London. Im francine lacqua. Lets quickly check on the markets. We decided to plug pound before anything else. If you were to choose one story you wanted to date deeper into, it would be bank of england and repercussions of a brexit on whether they will do qe and what an Interest Rate cut means for the economy. For europeanicture stocks overall, gaining a touch. We had earnings news here in there. Crude oil at 43. Lets get the bloomberg first word news with nejra cehic. Nejra siemens has raised its earnings outlook for the year after higherthanexpected thirdquarter profit. Europes biggest Engineering Company said profit from socalled industrial operations rose 20 in the three months through june. Chicago fed president Charles Evans says one rate hike could be warranted this year. He expects growth to increase in the second half of 2016 following disappointing gdp readings in the first two quarters. Investors are awaiting fridays jobs data for july. A woman has been killed and five others injured in a knife attack in central london. Police were called to Russell Square just after 10 30 p. M. U. K. Time. A 19yearold man was arrested after being tasered. The net said Mental Health was a significant factor in the event. The possibility of terrorism is also being explored. Global news 24 hours a day. Im nejra cehic. This is bloomberg. Francine thank you so much. More than seven years in the bank of england cut rates to 0. 5 , in the wake of brexit and sinking atggesting the fastest pace since 2009, nearly every economist in our survey is expecting a rate cut. Manus cranny is outside the bank of england. Just how brutal could the expected downgrades be . Doom part ofs the the super thursday report card. It could be the third slashing of the growth rate here in the United Kingdom in 2016. Back in may, we were looking at a growth rate of 2. 4 . Is thatity of brexit this economy is slowing. Construction, services, composite showing the worst reading in almost 12 years. The market has assumed a 25 basis point rate cut. The risk and reward for the governor and the mpc is this, the risk is they dont signal points, already assumed by the market. There is this weight of expectation. They might just do more. Or will they hold back on quantitative easing. Could they do more Corporate Bond buying . There is a full menu. It is a taster menu. How far through that menu will mark carney bring the mpc in terms of delivering today . Francine depends on the appetite going forward. We dont know what the endgame for brexit is. I have a chart looking at pound volatility. Does the market expect that to continue . It is fascinating. As you look through the chart, you see this slow creep lower in terms of dollarsterling. The market has put on the most amount of short thats since 1992. That was the back end of last week. The risk is that they dont do a qe and a rate cut. It will be fascinating to see how the pound reacts. Weve got the rba and the bank of japan, and both those currencies rally even though we saw a rate cut in some stimulus. The pound seems to have found its initial floor. The betting is heavy on the pound on the downside. Francine thank you so much. Manus cranny outside the bank of england. Lets introduce our guest. She is geraldine, pimcos managing director. Pimco runs the worlds biggest actively managed bond fund. Thank you for coming on. Give me a sense of what you are expecting mark carney to do. Economists want a rate cut. Does he need to do more . We expect a 25 basis point cut and extension of the sls funding. The question is on the qe, will he go this road or keep some powder dry and wait for autumn when the budget is going to be reset by the treasury . Francine even if we do get something bigger than a rate cut, it doesnt be are going to euphoria in stocks. How do you position yourself . Think in our portfolio we are, i would say, moderates when it comes to risk, but not riskaverse at the same time. Me, it comes to u. K. For u. K. Is important in the portfolio, but not necessarily so important on a global scale. We think it is very much a u. K. Event. We have a tendency to be underweight on the british pound. Francine overall, is brexit going to lead to recession . What does it mean for gilts . U. K. U have an ideal portfolio you would be looking at . Geraldine we dont think there will necessarily be recession in the u. K. We are a bit short on data at the moment. The first pmi are pretty dramatic, but you might have overreaction. Things might be normalized as time goes by. We expect some fiscal easing when the autumn comes. Growth around zero is pretty much what were expecting for the next one or two years. Francine is there concern about a policy mistake from mark carney . He seems to be the person who held the crisis, the reliable boyfriend. He seems to be on top of it. Geraldine the bank of england seems to be a lot more cautious when it comes to Interest Rate policy. We are not sure if they will get their or not, or keep a positive rate just about that. I think bank of england is going to be much more cautious when it comes to Financial Stability and try to balance the two. Francine how should he look through inflation . This also goes back to how you build a portfolio. Geraldine i think in the past the bank of england has looked through inflation. A couple of mpc members have hinted they would look through. This is our expectation. Inflation will probably rise above target in 2017 and then revert back to below target because of the low growth. Francine thank you so much. Geraldine sundstrom stays with us. We will talk about some of the safe havens. Stay with the pulse. In a world of negative rates and cheap money, how can we be sure assets are priced correctly . We will get the thoughts of pimcos Geraldine Sundstrom. Plus, nearly all economists suggesting a boe rate cut today. We will look at the task facing governor mark carney. And, comes back after hitting a their market. The worlds most important commodity is making a comeback. This is bloomberg. Francine this is the pulse. Im francine lacqua. Lets get to the Bloomberg Business flash with nejra cehic. Nejra toyota has cut its fiscal year forecast. The automaker said profit will probably drop to 14. 3 billion for the year ending in march as cheap fuel pushed u. S. Demand away from its car lineup, toward trucks. Raised its fullyear earnings forecast as it beat analyst estimates. Earnings before interest, taxes, depreciation, and x putting some costs excluding some costs, rose. London Stock Exchange has said the u. K. s decision to leave the eu may damage investor confidence. Sanofi is pursuing a tire, a transaction that has been shaken by the brexit fallout. Officials have threatened to clawback, clearing operations central to the acquisition. Francine thank you so much. In a world of cheap money, how can we be sure assets are priced correctly . Take a look at stocks and bonds have performed so far. The s p 500 more than 5 . Bond yields have continued to fall as bond prices have risen. My guest is the portfolio biggestfor the worlds managed fund, Geraldine Sundstrom from pimco. When you look at assets, it has been going not as smoothly as it used to. Are we pricing things wrong . Geraldine that is the big question and a complicated one. I think we are in a world where most Asset Classes are pretty mature when it comes to valuation. Manager, i have to look at them in absolute but also in relative terms. In absolute, pretty much everything looks on par relative to history. In relative, one thing we think stands out his credit. We do not think recession is on the very near horizon. Portfolioing to focus around quality income and try to avoid negative yielding assets. Theres plenty out there. Francine such as . Geraldine we like some investmentgrade in the u. S. , but also in europe, securitized credit, selective highyield bonds, but away from the commodity sector. Theres still a fair bit out there. Even in some specific areas of emerging markets. Francine what if i said, im just going to buy what they ecb buys . Does that make sense as a strategy . Geraldine probably a bit too simplistic. You also have to buy because of the fundamental of a company and analysis. We know that the euro market might be more supportive in times of volatility than other markets, but this is not enough. Francine any Corporate Bonds from banks . Because of the situation with banks at the moment, it seems too risky. Geraldine financial bond is something that we like. We think that banks Balance Sheet are repairing. Tier one capital ratios are going up. Profitability is an issue. That is something for equities. When it comes to the safety of bank bonds, we think these are attractive. Francine do you look at it industrywide, a specific company, or countrywide . Geraldine we would look company by company. We have analysts helping us choose that. Francine negative rates. Im going to bring you the swiss chart in just a second. Are you concerned that the boe would go down that route . More hurtfulrates than they are helpful . Geraldine negative rates in the u. K. Is not part of our base forecast. Never say never, but it seems that they have ruled it out. The fed seem to be much more cautious than the japanese or european colleagues. Francine this is my swiss curve. I like it because it is so outrageous. Two years ago, you would have said, you are crazy. Is there any value in some of the Swiss Companies or is this a story you have to know returns here. Why would you invest in switzerland at the moment . Geraldine that is very much love you that we were thinking. Try to avoid negative yielding assets and find alternatives that give you quality income. Francine why are people still piling in havens us to and mark havens . Geraldine there are a lot of questions when it comes to ammunition that Central Banks have. I think what were seeing is that people are paying an incredible price for certain the of the riskfree assets. We are very cautious when it comes to durations these days. We think they would help in case of recession or bad outcome in the world, but you should not rely on duration for generating income in your portfolio. Francine how do you look at treasuries . Probably the most difficult market to read. Geraldine because they are still with a positive yield, attractive to a number of people. This is one place where the [indiscernible] they have some attraction. There, we keep quite a neutral stance when it comes to duration. Francine will janet yellen be able to hike this year . Geraldine the probability is not very high, but certainly not zero. Probably a 5050 if they manage a hike before the end of the year. Francine including september . It seems that there is a president ial election so they would have to be pretty bold to hike rates so close. Geraldine you would need two very strong job reports. We will have one of them tomorrow. So far, given the data we are seeing, i would say the probability is fairly low. Francine thank you very much. Geraldine sundstrom stays with us. Next, as rand Gold Resources reports lower secondquarter profits, we will bring you our interview with the company ceo. Then we talk more about havens. This is bloomberg. Francine welcome back to the pulse. Rand gold shares down more than 10 . It had operational problems at african mines which led to a decline in profit. Rand gold shares soared after the brexit. We spoke to the rand Gold Resources ceo, mark bristow, about the results. Mark the big plus for this that really delivered. We had a difficult quarter because of a failure that took some time to fix, not an operational issue, but more an engineering issue. We struggled out of last quarter. Overall, on an interim basis, up on that profits, earnings flat. Anna so some better than expected. Manus . Manus mark, very good morning to you. Breaking numbers for you. Secondquarter gold production, 281,000. What kind of guidance can you give us for the rest of the year . Weve overcome some production issues. The guidance for the rest of the year, pretty assured . Mark sure. We will make up for the Lower Gardens or the revised gardens that we put out two weeks ago. Thate on track to beat 600,000 ounces. The gold price is very helpful. The backend weighted Production Profile for this year plays into a higher gold price going forward. Anna where are we now . At a chart, it looks nice, better than it did for the last few years. How much difference as that made to your business . We play it at 1000. Looking forward, as you talk about the bank of england, i think globally it is going to be a bit twitchy. The gold price for the next quarter or so. People have to get their head around what is going to happen to Interest Rates. In the longer term, it is a very solid outlook for gold. Anna do you think the nervousness geopolitically, with that in mind, how sustainable is this higher price . Both the Economic Uncertainty on a Global Platform and the geopolitical issues around the world, it is a good place for gold. Not particularly good for we always do bad when i everybody is struggling a bit. Francine talking to the ceo of rand gold. Lets get back to geraldine. When you look at havens, gold, every time i have someone here, they say, by gold. Sometimes it is in a bubble. What goes up significantly has to come down. Geraldine in our portfolio, we do not recommend gold. We would have to become much more riskaverse in the search for safe havens. We think the outlook is steady. At midyearf course levels, but certainly steady. We prefer to go in positive yielding assets. Cautious we have a stance on equities, we are not completely out of it. Gold for us is a little bit a distant prospect. We would have to turn much more negative on the outlook. Francine what about japan . It is a haven. It seems no matter what they do, if they are not doing structural reforms, it is a haven. Geraldine yes. So far, they havent really probably they have under delivered relative to market expectations. This is something they have to be very careful with. We see what they did last week. Bankshares did very well because they didnt cut rates more negative. The stronger yen is a problem for the exporters. They need to strike the balance and hopefully the fiscal situation is not that much of a it should help. They have to be more creative. Francine do we need japan to do better for the World Economy or is it isolated . Geraldine i believe it is somewhat isolated. It is more like a test case for the frontier of Monetary Policy. Weve had a weak japan for a number of decades and this has never stopped the world from going forward. Francine thank you for your insight. Up next, as pmi suggests britains Service Sector is shrinking at the fastest pace in seven years, nearly all economists are expecting a rate cut today. Brexit, economic growth, and the bank of england. Stocks subdued, pound weakening. This is bloomberg. The puls francine welcome to the pulse live from bloombergs European Headquarters in london. Im francine lacqua. Lets get the bloomberg first word news with nejra cehic. Nejra siemens has raised its earnings outlook for the year after a jump in large orders from power generating equipment. Europes biggest Engineering Companies had profit from industrial operations rose 20 in the three months through june. Weve been clearly on track on the growth path. 10 compared to currency related changes. Revenues are up 9 . We increased investors profit by more than 20 . Chicago fed president Charles Evans says one rate hike could be wanted this year as the economy except steam. He expects growth to increase in 2016 following disappointing gdp readings in the first two quarters. Investors are awaiting right is jobs data fridays jobs data for july. A woman killed and five others injured in a knife attack in central london. Police were called to Russell Square just after 10 30 p. M. U. K. Time. A man was arrested after being tasered. The mat said Mental Health was a significant factor in the attack. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im nejra cehic. This is bloomberg. Francine the most hotly anticipated bank of england Rate Decision in three weeks ago. Last time, governor mark carney surprised the markets by not cutting rates which have been at a record low ins 2009. Today, investors are more convinced the boe will cut 50 economists forecasting a rate drop. My next guest is expecting a 25 basis point cut. Brian hilliard, great to have you on the program. Is aate cut, lets say it done deal. Will he announce more measures, a package, some kind of qe . I think he will. They are expressing such a sense of urgency that they are going to deliver much more in total over time. If we believe that 25 basis points is going to take us to the new low, theyve got to continue that in other ways. That is qe. Francine why is it so urgent . You could argue that it is just july, a couple days, weeks after the referendum, and people freak out. Brian i share the sense of your question. Prior to carnies very clear comments, carneys very clear comments, i would have expected more data before making a judgment. Francine is there a concern that he doesnt have any powder left when article 50 gets invoked . Brian not really. The bank has made it very clear that even when they reach a new floor, they believe that qe is equivalent to rate cuts. It is a conventional Monetary Policy tool. Francine is it . They argue it is. Brian it will have some power, but i think pound for pound, it is less powerful than the first rounds we had back in 2009. Francine if people are pulling back consumption, you can deal with it by either doing qe or Interest Rate cuts. Investment from abroad has been pulling out because people dont know whether they have access to the single market, this kind of policy measure is not going to help. Brian the Foreign Direct Investment component, you are completely right. Domestic Business Investment has been suffering. That is something where the bank of england can play a role. They can say, dont worry, were going to stabilize growth. You should reconsider. Francine what do you see the biggest strength for the u. K. Economy and the biggest weakness . Is consumption going to get worse . Brian consumption will weaken. That was the case before brexit. There was some loss of momentum. Francine and that is because . Brian we had an amazing conjunction of stimuli. You had rate cuts and qe that gave you this surge of growth which was always going to peter out. Francine how much does a weaker pound help . Brian more than it did when it weakened in 2008. Francine why . Brian at that time, you had key export markets faltering. Now europe is back to a reasonable growth trajectory. If you are getting more competitive and your market is growing, you will see some benefits. The feeling out there is this is a country skewed toward services. A pound drop does not help services, or does it. Brian reexport them out of services, so the price still does matter. Addcine how much does that to gdp . [both talking] francine lets say pound drops 15 , 20 . I dont know if this is possible to say how much it automatic he adds to gdp. Brian it could add maybe half a percent. Francine do you expect pound to continue falling . Brian i think there is a risk of going down to the mid20s. Francine how do you explain that weston mark that . Brian the Political Uncertainty about the formation of a new government has been dispelled much more quickly than we expected. The conservative Party Election was meant to last themselves september 9. Until september 9. Think, a is there, you miss pricing in the markets, that people still believe, the Business Community in the markets believe that article 50 will not be triggered . Brian i dont think so, to be honest. I think the government is right to take its time, think how it wants to play it, have negotiations about negotiations, but i think it is pretty clear that they will trigger that article. Francine thank you so much for now. Brian hilliard from Societe Generale stays with us. Markets a little flat this morning. Lets head to the cmc market Trading Floor where Ryan Chilcote is standing by. Ryan good morning, francine. The pound has been weakening against the dollar. The brandnew bloomberg pound index has also been weakening. It is not just against the dollar, but against several trading peers for the pound. The traders here say that tells you more money is going to the short side, people subscribing to the view that were going to get a rate cut for the bank of england. We talked to 52 analysts. 50 said they are expecting a cut. If there is a risk today that it is that we perhaps get less than we are expecting from the bank of england, that might lead to volatility on the Trading Floor. Francine if we do get a cut, is there a danger that it hurts the banks . There is a danger of that. One of the interesting things is, as far as the way people are positioned, you can get a cut and you can still get a rise in the pound. People arent just anticipating that 25 basis point cut. They are also expecting qe. If the bank of england under delivers on that, there is a huge short side because so many people are shorting the pound. They would move to cover those shorts. Implied volatility for the pound right now, it is a measure of how much traders think they might get in terms of a price move. Right now were looking at the third against move of the year thirdbiggest move of the year after the referendum vote. People were concerned about a price move. The last bank of england meeting, we had quite an elevated since of event risk as well. There, we didnt get the rate cut. Now people saying, if this doesnt go as im thinking, we could see big swings in sterling. Francine thank you so much, Ryan Chilcote. Crude is holding steady. We discuss what is behind the trend next. This is bloomberg. Francine lets get to the bloombergs nest flash with nejra cehic. Postedmerck secondquarter profits that beat analyst estimates. Earnings before taxes and excluding some costs rose 29 to 1. 1 6 billion euros. Has cut its fullyear profit forecast after net incomes fell. The automaker said profit will drop to 14. 3 billion for the year ending march as cheap fuel pushed u. S. Demand toward trucks and a strong yen cut earnings from vehicles sold overseas. Has saidock exchange the u. K. Decision to leave the eu may damage investor confidence. Tire, a is pursuing a transaction that has been shaken by the brexit fallout. Officials have threatened to clawback clearing operations that are central to the acquisition. Nike is to stop selling golf equipment. Sales at the companys Golf Division fell more than 8 in the year through may, making it the worstperforming category. Nike built its golf business around tiger woods, but hes never returned to his previous dominance after 2009. Tesla has reassured investors it can ship roughly 50,000 cars in this years second half and half a million in 2018. That eased the sting of a loss worse than the . 60 a share average estimate in a bloomberg survey. That is your bloomberg dismissed flash. Francine crude is making a comeback, trading around 41 in new york this morning. We are going to talk about oil and the impact on emerging markets. Jabier, lets have a look at these markets. This is my chart of the hour. I like to give you a chart. This is the msci all country world index. This is what happened to wti. If you zoom in on the bloomberg terminal, these are two dollars to three dollars moves. Keene i would talk about standard deviation. What underpins this volatility . Javier we have a drop below some Technical Levels in oil. [indiscernible] suddenly we went into a bear market. That triggered some technical selling. We saw Oil Prices Dropping about three dollars. Yesterday, the inventory report was seen by the market as a bit better than expected. We have a larger drop in gasoline stocks. We have this rally. Interesting to note that despite the rally, 4. 5 now, we are basically back to where we were only two days ago. There have been fairly significant movements. If you look at the model longerterm on your chart, we are still down significantly about 10 over the last month. Francine theres nothing about growth more general that we can extrapolate to look at the strength of the World Economy . Javier sometimes there is a view on the market that the Global Economy is going to be softer in the second half of the year. We see the growth of gasoline demand in the u. S. , india, and china not softer now compared to beginning of the year. The question here is that weather plays a big effect. It was very warm in february and march in the united states. We have americans driving a lot in those two months. Spring came early. Francine it did. Now we are in winter in london. Javier london does feel like winter. That probably skewed the numbers in the first half of the year. It is still a supply problem. We have too much oil in the market. Opec is consistently pumping a lot of crude. I want to talk about the new chief of opec in a second. Brian, the problem with oil is that it has always been correlated to world growth. This time feels a little different because it is correlated to the markets more than growth. This is the problem Central Banks have regarding inflation. Brian referring to Central Banks first, the fact of that Oil Prices Falling is going to reduce that bounce. Those icern for think it is a growth story more than anything. The issues are not just world growth. It is also saudi oil policy. Tell me if you agree. Weve got a little more clarity. They are not trying to push the price lower. Even though we are looking for it to settle a little lower than it currently trades, maybe the high 30s for brent, it is forming a floor. Francine if you look at the market on the last drop, the consensus is around 40. Can we go below that . For sure. But it is not what we had in the first half of the year. We still have too much supply and we are not dropping inventories nearly enough. Francine if you are a central bank, do you need stability . The price of oil has not given you stability. Do you need to look at deflationary pressure from china . Brian most Central Banks will have a formal procedure for building in the oil price. It is not just the spot. It is the oil curve. That is less volatile. Affect thectually stories. Inflation a little lower in the shortterm, but not having an amazing impact. We are certainly going to see the big impact for the u. K. Being the Exchange Rate rather than the oil price effect. Francine thank you so much. Hilliardas, brian stays with us. Up next, we hear from the ceo of siemens after it raises its fullyear forecast. This is bloomberg. Francine welcome to the pulse. Im francine lacqua. The big one today is the bank of england policy decision. That is at midday u. K. Time followed by governor mark carneys news conference. Have a later, we just couple of well, just a day ahead of fridays key payrolls. It is a big week for Central Banks. News,g to some corporate shares in siemens are higher this morning after it raised its earnings outlook after posting higherthanexpected thirdquarter profit. Ceo joe kaeser spoke to bloomberg earlier today. Joe obviously im very proud of my team. Weve been delivering a Strong Quarter on the back of a Strong Quarter in q2. Weve been back on the growth path. Our bookings were up 10 compared to currency related changes. Revenues are up 9 . Satisfied server of a great company. On the other hand, the environment has not been exactly great. We need to work hard to get the performance in. We are our wish in 2020. We do what we say and it moves along very well. After the brexit wrote, the whole managing board of siemens, including key people from our company, have been going to the u. K. Weve been talking to representatives with the government. We made it very clear we are with the customer. There is no change in plans for the current project. I also urged the house of commons and the representatives at that time that we need to have clarity one way or the other. We will look at it and may or may not reconsider. We need austerity one way or the other, then we will be ok. Francine dallas joe kaeser, ceo of siemens. Brian hilliard is still with us. Theres always a link to brexit. Anything the central bank around the world does, brexit leads us back to mark carney. What will you be watching for in mark carney . Is in language, forward guidance, concern about inflation . Brian hes going to stress, i think, that there is a lot more easing to come. Although we started to get the first hints from the surveys, they need to see a lot more evidence to know how they are going to calibrate their response. The fact that he gave this very strong statement in his 30 june speech that they are likely to act so early tells you that in aggregate, they want to do a lot of easing. This is the start. Francine what does it mean for how the ecb looks at what the boe announces today . Brian to the extent that the bank of england message is one of big risks to growth, that is going to hurt the eurozone as well. It brings a downward risk to the ecb forecast. Francine brian, overall, what is the one thing people get wrong about mark carney . Brian theres a leading question. I think people take his signals, his guidance too literally. I think his forward guidance, the first phase was an unmitigated disaster and he should have said something more general. Francine that is probably the biggest problem for Central Banks worldwide. How can you be data dependent if you are giving so much guidance . Brian hilliard, economist at since a gets in a row. Surveillance is next. Tom keene will be joining me. We will talk with simon wells, our chief u. K. Economist. We will also be joined by simon kennedy. He oversees our brexit coverage. This is a picture for the stocks. Traders are waiting for this rate cut. We will see if theres any kneejerk reaction. When you look at pound volatility, it spiked quite a lot in the last couple weeks. It is almost at the level we saw the day after brexit. It is all about boe. Tomorrow, u. S. Jobs data. We will watch for clues on what janet yellen will do. This is bloomberg. Francine think of england cap tone. Two hours away from the bank of england Rate Decision. Cut Interest Rates for the first time in seven years . Volatility spikes ahead of the decision. And theest since brexit pound is weaker. And oils come back after dipping into a bear market earlier this week. Surveillancemberg