Live from european take with from bloombergs European Headquarters. We are getting breaking news for Eurozone Services pmi. We did have the individual breakdown and most of them were a low expectations. Euro area as a whole fall and 52. 8 . Better than the preliminary 52. 4 . If you have the breakdown, it is pmiany Services June falling 23. 7 . Lets check on euro dollars. Lets go straight to the market. We are seeing a little bit of the rally that we saw faltering. A lot of stocks slumping, commodities down. Lets get those boards up if we can. Global stocks dropping for the first time in more than a week. This is mainly linked to what we are seeing in the banks. I want to show you some general index. It is the italian banks that is giving investors headaches. There is more possible to of bank bailout in italy. That is giving investors calls to be cautious. Lets get to first word news with nejra cehic. Nejra Australian Central Bank has held Interest Rates as it from an inconclusive general election and the fallout from britain leaving the European Union. That was forecast by every economists surveyed by bloomberg. The bank says it sees inflation remaining low. Saudi arabia has been hit by three suicide bombings, the worse four People Killed in a mosque in medina, one of the holiest shrines. The third explosion happened near the u. S. Consulate in jeddah. U. K. s Ruling Conservative Party will balance its mps hoping to succeed David Cameron as Prime Minister. Theresa may has secured the most public endorsements and is a favorite. Topped a poll of Party Members and gained the backing of boris johnson. The juno spacecraft has successfully entered orbit. The news was met with clapping. 500 million miles from earth. Global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. I am nejra cehic. This is bloomberg. Francine 12 days after the referendum and the economic rep for referent ramifications are starting to surface. Mark carney is expected to break open his emergency toolkit. Held theive lawmakers first round of voting today to choose their next leader and the uks next Prime Minister. Joining us now is edmund shing. We also welcome Simon Kennedy who heads our brexit coverage. Simon, lets kick it off with you. It is the first time we start a process with the tory choosing the next Prime Minister. There are five candidates and they vote and one drops out every tuesday and thursday. Simon one moves out every couple of days. Francine who is leading the wels at the moment . Do believe them . You came on last week saying every favorite who wins tory leadership has never actually got it. Cameron was not the favorite. Last week we saw the onetime favorite, boris johnson, falter. [indiscernible] first few rounds of voting. Nightergy minister last picking up Boris Johnsons endorsement. That was based on people contacting them rather than a broader poll. Members put theresa may winning. Theresa may is the one to beat. An once it is a two horse francine once it is a two horse race, it is the Party Members to vote. Do you look at their policies . Do you wait on what mark carney will say . Edmund we focus more on the on what mark carney would say . July. At the beginning of taking polls at the beginning of july for something that happens in september. Lets be honest, polls have not been very accurate. We look at the prereferendum polls versus the results. They have not got a good record. I would much rather focus on the bank of england and mark carney. We will see action from mark carney. Francine what is rational . The basis has to be on whether u. K. Has access to the Single Market or not. The bank of england will start on selling the pound. The moment we are going to focus on the domestic recession. Mark carney will be an acting the Monetary Policy to avoid a deep recession. Most economists forecast roundabout 0 growth right end of this year or technical recession which is defined as two consecutive quarters of negative growth. That is where we are at at the moment. What to see the treasury and bank of england try and help the economy with as little pain as possible. That is what the market is focused on at the moment which is why think the pound will not rebound anytime soon. Francine i want to ask you about yields in the second. In the meantime, how much do we know about George Osbornes plan . He was talking about a possible cut in taxes, and then we understand austerity is being postponed. The surplus he was aiming for 2020 is no longer his aim. About thetalking potential for a Corporate Tax cut, trying to make britain and appealing place if you are a business. George osborne may not be delivering. Francine what does that mean for yields . It seems overall that the markets are uncertain. Where would see the treasury can a go yield into the negative . Simon if we look to europe, we are in really negative territory in switzerland and germany. The u. K. Will be even lower yields could yields, because who will be incentivized to do anything . Whether it is government bonds or gold. Those will remain popular. People dont want to get back into risk asset just yet. Francine edmund, thank you very much. Us. Nd shing stays with simon canada leaves our brexit coverage. Simon kennedy leaves our brexit coverage. Stay with the pulse. Is brexit a lehman moment for uks banks . The worlds top oil traders say the rally may be we will talk brexit with the man who is in. Harge with Financial Stability francine welcome back to the pulse. Lets get straight to the Bloomberg Business flash with nejra cehic. Nejra u. K. Breakers face a postbrexit future. As a decision to leave the eu hits dealmaking and threatens the entire cost of moving staff. Job cuts are likely this september if client activity does not pick up. That is according to multiple banking executives who asked not to be named. Trading in itsd real estate fund. It is the strongest signal yet that the turmoil from the brexit vote will hit the property market. The suspension will be reviewed every 28 days just as the value of the underlying assets by 5 last week. Trading of shares has been halted after falling 7 . They comes as the Italian Government is said to be considering injecting fresh capital into the troubled bank. According to a person with knowledge, they produced the ahead of stress test results. That is the Bloomberg Business flash. Francine . Francine reports of the capital package comes after shares in the bank were suspended this morning. That is after they filed another 7 . Lets continue the conversation also with us is edmund shing. Lets kick it off with you. Italian banks remain in the spotlight. This is something that is moving quickly. Talk us through how frail these italian banks really are. Remembertely, if you it has already bailed out twice the Italian Government, selling convertible bonds when he was Prime Minister. We believe there are talks going on now. Certainly with brussels, european authorities to try and surpass this obstacle of state aid. Clearly, it has to avoid violating competition rules. Merkelsey and angela last week made comments that there are differences. Merkel stressing these rules have to be followed. Talks continuing but there is this deadline coming up at the end of the month with the next round of stress tests. It will be kospi right now. It doesnt look like it is capable of passing the stress test. The ecb sent the letter to the bank recently asking them to seriously address the issue of reducing this mountain of nonperforming loans. Francine dan, talk us through the latest is the bank could go down. What is the endgame here . Dan there are no suggestions that this is a failing bank. However, this is a bank that has lost more than 70 of its market value. It is now below one billion euros. They have not drastically reduced the amount of nonperforming loans. Wanted tod the letter seriously address issues and put together a threeyear plan on how to address that. What is being talked about now are ways of speeding up that process, including the possibility of selling more of these convertible loans, as well as getting this new government backed rescue fund to help out. Buy them purchasing some of these nonperforming loans. In order to make that happen, this fund has to increase its firepower. It needs to get more investors that can help fund the purchases. Francine thank you so much, dan. Ets get back to edmund shing you look in the italian banking system, is this the next crisis . Could this be a Lehman Brothers blacks long . Black swan . Not a black swan, per se. This is not unexpected. This Bad Debt Fund was undercapitalized. It is clear that it will require further capital to be up to carry out what it needs to do and noted to support the banking sector. Francine the problem is we dont understand how that state currentd fit with the bail in rules. Worstcase scenario . For instance in the past, then the bank ceases to operate because banks always operate under basically a shroud of confidence. A need confidence from the investors. Once it evaporates, the banking Business Model is dead. Francine we are not speculating we are not there yet, because it seems that he has a lot to risk. He is politically fragile. Edmund the European Central bank both have a lot to lose. They will do whatever they can within the rules. Of the rules to avoid that. The recapitalization of the bank. They have done that with other weaker banks. It is now clear that they are in need of aid as well. Could brexit, drive the ftse 100 out of and earnings recession . Francine this is the pulse. The ftse has underperformed since 1993 at the ftse 100 has trailed the regional euro stoxx 50 since the master treaty gave birth to European Union. Compared to a 55 jumped for not eu switzerland. Lets get more with edmund shing. Ive got a lot of people trying to figure out whether now is a good time to sell off. This chart would suggest otherwise. Edmund that is right, francine. The first thing to remember with the ftse 100. The ftse 100 is not a u. K. Index. Its constituents are a global companys our Global Companies. Ofer brexit, because possible u. K. Recession we should sell the ftse 100 really doesnt make a lot of sense. Francine right, so what happens now . Edmund the ftse 100 can benefit. There are Global Companies but their share prices are in pounds at the end of the day. The earnings are in different currencies. From that point of view, when you translate those earnings from whichever currency back to pounds, even the weakness of sterling, you should get the. Ptical boost earnings francine the counter argument would be unilever or other companies that have a big basis thatsee the prices fall they need to relocate some of the stock because they do not have access to Single Market. That would mean increasing costs. I dont have any inside information. Edmund used a pretty bad example because they have a huge base and holland huge base in holland. Francine i am thinking of others. Think it is less of an issue for the ftse 100 Companies Like bp, shell, glaxo because of their operations are based overseas. Francine what about the banks . Edmund they are different issue. We have heard a lot about past porting. This is a crucial issue because as a prime example of a very big business that is held in the u. K. But nothing to do with the u. K. He could easily be relocated back to somewhere in the it could easily be relocated back to somewhere in the eurozone. This is when britain was squarely in the European Union. If the u. K. Leaves the leaves the European Union and they lose past porting rights, then you are going to have a major francine for the ftse 100, right . They have a big impact. It is unclear at this moment whether the ftse as a whole as an index would go up or down. Edmund i think that is clear. Financial services have will be affected by policy rights. On the other hand, there are other industries that will not be affected. Francine how much do expect the pound to weaken further . Edmund not that much more against the dollar. Fx strategist say a little bit more. We could overshoot in the shortterm, but the bulk of the move is already done. Francine looking at the banks, if we do have a cut in taxes for weporations, do you think will retain talent in the u. K. And especially london . Isund no, passporting everything. If you are bp, past porting is rting ispasspo crucial. That is essential to every single bank. Because you have the skills, clients, but if you miss passporting, it all changes. Francine if your eu, you dont want london the money doesnt go off to new york or singapore. Edmund i think that is the ultimate reality, but it depends where you sit. If you said in paris, they clearly what we hear from president francoise alone sress all owned francoi hollande. There are good reasons for it to stay in the k the option would be to stay in francine edmund shing, think he so much. He stays with us and we will be talking about some of the emerging markets next. Is the crude rally over . Up next, ian taylor. We are seeing a selloff in todays markets. Commodities slumping. Haven demand is lifting bonds. Overall, it seems there is a darkening outlook from investors could theyre worried about the telik investors. They are worried about italian banks. This is bloomberg. 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. Pulsene welcome to the , live from the European Headquarters in london. We had some data trading all day for the month of may and we are just getting that u. K. Services pmi for the month of june. It is a touch below expectations, 53. 2 and set of 53. 8. The u. K. Composite overall a little bit better than i expected, services worse, composite better. It is pretty brexit because this is june. Australias central bank has held Interest Rates. Governor and his board left the cash rate at 1. 75 . That was forecast by every economist surveyed. They see inflation remaining low for quite some time. Saudi arabia has been hit by three suicide bombings with four People Killed in an attack near medina, one of the holiest shrines in islam. Two other bombers blew themselves up in another city. Waves of attack have killed scores of people across the. Iddle east the u. K. Conservative party will ballot its mps today on the vote on who will succeed David Cameron. Theresa may has received the most endorsements from colleagues, but Andrea Leadsom gained the endorsement of boris johnson. Global news 24 hours a day, powered by our 2600 journalists and analusts in more than 120 countries. I am never a jh. Nejra cehic. Stocks in europe down after the biggest weekly gain since may. Every Industry Group on the gauge is down today. It is still five and a half percent lower since june 24. Showinga chart you were. I want to read a rate i want to reiterate because it is such a wonderful chart. Traileds ftse 100 has the euro stocks 50 in the norwegian and swiss equivalent. Registeredasure has an 85 gain. Smi,ve a 355 jump for the and local currencies have surged twice as much as more than the ftse 100. What does that tell us . Look at what is happening to minors today. Since june 24, the miners are the thirdbest performing gauge on the ftse 350 with a gain of 12 since it slipped to a 12 and a half year low on the 20th of january. It has rebounded 84 . Look at some of the individual companies on the ftse 350, mining index, angloamerican up 226 . Glencore doubled. Those chartists, the relative strength index is at 45 telling us the ftse 350 is overbought. That is the highest level since march. I want to focus on uks biggest homebuilder, revenue up 12 , average selling price up 6 . Mortgage approvals for home purchases were 18 of the prior year and approvals remained ahead in april and may despite the uncertainty leading to the referendum. Since it is too soon to say what effect brexit will have on you new u. K. Homes these are the force the big for homebuilders since june 24, fascinating to see the two days after the referendum we saw massive pledges for these companies. Down 5 ,mpey is barclays down 32 . A great chart, one of my favorites of the day. Francine mark barton with your asset check. Governorof england mark carney is said to make his third appearance in 12 days since the brexit as they published their biannual stability report. Whos speak to john gieve joins us from westminster. We spoke to you just before brexit and we were talking about consequences of a brexit. Verall, a comment on the banks are they stable and do they have enough liquidity . John yes, i think so. They have a lot more capital and liquidity than in 2008 and the initial shock aims to have sed reasonably smoothly seems to have passed reasonably smoothly. Ishink the focus from now on what is the prospect for bank lending. Will this shock lead to another contraction of credit . Francine overall, has it been thanks to mark carney that theyave been felt are a little bit more stable than brexit couldve gone, is that a fair comment . John i think everyone was prepared. Mark, his whole team, that other Central Banks in europe particularly were ready to provide liquidity to the market. You have seen some signs of that from the ecb around italian banks, for example. I think everyone was prepared to immediatee to avoid instability, and that seems to have happened. But what we are expecting today is a decision of the Financial Policy Committee on whether to change the underlying Capital Requirement on british banks, and i think the expectation is that they will at least delay an banks werehich the due to put in place over the next year. Francine what would you do if you were in mark carneys position . John i think i would do something. He has got two opportunities, todays announcement and next week the Monetary PolicyCommittee Meets and everyone in the market seems to be expecting they will reduce Interest Rates by a quarter of a percent then. That is a more important decision. Today, i would expect he would say brexit has been a shock to the system. He has built up these reserves in the banks to deal with shocks and therefore he is going to allow them to draw and their impacts to cushion the of this shock. It is probably only going to be a marginal change. Todayne we had a poll basically showing that u. K. Business expectations are falling off a cliff on the brexit vote. Is the recession a done deal because of brexit and can mark carney mitigated . Mitigate it . John their analysis before the vote was that it would have the impact of pushing us toward a recession and i do not think he ,an prevent that, but next week for example if he was to announce a cut in Interest Rates and resumption of quantitative easing, if the government was to follow up George Osbornes recent statement and actually increase spending a bit, those would all be they are all available means to try and cushion the impact. Whether that will be sufficient to prevent a downturn, i rather doubt, but it could certainly mitigate it. Francine what kind of downturn are you expecting, would it be prolonged . John i am expecting two things. I think we have got this long drawn protest of renegotiating our relationship with europe over a period of years, and im expecting that to lead to less freetrade than before. That will have a permanent effect on our output. That is a longterm measure, which some economists have put at around 3 to 5 impact over a period of years. What we are dealing with in the short term is the shock, the uncertainty. We have got no government, no plan, and i am expecting quite a sharp reduction in investment spending, a sharp hit to the commercial property market, probably a check to consumer ,pending, all of which could be pushed us towards zero or below growth through this year and the beginning of next. This is unprecedented and we simply do not know. Francine we also heard from George Osborne saying it would make sense to cut tax for corporations. Do you think it will make a material difference . In terms of the longerterm, i think that might help. After all, the very low rates of Corporation Tax in dublin have been quite successful over the years at attracting company headquarters. But that is something that would work out over a period of years. I am not expecting that sort of change to be announced while we have still got in effect, a caretaker government. I would expect tax changes to be announced in the autumn when we have a new government. Gieve, their john former Deputy Governor of the bank of england joining us from westminster. Admin shane from bnp paribas is overall, mark and carney seems to be the only leader so far because of the political mess. How much can he do . Are we looking at helicopter money . Edmund i think all over the world and in the u. K. , the effectiveness of quantitative ising and Monetary Policy having a limited effect. I think mark carney is doing what he can but this is the point where fiscal stimulus has to be applied as well because that will have a greater effect on the economy. Francine is a recession avoidable . No . I guess you can mitigate the impact. John it all depends edmund it all depends on confidence and domestic confidence in particular when we look at retail and property markets, these are very much intangibles. Do we stay at these depressed is thisf confidence or just an instant reaction and will we see a reversion . That could actually mitigate any risk of serious recession. Francine what youre talking about is a timeline. In the next six months will he have will we have a clearer view . The problem is we are in limbo because we do not have a government, we do not have a plan b, and were just realizing. Edmund i think we will have a clear view on the u. K. By the end of the year because we do not know who the Prime Minister is until september and a new cabinet so we have to construct a new government. If a the risk of split reemerges within the conservative party you cannot say it is completely off the table. These will be prolonged at least until the end of the year. The whole question of when article 50 kobe triggered is another big question. We will not know the answer at least until september. Francine how do you look at the Political Risk and the rest of the European Countries . Finance minister saying we should rethink and not integrate further. It seems they are pausing to understand what they really want. Edmund i think that is not a bad thing rather than rushing further and further, to step back and look at the current state of the european project and say, what can we do better . I think it makes an awful lot of sense because in the u. K. And across the whole of europe there is an antiestablishment feeling which we have seen expressed in other countries like spain and austria. Now is a good time for European Unions leaders to take stock of that, what can we do to a dress concern of the population of europe . London of mayor siddique con is speaking at an event in london saying he will seek to have a seat at the u. K. Talks with the eu over brexit, and we have not even talked touched on scotland. Is the crude rally over . Our exclusive conversation with ian taylor, this is bloomberg. Francine welcome back. This is a check on the pound. We have been talking a lot about the pound since the brexit vote, dropping to a 31 year low approaching levels in the aftermath of the british vote to leave the eu weekend for a fourth day. The bank ofore England Governor Mark carney will give a News Conference in london in about an hour and 10 minutes in which he may outline more tools to mitigate the fallout. Top oil trader is not bullish on oil after a rally since january. Oil might not have much room to rise. Ian taylor spoke to Ryan Chilcote in an exclusive interview. Ian i think there were special factors in the second quarter, kuwait strikes, nigerian destruction, which helped bring the market a little bit of a type of feel. Demands continue to be good. So i would say yes, the market feels may be we have a slight we have to balance it out. I think we do expect to see more draws in the u. S. As production levels for onshore sales go down in that goes through to the actual stock levels which are still pretty high. Against that, iran is doing pretty well. The oil is going east and i think we are seeing just a little bit of extra product coming out of the refineries that are running now. You know traders always get this wrong, but i would not be surprised to see us ending the year not too far from where we are. Ryan when we spoke six months ago you said 40 a barrel. You are getting more bullish . Ian maybe a tad because of the supply disruptions. Most of that is beginning to correct itself but it takes oil out of the system. Ryan where do you see oil prices next year . Ian we expect those cuts will affect production. Having said that, we do still see some nonopec field coming back. I think it is not one to forget. Probably the back end of the year, some of the other offshore u. S. Goldfield. Expect to be a little bit higher assuming demand continues to increase, as i think it will. I think it will be may be in the high 50s, early 60s, but i always give this a traitor health warning. Ryan that would be at the end of the next year . 2017, i end of 17 could see 60 oil. Francine italy feels the Brexit Impact as shares are halted after an hour of trading. Market stories you need to know about this morning, this is bloomberg. Rancine welcome back lets get straight to the Bloomberg Business flash. Nejra Standard Life investments has suspended trading in its u. K. Real estate fund, the strongest signal yet the turmoil from the brexit vote will hit the property market. The suspension of the fund which invests in prime commercial be revieweds, will every 28 days. The Italian Government is reportedly studying a corporate include new could corporate funds and money from atlante. Told its assetas management staff to tighten their belts amid outflows and poor performance. A have has issued issued an edict that they must curtail spending, including a ban on all travel not associated with meeting clients or obtain a new business. Francine this is the pound, one thing we are watching ahead of the News Conference by mark carney. The pound falling toward its lowest level in more than three decades against the dollar, approaching levels reached last week amid the aftermath of the brexit. About aney speaks in hour and five minutes, in which he may outline more tools to contain the fallout from the uks decision. Europeanhe picture for stocks, extending their decline into a second day after we saw a rally last week that lifted them by the most since february. If we look at the industry ,roups through lower equities we are covering more than half their losses after the brexit vote. Now traders are trying to figure out what is happening with the italian banks and waiting to see what mark carney will do. On pound we are reaching a new record low it is not a record low, the new 31 year low. Stay with bloomberg. In just over half an hour we will get the Financial Stability report from the bank of england and at 11 00 u. K. Time mark carney will address the threats following the brexit vote. Bloomberg userss can follow the from half anase hour earlier. Coming up next is tom keene with surveillance. This is my bloomberg terminal, probably my chart for the next hour. Some traders are not taking any chances and we have seen this in the last couple of weeks. This is an index we do not look at often. Index thats is an measures how much traders and the Options Market are willing to protect paid to protect against extreme events. Theose to the highest since 1990s prebrexit and we have seen a little bit of recuperation but still quite high compared to the average of the last 12 months. Keenes my chart, and tom be looking at the Housing Market in the u. S. Ken carney fix what can cam carney fix carney fix what brexit vote . The uks governing party takes its first step toward electing the new Prime Minister. The italian impact, monte dei are down. Res this is bloomberg surveillance,