Live from bloombergs european headquarters. We are getting breaking news. The i8 monthly report out. It is important because it gives what they are expecting what theyre expecting that she gives what they are expecting for 2017 gives what they are expecting for 2017. A lot of economists, goldman sachs, just six month ago was expecting the market to rebalance in the second half of this year. They came quicker. What we saw in nigeria and other parts of the world. In its latest monthly report is the first time we hear about 2017. The market balanced in 2017 and cuts the estimate of oil oversupply. This is euro market check. One hour and one minute into the trading day. This the picture for crude oil. A little bit on the downside. A lot of pressure on everything across the board. In one word, risk. That risk is off today. 1 . Pean stock down it did go into negative territory for the First Time Ever. It all has to do with brexit and risk aversion as the markets are trying to understand really whether there is a possibility of a brexit in the upcoming vote on june 23 good lets get to the bloomberg first word news with nejra cehic. Nejra Barack Obama Says the orlando nightclub killer was inspired by propaganda. The president says omar mateen was a homegrown terrorists that authorities have long feared. At the last minute he announced allegiance to iso isil, but there is no evidence that he was directed. There is no evidence that he was a part of a larger plot. French authorities started an investigation into the killing of a policeman and his partner in northern france. The attacker was killed by police and the couples threeyearold child was saved. A french governments Spokesman Says it was an act of terrorism. The attacker had claimed allegiance to the islamic state. Brexit concerns are dragging on assets around the world. The chinese currency has moved closer to a fiveyear low just as britains vote compounds fears. Concern that authorities will not add stimulus even at the economic even as the Economic Outlook deteriorates. Global news, 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Francine. Francine the pound has fallen toward an eight week low put the campaign to leave the eu ahead of remain. The sun, the countrys biggest selling newspaper, has on its to vote tothe urge leave. To stay in the eu. There is such a strong case for the u. K. To remain as a member of the European Union and to remain a part of the single market. Geopolitically, economically, many aspects francine first, speaking at the event yesterday, the best campaigner, Boris Johnson says remain campaign is misjudging the british people did ask people. I think that they are woefully underestimating the ability the francine the lack of concern of the brexit is a little puzzling. Think itsy is a much for coming on to do the markets are starting to fear the possibility of a brexit more. Richard the concerns are finally starting to come through because the results is now perhaps slightly less obvious than it appeared to be a couple of weeks ago. That is showing through in developments and currency markets. And also in bond markets. Francine the problem is, you are in the markets and active, who do you believe . The polls . Difficult to judge because this has not happened for 30 years. Richard many people around for the markets were not able to vote in the last referendum. It is interesting and it is clearly a political event with very profound potential economic consequences. The economic consequences dont just come through if we voted to leave the eu. They are also there will be constant as if the referendum votes for the status quote. The status quo will start to change. This may be is a situation that is prompting rethinking over the eu and its political structures. Francine what does it mean that you want to put your money to . I made this chart for you. Japan and white. White, u. K. Apan and in blue. For the first time, it went below 0 . However we pricing these things . Richard people are going for what they perceive to be the less risky assets. I am not sure in the end these will be the less risky assets. It is offering you a zero yield when we expect inflation to be positive over the next 10 years. We can debate how positive, but if there is a positive inflation rate, you are taking a real risk by investing in bonds as close to zero yields. One of the things you might want to do is try and take yourself out of the european debate at the moment and focus more on dollars. That is not to say that the u. S. Economy wont be unaffected by what is going on in europe, that it has a lot more momentum and is less likely to be affected. Francine do you believe the dollar yellow the dollar rally will be back once janet yellen raises rates . Richard it is difficult to foresee the outlook for currency. They are always difficult to predict. They often do the less obvious thing and we set up a scenario and say in this scenario the currency is going to do that, and it does exactly the opposite. This is the backdrop for the time being. You expect the dollar to be a strong currency. Francine brexit concerns. Would you be buying yen or gold . Richard gold has been interesting and it has rebounded. We have had a greater focus on gold. To a certain extent, it has achieved what we wanted to. Wanted it to. It is always able wake. A bull wake. Days,st the next few until we get to the referendum. It is dependent on what opinion polls are indicating which way they are swinging. This is a period that is going to test of the nerves. Francine think you so much, richard jeffrey. He stays with us and we will be talking more about china. The imf warns on chinas surging debt. Well ask the Deputy Director if the world should be worried. To a. K. Is moving closer brexit, we ask the president of business europe what the eu would look like without britain. The biggest purchase and microsoft history but is it too much for linked in . Francine welcome back to the pulse. Chinas nearterm outlook is being supported by the doc. The doc. Lets head live to beijing where thank you so much. I know you just wrapped up a news conference. The thrust of what you are saying is chinas nearterm Economic Outlook is being reported on the government, but mediumterm prospects look very uncertain. Talk to us about the main risks facing china. David chinas Growth Continues and what is important is that it be not at the fastest rate but at the fastest sustainable rate. It is important that china deal with its own vulnerabilities in order to keep growth going and we focused during these discussions in recent days on the growing corporate debt. Corporate debt is now at 1. 5 times gdp which is high for a country in country of chinas income level. The composition of that debt is largely stayed on enterprises to have more debt relative to gdp them their conservation to gdp than their contribution. We are concerned with the present rapid rising credit in the economy, it will go to companies who do not have a basis for repayment. Debt that we think is manageable could become unmanageable. Francine when will we see progress in reining in this credit . David the first step which i think they are stepping thats their taken is rick they have taken is a recognizing the problem. Recognizing the problem, saying they really need to deal with the zombie enterprises. I think the problem is not just about companies that need to be shut down but also about companies that need to be downsized or right sized. They have developed a program for Closing Companies in the steel and coal sectors which are sectors where they know theres too much capacity. We want to see them go ahead with those plans and then broadened their efforts to address the restructuring needs across that part of the corporate sector, where profitability is not going to be where it was in the past. Francine talk to me about the currencys. Are they in line with the fundamentals . David we think that the currencys broadly in my broadly in line with fundamentals. The currency has not moved and effective terms, meaning against the basket of currencies that reflects chinas trading partners. It has not moved much over the past year. In moves against the dollar or another currency, it is currency, as cross currency moves across global markets. It is stable and ineffective stable and ineffective since. They just more possibility into the market so that forces can guide the currency in the future as fundamentals change. The currency can be guided by the market. Some levels are consistent with fundamentals. Francine how concerned are you about brexit and how much of an impact can it have on the World Economy and china . Dish david the votes david the question about the brexit has introduced some uncertainty. We dont know what the british people will decide on june 23. If they were to choose brexit, we think there would follow a. Of uncertainty follow a period of uncertainty. The impact would probably be the Economic Impact the Economic Impact would be important for the u. K. And secondly, for the eu. There would be some reverberations. These are Economic Issues the british people will decide on. Looking at it from an economic standpoint, we think there could be some significant effects. First in the test first in britain and secondly in the eu itself. First in britain and secondly in the eu itself. Francine some kind of snowballing effect that would lead to a recession or practically no growth. David i dont think the impact would be that significant. Further afield from the u. K. And europe. Of course the Global Economy is recovering, but recovering in a way that is too weak and too fragile. It is never good to add another straw that may break the camels back. Our view is the Global Recovery will continue, brexit or no brexit. Every effort should be made to strengthen the Global Recovery. That is going to be the key topic of discussion when g20 finance ministers meet and just meet in china in july meet in china in july. Francine what will the action this week tell us about the state of the World Economy . The german tenure going to negative territory for the first time german 10 year going to negative territory for the first time . David i think there are a theof factors that safe haven considerations around uncertainties in the world, including brexit. You are right. Central Bank Decisions are likely to be a reflection of centralbank judgments about the strength of recovery. The fed is the fed has said its decisions would be data dependent not date dependent. They will be assessing what is going on in the u. S. Economy in terms of employment, wages and inflation. They will make their decision it would be good news if the economies of the world were strengthening enough for normalization of Monetary Policy to go forward. Well have to see whether that is the case. Francine what does one of two fed hikes this year mean for china . David i think that there are the two affects that you have to take into account, a stronger u. S. Economy is good for china. By aat is modulated a bit normalization of Monetary Policy, unbalanced, we still think it is good for china. There are going to be affects as Interest Rates begin to move up. When they begin to move up, both in terms of the Capital Market and in terms of exchange rate, the strengthening u. S. Economy be good news for the u. S. And for the world. Lipton, avid whether to include chinas domestic equity. Is it time to include them . Is really not something for me to determine. It is important that chinas Capital Markets grow in size and sophistication. They are managed in a way that maintains stability and integrity of markets. When that can be recognized by those who make decisions about the inclusion and indices, that a positive step. Francine of course. We understand that you cannot have an opinion on that. David lipton, think you so much. Great comment and and thank you so much. Great comment and analysis. We willj and fed talk Monetary Policy and the prospects for Global Growth with my guest host. Francine we have been talking to the imf about central bank action. David lipton lets get more from richard jeffrey. Richard, thank you so much for sticking around. We talked before about how sometimes Central Banks put in policies thinking that it will go another way and actually the markets completely flipped on its back and go another way. Chart made especially for you. It shows yen focus. This is q4 and the fact that it has not felt the trajectory. This is Second Quarter and you can see it is not falling back. It is at 105. 84. What happens next . This is a haven. Andard through my career investment markets, the one thing you know is currencies are very difficult to predict. It is quite difficult to explain after an event in the currency market as to why it has done what is done. Given the changes in centralbank policy in japan, people expect the yen to weaken. What is behind that . Expand started evil started inventing people started inventing explanations. Francine going for, were reaching the limits of Monetary Policy. We are reaching the limits of textbook Monetary Policy. What comes next . Richard we are now in the period in which maybe the Monetary Policy that is the followed by some Central Banks are counterproductive. Francine the boj . Kobe theo the ec ecb. They are acting as if the european economy is in crisis. It has been gaining momentum. The ecbs activity has not injected confidence into the system. It is behaving as if theres a crisis. Negative Interest Rates are counterproductive. Francine counterproductive. Is it market psychology and saying that we are not getting better. Richard there is the impact on psychology, yes. It is the wrong signal. I think there is the impact on banks. It does not enhance accessibility to supply credit into the economy, because it weakens the lending model. On both fronts, i would question what ecb has been doing. I would interpreted more in a political sense than an economic sense. Francine richard, thank you so much for joining us. Up next, crude optimism. The iea balancing. We talked the future of oil. We talk the future of oil. Get ready for the rio Olympic Games by switching to xfinity x1. 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. Pulsee welcome to the live from Bloomberg European headquarters. Lets get straight to the bloomberg first word. We have a little bit of inflation figures from the u. K. They are pretty much unchanged but everything in the next nine days, in the runup to the referendum will be taken apart and of course both parties remain, and the leave cap will try to bring it to their side. Stays atation rate 0. 3 . That is the breaking news and you can see the pound, one point 4142. Nejra britain appears to be on course to exit the European Union with four polls putting the leave campaign ahead of remain. In a fresh blow to the proeu camp, the biggest selling newspaper has backed a brexit. Chinas nearterm Economic Outlook has been buoyed by support but its nearterm prospects are becoming more uncertain. A plan to a dress high and fast rising corporate debt is imperative to avoid serious troublings down the road. The International Agency says the oil market will be a most balanced next year as Oil Continues to rise. Iea says the in inventory overhang limit any significant increase in prices. Says the orlando nightclub killer was inspired by extremist propaganda but there is no evidence he was part of a wider group or directed from a broad. He said omar martin was the kind of home grown terrorist authorities have long feared. He was able to buy a handgun and Assault Rifle legally because he had no criminal record. 49 people were killed in the nightclub shooting. President obama at the last minutes he announced allegiance to isil but there is no evidence so far that he was in fact is noed by them and there direct evidence that he was part of a larger plot. Nejra global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. You can find more stories on the bloomberg at top. Francine thank you so much. Weekd you this was the where we had to look it yields. Not only did the german 10 year bond yields fall to below 0 for the First Time Ever, but for the First Time Ever the 30 year guilt in the u. K. , the yield trapping below 2 . How crazy is it that you think ,uch longduration on a guilt but this is the story of the week. It all ties back to brexit and concerns on the market. This is 10 year. Japanese in white, you know the story, it has gone down. Germany is where we saw negative territory and the u. K. In lower territory. I want to show you my chart of the hour, the average probability of a brexit based on betting odds. Gamblers believe there is more than a 40 chance that britain will vote to leave the eu. The momentum seems to be with brexit. This morning we have seen britains biggest newspaper the sun backing a brexit. What would a brexit mean for the continent . My next guest is a famous italian businesswoman, president for business europe, mmr to go ugly a. Rchegaglia. Ma ma we are absolutely in favor for the u. K. To remain. This could lead to a very big uncertainty and uncertainty is always the enemy of investment and growth. We saw that already a lot of investment already planned to come to the u. K. From european investors has been blocked because of these concerns, so we are very concerned. This situation could also lead to a breakdown of europe. Maybe some other countries could decide to exit. This is the First Time Ever a country has decided to exit so we are concerned. Francine could this be systemic . It is very difficult to answer that. How ugly could it be . Emma nobody knows because we are in a land where nobody has been there. You can see in the netherlands, the extreme parties would say we would like to have a referendum to exit europe. Some Eastern Countries could decide to do the same. This is a risk that it could be systemic and the impact on the financial stability, Foreign Exchange rate, interest rate, on growth could be very strong. Francine we understand the eu may have a plan although they are not putting anything to paper. Do you think a lot of companies in europe have a plan b . Emma i think some are discussing about that. The u. K. Also has attracted a lot of investments from other European Countries because the u. K. Is the most flexible at competitive country that has direct access to the single european market. I presume that some of the investment will not be here anymore and so i think there were also be a very strong impact on the u. K. Growth. General, on growth in is there a potential of it falling into a recession . This is all speculation, but when you seek speak to your ceos, how concerned are they about this . Do they try and actively prepare for the worst by looking at emerging markets . Emma yes, it is not easy to prepare because as we said we do not know what could happen. A lot of ceos are trying to understand what to do when so many are trying to understand, to cover on financial instability, on the drop on growth, so there is some preparation going on. Francine is italy back in business . Two or three years ago many business maker said there was the italian discount. Has that gone . Emma i think so. With a new government some important reforms have been fulfilled, for example, the job act. Some reforms of public administration, on judicial systems. We need to do more but i think the direction is the right one, and there is more confidence in italy. The gdp growth is around 1. 2. It is something compared with last year so i would say that italy is back. Francine are you concerned about the brain drain . How do you get talent to move back home . Emma you need to show that there is growth, that there are investments, and there are some theres from when renzi is , created 400,000 new jobs. It is not that because we lost one million but it is something. I think some people are coming back because they see more confidence and trust. Francine we had this important iea report where they were rebalancing the market with oil in 2017. Emma the demand is still very strong. We had a very strong Global Investment for two years, so we have seen the offer going down. Sawhe u. S. Shale, we 800,000 equitable barrels down so we share this idea that the balance will be there. Our projection is still conservative. We are talking about 40 this , and 65 inxt year 2018 but we see the balancing going on. Francine you can see this basically shows you in white, the number of rigs that have come back online and the white line is the price per barrel between 50 and 65. Is it stuck because of these producers coming from the u. S. . Emma it is possible. They will rebound and this is good news. Francine are the markets clearing and is it thanks to demand coming from the emerging market or the disruptions we saw in nigeria and the like . Emma both things. We are talking about 1. 2 Million Barrels compared to last year coming from india, the u. S. , china. The offer is down because of what is going on in the u. S. In shale but also the disruption. Nigeria, canada, this disruption has an impact on the market. Francine what is your take on china . We spoke to the imf and they are saying that idiom turn, they are not concerned for shorter turn. Economy is stable only because authorities are pumping money into it. Is this the biggest risk that faces European Companies overall . Emma i think so. Some companies in china, i agree. Longterm it is already a place to be because the consumption will be there. But shortterm, there are some risks. There is this transaction going on before, when it was only an economy based on export. Now they want to shift to an economy more based on consumption but the shift is very difficult. I see some problems in the shortterm. Francine it was a great pleasure to host you. Thank you for that interview. Up next, how powerful is the son . Newspaper. s biggest backs the brexit, we break down its way over the u. K. Voter. Francine welcome back. As across europe is trading lower, lets head to mark barton. The stocks europe 600 is down 1. 4 , a fiveday losing streak, the longest since february. 7 ,stoxx 600 has fallen by the most since february 11 when it fell to a two and half year low. There is a number of fears besides brexit, which i will come to in just the second. The fed kicks off its two day meeting today. We have the bank of japan meeting, the Swiss National bank, and the bank of england. Lets get to volatility, this is europes fear index. Indexthe ftse volatility rose for a fourth consecutive day to the highest since february, ms. Gage is rising for a fifth consecutive day this gauge is rising for a fifth and it has day, jumped 57 in five days. That is the biggest increase since august. We have had four polls from three companies putting brexit ahead. We have had the Sun Newspaper go forth and support brexit, in its words outside the eu we can last toicher, safer, at forge our own destiny as many other great democracies do. Britain will be engulfed in a few short years by this relent leslie relentlessly expanding german adding to thee. Anxiety that was prevailing across Asset Classes yesterday, pushing volatility up and equities on the v stocks and the ftse 100 index. The premium for one month contracts protecting against a decline in sterling against the dollar compared with those betting on an advance, surging by nine Percentage Points today. That is a record going back to risk reversal data at bloomberg in 2003. Volatility, one month implied volatility for sterlingdollar, rising for the fifth day to the highest level since november 2008. Equity volatility, currency volatility, where is the money going today . U. K. Government bonds. The yield on the 10 year has fallen to the lowest in it sixth consecutive day, but this has to be the chart of the day. German 10 year yields have fallen below zero for the first a low of, falling to point 02 percent. 02 . Switzerland and japan have negative yields beyond 10 year. It is a fairly exclusive club. Germany, because of the anxiety over a brexit joining the 10 year yield club. Francine mark barton with your asset check. Brexit dominated the news. Four polls have put the leave group ahead. Earlier the terror firmer vicechairman justin king told us it is possible to be patriotic and vote stay. Justin i consider myself a proud brent and it is insulting to try and claim that the only legitimate position to have if you are proud of this country, that you have to vote leave. That is nonsense. I think you can vote stay and be all of those things and more. Francine we are joined on the line by rob hutton. Why is brexit gaining momentum . Rob i lost you. Francine why is brexit seemingly gaining momentum . What seems to be behind this is what seemsa rob to be behind this is a general anger at immigration. We have had the government hammering down, it is foreigners versus jobs and surely jobs wins over foreigners, but perhaps it is not. What we saw last night was four polls coming out and showing the leave vote ahead and on top of sun coming oute and saying it is time to leave. ,hat is not only significant the sun calls things right. It likes to be on the winning side. It certainly thinks that is how its readers and the country are going to vote. Francine can the sun sway voters . Rob that is a really good question. There was a famous claim from the sun in 1992 that it won the general election. I do not even know if we believe that at the time, and its circulation is less than half of what it was then. It is a lot less influential than it was. That said, the newspapers in this country set the news agenda for broadcasters and so on. If this is a significant moment, this does matter. Francine do you trust the polls . Should we trust the polls . Theres a difference between the polls and betting agencies. Rob the betting agencies are. Atching up with the polls fast you can see the ons check or number shooting up. I think it was about 30 yesterday and it is about 44 now. Thebookmakers are saying odds of a brexit will become favorite before the weekend. Can we trust the polls . We do not know, it i think what we can say is the direction of movement is the same on all of them. Even if the absolute number is out, they are all showing a swing towards leave. An hour ago you had john curtis on saying that might come back again, and it might. Out, two weeks out is when people might have a look at the brink and think, im going to do this. Maybe in the privacy of the voting booth they think jobs rather than foreigners. I do not know anymore. Francine can the remain cap do anything to try to turn this around . There has been criticism labor is not doing enough. Is there anything they can do to build momentum . Rob there is very little you can do in the last 10 days in a political campaign. In scotland we had the great charge north to make the val to promise various things to and promise various things. No, i am not sure there is a great deal. I think by this stage you pretty much laid down the tracks on which your campaign will run and you hope you laid them down right. There is a big problem with the labour party. They are trying to push their voters toward remain but a lot of them are saying, we are really angry, we do not think any of you are in touch with us. There is a lot of pushback against the establishment. Francine thank you so much, robert hutton, u. K. Government reporter. You can follow him on twitter and on the terminal or the website. Linked in but not linked out, microsoft buys the networking site but was it really worth it . Francine welcome back. It is the pulse. Microsoft is buying linked in for 26. 2 billion and it has been seen as an attempt by the makers of Business Software to put themselves in the middle of peoples lives. Welcome to the bloomberg family. This is one of the most expensive purposes and microsoft history. Have they paid too much . The best way to answer is to provide you some context. If you look at the ebit. Numbers, it is 91 times that figure. Microsoftng at buying a company with slowing Revenue Growth as well. We have put in a few charts of how linked in has acted before the acquisition with a decline of 42 year to date before they made that deal. Level, youubscriber are talking about 60 per user and then compare that to what facebook paid, that is 42 per user. Whether this really pays off is going to show in the longterm rather than just evaluation. Why did microsoft take a loan out and not pay for it in cash . Yousef it is kind of ironic, isnt it. Tax. Ey answer to that is francine always tax. Yousef if they had to repatriate some of that tax it would generate an additional tax bill and it allows them to reduce some of the interest payments, which means a lower future tax bill. Francine thank you so much. Surveillance is up next. Get ready for the rio Olympic Games by switching to xfinity x1. 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. Francine poised to leave. The Sun Newspaper backs brexit in for new polls put the out campaign ahead. The german 10 year yield goes negative for the first time, the yen rises, investors brace for brexit. Imperativens it is for china to deal with its corporate debt. This is bloomberg surveillance, Francine Lacqua in london, tom keene in new york