Indexes gained for the day, led by financials. We can say that u. S. Stocks have rebounded from brexit losses. Joe a pretty extraordinary comeback. How many times that we talked about the gains and losses being a race for the year. It looks like it is working. Matt the reversal of fortune x is pretty incredible, 20 lower than on the thursday when britain voted. It makes you wonder what the vix means anymore. It does not seem like it is watching. Noit says there is uncertainty, it seems like it does not understand what is going on. Joe 10 year irish is our bond of the day, a new record low. There is always one somewhere. You can see the chart. Also, lets look at the u. S. 30 year, an extraordinary declining yield. Today we saw a little uptick, but this last week has been an extraordinary drop. Scarlet the pound stronger, the on itsweaker, building postimpeachment rally, an 11 month high. This chart indicates the dollar weakening versus the real. Inflationadjusted rates makes brazilian assets more attractive to foreign investors. The Central Bank Says there is no room to cut rates. It may haveen, yes, fallen yesterday, but look at that. It has come back a little bit. , going back tod strengthen, but seems to have week in just a bit. The last two days, the dollar is stronger versus the yen. Today it strengthened to as much as 102. 17. Joe check out silver, which had a big day. There was a golden cross and silver at the hundred Day Moving Average crossing above the 500 Day Moving Average. People are piling back into precious metals. Those are todays market minutes. Lets take a deep dive into the bloomberg. Joe im looking at u. K. Markets. The ftse 100 is now above where was prior to the brexit vote, and extraordinary comeback. Talking about the u. K. Market is dividing it up in several ways. Caps, Global Companies not particularly exposed to the u. K. Economy. The blue line in the middle is the ftse 250, domestic focus brexites, down since the vote. You look at that cap between the white line and the blue line, that reflects the fact that there is still a lot of uncertainty about what this will mean for the u. K. U. K. Focusline is a u. S. Traded etf. That adjust from pounds to dollars. If youre just for uks market from pounds and two dollars, it still looks very bad. It all depends on how you slice it. Measure, an amazing comeback. On another, still down dramatically. Matt im looking at the poundpeso. One of you was talking about the pesos incredible behavior. Here i have one of our chart producers sent me this. Screen tong an hs show the correlation between the pound and peso. It has jumped to the highest level we have seen in the last year. The reason is that after the incredible drop in the pound on friday, real Dollar Strength is ,ot good for emerging markets emerging markets at all, and a lot of hedge funds use the peso as a proxy for emerging market risks. As that Dollar Strength continues, the peso weakness continued as well, and you can see the peso and found a perfectly correlated. Scarlet it is amazing that the peso gets mixed up in all this. It goes back to liquidity and whatever profit you can find. You can see all the charts and more on twitter. Is a visitingme senior fellow at the european institute, part of the London School of economics and political science. He is the author of european spring, why our economies and politics are in a mess and how to put them right. Thank you for joining us. Expertsone of those that these 52 have been rebelling against. Do you think that it is more of a concern for them . The people who voted to leave seem like the ones who will get hurt the most. Of course they will. We are headed now for economic recession, prolonged time of week growth and disruption, and finances,hit public cuts to public spending, which will hit the poor, and higher taxes for everyone. Matt would you think about the drop in the pound . Ftse come back, the ftse 100 only, the more multinational of the indexes, but want these British Companies see more exports because of this weakness . Japan would love to have a 9 drop in the yen. We saw a collapse of the pound in 2008 leading to a boost in exports at a time of week Global Demand when everyone is trying to play the violation game. The devaluation game. And that kind of environment, as this is our putting investments on hold, Employment Decisions on hold. If you see that happening, consumers are likely to pull back and you have the spiral that leads to recession. Joe it seems like there are two different ways of the weakening of the british economy. The uncertainty over the coming years of negotiations, the vote, and the longerterm issue of what would be the uks status once it is outside the eu with the new framework. Break down the two things. How much will the uncertainty hurt . And how will this new, stable state hurt . In the near term, the uncertainty is the overriding factor. The near term can last for many years. Negotiating unprecedented with the draw of the secondbiggest economy in the eu from that block is going to be long and torturous. The in result will be worse ding terms than europe then we have enjoyed with europe. I think its an extremely unlikely we will maintain full access to the market. The city of london loses their passport rights. It means a whole raft of other Services Companies are hit that way. If you look at the fallback option, which is trading according to wto rules as the United States does with the eu, that is about goods, involves 10 tariffs on cars, which britain mostly exports, nontariff barriers, involves much worse terms than the u. K. Enjoys now, and then you have all the free trade agreements negotiatedeu has. The u. K. Would have to renegotiate all of these from scratch with a much smaller ,conomy, largely open markets desperate for deals, and likely to get much worse terms. We dont even have the trade negotiators. Britain has not negotiated a trade deal for 43 years. We dont have the people or manpower to do these things. Matt i understand everything youre saying, but we are talking about the European Union , only a 23yearold political construct. Assuming britain did want to get out of the European Union, is there any way for the country to union without descending into this pit of chaos you are describing, or is it has to be aly will to get out of a 23 year old union. Britain has been a member for 43 years. Not that long compared to the history of this country. Britain was unified 1000 years before germany. Absolutely, and there has been a massive transformation since britain join the eu. We now live in a globalized whereational Economy Services and manufacturing are increasingly traded, and where even in a globalized world, people mainly trade with the neighbors. Partner in trading the foreseeable future will remain europe, and therefore to be throwing obstacles into that will be hard for growth and living standards. Matt thank you so much. You can read a great piece in. He New York Times he also has the book european spring, why our economies and politics are a mess and how to put them right. We appreciate your time. Coming up on whatd you miss . , how does it affect the feds timeline . On the u. S. Ests biggest banks, how healthy are they . President obama saying european leaders should have an orderly brexit process. He also said that Angela Merkel is not interested in brexit talks rest review should in talks retribution. This is bloomberg. Mark it is time for bloombergs first word news. Mitch mcconnell says lawmakers will have a final vote on the puerto rico debt crisis bill today. The senate is trying to pass the measure before friday, when a bond payment is due. Puerto rico says it cant pay. The bill would set up the restructuring of some of the 70 billion debt. Hillary clinton outspent donald trump by more than 20 million on tv at this month based on an analysis by abc news. For every dollar mr. Trump spent, mrs. Clintons allies and 12. Clinton and her main super pac burn through 23 million this month. Mr. Trumps campaign has not spent anything on tv ads, and his unofficial super pac has spent less than 2 million. China is saying an International Court should not oversee the dispute in the south china sea. Is challenging chinas claims to more than 80 of the south china sea. Beijing says it will Seek Solutions through direct negotiations. U. S. Investigators have delayed plans to retrieve the black box of a freighter that sank in the atlantic during hurricane joaquin. The National Transportation safety boards mission is on hold until august because resources needed for the effort are not yet available. Of thecrew members vessel died after it lost propulsion and sank last year. California voters will have the chance to legalize marijuana. Advocates have collected enough signatures to put the issue on the november ballot. It would let adults by one ounce of marijuana and marijuana products at licensed retail outlets and make it illegal legal to grow up to six Marijuana Plants for personal use. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Back to you. It is early days when it comes to quantifying the overall market effects of brexit , but everyone agrees that risk have been shifted the downside. We may see 10 year yields as low as 1. 1 . Tell us, how does it get to 1. 1 . What are the conditions that will push the 10 year yield to that level . As you said, it is a risk of scenario. It is not a base case. In addition to brexit, some negative external shocks. This could be a slowdown in china, possibly as short slowdown. Something extraordinary has happened, which is the markets are now pricing in a 50 chance earlyed rate hike until 2018, an extraordinary change since the beginning of the year. Is the fed going to come closer to where the market is . I suspect it will be somewhere in between. Its probably the fed coming close to where the market is. Joe this is the various possibilities. That white line is the odds of a fed cut. It shows how extreme this move has gotten. I take some issue with that. What i would say is that some of the inversion you have seen in the money market is technical in nature. It has to do with the fact that there has been extraordinary demand for treasuries and financing of those treasuries. You can see the same in version in the overnight gc market. You are going into quarter end, Balance Sheet scare ct scscarcity. You have money market reform kicking in, and there is a flood of cash expected to go into government money market funds. There is a bit of a technical factor going on in there. Inverted asas been the probability of a cut, but if you account are all those factors, it would just be noise. Scarlet what kind of historical precedent does the european debt crisis offer us in terms of how big of an effect it would have on the u. S. Economy . These are two very different things. The european debt crisis poses six them it systemic risk. In can see that in spreads the european version of that. You see that to some extent here, but not really. Brexit is more of a slow burn. It creates lots of uncertainty. What that is going to do is shave growth off in the u. K. , but also the eu as well. For next year, for example, we have this uncertainty taking 1 off growth in the eu. One of the things you see it in terms of Interest Rates not is Interest Rate markets are factoring these risks in. Interest much can rates change anyway from here . How much traction will they have . On theking at cheesy 3d bloomberg terminal. Over the past 10 years, rates between two years and 30 years have completely flattened out. You can see a really cool 3d image of the u. S. Treasuries active curve. There is not much more the fed can do. It does not look like it would spur growth anyway. That is an excellent point. We are thinking about a flattening of the curve that will continue. Hnd part of it has to do wit factors beyond the fed control. Ratesral weights across the western going down. This is something janet yellen inflationledged, that has persistently undershot targets. You can see this factor in across the west. I think you will see this continued flatness really. Joe thank you very much. Head of u. S. Interest rate strategy at credit suisse. State ofis the current the labor Market Driven by a lack of demand . This is bloomberg. Joe whatd you miss . In the labor market may be because people dont want jobs, lack of demand rather than supply might be driving the decline in the Labor Force Protection rate. Topic, there has been this multidecade secular climb of prime age male labor force participation. What is going on and why are people talking about it . The economy wide Participation Rate has been declining for a long time. A lot of it reflects aging and workers moving towards retirement age, but the bigger problem is wide prime age wage earners are leaving the workforce. This is the cohort of people most intensely focused on the labor market, working or searching for work. They are dropping out of the labor force in greater numbers. It became more intense around the time of the recession. Joe what are the main theories for why . We find two main groups of people who have dropped out. The first is relatively young prime age workers that have returned to school or stayed in School Longer than they otherwise would have. A lot of people think you have increasing returns to education, so there is a larger premium for staying in school. That is a fairly benign nation. Is less benign explanation if you look at the education level of workers who have dropped out of the labor force, a lot of them are with a high school diploma, but no college degree. Those types of workers have been hit hard by declines in manufacturing and the retail sector. A big part of the labor force Participation Rate coming down. Working,ore women are the woman is making money for the family, and the man does not have to. That is not borne out by the data is it . No. Story in theg postwar time. That accounted for some of the decline prime age male participation. Lately that has been less true. The share of the labor force has been flat for the last couple of years, so it does not seem to be a major driver. When we look at the types of people who have been dropping , they tend to not have a working spouse. They tend to come from more low income households. The president s council of economic advisers recently came out with a big report on this. Are some ways to turn this around . I thought this was a great report. The driversabout being demand driven. Market is notr asking for these workers, rather than the workers stepping away. We would totally agree. This is not the man that can be fixed through monetary easing or fiscal stimulus. You need training and education to align the skills of these workers with the demands of todays labor. Heard about tight labor markets, housing, construction. We see it show up in the regional fed survey. Wagesre a point at which might rise again and we see some of these men come back into the workforce . That is probably the case on where you have the labor market is a patient up a little bit on the whole. You do have tightness in some parts of the labor market. You have had seven years of recovery. The unemployment has come down and wages have gone up. Joe thank you very much for joining us. Fascinating topic. Live shot ofher the president speaking in ottawa, canada. He says oil is cheap now, but will not always be cheap. Meetingapping up his with the canadian Prime Minister and the mexican president. 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. Breaking news on the Bank Stress Test results. Here we go. The Federal Reserve fall thing plan, 31 banks have passed. Morgan stanley has conditionally passed the fed stress test, but must resubmit. Again, Morgan Stanley conditionally passes the stress test, but must resubmit it. Antander and Deutsche Bank have failed it. Morgan stanley exhibited material weaknesses in its Capital Planning process. They marked further neared term attention. , but only on a quantitative basis. Qualitatively there are issues . Apparently. When we talked about the preliminary results, we did mention Morgan Stanley because their numbers came very close to the minimum. Pass, but maybe that was a signal that because those numbers came close, perhaps their models the banks come up with their own models and say this is how much money we will probably lose under this scenario. The fed looks at those in return deletes everything and says your models are not correct. We think you will lose that much money. If there was a big discrepancy between Morgan Stanleys models and what the fed thought they should be doing, thats probably why they went with the pass,ative conditional because they were not happy with how Morgan Stanley is modeling the risk. Deutsche banks adrs lower in extended trading. Astsche bank also failed part of the stress test last year as well. They did. This is a very small unit of Deutsche Bank in the United States. It is basically a custodian bank. It is 1 10 of their total u. S. Operations. Still, they need to get their act together pretty soon. Just this week, the deadline for the intermediate Holding Company , those completed subsidiaries will be getting tested in coming years, so this is not a good sign. Although it is a small unit, it keeps failing. They need to make sure that the full operations pass. Would you think these stress tests tell us about the state of the Banking System right now . I must say that i have not seen the actual fed report yet, but the fact that the banks are getting a clean bill of health seems to me slightly over weimistic in the sense that can see that the Bank Capital Ratios have improved over the last several years, but i do not think they are where they ought to be. I think there is the work to be done. The banks areurse wasting no time in saying how they will return capital to shareholders. With a 9. 8 boost. Banks beld the distributing more to shareholders . Should the fed be allowing that at this point . Well, i think that the fed does need to give the banks go to do what they want to do with shareholders, but the Program Needs to be continually the capital that does not get eroded. Some of the banks when we look at them, it looks like their capital ratio is under stress still onlyand are around 3 or Something Like that. That three percent of total assets i think is unsafe and too low. I have been talking a lot to european and british investors about stress tests here versus their. Re. Do our stress tests seem stressful enough . Do they really have teeth . There is constant criticism on whether they have enough teeth, both here and in europe. The fed is actually trying to increase the stress levels, not just by the scenarios, but they have already indicated that they are going to increase the level of capital that banks need to meet, especially for the biggest eight banks, the ones that are systemically important. Youreext year or the after, they will face higher minimum levels, so instead of 4. 5 , they might have to face 6 or 7 , which is a big increase. Now in bad times under stress, they still would need to have higher capital. The Morgan Stanley heads have come out and announced a Share Buyback program and boosted its dividend to . 20 a share, despite the fact that the board of governors talked about Morgan Stanley indicating material weaknesses. How did they get past that . How did they satisfy the regulators need to see improvement . Citigroup america and have failed before, and they both has spent a lot of money and hired a lot of people to make sure that they can gather all the data properly, they can do all the models better. Scarlet it is a process issue . It is a process issue. These are banks with big positions, a lot of tradings in different parts of the world in different instruments, stocks, bonds, all kinds of things. Eachnk about 150 million spent. Jp morgan has also said they hired 500 people just to look at stress tests and deal with stress tests every year. This way in the qualitative sense, they are really investing. Morgan stanley might have to do the same. Costly it has become a part of the business as well. Bank of america authorizes the 5 billion stock buyback and boosting its Quarterly Dividend by 50 . Joe most of these banks are a stress test, but overall, investors are not into this group at all. All the shares are down, Deutsche Bank trading below tangible book value. What is the anxiety of investors right now towards this entire sector . Why do people not want to touch banks . I think they are concerned about whether the Regulatory Environment is going to be too hostile, but i also think that the possibility of the whole banking model does not look as great as it did before. The trading has been moved out to hedge funds and exported, so the banks are a little more of a utility than they used to be. I think this all those kind of go to gather with improving the safety and reliability of the them less exciting from the point of view of the investment world. Matt i just wanted to jump in here and mention a couple of things. Off, i wanted to mention that we had a higher Dividend Increase and Morgan Stanley than we forecast. That is one thing to keep your eye on, those shares. I wanted to ask about bank of america. Hasay bank of america failed is like saying Morgan Stanley failed this time. Isnt that right . Havent Morgan Stanley just had to go back and resubmit results, just like j. P. Morgan and Goldman Sachs . Last year, when the results were released, they pass, but they said we have made a mistake with the numbers reported an hour capital would have been 4 billion less in this stress environment, then they failed retroactively. All these are part of the qualitative issues, which are of what to be on top their risks are, what their positions are, the multiple trading positions, all of them have to become piled have to be compiled. I guess they are still struggling. Mewas a big surprise for that after having passed the qualitative side for so many years that they failed this year. It they need to be on top of all the time, and maybe this year they did not do it as well as previous years. Scarlet there was a situation where a couple of the banks were aggressive with their capital plan. For instance, they were putting in they want to do buyback more shares than they thought the fed would approve. That. Is no downside to might that be one reason why it Morgan Stanley did not, looking better in this round . They are not failing on the quantitative, so their desire to give back money to their shareholders was not the reason that they failed. It was more about Risk Management practices. There is a lot of language here. There are weaknesses in modeling practices, weakness and governance and controls. I dont speak the language either we see this type of language each time a qualitative fail happens, but we dont know how it happened. It is in the process. What part of the process, who knows. Joe we will figure it out. Thank you very much for joining us. Scarlet much more coverage on Bloomberg Markets and what did you miss. Bank stocks moving in afterhours trading following the fed stress results. Morgan stanley passing, but not really. Deutsche bank and santander failing. This is bloomberg. Mark first word news. Of the United States, canada, and mexico convened a summit to reaffirm ration on security and trade. Tuesdays attack in istanbul, turkey and which 41 people were killed added to the urgency of the discussions and the need to Work Together to defeat a common in many enemy. I am confident we will defeat those who offer only death and instruction, and we will remember that even as those are trying to divide us, we are stronger when we come together and work towards a better world together. Mark president obama said he called the images from the scene heartbreaking. The central of Intelligence Agency warns of an attack in the u. S. Similar to the one yesterday in istanbul. John brennan says the suicide bombings in turkeys main airport have the hallmarks of islamic state. He says the groups are planning similar attacks in america, and that preventing further violence is complicated by what he calls a determined enemy that is not worried. Egyptian investigators say wreckage from that egyptair flight shows damage because of high temperature. A flight data recorder indicates smoke in the laboratory and onboard equipment. The flight crashed into the Mediterranean Sea in may, killing all 66 on board. Americans are concerned about the fallout from last weeks grexit vote. In a new bloomberg morning poll, more than a third of u. S. Voters say the uks decision to leave the eu will hurt the american economy. 15 say it will help. 1 5 say it will have no impact at all. More than four out of 10 americans say the vote will hurt their investment portfolios. News 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Back to you in london. Matt thank you, mark. To buy backs, citi a . 6 billion in shares and boost its dividend to . 60 . 16 a share. We see banks come out and tell us what they will get back to shareholders. In this case, it is more than bloomberg had forecasts. Analysts had forecast 15 since a i will boost it to . 16 a share. Joe, you mention investors dont want anything to do with these banks, as evidenced by the price they are willing to pay compared to book value. S p financialss p e ratios relative to the p e ratios of the broader index, and you can see that we are at the the end ofls since the financial crisis. , andve come way down here it is Pretty Amazing how cheap these stocks are going for. It does not seem anything can boostmay be a dividend and Share Buyback, to get back into the sector. Scarlet when you look at what brexit wrought for the rest of the banking industry, there is a concern, too. In which a fedt official says that while the fed did not test for impact from brexit. The test it captures some of the risk, including a u. K. And eu recession. The regulatory stuff, the flat yield curve, the of antibank populism, the actual brexit vote, which could hurt a lot of the banks. Stuffis all this happening at the same time, so you can pick and choose any one thing. Is notu put it together, surprising that investors are skittish. Scarlet in the meantime, minghella coming up, conagra. Oods the Company Comes out with earnings tomorrow. This is bloomberg. Scarlet i am scarlet fu. Whatd you miss . Is overhauling the company. So far, investors like the results. Shares of conagra, which are in white, have outperformed the s p 500 in orange. One measure of profitability still needs work. These are operating margins. While improving, conagra trails its peers. The move to shed the private label unit and an illfated merger and scan off a division should bolster those margins. That is just the beginning. Management is open to further asset sales to focus its portfolio. Could all be on the chopping block. He is also bringing down costs. His goal is to reduce annual costs by 300 million. These initiatives and adjustments to promotional spending, conagra has improved his margins massively over the past two years. Once conagra slims down, it may be in a position to look for acquisitions again. The spinoff could provide more debt capacity, and the sale creates 1. 6 billion that could be used in the next five years to shoot gains from acquisitions. We will be monitoring conagra earnings on thursday. Matt, you have breaking news on j. P. Morgan. Matt we will keep getting these headlines. J. P. Morgan buyback plans for 10. 6 billion, leaving their dividend unchanged. Back 3. 5nley buying billion, bank of america authorizing a 5 billion buyback, citibank with a 6 billion dollar buyback, and jp morgan with the 10 billion buyback. Is worthanghai company 33 below than predicted, the biggest gap since 2009. How did analysts get it so wrong . Why cant analysts figure out where profits are going in chinese stocks . You can thank reform for that. It has made earnings so volatile that they have been hard to predict. Put that 33 cap number into perspective. Lets look at this chart and how is widening, a canyon, a chasm here. It has gotten worse and worse as china has been reforming their state own sectors, in particular in industrial companies. They have been some of the Worst Performing Companies in china. There is also a really interesting angle to this as well. Analysts on chinese companies, particularly in china, they tend to give out more optimistic forecasts. So differentot than in the u. S. , but more so just lastortselling year, the Chinese Government had put restrictions on shortselling. There is not a lot of shortselling going on, so there is not a lot of appetite for negative reports. No one can do anything with it. Demand,of that lack of the forecasts tend to be more positive. Scarlet in terms of the context, give us more details when we talk about that 33 gap. In terms of missing forecasts, it is double what chinese shares in hong kong are traded at, meaning the profit miss is far less than in hong kong then china. It was 13 versus 68 in china. ,ome of the companies Petrochina Company once a Warren Buffett holding, reported its arst ever loss and missed by wide margin, one of the worstperforming stocks. Joe thank you for joining us. Yorkin at 7 00 p. M. In new for daybreak asia. You need to know to gear up for tomorrows trading day. That is next. This is bloomberg. Scarlet breaking news from Goldman Sachs, buyback of shares, although we dont have the actual number. It will boost its dividend. In addition, it may issue and redeem capital securities, which are a hybrid of Corporate Bonds and preferred stock. Goldman sachs one of the banks that passed the stress test. Morgan stanley miss the qualitative part of it. Matt it was a statement that does not list any numbers. On the show tonight, convention plots and speaking slots, 19 days ago until republicans convene in cleveland. First, the world still reacting to the attack in turkey yesterday. The total number of people who have been killed is now 41 according to authorities. More than 200 injured, by three suicide bombers, who turkish Officials Say have ties to islamic state. Hillary clinton and donald trump have each weighed in in the past day. Lets review what they have said. The attack occurred before 3 p. M. Turkish time
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