, if they are including the patents and real estate. This whole thing should be wrapped up mid to late july. David is there a particular reason for the pressure . Alex at this point it seems like there is no real pressure anymore. There was pressure in march when starbird threatened to replace the entire board. A settlement and since then all of the pressure has do notf this deal so why know why theoretically it needs to get done in late july other than it has been going on for months and months. I am sure everyone is in involved is sick of this. There is a theoretical deadline. Hershey, or we expecting a bump in the bid . Alex i do imagine there will be a bump in the bid if mondelez wants to get this done. Hershey is so tied to the city of hershey and the votes are controlled by a Hershey Trust that has a lot of connections to a school in hershey, pennsylvania, and the governor has a right to next the deal if they feel like it is not community friendly. Mondelez is aware of those circumstances and they say the country is going to be called hershey. We are not going to cut jobs and we will do everything we need to do to keep things running as is. All you need to do is turn the clock back to 2010 when kraft bought cap very. Ry. Cadbu if you agree to do Something Like this, obviously there are future risks which might tell you not to. If mondelez bumps up its bid 10 to 15 per share even the Hershey Trust will have to consider. Alix good to see you, alex sherman. Ahead. Loomberg go jonathan from london and new york, this is bloomberg. I am Jonathan Ferro alongside david westin and alix steel. ,all street gets back to work this is how we are opening. In. 8 10 of 1 25 minutes the underperformance on the fx market and the pound more specifically. I will show you sterling in a place it has not been since 1995, 1. 3073. Another alltime low, record year low on 10 and 30 year yield in the treasury market. David everyone keeps predicting that bonds will go down but they keep going up, the yields keep going down. It is extraordinary. Alix later today. David a look at centralbank policy with george goncalves. Misss on what did you at 4 00 p. M. Eastern time. Alix switzerlands yield curve is negative after 50 years. That is incredible. That can be very distressing if you look at the global economy. That wraps it up here for bloomberg go. Have a great afternoon, everybody. It is 10 00 a. M. In new york and 3 00 p. M. In hong kong. I am vonnie quinn. Mark i am mark barton. Markets onomberg bloomberg television. We are going to take you from sydney to detroit and cover stories out of italy in the next hour. We have some breaking economic ada out of the u. S. Data out of the u. S. Julie these numbers were not expected to be great and indeed they are not, factory orders down 1 in may and durable goods falling 1. 3 , both slightly worse than estimated. 1 ,sportation down 3 10 of capital goods down for tenths of 1 . I just saw the number kick over for durable goods. Is the final2. 2 read on may durable goods, in line with what analysts and