Live from bloombergs european headquarters. I am Francine Lacqua good we have a great lacqua. We have a great show lined up for you. The west leader economist joins us on set. That is to name a few of the guests. First of all, lets check your markets, because there is plenty going on good risk aversion swing the markets. Signs that the u. K. Markets are taking a turn. Your stoxx 600 down. The pound dropping. 20en demand we saw that year japanese government bonds, you can see it there on the screen. 0 for theng below first time ever. We also saw 10 year government yields on guilds the first time at a record low. Lets get to bloomberg first word news with their change. Nejra three of the uks largest real estate funds have frozen 9. 1 billion pounds of assets. Investments in Standard Life desha Standard Life investments have halted withdrawals because it did not they do not have enough cash to pay investors. Theresa may has taken a clearly in the race to succeed david cameron. She won the backing of 165 mps. Former defense secretary, liam fox, was eliminated after attracting 16 votes. Stephen crabb chose to drop out of the race. The president of the San Francisco fed said a rate hike to be warranted this year, brexit or no brexit. The decision to leave the eu will not derail the u. S. The new york fed chief William Dudley says he u. K. Decision to leave the eu could escalate into a significant headwind if it triggers wider financial turmoil. Generaleman of societe says a possible systemic crisis he says europe needs it credible backstop for its Banking System. Is to make crisis when there is a risk citations, and the Banking System has problems, the in thismy situation, you need the taxpayer and the Public Sector to step in and to intervene. The quicker the better because you will stop this situation. Nejra german factory orders failed to rise in may as uncertainty over the global outlook. Seasonal swings in inflation were unchanged when they fell 1. 9 . Economists addicted a 1 rise economists predicted a 1 rise. Britain publishes its longawaited reports in the conflict. John chill cooked is announced is due to announce his findings seven years after it was set up. For the role in the u. S. Led invasion at the handling of the subsequent observations subsequent occupation. Hillary clinton will not face charges over the use of private email although the idea did color action the fbi did call the action careless. President obama says he believes in her and she deserves to be in the white house. Global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. I am nejra cehic. This is bloomberg. Francine nejra cehic there. Three of uks largest real estate funds in the wake of the vote to leave the eu. Joining us is neil canavan. Show also look up to the marie owens thomsen. Thank you for joining us. Neil, thank you as well we are talking contagion. Three of the funds had to close because of reduction. Panic spreading among Retail Investors because the reader cross on monday is it will not be sprang to us. Yesterday, maybe well have to look again. 20 liquidity in the fund, it looks like we have been trying to get enough of the energy and energy on it 7 . Owningey were doing is real estate shares. Theirthe brexit vote cut ability rapidly. Francine how ugly can this get . People are afraid because if it go back before 2008, lehmans went down. Neil real estate is a function of the economy. The economy was in a recession, that is not good for values. Foreign investors have been putting out which leaves a smaller amount of buyers for what comes on the market. It is going to have a reader cross and prices. [indiscernible] that is because there is no evidence. You are going to see lower tenant demand as well. Side,n the president ial london is building 50,000 homes at the time. They are targeted at the higher end of the market. Meant as rentals for bankers and those bankers may not be in london anymore. Francine marie, how concerned are you . Something more systemic in the Banking System that we have not foreseen. Marie the real estate sector is the private sector to benefit from the lower pound. Prices were high in london. Now with this correction, it will be in a opportunity for anybody outside of the u. K. To get back into the u. K. Property market. The lower pound is going to put a floor under the evaluation. The funds are a different issue. Streetsvestors in the do not really appreciate that these are liquid assets. It is not a liquid fund. You cannot sell property overnight. I think that is what is sparking the moves that we are seeing. Francine do you worry about liquidity in the markets overall . This is the first time where brexit has put the spotlight on some of these. Marie for sure. In any crisis situation, liquidity tends to disappear. A how generous the Central Banks are. Generous thehow Central Banks are. We understand that the world has not come to an end because of this vote. Managerst year asset bank credit loans went to bond funds look as if they were tightening up. We look to see more from the real estate side. We do know the u. K. And european banks when they were lending in britain that they were giving a this time value rate around, so they have a bit more buffer. We dont know what the asian banks were doing. They lend at a higher ltv. Francine you said something that brexit is not the end of the world and we are seeing yields across the board go down for the first time the 20 year in japan went into negative territory. Does it feel like the markets are not afraid of some of something . Marie at the moment, there is also High Expectations on very easy policies from the Central Banks. People are responding to that with or without the fear element. We would have probably seen lower yields anyway. If we think we are going have lower growth certainly in the u. K. , that makes equity markets relatively less attractive. Of course, bond markets more tractive. I think in this context, we sort of have a drive toward global yields convergence. This benefits all of the other markets as well that have a little bit they do offer more pick up than the mature european market. Francine Neil Callahan and marie, chief economist stays with us. Also what janet yellen cannot do next. Stay with the pulse. How does europes largest toy company plan to expand in an uncertain economy echo we will talk economy . We will talk brexit. Three u. K. Property funds stave withdrawal. Brexit is a crisis work britain and globalization. This is bloomberg. Francine this is the pulse. Lets get to the Bloomberg Business flash with nejra cehic. Makeup consumers in the u. K. Nejra consumers in the u. K. Are preparing against smart card. This comes two years after the processing fees the company charged were unfair. The claim which could be fired be filed by september would be the uks biggest and one of the first filed under the 2015 Consumer Rights act. China resources building is to raise in hong kong shares sales did this help finance the purchase with sabmiller. Sylvia bellis coneys long quest to find a new owner appears to be close to a conclusion. That is the former italian Prime Minister says he agreed to deal with a chinese group. He also said the condition of the sale is the new owner invests 400 Million Euros in the club over the next two seasons. Francine italian banks have taken center stage since the u. K. Has voted to leave the eu. The stock hit a record low yesterday. Looking to inject capital and what would be a third bailout since the financial crisis. The countrys market regulator lets get more with marie owens thomsen. A little bitng about brexit and talking about liquidity in some of the Property Funds. How much bigger could a banking crisis in italy mean for the euro back up it is bigger euro . T is bigger than greece marie i think the european banks are lagging with their restructuring compared to u. S. Banks in the wake of the 2008 crisis. Banks in general have not done enough. On that score, there is of course a fundamental weakness in banking in europe. On the other hand we have the ecb now, as the banking regulator. We have banking union. We also have safeguards and resolution system with which to respond which we did not have before. The problems are real, they are not new. It is a shame they have not dealt with them sooner. We are better equipped to mitigate the fundamental risk. Francine they are not new, the problems with the italian banks are not new. Were talking about a possible run on the banks, a possible bailout. What happened in the last several days where people are worried about the italian banks . Marie these are fear behaviors. There is a lot of fear in the markets, triggered largely by the u. K. Exit vote. Personally, i am not convinced this is an italian problem, per se. It is a european wide banking issue that has not been resolved yet adequately since the 2008 crisis duties ecb only became a regulator recently. Hopefully this will speed things forward to an look more solid european Banking System. Francine you think it will be solved in six months . Six months goes very quickly. What does it mean for the european economy . Marie need banks we do need banks to make sure things happen in the economy. It is inconceivable that we can survive without a solution to this issue. Regulatorulty is the has tried to do a lot of good , buts with Good Intention it has made life harder for the banks. Not saying it is the regulators fault. The bank should of done these things earlier. Intent was being compounded was being was making the a more fragmented system than we had before. That is clear and the aching profitability is being increased density banking profitability is being increased. You can respond to that by running your bank better. The sweetest banks get approved that you have a decent the swedish banks proved that you can have a decent profit margin. Francine do negative rates work . Another problem for the banks. An, there is debate about psychologically, it means people think they are worse off than they actually are. Marie this is the policy i was try to hint at. You do prevent banks from lending. If they are worried about lending, where are the banks going to put their money . They put it with the ecb and the ecb does not want this capital to keep late in their vault. They want that money out in the real economy. They cut Interest Rates and make it expensive for the banks to leave their money at the ecb could it is a problem ecb. Is a problem when the money gets stuck at the ecb which is the situation we have today. Money is not going out into the real economy. Francine we are given all of these issues. Can janet yellen hike rates this year that go rates this year . Marie i think the u. S. Economy warrants a rate hike. We will obviously see what happens with the payroll number on friday. The q2 gdp number that we are expecting at 2. 6 annualized. That is a very strong growth rate. Estimating potential growth in the u. S. At 1. 5 is almost twice potential. This is a strong expansion. It had a strong expansion in europe as well. Also more than twice the potential growth rate. Under normal successes, rates should of gone up in july, but given the current circumstances, i think that is impossible. Francine marie, thank you so much for joining us today. Are 170 one days until christmas and we asked the ceo of lego, about brexit. The outlook for the global and his predictions for this decembers big sellers. This is bloomberg. Francine lego launches its new headquarter in the hometown. How does europes largest toy Company Plans to keep expanding with a certain Economic Outlook . I am pleased to work up the ceo knudstorp. Ergen vig thank you so much for joining us. How concerned are you about brexit . How much d so to the u. K. And how important is it that the have access to the Single Market . Joergen good morning. It is too early for us to really speak of the consequences of the brexit. There is aar is significant uncertainty to the current outlook. For us an efficient and well functioning europe are of high importance. We closely monitor the situation in the u. K. And other european markets. The longerterm implications of the referendum will not be known for some time to come. Francine heavy not model the possible impact for lego . Joergen no, not yet modeled that. We are working through the different scenarios and outcomes. Francine give me a sense of your main concern about is it currency . You have not modeled it. The ceo of a company that has been done externally well, how do you negate all of the economic uncertainties . Joergen that is a but that is a very relevant point. What we do in our thinking is working across the different risk factors. For us, the antiquity of the passporth is the shared areas which the kate was never a part of but that exists within europe for a number of itntries and therefore allows for a very fast transfer of goods across former national boundaries. For instance between denmark and hungry or denmark and the czech republic. They are very important concerns to uphold in a common market. That is one logistical aspect and a Free Movement of goods. Another one is the Free Movement of labor. We are very global company. We do less than 1 of our business and our own country of denmark. We rely on the Free Movement of labor. Across countries including the u. K. I would say the eu plays a very large role for us in providing a. Ommon Market Regulation it toy safety, chemical regulation are very important concerns for us. The eu provides a very modern and coherent legislative framework. The existence of that and the continuation of that is what i mean when i talk about an efficient and well functioning common market. This is going to affect us. Concern. Is always a francine the asian market accounts for 23 of your sales. Probably your most rapidly growing market. Joergen i dont know what sort of market share we are looking to achieve, but with the growth of the emerging middle class most important in china, we are expecting that a proportional part of our growth in the future is going to come from that region. Having said that, what we have had in the past 10 years, 12 years, the size of our business and a large part of that has been markets such as russia, Central Europe and north america. I think we can continue to grow strong in those regions. Francine thank you so much. Your convict knudstorp there. This is bloomberg. Pulsee welcome to the live from european london headquarters. Nejra three of the uks largest mmgave halted investments, aveva, and Standard Life have all halted which rawls because they do not have enough cash. Theresa may has taken a clear lead in the first round to cameron, followed by some. Andrea leadsom. Stephen crabb chose to drop out of the race and liam fox was eliminated. No Systemic Risk and the Banking Sector there, saying the Financial Sector is in better shape than before the 2008 crisis. So easy tot understand why banks have these additional problems since the referendum but i do not think it all that we are in a systemic situation. Prices all over europe and worldwide actually, many steps have been taken to strengthen the Banking System. Also in europe, we have done that, banks have doubled their capital since 2008. We have new regulations. The Banking System is stronger than it was before the lehman crisis. Nejra global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am nejra cehic. This is bloomberg. Francine it is definitely risk off on the markets. Lets head to the bloomberg with mark barton. We are seeing record low yields and a flight to safety. Mark stocks in europe down the third consecutive day, just two Industry Groups are rising. Basic resources and utilities. The longest losing stretch since june 14, and europes benchmark has fallen 7 is june 24, the day the referendum result became apparent. Get sterling compared to the dollar going back to 1980, yesterday hitting 1. 27. The lowest now since june 1985. Sterling has plunged by 13 against the dollar, the biggest nineday drop since september 1992. The pound is oversold against the pound dollar. The relative strength index is at 26. Bnp paribas losses risk remain 1. 27 as theide with starting point. It is forecasting a 25 basis , 25 inut next week october, and 100 billion pounds of kiwi which includes Corporate Bonds to be announced by the november meeting. There is a wonderful shot, sterling 1980 two 2016. In5 was the alltime low 1985. Lets talk about bond deals because we have seen a new low for the japanese 20 year, going negative today. 10 year yield in australia and the u. S. Hitting fresh lows. New lows for the german 10 year, the french 10 year. Money moving out of peripheral bonds. Spanish yields rising and italian yields rising but there is very much a continued flight to safety. Just to continue to comment on that story that netjets was talking about bedrest nejra was talking about, freezing accident assets after brexit forced redemptions. The white line down 21 . Keep an eye on Asset Managers as well. They are all down between 14 and 26 . Morgan stanley sees the potential of fort further ther stress and property but sentiment generated can still drive a negative feed back loop similar to that seen in the financial crisis. Francine for our bloomberg viewers and terminal users i urge you to read a gadfly piece. It says Lessons Learned from 2008 as companies hunker down should only b