Transcripts For BLOOMBERG Bloomberg Go 20160512

The economy is slowing ahead of the referendum. The bank of england has a tricky judgment call. It cant go too far out there politically and say what the economy would do if we were to vote against staying in the eu but it is clear the economy is slowing. The assumption is that the economy will pick up the growth it lost in the Second Quarter if the u. K. Votes to stay in the eu. Lots of headlines here. They are rate increases, are more likely than not. It may cause the pound to drop sharply. It sees inflation dropping. That is very important because as inflation is forecast to rise, the bank of england is telling us, rates are going to be raised in the forecast. In the 23year horizon. Investors will depend a lot on what happens in the upcoming referendum. The big take away is that yes, the bank of england has cut the gdp forecast for this year but it is not a big surprise. The economy is slowing and the back. Ata is there is a slowdown in construction and manufacturing. The conference that takes place in 30 minutes is going to be a political trade wire. It will be fascinating. Amanda that is hitting the nail on the head. Matt miller, we may wait for reaction after what Governor Carney says after that conference. Matt what we are seeing now is a jump in the pound. You can see the spike here to 144. 65. Now is a jump in the pound. You can see the spike here to 144. 65. So there is a Market Reaction in currency and you will see it in arms. Let me show you the world Interest Rate probability. You can put United Kingdom in this dropdown menu and to see that there is not a chance of movement until we get towards november and even then, only very slight. If we take a look at the imap, this is the stoxx 600, you can see that energy is still the biggest mover. Energy is still the biggest gainer. Down here, you see materials. Financials are still up by 3 10 of 1 . So watch financials, they could come to an unchanged level here. Has we said, oil stocks are among the best gainers. You can see the forecast for a Global Supply forecast. The driving markets in india will cut the oil glut from the previous estimates. So having very little to do with the bank of england decision but it will have everything to do with the equity trade today. Watch the oil because it is heavily weighted and it will drive the trade. As far as the financials that we have seen fallen, we have seen a couple of them down big. Saw profit fall 50 in alternative assets. The owner of transamerica lost 400 Million Dollars in hedge funds and commodities. Credit agricole are dropped although total did beat estimates. This part of the shortfall was from restructuring charges. The Austrian Bank graph eisen is down big today after the shareholder lowered the shares to a hold after a 26 drop in profit. The financials will be reacting as far as equities. Eye on thely keep an financials as they move forward. Amanda we will get reaction from gilles moec. And here in the studio is donald amstad. Ets start with gilles moec i dont think we are overly surprised here but there could be surprises to come including whether there was a divergence among members. What is your expectation there . Will be see signs that there are some on the committee who think it should go another way . Gilles we have already seen divergence from the newcomers. Made it clear that the level of tolerance for softness in the data was very low. So it has struck different chords. They seem more concerned than the majority of the committee. So yes, voices could become louder but it may be difficult or the committee to change the message too much ahead. Thatuld explain the fact we get a 90. Those who have talked about the softness are probably seeing the position of being strengthened every day. The lowest pmi of the last three years in the u. K. With the uncertainty rising to an alltime high, the highest since 1997 in their case, it is clear and clear. It sends a strong message before we get to the vote. Jonathan the issue for investors this morning is that this is an exercise in forecast of the on forecast will unfor castable. Spinning forward into the News Conference, what are you looking for specifically to give you insight into what is going on . Gilles we have already had communication from the government. Issues, carney on these he has made the case clearly that he thought the outcome of the vote as an exit, what it would be with the consequences on the u. K. Economy. And we have had a statement telling us that the bank of england would be ready to react. So i think that rather than concentrating on the quantified forecast, the best approach is in thesure investors sense that, standing ready to react, paying attention to whatever. There is not much more they can do at this stage. Amanda donald, they are also signaling that if inflation rises above target then tightening is where they wind up going. What do you expect to hear by way of reassurance . By what the bank and do for the british economy which is week by different measures . And if the exit goes . Donald the key issue is that the u. K. Economy is slowing down and trying to work out how much of the slowdown is brexit related. Or are other factors at work . , and is brings it related if we get through the referendum ok and the u. K. Votes to stay in then there will be serious questions. Jonathan there is a fascinating debate emerging at the moment over whether we do exit and there is an upside risk to inflation, how they would manage that situation. Gilles moec, how do you think they would manage that . We have hadink that communication on this. They seem to have moved a little theon waiting to see inflation risk materialize before reacting to this. Which normally be a sign of the isometrics, theyre consid riske before reacting to this. Which normally be a sign of the isometrics, theyre considering the possibility. But then Governor Carney said it was not the approach. It is not just for the bank of england. It is for everyone at the moment. Given the risk of getting into the inflation spirals and the fact that we are at or near the zero bound, it makes a lot of sense to air on the side of caution. I would even say that a lot of positiveu may want a inflation that you would not react to because it would be the only way to recreate expectations, as long as people and investors see that inflation central what the target banks have. So you have to accept at some point that you let inflation go away a little bit before reacting, otherwise, we would be in a regime of shooting. Amanda thank you so much that was gilles moec. Will be staying with us. Jonathan for now, lets cross over for first word news. In brazil, the president has been suspended from office and faces a trial in the senate. She was voted to be impeached. She will be suspended for 280 days and it is unlikely she can win the senate trial. She will be replaced by the Vice President. Many expect the replacement to be permanent. We have more on this story coming up in a moment. Donald trump meets with paul ryan today, hoping to get his endorsement. Ingsays the business of unify the party around the likely republican president ial nominee will take some time. And in france, the president s Government Faces a confidence vote in parliament over a reform. This comes days after protesters battled police about the measures. The proposal went through the lower house of parliament and it is said to make it is easier for employers to create jobs. Global news, 24 hours a day. Powered by our 2400 journalists in more than 150 news bureaus around the world. I am taylor riggs. Jonathan coming up, is stork moment. Up next on bloomberg. Jonathan jonathan the focus is on two cities. London and brasilia. The decision to keep rates unchanged with the brexit warning. The pound is trading a little bit stronger. 15 minutes away from the News Conference. Amanda we see the pound continuing and we will continue to bring you that press conference from Governor Carney coming up. In brazil, the president has been voted to be suspended after months of little uncertainty. For more, we have anna edgerton. What is next in this process . Rousseff this morning, who will be notified. The Vice President will become the acting president. Jonathan just as a followup question. With the momentum trade in brazil over the next couple of months, as we have waited for this moment to get closer, what is the likelihood that we will get another roadblock . The Vice President has a hard job ahead of him. He knows how Congress Works but the economy had a terrible recession last year. It is expected to come back again this year. There is really a lot of issues that they will have to address immediately, especially the budget. His focus will be on fiscal issues to cut government expenses and increase tax revenue. And get some kind of confidence of investors, some kind definition after months of political turmoil. Amanda on that point, what are the chances that this is the last leg of this story . Or that there wont be other corruption issues for others in the resilient government . Anna we are definitely expecting more corruption issues. The Vice President is not under investigation. He has been inside it in some of the plea bargain testimony but the evidence against him is not strong. His cabinet may also be under investigation. There are about a dozen politicians from his party who are under investigation. Amanda anna edgerton, thank you for being with us. Jonathan still with us is donald amstad. I, in ars ago, you and savoy at a conference, donald went to the front of the stage and he built up the case with fixed income. It revolved around your motherinlaw. And how much your motherinlaw spent in malaysia and how much your mother spent in the u. K. Was the welfare state. This is an example of Political Risk. And the Political Risk that you would not face in the u. K. What is the argument on that when you add in the extra layer of complexity . Donald latin america, the risk has been incredibly high. And there has been extraordinary government whether it is brazil, argentina or venezuela. And it seems that the confidence is shifting into an orthodox mode. It is interesting that asia, by comparison, over the last five years, has had some rocky times but from a currency point of view, they have massively outperformed the rest of the emerging markets. Emerging markets like the brazilian currency, they have come back strongly. So our view has always been that asia has pursued relatively orthodox policies. And that asia is solvent. And yes, asian currencies have been week against the u. S. Dollar over the last couple of years, that nothing like the extent that we have seen in other parts of the emerging world, with the possible exception of malaysia. That is an extreme nares situation. Jonathan we are focused on brazil at the moment. And china, more generally. China is putting pressure on everything. You see signs of stability. Why is everything ok . Donald there are a number of points about the chinese economy that people are not focusing on. When you talk to people about china, when i talk to clients about what is going on in china, their view is that china is an enormous factory. Workers wake up, go into a factory and go home again and repeat ad nauseam. So when i tell people that the Manufacturing Sector is 34 of gdp and that the Service Sector 55 ,fined percent is then if you have half of the economy growing at double digits , even if the Manufacturing Sector is incredibly weak, overall, china will be ok. Amanda you are also bullish on india. India, what is great about it . Donald it is the best story on the planet. People should be focusing. Bankest single central targeting it is where the United States was in 1980. Jonathan well, that is a call. Donald amstad, great to have you with us. Amanda coming up, we will take a look at who is buying and why. And in less than 10 minutes we will hear from mark carney. Amanda amanda we are looking at a live shot of london. We are waiting for a News Conference with the governor of the bank of england, mark carney. We will bring that to you live. We have a Rate Decision this morning. It is moving the sterling stronger. No change today. Jonathan lets get you up to speed. Equities are softer throughout the session. A little bit of a turnaround in the last 40 minutes. The footsie is up by. 4 . The s p 500 is positive 12 points. As a amanda laid out, sterling is stronger. See things right here, right now. The euro is a single dollar currency of 1. 13. Here is matt miller. Matt lets take a look at saint jude medical. It was downgraded from a buy. And analyst doesnt expect any competing bid to the 30 billion offer. They are not advising to buy the shares. Barclays is trading higher. It got an upgrade. The french broker raised the shares to neutral. They increased the shares on bearclay. On they say it is now up. They say valuation has been held on eight u. S. Diabetes product which faces a high amount of competition. Check out those moves. Wells fargo is less confident on the denver money manager. ,nd analyst has cut shares saying the firm is too concentrated in equities. And let me point out, i am pointing out the stoxx 600, not a lot of Movement Since the bank of england made its announcement. We arent expecting to see a lot of movement until the press conference but here is where it came and we are trading relatively flat. There has been moving been movement in currencies. Amanda it is time now for a look at bloomberg trends. A look at what people are reading on the bloomberg terminal. One thing that caught my eye is the most expensive bond we have ever seen. Japanese bonds selling at it ling at the highest level it is extraordinary what is going on. The rally continues. One of the best investments. Jonathan if you dont like the 30 basis points, they are going abroad. The data for march was record purchasing. We saw that in the 10 year auction yesterday in the u. S. A huge demand coming from foreigners. Amanda we are looking here at the premium over the u. S. Of japanese bonds. Jonathan and today, a record winning streak. Coming up, talking about the bank of england. Mark carney holding a News Conference. Jonathan setting the scene for 30 seconds away where mark inney will take his space london after deciding to keep rates unchanged, on hold at an alltime low ahead of the referendum on june 23. Amanda the most interesting part will be the q and a. There will be questions about the upcoming brexit referendum. Jonathan we roll over again on dead flat on the session. One of the things that is interesting is that you have the bank of england that is trying to stay politically independent. Growth anduse slower an up limit to rise. Amanda dragging them into the political fray in a way that the governor does not want. Jonathan so cut the outlook for growth. Are they forecasting the u nforecastable. . Mark carney lets start with a bit of perspective. After the worst financial crisis since the great depression, it took place three years ago. Originally driven by sharp declines. These helped restore confidence and unleash demand. The recovery was enforced by a more confident banking system. Bankthe mpc guidance, the rate wasnt going to rise for the first time. That helped to create confidence. Recovery was also supported by a large, positive supply shock, particularly a notable increase in workforce participation. Pointsree percentage annualized, the u. K. Was the fastestgrowing economy despite ongoing persistent global weakness. Time, the boost from lower uncertainty faded, pentup demand was spent and consumption growth was supported by greater hours in work and a pickup in real wages. Investment rose in demand. Trade and fiscal policy continued to drag. By early last year, growth began to slow to 2. 5 percent. As the labor supply shock had run its course and supply growth became more reliant on productivity, by the second half of last d run its course and supply growth became more reliant on productivity, by the second half of last year, although we were still near the top of the g7, growth had moderated two 2 . The outlook, in the First Quarter of this year, growth slowed further to 1. 5 Percentage Points annualized. The most recent weakness reflects the forthcoming referendum on the u. K. Membership to the European Union, which has pushed up uncertainty numbers to levels not seen since the crisis. The referendum makes describing the outlook more challenging than usual. That is because some asset prices used are likely to be affected by market for dissidents perceptions of the consequences. The referendum affect could account for half of the 9 fall in the Sterling Exchange rate since november 2015 and we decided not to let that part of the Exchange Rate fall. This judgment is consistent with the mpc convention to consume the government policy as followed. We have conditioned our projection on an assumed continuation of the eu membership and as a consequence, the forecast also assumes that the elevated levels of uncertainty unwind in the months that follow. Case,e Committee Central the outlook for inflation is similar to the one we described three months ago. The mpc continues to expect inflation to pick up over the next year as the impact of past falls in Commodity Prices fades the eurohe effects of appreciation of the sterling wanes. The recovery and inflation is likely to be further supported by the recent sharp increase in oil prices and some additional stimulus for market strength. Moreover, if demand is also expected, the remaining Spare Capacity in the economy will be used up during 2016, in turn, raising domestic costs. These factors will be sufficient to return inflation back by mid2018 and pushed above target thereafter. Up central projections set in the Inflation Report today are conditioned on a gentle rise in Interest Rates over the forecast time. In that central case, the mpc judges that it is more likely than not that the rate will need to be higher at the end. In order to target in a sustainable manner. Conditions for asset sales continue to hold. Now turning to the elephant in the room. The mpc judges that the most significant risk to the forecast concerns the referendum. With macroeconomic and financial educators likely to be less informative than usual in light of the referendum, the committee is currently reacting more cautiously to data releases. There is a risk that we could be the or under estimating underlying momentum in the event of the vote to remain in the eu. More profoundly, a vote to leave the European Union could have economical affects on the economy supply potential. In fact, it could affect the appropriate setting of Monetary Policy. The recent behavior of the Foreign Exchange markets suggests that we have a vote to leave the eu with the Sterling Exchange rate falling further, perhaps sharply. This would likely be consistent with changes to some of the real fundamentals that drive the sterling in terms of trade, productivity and risk premium. In isolation, a former fall in sterling would increase policy rises. Aggregate demand would likely fall relative to our forecast in the face of tighter financial conditions, lower asset prices and greater uncertainty about the u. K. Trading relationships. Households could defer consumption. Global financial conditions could tighten. Generating potential negative spillovers to foreign activity that could dampen demand for u. K. Exports. Lower aggregate demand would policy inflation over the rises. However, over time, there may also be negative affects on aggregate supply including slower capital accumulation and the need to reallocate resources across the economy. On their own, such supply affects would boost inflation. So this collation of influences could lead to a materially lower path for growth and a notably higher path for inflation than in the Central Productions set out in todays Inflation Report. Mpcuch circumstances, the would face a challenging tradeoff between stabilizing inflation and stabilizing output and employment. The implications for Monetary Policy would not be automatic. Its direction would depend on the relative magnitudes of the demand of the supply and Exchange Rate effect. Whatever outlook materializes, the mpc will determine the course for Monetary Policy that delivers the inflation target in a sustainable and timely manner. Which generally means returning inflation to target within three years. To conclude, the people of the United Kingdom will make a significant decision on the 23rd of june. And they will do so after exploring a much broader range of issues than Financial Stability. Consistent with agreements, the mpc will address the consequences of that decision for growth and inflation over the Monetary Policy horizon. There are limits to what Monetary Policy can deliver. Shock strike demand below supply, Monetary Policy can soften the blow. When shocks drive it below demand, Monetary Policy can make the unsustainable, sustainable. Over the mediumterm, Monetary Policy can deliver a level of demand consistent with the path of the economy. In order to meet the inflation target. But Monetary Policy cannot immediately offset all of the effects of the shock. Moreover, neither is the path of supply nor the past in the mediumterm of Economic Growth and its implications for jobs and wages a gift of Monetary Policymakers. These will be driven by the good decisions. Whatever the outcome of the referendum, the bank of englands best education to promote the good of the people of the kingdom will be to use all of its tools to support Financial Stability and to chart the right path for inflation back to target. And that, we are pleased to answer questions. Please say who you are and which organization you represent. One question only to begin with. Bbc. Your forecast today comes after a host of poor Economic Data for the u. K. On manufacturing. Some people predict that the april growth would already be as low as 0. 1 . You have said that if britain votes to leave, it would lead to materially lower Economic Growth in the u. K. Given the gloominess of your forecast and the data, can you rule out britains economy being put into a recession if we were to leave the European Union . Mark carney let me distinguish. We publish one forecast today. Which, as per our convention, is based on government policy being followed. We always do that and we have done it today. And that forecast is affected in the shortterm by uncertainty associated with the referendum. We know that and we see it in a variety of indicators. We believe that this uncertainty. S influencing the slowdown it is one of the influences for the slowdown in the First Quarter and a more marked the celebration this quarter. But the condition on that assumption remaining, those uncertainty affects dissipate in subsequent months. And the actual forecast we have, i wouldnt describe as gloomy. There are uncertainty effects at the dissipate by the middle of next year. The ultimate effects of the economy dissipate by next year and we have growth around trend over the course of the year following the referendum and then picking up. It puts the economy in a bit of demand which is why we are above target. So yes, shortterm effects but in the fullness of time, moving out of the way. We have a responsibility when we have a major risk to the forecast to talk about the risks. If those risks could manifest over the horizon and quite frankly, if it is an issue that the mpc has discussed and looked and as you can see in the minutes, the biggest concern is the referendum. Not just the fog of uncertainty about the data in the near term, if thereudgment that were a vote to leave, it would have material consequences for both growth and inflation. And therefore affect the Monetary Policy. I would stress that the effect on Monetary Policy is not automatic because there are potentially big affects on each of the Exchange Rate and the supply of the economy and aggregate demand. It is the sum of all of those affects that the mpc would have to look at with policy. In that scenario, as we said that we would expect material slowing and in growth, it is a challenging tradeoff. That is what i would take as the important point here. We are providing information as best we can about our potential reaction function in that scenario. The key drivers of where policy would go in that risk scenario. One question only. Does that mean negative recession . That is all what people want to know. Ie question really is will ask that question straight up. You have given a detailed forecast. The public want to know, from a reasonably independent source, a , what is likely to happen if they make choices. You have given indication in the report of what you think is likely to happen in words but not numbers. You said unemployment is likely to rise, that suggests a recession. Mark carney a recap focusing specifically on that, i did want to make clear the central forecast that we have, which is conditioned on remaining. I will answer that. Immaterial slowdown in growth with a notable increase in inflation. That is the judgment. It is a judgment not based on a whim. It is a judgment based on rigorous analysis and careful consideration. Does the judgment of the independent mpc and members of the mpc who make that. There are a range of possible scenarios around those directions. Which could possibly include a technical recession. We havent done a formal forecast. ,he thing that i would stress what is important here from our perspective, is to provide information and perspective, not just about the risks to the central forecast but what it might mean for Monetary Policy and what are the considerations. Because what we dont want to do , which wouldnt be fair to the to pop up ate or the start of july is to say, this is what we thought then about the situation now. I would stress though, that our perspectives in terms of the central forecast, conditioned on remaining, and our perspectives about risk extend out to the Monetary Policy horizon. In agreement is to have three years. We are not making a judgment. We are not making a judgment or a forecast or an assessment of the longerterm economic consequences of either decision, nor will we make that determination. But we have a responsibility aboutour statute to talk the risks and the tradeoffs that Monetary Policy faces, so that the british people can better understand the potential path of Monetary Policy. Because its the one thing that in all know that the shocks the economy are uncertain and it is better if people can anticipate how the bank specifically would respond if those uncertainties come to pass. You talk about the potential path of Monetary Policy in response to what could be a technical recession. The Monetary Policy committee what was therexit, range of policy responses that were considered . Was there a rate cut considered . What would that mean for gradual rate rises . Mark carney i understand the question. Just to be clear, we discuss the economics of that risk scenario. To have a richer appreciation of that. So we had a rigorous discussion around that, supported by analysis. We didnt develop a full protection, to be absolutely clear. But we had that discussion. We didnt then translate that into Monetary Policy, because the only decision we are making are about the circumstances here and now. What is the appropriate stance of Monetary Policy as we are today, given the central forecast . And it was clear to all the members of the committee, as you saw with the announcement today the popularte, that stance is to maintain the rate as it is. You have gone further than you went in the Scottish Referendum and you have gone further than before on the eu referendum. Is this what people look to for independent news on the economy . Maybe being embroiled in controversial politics . Mark carney i would flip that 180 degrees. This is the biggest risk in the judgment of the independent financial policy committee. It is the biggest risk in the judgment of the Monetary Policy Committee Members to the achievement of the remit. Responsibility to analyze risks, to consider how and if we should mitigate the risks, and then, under the standards of transparency in this country which are extremely high and are consistent with the in almost responsibility this institution has, we have to communicate those. The Political Choice is to suppress this type of analysis and these types of discussions. But this is entirely within remit. So lets take a different circumstance. You refe of analysis and these types of discussions. But this is entirely within remit. So lets take a different circumstance. You referenced scotland. The issues around scotland were issues that principally affected Financial Stability in the short term. Issues around stability of certain Financial Institutions headquartered in scotland. Y were not issues that these were serious issues that we took seriously, we had contingency plans, we revealed them after the fact but they were not issues that, at the rose to the level of being the biggest risk to the Economic Outlook for the u. K. And for the potential stance of Monetary Policy. It is a different situation. And in terms of why are we talking about this today . We are talking about this today because we have a responsibility to produce an inflation forecast and when we produce that it isnt just a point projection. It gives us a sense of the major risks. And what comes with that is responsibilities of transparency. Nothing more. Mention in the report and your letter to the chancellor that sterling could fall sharply in the event of a brexit vote. What do you mean by sharply . It has already fallen by 9 . It isnt very specific. Do you think the fall would be permanent . Would sterling bounceback . And iarney let me start will get then to amplify. It is relatively unusual that we would talk about the currency and the direction of the currency. It happened in the past. It happened in the aftermath of the crisis, understandably, because there was a major supply shock that happened and it made sense to give the context. The circumstances at present are that movements in the currency to have an identifiable cause. And we were able to do some work in order to estimate that. And in addition, the stance in markets, both in the way the currency moved with specific events, the tenure of the Options Markets, this skews in the Options Markets and the potential shift in fundamentals it all points in one direction for the currency. We havent made any numerical forecasts in the event of a vote at all. That would include the currency. But what is true is that the exchangeof the foreign market over the last six months suggests that the probability has had a dampening effect on the Exchange Rate. And there are a range of things that might affect it in that event. Some of them are more enduring than others. The governor referred to the main reason in the opening statement. If there was an enduring affect, it would have an enduring affect on the real Exchange Rate. Similarly, if there were restrictions on the degree of openness or a less open economy, perhaps including changes in it would have a permanent effect or a more injuring one. And in the short run, you might expect the Exchange Rate to overshoot slightly. That effect does dissipate over time. So there are potential factors. We have not put numbers on anything. It will be difficult on the Exchange Rate to say anything at all. But if you look at the average , threet would sterling Percentage Points in one direction or the other, we would be talking about larger numbers than that but we will not put numbers. You have talked today about this tradeoff the mpc will face between stabilizing prices and the hit to output and employment. Could you elaborate on the potential policy tools that it could respond with and how the mpc sees the associated tradeoffs . With a favor the credit using measures rather than introducing Monetary Policy . Mark carney the first thing i say is it depends on the way the tradeoff falls. Both of your examples went in one direction. That is the point. It is not an automatic response. The direction will depend on the balance of these forces. That is the big message. That i would take from this. Lowssecond point, which fol from the first is that we are in a conventional Monetary Policy space. If we needed to tighten policy, it is a conventional instrument. If we needed to loosen, we could Lower Bank Rates before we have to use more unconventional measures. And the last thing to reemphasize is that we have a range of options on the unconventional side from quantitative easing to credit using that would be available if people are interested. If people are interested in the liquidity on the other side, it would be useful to have th talk about that. I will wait for a question. The chancellor put out a statement this morning saying that the banks views on this suggest that brexit would create a lose lose situation. Either way, we would be poorer. There are not many people who would listen to that and think it is a good idea. Is he putting undue words in your mouth . Mark carney well, the chancellor is responsible for his words. Theanalysis only relates to stance in Monetary Policy. Financial, we deliver statements. And to do so in a way that takes in employment and output. So, the judgment about longerterm economic implications or other issues related to this boat are for others to make. We are only focused on the monetary stability at the mpc. What is relevant over the next 23 years. Can i ask you about another risk you mentioned in the Inflation Report . Couldbed by how brexit relate to major financing difficulties. What is the risk of a sudden stop that a lot of people seem to be worried about in how policy would respond . Thank you. Mark carney speaking from the perspective of the mpc, the judgment is that the reason why the fpc judges that the risk around the referendum is the biggest domestic risk is because of the potential to amplify preexisting risks. One of which is what you are asking about. The current account. And the the potential to amplify preexisting risks. One of which is what you are asking about. The current account. And the issue is that the structure of the current account , as you know, is very large by historical and international standards. If we are going to have a large current account deficit, this is the one type you want to have. Our reliabilities are in sterling and it is not accompanied by rapid private sector borrowing. That it is susceptible through Foreign Direct Investments. And it would appear that one of the considerations behind that Foreign Direct Investment is the u. K. Status with the rest of europe. So replacing, at least for an it is time, that suddento result in not a stop but higher fina costs, the consequences of that will come in, people will make decisions around that. Functioning,arket because you referenced market functioning, i just wonder, and i asked to see a word on this is not news, but i think it is in to understand that what we are doing as the as the bank as a whole is to use everything we can to mitigate these factors in and around the referendum, regardless of outcome, stay where we were, if we could. On the sterling side, we have announced we will do three additional auctions in june before the referendum and one after to make sure the liquidity is available. We have a well developed framework to provide liquidity to those that needed. The first line of defense is the firms on management and prudential that credential regulatory firms are well prepared and have plans in place around the referendum. That, many u. K. Banks, the larger ones have access to foreign currency through other central banks, the ecb, the fed, and we ourselves have lines with the g seven as well as the Swiss Central Bank to provide foreign currency should we need it. You focused a lot in this report about the potential domestic impact of brexit. Could i ask your for the international context, because in the report, you talk about some improvement in the international context, china, no hard landing, the commodity market stopping to turn a little higher. America doing ok. In this debate, we have seen president obama arrived and written to push the okie the u. K. To the back of the queue over a trade deal and we have heard noises from brussels that perhaps they would be financial consequences, a levy placed on the u. K. Should it exit in the same way that some other states have partnership arranges for trade which they paid for. Discusssk you, did you what the implications of those threats might be on the economy as a result of the external international pressures, rather than the domestic ones and if you did have the conversations, what kind of conclusions were drawn . The first thing to say, to overall context is that if we had detailed discussions about such issues, it would show up in and second, to reemphasize that our forecast, which as you know is conditioned on remaining government policy, the risk scenario is there, but the forecast has a threeyear horizon and these types of issues start to become relevant upon exit. Much oftion is, how anticipation of these changes, however they pan out, how much anticipation of those changes starts to affect the path, not just of demand but of supplying the economy. That is part of what plays into this risk scenario, the difficult tradeoff. I would say to points on the international dimension, i have talked less about the international aspect, but just observed that as we do in the report, there is a possibility of a negative spillover to Global Financial conditions because of uncertainty generated in this country. , that is a possibility. That should not be a surprise in this country, that is a possibility. That should not be a surprise to anyone in this room. The number one issue that is raised with me, every single the head of a Major Corporation international, head of a bank, head of an asset manager, and i would say most domestic small mediumsized it is an area of focus and a reasonable assumption that the uncertainty around this can have spillovers internationally. We would expect that in the event of in our core forecast, this does not have an impact, because uncertainty dissipates and the result is the result and our forecast for the Global Economy is the components of change alluded to in some of your question. It is pretty much the same forecast we had in february and awould characterize it as Downside Risk internationally in the short term has gone down, but a are unchanged over the forecast horizon. You said that Monetary Policy would not be in not be able to immediately offset the impact. Saying that the bank would effectively be powerless to prevent a recession from happening . That statement is a general statement and Monetary Policy operates with delay, long and variable lag, as you know. If there is a sharp adjustment, inand, inactivity activity, it will take some time for stimulus to course through the economy and cushion that fall. Back tostage, i loop the judgment of the committee in discussing the risk scenario. Effects, multiple potential effects on demand, supply and the Exchange Rate and from our sole focus, of bringing inflation back sustainably to , thet over a horizon direction of Monetary Policy is not automatic. You said earlier that we you report that your report is based a lot of brexit campaigners say this is more project fear, not just because the chancellor was able to conclude the bank would be forced into a lose lose policy decisionmaking situation, but also because it detail about any upside to the boost in trade caused by the pound and any sliding a regulation. Done to ensurenk that you dont get caught out, who thinky by people you are just on the side of the chancellor . The chancellor answers for himself, so having seen the. Omments you are referencing returnfully aware of the to exports and the impact on net exports of a persistent move in i think wee rate might have a little better if thattion of the move Exchange Rate move is associated with a supply shock, a negative supply shock and i refer back to the february report when we went through this and we summarized extensive analysis, but we have done a lot of work as a committee and as an institution on Exchange Rate passthrough that has learned from the experience of the put prices. Period. E post crisis in eight years, you will get all of this under the new bank of england which is transcript of these discussions and all relevant analysis will come up. This is the independent mpc looking at issues and fulfillment of its raiment. What is important about this is that this is a possibility, and in the event that is the decision of the british people that there is an understanding of what the Economic Issues that face the bank of england and the stance of Monetary Policy might be. It is far better to outline those in advance then to pop up and addressed them in realtime. We have a responsibility, if we have the analysis, if it has mdc,a preoccupation of the , the biggest risk of the forecast to talk about it, and that is what we have done. You have said that the Monetary Policy response to a leave book could go either way. It is possible that enters in the economy would go up, even if Monetary Policy was relaxed because of a rise in bank costs. Do you think the thing you could about, the thing you prevent that all was that t be part of the new era or was that will that just be part of the new era . It is possible that bank funding costs and a broader range of corporate borrowing spreads, whether in Capital Markets or through banks should increase because of uncertainty. Also because of financial flows. The judgment we would take into account is the mpc. It would be how long is that likely to percent persist. We need to adjust overall financial conditions by changing bank rate . Your question on the validity is that because it is one of the things that we can do and what is ensure that the one thing that does not happen is there is a temporary dislocation of markets or a shortage of liquidity for banks that have lots of collateral but other factors that mean bank funding. Osts go up unnecessarily the types of facilities we cannnounced has these flex up very rapidly. Standard collateral that is repositioned with the bank of england, already. View, at some point in the distant future, when we get out of this extraordinary time where rates are as low as they have ever been and liquidity is ample in the system, these types of facilities will become their use will become much more frequent because there will be temporarily temporary dislocations. The short answer is that is one of the things that we are looking to mitigate either scenario so that these costs are not unnecessarily passed on. As you stated, forecasting visibility is poor it to the ongoing uncertainty among the brexit vote. When the things start to crystallize winwood things start to crystallize when would things start to crystallize . Our forecast incorporates some significant uncertainty affects, and we have to make a judgment about how quickly those effects tail off. Experiencelot of with these types of circumstances. The case history in some of the 30 differentgoes examples, globally, so there is a normal time decay to that uncertainty coming off. There is reason to think it would come up or rapidly in this circumstance, but it is a question of how rapidly and what the effects are. There is a box that describes some of the work weve done on this. There are two distinct points to make about the timing. One is relative to the duration of these alternatives that the committee has made a judgment and it would come or i does come away slightly faster because we can see an exact date when that. Ould go away on the other hand, the effect of a given shock is quite quite quite proactive. Affected by the shock, even in the event of a vote. Thee is always uncertainty ,ommittee always has to face but there is that bit more and the effects are coming away a bit longer. Not absolutely straight away. Question on brexit on unemployment. You talk about the risk connection between brexit eroding peoples real incomes. Could you talk about other forces that might affect that . The u. K. Right now has a very flexible labor market. Aboutification, talk materially lower growth and notably higher parts of inflation. Is the word stagflation too strong . Run, one ofof long the great strengths of this economy is the flexibility of the labor market and the flexibility of the economy as a whole. It has had many shocks in the past and will in the future, adjust well to them. We dont have a longerterm of a stay or leave i cannot give you more than a impressionistic answer, so i will skip it. In terms of materially lower or higher, i refer back to my answer to chris, which is that broad, that is the direction we see. There are scenarios around that. The flexibility of the economy will help. The ability what is the best contribution of the mpc specifically in those circumstances, regardless of which scenario . Thes to be clear about tradeoff and the horizon over which we will bring inflation back to target from likely above , and to only do just as much as is necessary in order to do that, no more. That is why it is important not to prewire policy, if you will in those circumstances. We dont know the absolute magnitude of what the shocks would be, and we would have to see them and see the persistence. We do have a judgment and it is the judgment of the independent mpc that growth would be materially lower and inflation would be notably higher and that is a considered judgment. Some of the commercial surveys indicated that there is a certain extent of cost for prices. What if producers raised isis. What extent the reflect that in the black box, forecasting inflation . You are in charge of the black box . I am. [laughter] further out, Monetary Policy is looking at inflation, 18 months to three years ahead. I dont think they are of great. Revalence relevance in terms of the concrete measures the back will be taking to support the economy around the referendum, you touched on is this essentially it in terms of what we will be hearing and is it a concern that the number of mpc meetings is going up down does going down is going down. In terms of measures, never say never, but one of the lessons we learn from this dollars experience was that it was better to announce liquidity facilities earlier to avoid sending a signal. You get a few weeks in advance of an event and you announce it, however harmless and prudent and careful that is, some people will interpret it as a signal of potential stress. By note announcing it months in advance, we link we have avoided that. We have the mechanisms in place, and we have the benefit broadly, my answer is yes. Having the benefit of within the broader bank of england, the supervisory arm of , and the supervisors doing their job which is to go out and ask firms about their contingency plans. We are not directing them, but we are asking them what they are doing in the pra board are informed about those what banks specifically are doing to mitigate any risk that they potentially see and that is the system working as it should and the mpc is in fort about that as needs be. You mentioned that some of the indicators are getting harder to interpret. Are you having to apply more judgment to your models . What is the kind of relationship between what your models are telling you how you are adjusting your own conditioning assumptions . The risk thatsing he might be wrong about the forecast . The first thing is to say that we have to make a judgment is something that is described in the report, there is this big increase in uncertainty in various measures. Some of that has shown up in the pm eyes and some of the covenant indicators, some other hard Economic Data, so we have to make a judgment about how not to double count that. That for aeans period, we are adjusting the relationship, we still check the relationship or the historical relationship between a given indicator, and what it could be telling us about investment or consumption or growth as a whole, but we are overlaying the uncertainty factors in making judgments around it. It just means that in real time, things are less informative and there is to a risk around that. We could be overestimating the effects of uncertainty, and the underlying economy, there or could be slowing of its own accord more than we think, or we could be overplaying it a bit and the office is going to happen and so the question goes back to harrys question which is when we get out from the 23, and it isjune up into subsequent meetings, i did not answer one of the questions, which was about frequency of meetings and just to be clear, he will be meeting every six weeks as opposed to every four weeks. Lets be realistic in terms of the gaps in time. We can meet any time, we could meet tomorrow if we wanted to, and make a decision. We could meet this afternoon if we wanted to war right now. Be e point, that will that is where Central Bank Transparency will end up and after a few of those meetings, no one will show up again. You mentioned about trading relationships and about and a prose a proposed brexit world. And howexpand on that serious a risk or how much of a problem with that group to be in it was a prolonged period of time . It is commonly a knowledge that it is a uncertain time to renegotiate these agreements. Aboutis some uncertainty if it were about to leave, what the relationship with the European Union would be, both for trade and investment. Horizon,onetary policy for most of it, assuming that itotiation begins, assuming begins quickly the next two years, what is relevant is the end and tea around what the actual agreements are, and to businesses invest and people two people spend on the basis of certain assumptions or do they wait . Experience and common sense tell you that people wait a bit. Econometric lay, you can see that people wait and businesses wait, to a degree in anticipation of clarity and that is one of the reasons why growth would be expected to slow. Once the arrangements are in place, it matters, it matters released a it matters or at least a for at least a period of time. There would be some jobs and capital that needs to be reallocated to different sectors. It would have some impact for some time on the productive potential of the economy, that that is, for the purposes that we care about, the you only see the first bits of that in your three of our forecast. Year three of our forecast. We do not make a forecast of that longerterm forecast, once everything is in place, in a post brexit world. Many others are doing analyses and they think they can debate it out. Conductone order to Monetary Policy. We talk and reveal the major risk in order for people to iserstand that a forecast not a guarantee and how we would react if certain major events were to transpire. s or anyone who has not had a question yet and would like to ask one is there anyone who has not had a question yet and would like to ask one . More finale, for one piece. Clarify one thing, he told me that the biggest risk at thexit, but committee, you said it was the biggest the mystic risk. In general, at the tse, you warned about the impact specifically of leaving the single market, but is now the established policy position of the head of vote leave, as that raised further concerns for you about risk, particularly to the Financial Sector . I thought i said domestic risk. The biggest risk to the forecast of the mpc, risk concerning the referendum which includes the fog of uncertainty around current data and the issues that we have been discussing. From the fecs perspective, judgment is that the biggest the mystic risk is around china and the new term as higher. Domestic risk is around china and the new term as higher. A wto type relationship for the Financial Sector. From a Financial Stability perspective, it is not clear to thehat that changes severity of the risk to Financial Stability and would realistically, the level of activity, in Financial Services in this country, but that is a different issue, and i will leave it at that. Thank you very much. This is bloomberg go. Wrapping up the News Conference over on the bank of england, with a packed press gallants gallery, dominated by the elephant in the room, the brexit debate. Lets get you up to speed on where we are for sterling assets, u. K. Financial markets. Euro sterling, the stronger pound down about a third of 1 . Switch up the board quickly, 11t yields rising a touch, straight days, 1. 4 percentage yield on the 10 year, up about a basis point. The headline that a lot of news organizations will run away with, a prospect if there is an exit, u. K. Decides to leave the European Union, the prospect of a technical recession. He will talk about that, next with but now lets cross over to matt miller. Claims, we have the week ended, may 7, 200 94,000 initial jobless claims, that is 24,000 more than the market was looking for. We forecast 270,000. Two weeks agobout to the lowest level in initial jobless claims since 1973. And are now coming back up this is the third week in a row of gains for initial jobless claims, so on the u. S. Labor market, watch that. Read headlines to not stop during the bank of England Press conference, starting off with monsanto. Buyer is said to be exploring a potential bid for this maker and the Chemical Company and the deal would create the largest supplier of seeds in the world. Monsanto shares taking off. Buyer share is coming down bayer shares coming down. Take a look at basf shares. A take down as people think about a possible bidding war. Monsanto put itself on the block according to a previous bloomberg report. Announcing plans for m a and a chemical business and the chemical business, shareholders expecting that to be completed by 2017, no change in honeywell shares. Should near is tapping the former ceo jack posco to leave the company. The oil and gas exporter became the first to export shale gas in the u. S. Amanda we have been talking with the u. S. What we are waiting for was to hear the comments from the governor and the questions that he got and they focused as we expected on the upcoming referendum and what i thought was on the most interesting things was a set are you being joined to the politics and he said it would be political press, we are being as transparent as we can. Suppressing would be political, transparency says we see it as a risk. Jonathan the conversation we had on surveillance was when the Prime Minister as soon as you get that division this is an, goes on twitter and says he agrees. They dont want to politicize it. A delicate moment for the governor, waiting in the something as sensitive as the brexit debate. Amanda interesting that he said that it that they did not consider the brexit in setting the policy but some policymakers have one to see an easing by the bank, so maybe there was some consideration. As a think the scenario of what could happen post brexit, he said you could see a situation where both supply and demand it affected adversely and that could mean stagflation. He said they would then be any position of low growth and recession as a policymaker. Jonathan getting back to the bank of england reaction, bringing in danny blanchflower, and former Monetary Policy Committee Member with the bank of england. Good to see you. You along with 190 economists signing a letter opposing the brexit, reading focusing entirely on the economics we consider that it would be a major mistake for the u. K. To leave the European Union, leaving what entails to giving it longterm cost. I guess it is fair to say, do you agree with the governor . Danny i think if you look at the words that the letter he signed, they said that the analysis appears to be that there are considerable Downside Risks to the u. K. Economy of a brexit boat. That is in economic terms. See, certainly in the short to medium term, a balance of risk to the upside, and enhanced uncertainty is clearly bad and the paragraph you were chatting about, which thatat the mpc thinks demand would likely fall, it would have an impact on the Exchange Rate and would impact the level of demand, impact the level of supply. They would not enumerate exactly how much that would be, but i think they are right and you are correct to say that it treads on political waters. What else should they do . The mpc cannot duck it. They are trying very well to trip along that delicate knife edge. Him for usingzed words rather than numbers, but the numbers are pretty obvious and he ended up admitting that brexit would probably trigger a recession. That is why i signed up letter and i think this is going to have an impact on the debate, because voters should note that economist think this will be in economics. Thats are going to say this is a political intervention, but what else to the mpc do . Amanda always frightening when all the economist agree, but we do not have full agreement, for the voters, some clearly think the dire warnings are being overdone, and that a brexit is not the doom and gloom that we are seeing from the mpc. What does this leave voters pondering about what all this means . Danny there will always be dissenters on one side or the other. Credibilityhas no about warning about shocks as he did not spot the great recession, so we can sort of discount what he has to say. I think the evidence on the neck is that this these are Downside Risks. How big question is, are they and i think that is with the fec is worried about. What they did in the remaining forecast as they said the economist or slowing, we dont know how much of that is due to uncertainty about practice brexit. Maybe, things are much worse than we, so the forecast on remain is overly optimistic and the brexit would probably be absolutely awful, serving the evidence is strongly in that direction. What are the positive economic benefit benefits . Enhanced uncertainty to who knows where. Jonathan there are some people did ine, but before we that debate, i want to gauge from you, considering that the data has stopped and regardless of whether there was a vote on june 23 or not, you previously pushed to say that the bank of england should be pushing to cut rates at the moment. Is that still your view . It is my view danny it is my view and there was a 40 chance there will be a cut and 0 chance of the next move being a rate rise. I could have been persuaded by my colleagues that it would be seen as overly political and probably should wait and see what the decision or what the vote actually is. Imagine if they voted for a cut, today. That would certainly be focused mpcy the politicians as the becoming overly political, but the answer is that if we see a brexit wrote, they will have to start cutting like mad. Even in the remain vote, we may see that, because the economy is clearly slowing and the data by the middle of june may have gotten a lot worse in the pm eyes are now in a territory that traditionally the mpc would be cutting, so the question is, is the vote to remain does that uncertainty go away and then suddenly the good times roll, i dont think so. We are just putting on putting off the evil out. It diplomatic danny blanchette, we respect you and we thank you for your time. Amanda another big dramatic story we are watching in brazil, after months of Political Uncertainty, the senate did vote to suspend the president from office. What is happening now, what is next . I am in the president ial palace and we are waiting for the official word from the senator who will arrive here and will deliver the official paper. She will walk out the front door of the president ial palace to supporters who are waiting for her. That seems senator will deliver president rrent vice and future acting president at his official residence. Amanda this will be a dramatic moment, is there expected to be any allout as the president leaves from her supporters or is there any kind of concern about what happens next . There were fears of general strikes. I dont think they will be as severe as some feared. There are thousands of supporters. The street is largely empty. I think it will be a disappointing morning after a very disappointing evening. Amanda we appreciate your thoughts and insight. Real isilian strengthening against the dollar on the heels of the key vote. The impact, there is a buttterm impact, already, brazil is a bit of a mess, economically. A cell this has sort of the news all over, we have audit had roll up of buildup to this end in a way, you can almost go to election where you on the expectation she was going to lose and it was this big event, so we sort of had this is really of waiting to leave and now that she finally is, you wonder whether this things really do appreciate a lot more, whether in the stock market or in the currency. There is a lot of deep, structural issues where you put the best leadership in the world and it is not clear what the leadership is, a lot of questions as your colleague was just pointing out. The best leadership in the world is not going to immediately make this the most fantastic economy overnight. They will take several months and quarters. There will be a sort of show me markets by the capital to see sustained strength. A few you had come in and had a decision to make now and you were lucky enough to participate in that massive runup. You would be selling, today . Michael i was certainly be trimming. Run, butd a fantastic so have a lot of things across emerging markets. One way to consider it is maybe stocks are more obvious beneficiaries of this event, and so if you are going to pair trade, you could sell ew z against it or something. They broader implications are still going to unfold over a long time. Next up, crude oil in rally mode. Good 50 a barrel be around the corner could 50 a barrel be around the corner . Accommodation versus declining corporate earnings. We have our forecast as we head to the break. Amanda this is bloomberg go. Coming up from the conference in las vegas, conocos founder and president that is at 12 30 p. M. Eastern. The s p 500 shove suffering its sharpest decline after disappointing results from macys to walt disney. Looking at the s p 500, up about a 10th of 1 over the last month after a big rally off the lows in february and here we are, having it is russian about where to go, next having a discussion about where to go, next. I wonder what a catalyst is to really take equities out of the range a have been, now. Michael the market has been sort of gyrating around the center of gravity, which is resistance, now support, and i think you are right, this sideways consolidation trend doesnt seem to have an obvious nearterm catalyst. Do we go to new highs or rollback over . It is a tugofwar. We have a love very important constructive macro conditions. We have the fed with their new soft dollar narrative that i think is incredibly important. Rates, loww Interest Rate hike expectations, that could change, but i do not think it will, any times. In on the other hand, earnings projections are extraordinarily weak. 2016 estimates, they have come down and down, they started off 1. 17. Hey are now at they are all trending down, so the micros are week, the macros are can active. Im tempted to think that in the near term, the market is going to go anywhere, to the downside. By the end of the quarter, we could be well into up noticeably. That is the pain trade. So much of the positioning and the sentiment is bearish. There is no optimist. A little bit of good news could go a long way. Amanda one reason for the bearishness is that we are long in the tooth on this cycle and cycles rollover. At some point, there will be another recession in america. Where do you think we are . Michael what has happened is the Economic Cycle has stretched distorted by an lot of the Monetary Policy. Out of thet that v recession in 2009 and we sort of stretched this growth over a smaller period of time. Theou step back and look at very consistent jobs gained here in this country, some pickup inflation, model to nominal gdp, certainly more than last year, and that should be enough to put in 4 or 5 Earnings Growth which is still lower than that 117 consensus bottomup estimate. The directory is not great, but the ability to put in what is needed to keep the market basically in a city grind higher, is intact. Jonathan thank you very much for joining us. Amanda coming up, oil is surging to a month high six month high. Amanda welcome back to bloomberg go and we are watching oil climbed for a Third Straight day as reduced production from the u. S. Thanks to those wildfires and trouble in the nigerian delta allwheel apply one of the most influential voices in the recesses prices will go even higher for that reason by the end of the year. Here is chairman and ceo of bp capital. You are now down on drilling rates. They are down from 1609, high watermark, november or team. Today, they are 342. I can tell you, you pull 1300 rigs out of the drilling, and you are going to shale wells decline rapidly. They declined 40 in one year. That is the legendary tboned Pickens T Boone Pickens talking to us. Isnt the shut in production the curve you that it will go higher . What weve seen in nigeria is an additional 400,000 barrels a day. A wildfire zynga and the wildfires in canada are going to be a big issue for the next week. They will not just start up, immediately. The other thing is that we raised our demand forecast so we see as they highlighted this morning in the First Quarter, demand on the year on year basis was 1. 4 Million Barrels a day. We have a little bit less of that for the year, but clearly the balance is tightening. However, we expect there will be a downturn in the third quarter, and we think that happens because you still have a lot of ofde inventories, and lot product inventory and that will lead to refineries having to cut their run. Jonathan my Biggest Issue with the commentary is you pick a narrative around the move on any given day and ive never the morning after the saudis major big changes, crude was up, we talked about canada, it was down, which talked about the saudis. Can you strip out that noise and tell me what is driving the oil market in the here and now instead of the narrative shifting around the price action . Michael this is something we highlighted in our most recent lease, you have two narratives. The balances are tightening, that is indisputable and you can say that we are going to have demand in excess of supply, the second narrative is, we have to contend with the amount of excess positioning that may be happening because of risk on or risk off sentiment. We have to contend with a very high level of inventory and as we move into each and every shoulder season for demand, the market is going to get concerned about that. When then narrative shifts, that is usually driven by a macro sentiment shift or a oil market specific shift. Amanda i want to bring in matt miller because you have a chart. Matt from the u. S. Side, the supply side is coming down. You can see the rig count, i dont know how important that is because of where else we are getting oil. You can see that supply has come down in terms of u. S. Production. Inventories are still high, but the you see this trend continuing . 16, lower4 15 the q4 48 onshore production will be thousandhere from 600 600,000 to 700,000 barrels a day. Very much a function of how much money they have, and they are going to be constrained as the year goes on, and that means that declines will set in in a bigger way. Amanda the wealth car here is open the wildcard here is opec. Michael i think opec is seeing its hands cut more and more as time goes on. I dont think they will be able have as biga an influence as they have had before. Jonathan in the next hour, that his forecast and a look ahead to the market. We count you down to the market open, next. Jonathan Brazil Senate votes to suspend the president. A new government set to take command of latin americas largest economy. Amanda embrace it scenario could possibly lead to her recession. Jonathan a possible bid for monsanto. Germanys bayer could create a botanical giant. Amanda 30 minutes away from the opening bell in new york, this is bloomberg go. What a day it has been. It is hard to pick any of these stories. Between brazil and the bank of england and couple of big mergers in the work. Jonathan london and brasilia very much in focus. Futures firmer, dow futures up 68 points, over in europe, going into the close with a day of gains, potentially. Board, stronger pound story on the back of the decision and the outlook for the u. K. Economy for the bank of england market very much in focus, this week. So much supply and a lot of demand. 10 year yield is creeping a little bit higher, by two basis points. Lets get to matt miller for some of the stocks to watch. Matt the most exciting stock that you could watch is going to be monsanto. I have pulled up the premarket trade on my terminal, now up about 12. 5 . It had been up 17 , obviously the Bloomberg News story that bayer may be interested has boosted shares. Basf mayeported that be interested, so possibly a bidding war. A lot of m a in chemicals. We learning more about this, 1. 3 billion in shift in sale. Littleappear to be changed or they have not traded since last night. Checkre energy has tapped posco as its next chief executive starting immediately, he will replace the interim shave in terms she. The Company Became the first to export u. S. Shale gas. They also have not traded since yesterday. Networks of White Network provider info block the investor was said to approach is bringingck and in outside advisors. This company is trading and rising quickly in the free market in the premarket. Jonathan time to get to the stories that matter. Ferro, great diego to have the great to have you with us. Talking about a potential bid for monsanto. And of course a brexit warning from the mpc. Deal, the bayer essentially buying competitor monsanto, putting together two of the Biggest Companies in the world that provide seeds and farm chemicals. Bayer shares falling in frankfurt, the cento shares rising in the premarket. There have been talks there could be another player in the next but it want to bring you in and ask, we were talking about this the last couple of days. Last year was the year of megamergers. Last year is no longer a record year because so many of them have fallen apart. A lot of them for regulatory reasons. When you see a matchup like this, i wonder if this will be a partnership that is doomed to fail. Line area ofthe expertise but you see a lot of awareness heightened in these deals and rejections. It is interesting when you see so much money deployed to these types of transactions before really doing in terms of what is likely to happen. I think in a way we are seeing is cheap money than anything else and how ultimately, to create Revenue Growth, forces merger to look for costcutting measures and funding all these deals. Jonathan the underlying story for this transaction is food security. A lot of people asking questions, you speak to the emerging markets very well. Food security becoming a bigger issue, globally can you speak to that in some way . Diego we might be seeing a bottoming out of sub, of some Commodity Prices. 2014ighest levels were in and since then, we have seen pressure on commodities. We have seen a rebound in oil and we will see more of the rebound, articulately when a percentage of the global recession that has already diminished, i think it is confirmed that the world is not in bad shape and some commodities should react as such. It is possibly one of the worst strategic regions for acquisition, what does it say about the opportunities for investors . As of reason businesses are considering putting themselves together . Diego we live in a world that maybe is struggling to regain its footing. What we saw the beginning of the year was i think itt would be a mistake, so we are seeing those types of reasons to mergers, we see reasons to do mergers, but it is mostly to arbitrage some sort of existing condition. One,a second story, a big results Senate Voting to suspend the president office. That will assure in a new interim government after months of political turmoil and the recession wracked country. The Vice President is excited to announce the ministers at four clock local time. Im curious to know whether this changes the story for you or your investments are designed to be insulated from the Political Uncertainty because it continues even with this step. Diego it is good that this happens because there was uncertainty for the markets, but i would say that this was highly it in prices predicted in prices. The inability of the government to react to that, because of lack of political power, the new administration is likely to have political power to confront that crisis. Ofhink that the good news the president being removed was already priced in. Now it will depend on the new cabinet and the measures to continue the rally of resilient assets. Jonathan just to get a snapshot of whats really happening in brazilian in brazil, lets go to matt miller. Diego already knows everything about brazil, but other people, when you look at your bloomberg, that shows you great snapshots of the country. See so much information about the brazilian economy. I am only clicked into one tab, but you can see a financial snapshot, risk. Profile gdp obviously very deep in the red 2015 as far as contraction, its forecast for another huge contraction in 2000 seen and inflation, if i switch over to my chart, you can see here, it is on the rise. How do you see this turning out . Is it possible that any new government can take this country, let alone doing it in 180 days . Be a it is not going to matter 180 days, but paralysis is a big reason why the situation has gotten worse and at some point, they had a 7 approval ratio. You would see it as another form of democracy, the government to be falling and being replaced. You can argue that the reason she is being impeached is technically valid, but not that compelling. The reasoning is that the government has spent all the political goodwill that it had because of corruption, so can the new government improve things . Absolutely because of the most important things that happened in brazil because the massive devaluation that it suffered and that improve the current current Economic Situation that it had. Part of the inflation you are seeing is linked to that appreciation of the dollar versus the real, but it has reverted quite a lot in anticipation of this change and if they confirm mentioned 180 days, because that is the maximum length of a trial allowed. By law diego it is true, but one thing that is worth mentioning is that the number of people that approve the impeachment yesterday with a number of senators was 55, that is more than the two thirds required for her to be removed from office, so it is unlikely that she can survive this. Jonathan lets go to london, the bank of england cutting its growth forecast and its strongest warning yet about the risk of a brexit. The governor saying a brexit scenario could lead to a recession. Technical recession, because it may not be a disastrous recession, just a technical downturn. What struck me about this debate is how aware Global Investors are to this situation and it really struck me because operation fear seems to take in a grip over somebody people. Are you worried about the prospect of this happening and what it aims for you . We have some investments in europe and we havent paying a lot of attention to these and i think that we have been pleasantly surprised about how over being managed because time to create panic or concern about the situation, i think overwhelming sense that is under control and that the vote will be against brexit. It is a very tricky situation because the easiest way to say it is a disaster is to just stay, but obviously there is a risk that if it happens, you dont want to be vulnerable to a major problem. The only thing that will be hugely negative if brexit happens, no, but do we think it is better if it does not happen and we dont. Tickets going to happen amanda from a investor standpoint, the real fear is capital outflows. The city of london will become a ghost town. For me, every time we talk about leaving from a place, it means they have to go somewhere else and the question is, london might not be so attractive in the case of a brexit, but are there other many people who will be more attractive . Value ofclearly a london being a Financial Center as part of europe, but it cannot remain a Financial Center if separated from europe. Amanda thank you, so much. A bit of the stories that matter to markets right now. Now, we go over to first word news with taylor riggs. Taylor we are sticking with politics. Wall street is betting on a democratic president of candidate. Bloomberg crunched the numbers in the First Quarter, Hillary Clinton received almost . 70 of every dollar spent on the potential race by employees of the six largest u. S. Banks. A big turnaround in early part of the campaign, it was jeb bush and his allies they got the biggest share of wall street money. Donald trump is considering former House Speaker Newt Gingrich as his running partner. The likely nominee has been asking confidence to get an input for Newt Gingrich. A new report says the u. S. Medicare program sent out what it 125 billion dollars in improper payments over three years. And Inspector General reports that the payments has to do with a the plan that ensured Hospital Medical services for seniors. Government watchdogs have urged a crackdown in waste and fraud in medicare and other health programs. Global news 24 hours a day. Much more ahead on bloomberg go. Retailers leading yesterdays selloff. Nordstrom reports out, today. Tomorrow, a significant data point, u. S. Retail sales and earnings from jcpenney. Amanda you are looking at new york city. We are about 14 minutes away from the opening bell. This is bloomberg go. We have been watching a number of stories unfold. Brazilian assets have had a record year with the highest returns worldwide. The story is the impeachment of recess of the president. South america is your space, it is what you look at, so diego it is our largest area of focus. Amanda where does brazil fit in . Diego there is no doubt that is ill has been an area of focus, but particularly because it has been so battered as an asset. We can to be contrary and we look at the high stress and yield and we went into brazil thinking it was perfect and then realized that it was not. As a lot of people went in, too many people went out. We see the reaction of prices this year, is partly of a reaction of soul conditions before that. Think brazil is getting to a level language from now on, you will have two pick your assets the right way. I think brazil is going to continue struggling, but with a positive outlook. Diego the reason jonathan the reason i love Financial Markets is you take a single security and intel is story. The rush of money into a place like brazil is the petrobras century bomb. I can bring it up on the bloomberg terminal, there is my bloomberg right now and that right there is the petrobras century bond, a bond that went to market and at one point had a yield above 8 , and the crisis hits, everyone gets concerned and attitudes of two over 11. 5 . Diego ferro simpson says im going to have some of that. Reapplying it just to say the volume is going to appreciate . Unlike s not it is capital gains, and you see a situation in which the market has gotten ahead of itself, and do we expect we will not be around to wait for the material of that bond, but do we ask that to rethink that it is any serious risk of the term . Do we understand the concerns, yes. Wouldan the question i ask you then, the money that is rushing into brazil, when you want to get out because it is time to get out, how easy was it to get out . Diego very easy because at the you trade to get in when everyone is trying to get out and you trade to get out and everyone is rushing in, so there was way more liquidity at 11. 5 11. 5 . Amanda great to have you here. Next, we are talking retailers. This at trey radel a bad patch 10 minutes away from the open, we break it down for you. Amanda good morning, we are heading to the opening bell, lots for the markets to chew on on all sides of the world. You can see the dow futures are still pointing higher, s p and nasdaq all looking forward to an opening where they are mulling over some retail earnings. Alerts on retail sales, tomorrow in big numbers this week, but we have a bit of merger activity going on next a monsanto and we will see whether that keeps things moving. The Retail Investor wondering about the so far what we have seen is a rather grim forecast. We have seen week topline growth, retailers delivering an outlook for the rest of the year that is very disappointing. Macys was the culprit, yesterday well ralph lauren is trading higher, reporting betterthanexpected. Joining us now, retail reporter lindsay rupp. And i reading too much into it . That was a surprisingly great number. It is hard to say what this means for other retailers who are going to be reporting. Kohls has a really disappointing numbers and they said people just arent buying apparel. Ralph lauren sales in kohls and they sell in macys, but they also have high business, so we might see this high low bifurcation again. Amanda we have seen, we look back at the retail sales number, it has been dismal and has not shown up at all. Is that what we are seeing in this quarter and maybe as we move into spring, or some reason the weather has such a strange effect on peoples Shopping Habits . Nobody wants to buy shorts right now, but people have said, we saw great sales in february and everything fell off a cliff in march and april was not any better. It is hard to say what the rest of the year is going to look like. Macys says they dont expect the consumer to spend more, this year. More,ave seen them save saving money on gas, but they are just not buying clothes. Jonathan last year, it was go short energy and u. S. Retail sales was not good for holding last year, the reminded order. What will turn that around . Because everyone is saying all the elements are there for the consumer to be spending and retailers to be doing great and no one is doing well. People are saying there is just not exciting fashion, there is no great trend. Homes do really well, so maybe it is fashion, but we would expect people to be buying more. Amanda i feel like jon ferro is doing his part. Jonathan im trying. Thank you very much. Lets head over to matt miller. If you are watching retail, you will see kohls missed firstquarter earnings. Had anthebox disappointing firstquarter sales beat on First Quarter sales and earnings subject jackinthebox is up 10. 5 and finally, lets take a look at sun edison. The fx on the Solar Industry still being felt. See those shares . No, all right. I can pull them up right here. Trading, while that is yesterday. Now, down about 2. 5 but the graphic is not look as cool. Amanda they are making you work , did you make hillary mad . Matt i dont think so. Jonathan thank you very much. The opening bell is up next, futures firming up going into the open. Dow futures of 65 points, s p 500 futures positive 11 and nasdaq futures of about a half of 1 up about half of 1 . Matt [ soft music ] e. T. Phone home. When you find something you love, you can never get enough of it. Change the way you experience tv with xfinity x1. Jon this is bloomberg. Moments away from the opening bell. Equities, futures in new york city, futures are positive. Europe, as we hear the opening bell in new york, stocks are clinging onto gains. The footsie is up just six points. The pound is starting to build some momentum in the last 30 minutes. On thelar is marginally back foot the euro is on the down foot to the dollar. The 30 year is in focus with more supply in the market, 15 billion worth of 30 year bonds in the u. S. Coming up in a couple of hours. Let get your market open. Matt we are looking at gains on the major indexes after losses yesterday. The biggest loss for the down a couple of months but it is up 24 points but not a lot of movement. You can see almost every Industry Group is up. The only losses are on utilities and a little sliver of the i. T. Pie and every thing else is a gainer. Are up isil stocks oil is moving up through 47 per barrel which is the highest since november 4 of last year. Axon and chevron are all gaining billion may bid for 40 monsanto. It may be a target for basf as well. Is down is up and basf in frankfurt. In 2017, there is more m a. Concerns in england, the bank of england cut its annual growth for cost forecast for 2 . Great to have you with us. I want to start with what you took away from the governors essential description of what could happen with a possible bricks it brexit. Was that the right approach . I think he is caught between a rock and a hard place. You have to have an opinion of how you manage things if one thing or another happens. It would be bad in economic would leave isk. What the bank of england thinks and they are not on the fence. Campaign isk the telling people to stay in but he is campaigning to say that they will have a significant drag on the economy if we leave. There was an undertone of uncertainty about what bepens next which may last on the decision is. Maybe i was hearing too much. Markets have ignored it all pretty convincingly. Mr. Carney is not on the fence on this one. Jon with cable where it sat and the Downside Risk and everyone has been looking at this, on a balance of risk, the right trade right now is to go along stirling. Is that how you see things . In the last four weeks, all the people who were short have been squeezed out. Even if the opinion polls are results donting tell is the outcome, the big decider is who turns up to vote. That is difficult. Anybody who would place a bet at this moment would place it on the likelihood of staying in. Thats the more likely outcome. Sterling has fallen from 170 to 139 and is back at 145. The market got very short and maybe this afternoon will tell us there are still short positions in sterling eating taken on. I dont know how many people are loading up with bullish positions this early in the game. We have had a series of the list positions on the u. S. Dollar bullish positions on the u. S. Dollar. Does the concern about brexit make it more of an attraction to investors looking to partner cash . Yes, to u. K. Investors, there is an attraction to looking overseas in terms of the dollar. The dollar question is what the fed will do. Yields on protected securities do. When you get 10 basis points and real term on inflation protected securities in the states, that is discouraging people from buying the dollar even if they are sitting in the u. K. Thinking they dont like the pound or they dont like a euro. No surprise there that the only is that the dollar is not able to weaken significantly in the only currencies that two were so the ones where they have problems even bigger than you have on your side or hours. You check your emails in the morning and around 830 a. M. London time, the sentiment of the market is wrapped up in a couple of lines. Ofdilocks and the temple doom, what do you mean by that . How does it wrap up them Market Sentiment . The bearish case for the dollar and the british case for is that the u. S. Economy is not growing fast enough to get the fed to raise rates in june or anytime later this year. To pusht weak enough the Global Economy into a significant banter. Its enough i can look for yield in brazil because as chief and i can look for yield in india or elsewhere in highyielding markets. Its enough that i can buy ratioss because the p e dont scare me because they are making money. Its not so strong that the fed puts us back into the fear of our lives. The gap between growth that is too weak and growth that is too strong is getting smaller. The image in my mind was goldilocks, not too hot, not too cold walking along a rope bridge in an Indiana Jones movie over a ravine over crocodiles but so far so good. As long as none of the data surprises us by being too strong or two week, they will come out all right. Interestinger has data around this including the uncertainty of where the u. K. Voter is going. Matt its not that uncertain as far as how many people support leaving. Ormatter how many economists central bankers or politicians say it would be a harmful idea, you still have the vote split down the middle. You can see we have not there that much off of that factor. You look at the u. K. Situation economically, tmi is going below 50 or the city index, it does not look good no matter what the decision. American revolution, crisis inugh of a america but we do not regret the decision. Absent revolution, the u. K. Economy has data points that show it is weak. You can make the case for rate cut even absent the potential brexit. Is that something that should have been considered more fully . The u. K. Economy is slowing now. The worst thing that happened in terms of growth is the uncertainty around the vote. The u. K. Economy was slowing already and now its slowing more because of the uncertainty and that will be with us for a while longer. I cannot imagine when the rate hike that comes up if we stay in , when we actually get a higher rate. To that extent, to the extent that i still think the fed will eventually raise rates, i think the pound will trade lower against the dollar in due course. We will be in the 1. 30s later this year. It is the positioning we are trying to manage. The economy is slow. After the vote, you can give an answer to people that says when we have this vote, you may be happy if we leave it may be the right thing but dont do it because the economy will benefit but do it for other reasons. The economy is slowing already and would not be helped by two years more of uncertainty. Thank you so much. The americans do not regret the revolution but would the civil war have been as bad if we remained a dominion of england . I made a decision not to engage because you only want to get me in trouble. Is exploring a deal for monsanto. Monsanto stock is up i almost 10 and we will get more next. Later today, founder jim chenos will be with us live from the salt conference in las vegas at 3 00 p. M. Eastern. His is bloomberg there was a larger than expected jump in first Time Applications for jobless benefits which were 294,000 last week which is the highest in more than one year. The increased signals of the modest recovery have adjusted had counts after a slowdown in demand. Walmart is taking another step in an effort to keep up with amazon. It is testing a twoday shipping subscription service. Members pay 49 per year for the offert program and they twoday shipping for 99 dollars which includes access to streaming video on amazon. A federal court has denied an emergency motion that Don Blankenship remain free while appealing his conviction. The ruling was the same day he is set to begin a sentence and was fined 250,000 in connection with an explosion six years ago at the mine in West Virginia that killed 29 people. That is the Bloomberg Business flash. we are 13 minutes into the session and stocks are opening up marginally higher. I dont want to overkill on monsanto but its a massive one because it could turn into a bidding war. The buyer may make a bid for monsanto at 40 billion. At the chart for chemicals, it goes up and to the right. You can see monsanto. Game righting at it now of just about 10 . Its not a bad day if you were invested there and i could continue if basf comes in. Chenere is a 6 gain. Company sol run that you can see it pop 6 in the market this morning. Mayork supplier info block be in sight of private equity firm. They are approaching the inflow block they are bringing in outside advisors. Yesterdays retail weakness will be a big story in todays market because it carries through. Kkohls missed the streets lowest estimates. Comparable store sales fell 4 versus expectations for a small ride. Ralph lauren is going against the grain with shares rising after fourthquarter earnings and sales beat estimates. Ralph lauren also reported a drop in samestore sales of 6 but is not far off from the estimate. The company added another 2 million to its 100 million buyback and that has to fives shareholders. The retail story will be one that we will follow today. We will go to the nasdaq were Abigail Doolittle is live looking at two stocks rising in early trading. Yes, jackinthebox shares are soaring after a beat fiscal secondquarter estimates across the board earning 23 . Management reaffirmed the fullyear view. They say it was better than feared while another analyst says the results prove fears were overdone. The stock could pop higher on the year. Anothers doctrine higher and hitting a record high is web md after suntrust upgraded them to a buy. The bio firm industry is likely to provide a tailwind for the company to drive doubledigit Revenue Growth over the next 35 years in the price target was to 75 per share suggesting that longterm selling pressure could be overcome for good. Jon thank you. A German Company is entertaining a bid for monsanto. If it goes through, it would create the World Largest supplier of agriculture chemicals. For anyone that is not followed this, we have a situation where aonsanto went after cingent chem china came in and we have the prospect of this. How does this happen . Both times it looked like it was getting close and they were offering the price and cingenta said they dont want to do the deal. Chem china and the stock has come down. They could not enter a bidding war so they were left out. They have come out more recently and said we dont need to do any big deals. It sounds like via is taking a look at them. They said this would be the right time to do it so they are studying whether it makes sense to go after them. They have figured out whats possible. The big question is what monsanto things. Any indication as to if they are open to a big deal like this . , what they have said publicly they see themselves very much as an acquirer and not a target. There is a substantial premium offer and some kind of consideration, its unlikely they would be rushing to sell themselves. Players,e got for big cingenta become one. If they became three, maybe regulators would not like this. Cingenta deal looks like its fine and the regulators will take a tough look at this space. There is not a huge amount of overlap in terms of what they do. You have the Crop Sciences business in the actual stuff that monsanto does with farmers. They have a lot of other businesses. Raises the issue of whether this is the right way to make a combination. The overlap him a chemical side is only about 20 of bayers business. Bayer wants to expand but there have been conversations as recently as march between monsanto and bayer and even monsanto and basf. About whether or not it makes sense to do a joint venture on the crop science business. Extension butcal raises the question of whether monsanto went to take themselves off the table to be sold. Thisfood security, does become a more National Issue . Anything that happens with these companies particularly monsanto which has a reputation as the worlds most despised company, maybe goldman sachs, anything around them is always going to believe politicized be politicized. The u. S. Government could be seen as taking them out as a u. S. Company so they would not be an issue. Marketsnext, bloomberg and mark barton joins me now. Whats coming up . Bitterrnor carney, carney and bitter brazil and a bit of erik schatzker. Is at the salt conference inlaws vegas. In las vegas. Weve got the chief executive of rubicon fund and banishment and sky bridge capital. One for you and our pursuit segment. There is a big auction taking place at sothebys. William coke is selling half of his wine cellar. Thats 20,000 bottles of wine. It could fetch up to 1015,000,000 dollars. He is selling 10 bottles of chateau Mouton Rothschild 1945 big would go for between 80,000100 20,000. Put your bid in early. Jon i can barely afford house wine. A very tense News Conference for Governor Carney. The highlight is that could push the u. K. Economy into recession. That will be what the papers focus on. George osborne jumps on it and says its evident that brexit will be bad for the economy and they downgraded their gdp forecast for this year and next year and the year after. As you know, they cap the inflation forecast the same. Everything could change if the u. K. Votes to stay in the eu after june 23. It makes the next six or seven weeks very exciting. Good to have you with us. Up next, a look at the agenda later today and tomorrow on retail sales. Thats next on bloomberg. , this is bloomberg almost 25 minutes into the session. 1 3 of the dow is up. Heading to the closing europe and just rolling over and the dax is down by 2 10 of 1 . The euro is a little softer against the dollar, the pound is firmer comic cable is at 145. 21 after a bank of england nondecision. The next move is likely to be a rate hike in the u. K. Not the dovish tone some people expected. The treasury yields are running a little higher. On todays agenda is another big auction, 30 years. We are seeing record amounts and willing buyers. Coming up on the agenda at 11 00 eastern, the Federal Reserve Bank President will speak about Financial Stability in germany and then another retailer, nordstrom will report. Tomorrow, jcpenney earnings before the bell and after payroll next is u. S. Retail sales. Thats at 8 30 a. M. Eastern. Watching the fed, the San Francisco fed president will speak about the economy in sacramento at 4 00 p. M. Eastern. Stay tuned for all that in we have more from the salt conference in last egg is would live interviews. Told david westin is working in las vegas. That does it for bloomberg. That does it for amanda and myself. Bloomberg markets is next. Hiim here to tell homeowners that are sixtytwo and older about a great way to live a better retirement. Its called a reverse mortgage. Call right now to receive your free dvd and booklet with no obligation. It answers questions like. How a reverse mortgage works, how much you qualify for, the ways to receive your money. And more. Plus, when you call now, youll get this magnifier with led light absolutely free when you call the experts at one reverse mortgage today, youll learn the benefits of a governmentinsured reverse mortgage. It will eliminate your monthly mortgage payments and give you taxfree cash from the equity in your home and heres the best part. You still own your home. Take control of your retirement today vonnie from new york, im in for betty liu. Bloomberg markets on bloomberg television. Vonnie we will take you from london to new york to sao paulo. The senate in brazil votes to suspend president Dilma Rousseff who faces an impeachment trial. After months of political is set, a new government to take command of the recession wracked economy. Mark the bank of england cuts its growth forecast and governor mark carney warns about to leave the European Union would hurt the economy possibly causing a recession. Trump meetsld facetoface with House Speaker paul ryan, can they resolve their differences and unite the Republican Party . What does this mean for the november election . First lets go to the markets desk where julie hyman has the latest