Transcripts For BLOOMBERG Bloomberg Go 20160701

Someone from Morgan Stanley. Toid later, we continue focus on farmer with the merck ceo and chairman ken frazier, two important interviews you do not want to miss. Lets look at the markets. Jon futures a little bit softer , down by a 10th of 1 , the footsie with the biggest week of gains since 2011. Switch onof 1 , the the board and get to the bond comet, 10 years, treasury alltime lows, down by six basis points on the session, a softer down to 10 of5, 1 , expectations that a little bit of stimulus in the pipeline from the bank of england coming this summer. Alix that was the big news from yesterday didnt around the world, indepth coverage of our top stories, paul dobson is in london on the treasury yields hitting historic lows and the latest developments on the race for Prime Minister. Beijing, the latest manufacturing numbers in china and julie hyman on the stock move we saw. We begin in the third quarter, individual members. Lets start with paul dobson in london, is record low yields, 30 year, 10 year, what does that mean for the u. S. Economy . Not a sign everything is looking rosy. We have comments from mohamed , talking about how it looks like a murkier outlook and inflation, clearly the expectations for the fed Interest Rate part being revised lower in recent weeks and that is keeping down the yields. S p futures off by a little bit but not the kind of destructive selloff you would associate with record yields on the 30 year and the 10 year, what does that tell you about the shape of cash . Theot just a story about u. S. Economy, about the Global Growth outlook, in japan, yields less than 0. 1 all the way across the curve, sparking a dash for the next highest yields, in europe, record lows, the European Central bank buying are bonds, people looking for field, where will they find the yield, the u. S. Market offering a significant premium for those investors. Alix , dover, 1. 4 . Good to see you come on over, 1. 4 . Good to see you. Jon the london papers in the u. K. , Boris Johnson, brexit acuted. This is the metro that goes around in london, the real game borisones, michael gove, johnson, a fascinating story. Gove he does not expect article 50 to be triggered this year. Sounded aswho never if he would be in a hurry even though he was a lead leave campaigner, he wrote a piece before the results were known suggesting that he would be in no hurry, all the cards were in the u. K. Court and it would be up to us to decide when to trigger article 50, more to be learned on that come after this act of betrayal, michael gove talk, what would his bid before the leadership of the country and tory party, today was less about talks with the eu, more about what his agenda would be as Prime Minister, he says we already hinge in history, we muscle through orlean in or we lean in. Few clues about his priorities if he were Prime Minister. To take back control of our borders, i will in free mutiny, introduce an australian type points bae systems for immigration and bring numbers down. Points based system or immigration and brings numbers much about the single market, the eu says if you want access to the single market, you must have single movement, priority is around immigration at the moment. Jon the question for investors as they look at this for a Party Leadership and the potential consequences, you have the leave , andigner michael gove teresa, the two most popular says 50 willove not trigger this year. This will go to the french election. Why would not you wait and see what the fiscal fallout would be in europe before triggering yet, this is about making sure when you pull the trigger you are negotiating from strength, you want to be in the right place, i think this will not be done for quite some time. Jon for the markets, to the Central Banks we go, governor ,arney speaking, i was there the press pack abscessed with the politics of the situation, not asking about Monetary Policy , a strong hint from him that not focused on bank rates, credit easing elsewhere. He will do a basket of things, you have been talking about the base rate is one option, it is probably the least satisfactory option for his point of view, qe is difficult because it does not have an immediate effect, he goes to the banks and says i will give you lots of money and you will lend it to the real economy, that is the way to get credit into the economy and deal with the downside from the brexit story, i suspect we will see a basket, easing, fairly general, easing is on the table, we do not know which form it will take. Jon bank of england meeting andy results get more interesting. David weston, one month ago, no one knew about article 50 outside of the eu, now this document is the most famous 250 word document in the world. David i carry around a copy with me. In case i have to refer to it. We have another look at the state of the chinese economy. To that we turn to jeff kearns in beijing. Tmi manufacturing numbers came out, what did they show us . Good evening from beijing, i wrote article 50 today, the manufacturing pmi came in on the nose of 50, the dividing line between contraction and expansion, hitting estimates on the nose, that is a little bit of weakening, a little bit higher in the past couple of months, Services Look stronger, the newer economy was much from 53. P towards 54 that is what we look at any personal official look into the economy in june. , itlso got a private report showed more weakening, this is a smaller firms came down below 49, more weakness in that survey, the the old economy, factories are weaker and the services and the consumer economy are seeing a little bit more strength. David thank you. Alix it is the start of the third quarter, a lot of movers in the premarket, julie hyman has a look at what to watch. Story on an incredible this company, it its autopilot feature, this is a driverless feature that is cars have, autopilot is the name of it in in an accident on may 7, the first fatality in a driverless car system. Noticetopilot failed to the white side of a tractortrailer i guess a brightly lit sky and did not apply new brakes and the 40yearold driver of this car in florida was killed, the National Safety missed ration is investigating this and some car Safety Experts are saying the company may have to issue a recall. It raises questions about Driverless Cars in general. Not just at tesla, shares are down 3 this morning. A wall street journal report that they are in preliminary exploratory talks to but to delete by title, the musical streaming service controlled by jayz, apple shares down a third this morning, this would give them access to artist like beyonce and rihanna and they have struggled however with subscribers, jayz has said the previous owner misrepresented the number of subscribers at the company when he bought it, micron we are watching, a fiscal thirdquarter loss and predicting another one in the Fourth Quarter, down 10 , rolling with another chipmaker but analysts say they are so different and therefore it has been problematic for micron to cut costs while doing acquisitions and integrations. Alix lots of movers to watch, thank you, julie hyman. Coming up, the bond market rallies, the story of the day, the yield in the u. S. 10 year and 30 year it is lowest level ever, up next, allianz global Mohamed Elerian joins us. David record lows in u. S. Treasuries, joining us is mike mckee. Setting record lows in government bonds around the world. Is this the ultimate risk off trade . it is, when you have this much uncertainty, you find under the bed and they are the low, if theree so is any inflation you will lose money but what else will you do . 1962, thego back to lowest yields in history, we cannot go back farther but Michael Hartnett of bank of america put together a yield chart that goes back to 1790, it it shows that we had never had anything like this, even if borrowing to finance your education, i know youre an 1790, if abc news in you were using it to finance your education, you would take more than you would now. David Alexander Hamilton was running the show. 1. 4, 1. 37 . 1. 3784. David compared to what . Of thisan explain all in one chart, you look at government bonds around the world, a question for investors, what will you buy the highest yield if you have indifference to where you are looking, yields low in other places you suggest people are doing most of the by, the german yield, the ecb buying up,. Jon breaking news in the u. K. Planningof england easing the bank capital demands on the brexit vote, the decision set to encourage lending in a potential downturn, the bank of england said to announce this as early as next week, reversing a decision to boost the countercyclical buffer. In march of this year, the bank toengland raised the buffer 0. 5 percent, for anyone not from the your with this, the concern at the bank of england that when there is a downturn, banks pull back on lending and when there is a boom the increased lending and the introduced a countercyclical buffer, in the good times, the banks caps on back and in the bad times they would be able to loosen the strings so to speak. It looks like the bank of england will ease that demand and reverse a decision that was brought in in march of this year , the bank of england said to plan easing the banks capital demands after the brexit vote, therefore bringing down the countercyclical buffer over the bank of england, did i do that right . Beautifully done. Jon a little bit of credit easing coming from the bank of england in the near future. David it what i am curious about, this is a concession by a central banker that Capital Requirements do affect lending . We have had regulators from the fed saying it does not have any impact but if they are saying we want to give a buffer, are they saying implicitly, by reducing some capital demand, it will increase . Possible, more psychological 70 levels of what we are talking about. Capital held back is not capital you cannot lend. Just the description of how you raise the money, you are lending out money from equity or from deposits as opposed to money that you have raised from the bond market. Alix to the u. S. , extraordinary measures around the world, it is not necessarily we are in a recessionary world in the u. S. Which would be implied by the flattening of the yield curve, it is more a function of all of these other centralbank policies . Problem, the st. Louis fed chair was telling us the same thing, so must a man, so much demand which distorts thing, if you are savor or a pension fund manager, you have real problems, you there are others that say this could be a tailwind for the Global Economy and make it much easier for you to buy a house. David thank you for being here. Our economics editor. Jon coming up, much more on the bloomberg scoop and for digital easing at the bank of england and the big question post brexit playbook, the snp biggest threeday rally in more than four months, now down less than 1 since the uks decision to leave the European Union. Up next, the Morgan Stanley chief strategist guesses outlook for q3. From london and new york, this is bloomberg. Jon from london and new york, this is bloomberg, the chart, barclays, up by 2. 24 , the bank of england set to start easing banks capital demand following the brexit vote on friday, the stock higher, the bank of england looking to ease capital demands, potentially as early as next week, look out for that decision, the stock has moved in barclays, bank stocks moving in europe. Pulling back some Capital Marks on the uks lenders. Joining is adam parker, Morgan Stanley chief equity strategist from new york, is this what you would expect from Central Banks, to pull back Regulatory Authority to ease some demands around banks at a time like this . Do not think that is surprising, there is a debate among u. S. Investors about how the head will react, a couple of weeks ago, are you dovish or hawkish, now the consensus is the fed is on hold indefinitely, to million or 3 million in the u. K. Deciding to leave has changed the fed tap, i think that is not the case, i think the fed will raise rates but we will see how things go over the next months. Jon looking at this from london and over to york with the financials in the United States and the way have they been hit come in make sense in the u. K. If there is a growth risk with uks based lenders to be hit in terms of the lease, were you surprised that some of the reductions in bank stocks over in the u. S. . Adam i was heartened by yesterday, yields going lower, you still saw financials react pretty well and finally people are saying, some of the positive results from sea car with the huge growth of shareholder, there are fundamentals back and mitigate some of the issues with the level of the curve. The financials are not pricing in a whole lot in the way of economic growth. If they go yields lower it will put a pressure on the financial but there are positives for u. S. Banks which are clearly way better capitalized than european ones. David on june 23, you came up with a note that you thought by the end of the year one year from now we would be at 2050 at the s p, are you still there and have you get there . Adam i will logic, we think earnings can grow 4 this year and 4 next year, we have not changed that number, on february 10, we thought people that we were stupid at 4 growth by the market went up and we have not this it, it if you go 4 year and next year and you trade at 16 times those earnings 12 months from now, that gives you around 2050 plus or minus where we have been trading recently. Has ak the u. S. Relatively better market than other places in the world any challenges on the year you want to pay for those earnings but i think earnings will grow as a best case in the u. S. David what are the fundamentals, nothing close to that in recent quarters in terms of Earnings Growth. Adam Earnings Growth it is unlikely the energy drag will be as substantial this year as last year, we should have some still went we should have some tailwind. At 105 and march of 2015. Rates, oil is the wildcard, likely that you will see some modest Earnings Growth against the backdrop of low expectations, part of the formula will be earnings could maybe grow in the next couple of quarters. Alix where you want to pay up for that safety, utilities in the snp are trading almost 20 times price to earnings, one argument is that they are expensive but i will pay up, bonding rise who are probably coming into the equity market because of the volatility or i have to look for value, which side are you on . Adam if you phrase it that way and have a choice between buying expensive or value, i think if those are your two choices, what you mean by value only works of rates back up, you can sit there and say, i do not buy expensive defenses, i wrote a note in 2012 call our expensive defenses offensive, this has been happening for four years or five years, still going on and rates are lower. The way you underperform is by being all high and mighty about valuations. And owning no defenses. You will only be right if rates back up, to go over utilities because when i look at what people are paying for when they want to buy defensive stocks, pay for low volatility are a we, low volatility Earnings Growth, bandate dispersion, narrow is good, paying for low stock volatility, when you compare the defensive industries, food, household project products, utilities, they are five, 6, 7 turns cheaper with the underlying fundamentals the same. I think i have to have some exposure to expensive defensive as a pm or i will underperform if rates back up. You. thank adam parker, Morgan Stanley usg equity strategy. Englandhe bank of planning to ease capital demand on u. K. Based lenders as early as next week, a bloomberg scoop and the markets moving, berkeley higher, lenders in the u. K. Trading much higher after that headline crosses the bloomberg, from london and new york, this is bloomberg. Jon from london and new york, this is bloomberg. By 2. 34 . Tock up the bank of england said to plan easing following the brexit vote. It could happen as early as next week. We will be talking about the capital buffer very shortly. Want to get into the market reaction. Beginning with equities future softer by 1 10 of 1 . In london, up six cents of 1 . Potentially, biggest gain for the ftse since 2011. Stoxx 600 banks index up for percentage points. In the bond market, low, low, low, low, alltime lows on tenyear treasuries. Trading on yield at 4. 2 . On headlines, outside of the Business World started vetting potential running mates. The Associated Press says the likely Vice President ial nominee says the likely republican president ial nominee is considering chris christie. About 5000 Syrian Refugees have been approved to move to the u. S. According to Homeland Security secretary jeh johnson. He says another 6000 more will follow if they Pass Security checks. Republicans have criticized the Obamas Administration policy. A last full day of campaigning in australia. Shows turnbulls is tied with the labour party. The campaign has focused who can best managed australias economy. Global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. This is bloomberg. Jon thank you there he do much. Thank you very much. The morning must read is a shameless plug. The bank of england Just Announced its plans to potentially the bloomberg story suggests that the bank of england is set to plan easing demand after the brexit vote last week. Thehe bloomberg scoop countercyclical capital buffer. Lets stop there. The point of capital rules for banks is twofold one, to make sure they do not go under. The other is to make sure they do not stop lending if there is a downturn. Buffer countercyclical deals with that second point. When shot happens, a downturn happens, the regulators can move that buffer around and allow banks a little more flexibility so they dont feel like they have to stop lending to avoid any potential losses. To willhe reverse it make that much of a difference . The stocks indicate it will help a little bit. Three month ago, the u. K. Economy must looking a little bit better. The bank of england did say in march, when it raised this, it said, one of the risks out there was brexit. In brexit were to happen, it could endanger them. This is straight out of the playbook. They saw this as a potential threat and now they are reacting. Be announced as early as next week, as we sit here, i reflect on the bank of england conference. There was a quote about the risk to bank profitability. Do you think the focus is on credit easing . Is that the direction we are going . It certainly seems that way. He said they will do whatever it takes to support financial stability, to support the economy. This is one mechanism they have. The other mechanism is rate cuts and other things they can do. Through the banking sector, this is how they encourage them to continue lending. Yesterday you were on radio with me. Talk about the ftse recovery. The banks have not. When you and i have a discussion, we were down 30 since the vote. Story is about profits in the u. K. , or something more sinister. What are you gauging from that . Is it them trying to reprice potential profit in the u. K. . Be abouts seem to that. Said, we are not getting questions about capital, but questions about earnings and other bankers have said the same. It does seem to be an earning story. Earnings were challenged to begin with. You have a low rates. You have deals that coming through. Now the fed come one more headwind now the fed, one were headwind. You have them lowering estimates for earnings. When you have that kind of longterm downturn, it can certainly weigh on bank stocks. Jon so big moves. On the bloomberg scoop. The potential that the bank of england could announce capital easing for some of the lending lenders as soon as his weekend. Alix does it actually work . Michael hansen, bank of america, merrill lynch, senior economist joins us on the new york office. The potential easing that we may see, does that make a difference . Is this the potential to use . Michael it is one of several tools you will get out of the bank of england . If nothing else, it is positive from a sentiment perspective. Giving the uncertainty around brexit, that is an important contribution. If you put it in the context and of tools, bringing rates close to zero and possibly additional qe from the bank of england, that suite will be beneficial. I dont think the bank of england has the full set of tools to offset brexit. Alix we heard from our party yesterday. The markets we heard from mark carney yesterday. Have the boe has to certain of the kinds of stimulus. There is obviously, the main discussion is both monetary and fiscal. The boe only has control over the monetary side. I think thatd, ultimately, we are going to see rate cuts. My reading was that carney opened the door to that and the markets reacted. A little less certain is whether we get qe. We will probably get that. Could be what the bank of england could bring to their. On the fiscal side, there is an extremely large amount of uncertainty given the political situation in the u. K. It will be hard to imagine any fiscal action. David michael, it is david weston. As a percentage of worldwide gdp is relatively modest. Europe is another thing. What is the effect on europe and how more difficult as Mario Draghis job to get those growth rates up to 2 . It is more challenging. We do think that the net effect of brexit in our current estimate is to take. 5 off your pain growth next year. Instead of a slight pickup to 16, we will see a discoloration deceleration. This makes the job for mario draghi and the ecb more challenging. You will get more easing into the early fall. There will be extension of qe at the very minimum. We are in an environment where they have limited tools. It is probably not going to be able to stop the shock to the european economy an and it will have an effect. David what kind of tools does mario draghi have at this point . Are there more bonds he can buy . More classes of bonds . They areit is our view not going to pursue further Interest Rate cuts. For the first round of easing. Cuts for the first round of easing. That is been a less effective channel. More focus on qe. There has been discussion overnight on some using of the standards around qe to allow a broader Bond Purchase Program beyond the t. Beyond the capital key. It wont happen right away. But the view of the firm and european strategist, that is a likely outcome Going Forward for the ecb. Alix moving it lower so it can buy bonds as heavy yields. What does that do . Ecb can buy more german bonds. What is the efficacy there . Michael we think it will not be that channel, as it is a loosening. You will have the bank effectively buying super substitutes, meaning buying bonds from countries that really could benefit, for example, italy. That is the first route you go if that is easing the capital key. David what about greece . Bonds from greece possible . Michael i suspect it is possible. That is a separate set of considerations. Isave not heard what the ecb having on that front. That may very well include find on the periphery, with a shock will be felt more acutely. Stressoes that potential from a brexit, due to these kind of actions, do they have the ability to mitigate it . Michael they dont have the ability to completely offset it. It will not resolve very quickly. Central banks to have tools, but the set of tools is more limited than it would have been 5, 10 years ago now. That obviously is a concern. I dont think central bankers will sit on their hands. They will do with a. Can they will do with they can. Central bankers have shown to be innovative. I do think that gives hope for an offset. We do think the net effect, in terms of both the european and u. K. Economies, will be immeasurable slowdown. Alix michael, great to have you. Senior global economist. Unbelievable mose and Central Banks getting creative. Go coming up. Re this is bloomberg. Alix this is bloomberg. Im alix steel. Coming up, you have the ceo of onkel onset at 9 30 eastern bloomberg. A jury in california has ordered oracle to pay 3 billion for billing out of regular hewlettpackard. The jury found that oracle violated a contract support tware for hps cheney and uranium chip. James bullard says he is sticking with his call on rate hikes. He says that he still things there will be one Interest Rate increase this year. He was asked about the impact of brexit on the u. S. Economy. There is the issue about whether europe, there would be further contagion europe. I dont see that so far either. We will keep an eye on it. We will wait and see. So far, i do not see a big impact on the u. S. He says the followup on the brexit vote will last many years. A formal survey of investors and analysts gives a feeling grade to the ceos of Deutsche Bank. Has been on the job for a year. A survey reflects they have lost their ability to turn around to of europes biggest banks. Alix thank you. Jon what a week it is been in the u. K. Bloomberg has caught up with big business and politicians. Take a listen to some of the highlights. We are waking up to a whole new reality. It is brexit. These guys have been trading since 8 00 p. M. The british people have made it very clear to take a different path. I think the country requires First Leadership to take it to this direction. Jon we are seeing the tenure guilt moving below the 10 year guilt moving below. We are meeting a few days after a very painful decision of the citizens of Great Britain to leave the European Union. , but respect this decision it will have to be sorted through and its consequences. If we dont come to a grownup trade deal between the United Kingdom and the eurozone, it will hurt the eurozone. Cks finishing the session ftse erasing its post brexit losses. Kind fromtions of any the u. K. Will nullify its intention to withdraw. They will seize its chance and they get our moment to stand in the world. That is the agenda for the next Prime Minister of this country. I have concluded that person cannot be me. David, what a week it has been. Week, 4 to leave the European Union, the other one, sterling. Markets have the looked to a weekend. Do, thereng what we comes along a period you know there will be books written about what happened over these few days. We are really watching history and try our best to keep up with it. By there are books written yesterdays events. Alix my daughter is not even two years old, but she will not in history books. What cap the week for me is the rally we saw. Maybe there would not be a brexit, then the markets filtered it. That was a huge take away. David never mind. Year for thewild markets. Eu was about the the volume of the Stock Exchange joining us from the Trading Floor is tom farley. Good to see you. Lets start right there. How did this work, brexit, and the aftermath . I am standing on the floor and there are a few traders as you may be able to tell from the shot behind me. Ago, thinking about a week this place was packed and buzzing with nervous anticipation. Many pulled the plugs and took the day off. Industry didchange hold up. The open that day went there he do, very smooth and wasnt half as volatile. I am a little bit surprised that trading all around the world has , and volatility has come back and is rapidly as it has. Overall, it is a success for Capital Market infrastructure, but creating difficulties for not just american companies, but companies and citizens all of the world. David why do you think it worked relatively well . You said it was surprised at how well it worked. Are we doing a better job . Are you doing a better job . Was this not quite the big shock some people thought in the beginning . My surprise was about volatility coming in. It wasnt that the Exchange Infrastructure has held up the does it his very resilient in the u. S. There was volatile trading last august. That crisis came at us in the dead of night. No one was anticipating. It everyone knew the brexit vote was coming. Werent preparing we certainly were preparing or it. Everyone at the new york Stock Exchange and competitor exchanges were ready and done appropriately planning. Did appropriate planning. David one of the things that struck me is it spiked on monday. It came down somewhat and then it came back up yesterday. What do you think account for that . Is he getting ready for a long weekend, or Something Else going on in the markets . Very interesting and there has not been one prediction. It was also the russell rebalance day. We knew that would be a big volume day. This week, we have been trying to predict which would be the big days. I got it wrong most of the time. But in a period like this, it is one of those that i am very appreciative that we dont have to cicada technology, but we have really good human beings over sink stocks prepared for witholume human beings stocks preparing for the volume. Alix one of the characteristics has been the asset prices. What is the effect of that volatility in the market . There has been a whipsaw. Many indices are right back with a were prebrexit. In the u. S. , volatility has come in dramatically. Volatility is lower now than before the brexit vote. For my part, i am concerned about the u. S. Ipo market, and that is a very at sign that we have seen volatility come in 40 . David tom, do people thinking about ipos not remember the sudden surge . They will get over it quickly if it comes in rapidly and stays there. What we have seen with volatility spikes are two forms. One, you see a volatility spike and it does not return to prespike levels. That happened in august and in january and february. This one feels like a sudden surprise shock. Up very, veryn much. Speaking to ceos of companies that want to go public, we had a couple looking at launching roadshows next week and we will see if they pull the trigger. A july many hopeful of tom, today marks the second in the first half of 2016. As you look for it with your crystal ball, we have an ongoing issue with brexit. That is not over by a long shot. They have to go back and forth. We have a looming president ial election here. Do you anticipate more volatility for the second half of 2016 . Tom it depends on, certainty there is of those eventualities. It is that simple. If we get out of august, which is a slow period, and there is great uncertainty about which president in which vision will be running the country, that willvolatility. It will slow down the ipo market at the new york Stock Exchange. If we come out of august and there is a great deal of certainty about the eventual winner will be, it could be a very active year and a less volatile trading environment. Alix what is the effect of investors . When they are worried about volatility, i was struck by e trade and Charles Schwab getting hit earlier in the week. What is your take on that . Investor, they care about, when i log on to my e trade account, or swap four Charles Schwab, they want to see prices. They want to know with the bid and the offer is. That is price formation. The single most important thing we can do for the Retail Investor is motivate and incentive eight public pricing and reduce fragmentation that we have in the many venues. If we make it more approachable for the investor you they will trust the markets more in the u. S. If we tom, i wonder learned or you learned anything from the recent week about active versus passive trading . There is an ongoing debate on what works better. Betweensee any shift changes in the trading . Tom there are people trading around their positions. There has been a rise in trading over the last 10 years. It is a very good thing because it is making the market more approachable to the man on the street investor. We see it at the new york Stock Exchange. Our closing auction is now roundabout 5 of the volume for the day for any given stock taken as a whole and that closing auction it is excellent. You dont have to trade at the offer. Everybody gets a slightly better deal. David tom, last question. There is a lot of speculation about the Deutsche Bank. Does that affect you . Tom i do not want to comment on that. I dont want to comment on their deal. David thanks a lot. Alix coming up, the boe and Marquis Carney and mark carney. Could a bond rally just beginning started . David the bank of england set to require lending as early as next week. Bank stocks rally on the news. Treasuries fall to records after bond markets served all around the world. Alix at the six month, you will want to forget the brexit hedge funds are set for the worst falling since 2011. David welcome to the second hour of bloomberg. Im with alix steel. Jonathan ferro is in london. It jon in the last hour, the bank of england said to be planning capital easing for some of those thing requirements as early as next week getting lenders more flexibility to withstand the fallout of the nations vote to be the European Union according to people with knowledge of the matter. It is something to watch. It is getting more interesting. Alix the movement has keep the movement keeps happening. To help bring it all together is steve major of fixed Income Research joining us later. Year d 1. 5 on the 10 bloombergs focus on pharma. Ken frazier joining us. Should be a great interview. David first, john will take a look at the markets. Jon futures marginally lower. In london, the rally, what a rally it has been. The biggest week of gains since 2011. That is a headline number. Up onnks index rally in the stoxx 600 here in europe. The big headline today, and london and beyond in the bond market, switch up the board quickly. Record low yields from 10 to twentyyear treasuries. To 1. 43 . Nding lower what a week for the markets. Alix good stuff. Lets check in with the Bloomberg Team for indepth coverage of our top stories. ,ichael mckee is in new york treasury yields hitting historic lows. Planning to cut banks requirements. Julie hyman wraps up with the stock market as we began the third quarter. Mike, the moves in the treasury market are unbelievable. Is this a risk in the u. S. Or the surge in a bond market . It does appear to be a search for return. A 1. 5 in the treasury, he was wrong. These are the lowest yield in the history of United States. My chart only goes back to 1962, but you can see the definite trend. There was a chart that goes back ix was sellingl Girl Scout Cookies to Alexander Hamilton. [laughter] why is this happening . We have the highest yields. If youre looking for yields, you are going to come to the United States. It does not suggest that we are having an economic problem, but if you want to get paid, you have to come here. The fallout, there may be a tail wind in the u. S. Going forward, but a real problem for savers any problem if you are running a pension fund trying to match duration. Alix how much flatter could go . That depends on what your term premium is and what your inflation premium will be. Inflation starting to rise, we may be reaching the limit where the 10 year will be able to go. The question is how much higher will do twoyear go . Alix you bet. Thank you so much, michael mckee. John, this comes into the distortion we see from global Central Banks. Jon Central Banks and focus according to sources familiar with the matter. The bank of england close to the bank requirements, could happen as early as next week. Guy johnson joins me. Capital countercyclical buffer. They will allow the banks to have capital as they would normally set aside for security purposes and will allow it to lend it to the real economy. To bank just want the banks lead by down and it will move heaven and or to make it happen. We could see that next week. We may see rate cuts. We may see more funding for lending. The bank is going to get very creative. It will be interesting to see the fiscal responses. We dont know for the chancellor could be. Jon what a difference this will make and what a difference we have seen an outlook forward. Thats only last march that buffer was increased. Will and make a big difference to the people you spoken to . Guide it will allow the bank to move things around. The framework is getting tougher and tougher and tougher. It is a response to the 2008 financial crisis and a to what is happening in the economy and the lending story. They will repeal all of that because of the fundamental shot taking place in the u. K. Economy. They were leaning into something that is not going to happen. Maybe they can repel that. Jon a political shock. Nge only real functioni institution is the one right around the corner from this office. We dont know wholl lead this government. And the queen. The only two functional institutions we have in the u. K. I have been watching michael go launching his build launching his bid as the next Prime Minister of the u. K. Yesterday, we heard from theresa may. There were five names in the running. These are the favorites. One of the key questions was how keen would he be an set in motion the process of us leaving the eu . This was his response. After the trigger it marry talks i discussed earlier. I have no hesitation that article 50 would be triggered this calendar year. No second scottish referendum. And a free movement, of course, and he was asked to pick what character he would be in the game of thrones. Jon here in london, the real game of thrones and three characters, the leading campaigner is michael go in to andme michael gove theresa may being the front runners. What is the difference . What i hear from then gove was trying to differentiate himself from theresa may. Interesting was what he said about the Financial Services industry. He was asked why he provided a scathing assessment. He said it was a critique of the Financial Services that are not working. He was critical of high executive pay. He says m a creates no value. He was talking about some practices today discredit apitalism and asked by bloomberg reporter, why would Financial Services to go around in london right now . Gove is talking about more regulations. Jon we talked about what stories would be read. I said about the Borst Johnson story yesterday, maybe the title cuted. Be brexita david i love that headline. I would buy that book. I would like to read it actually. Iswe know, jonathan, this july 1, the beginning of the second half of 2016. We thought we would go to julie hyman. Julie i wanted to look yeartodate cross profits. This is a chart that london did earlier looking cross asset, what we have seen thus far this year. The big winner has been, commodities. The index up 13 this year. That is the white line, the one that is the highest this year thus far. And then the bond market, not surprisingly. Everything has driven the bond down. This is global, by the way, not just in the u. S. And the developed world, but across the board. It is up 9 year to date. Citigroup index of currencies is down. 5 and globally, stocks, very little change the first half of the year. Those of the peak and purple lines. Getting back to today and the movers we are watching i wanted to bring it back to tesla and the story we have been watching this morning. This report there was a fatal accident involving tesla sedan, autopilotand the software that did not detect a tractortrailer and did not apply the brakes resulting in that locality. There are questions about this Driverless Technology and what it means, not just for tesla, but more broadly. Then we are looking at european automakers. An index growing at the fastest pace in six months with a reading of 52. 8 in june. That is one of the things feeling the rally here in european stocks. We will be getting the number for the u. S. Later this morning. We got vw, porsche, Fiat Chrysler all trading higher. Sales also will get auto for the month of june in the u. S. David i am looking for to that. I love cars. Thank you, julie. Now it is time for an update on news outside of the globe. Loretta lynch has moved to defuse a controversy over Hillary Clinton and her private email server. They are deciding about whether to bring charges. Loretta lynch considered recusing herself on the case and that set off a political firestorm. Puerto rico has defaulted on its debt after president obama signed a restructuring plan. For the fourth time, the u. S. Territory failed to pay on it obligation bond. Puerto ricos Governor Nixon a moratorium on payments. President obama signed a shelter. Puerto rico said it couldnt pay 2 billion owed. A stria, there will be the Constitutional Court ruled in favor of the far right freedom party, which had disputed the freedom candidate. More than 4. 5 million forecast. Global news 24 hours a day, powered by 2400 journalists, in more than 150 news bureaus across the world. This is bloomberg. Jon thank you. Coming up, bonds continue to rally. Years hit record lows of bonds record lows as lower. Round the world go steve major discusses just how low yields can go. From london and new york, this is bloomberg. Jon a quiet day in september 2015. Steve major came out with a headline saying year and 2016, 10 year treasury yield will go to 1. 5 . Were around 2. 2 . 1. 4 weing now i are trading now at 1. 4 . Steve major joins us around the table. You are very, very modest. Call oneasuries that treasuries was spot on. We always say are you going to adjust the call . Have you seen anything this past week suggesting that you will do that . Was 3. 25 . Consensus it was quite a dramatic forecast. I never believed the fed was going to hike in a conventional manner. The rate hikes did not stick, did they . Were not talking about rate cuts. I dont think it is time to chase the yield much lower. Sorry about that if you thought i would come on and give you a new number. [laughter] stephen lets be realistic. The yield in the u. K. Are at comfortably 1 . 80 basis points this morning. The treasury is below 1. 5 . A lot of this is a kneejerk reaction. I am of the opinion that looks at the median implications of brexit and everything else. Blamingveryone is everything on brexit. Weather is bad because of brexit. People are kitchen sinking. Every excusest has to downgrade their growth forecast. Many companies are downgrading their earnings. You cant blame it all on brexit. So, we have not had any data yet. I am thinking that yields could go of it lower, but realistically at the end of this year, are we going to be much lower . Probably not. Jon four our audience, your framework, if you look at the components of bond yields and say, here is the inflation component and here is the term premium. You did it turface amount of work on the term. Premium. Premium. Are you thinking the world more structurally . Premium ise term, gone and will not come back any time soon. For the term premium to be priced back in, we need a change of things like centralbank buying bonds. It Central Banks were to stop buying bonds, and even stop reinvesting, then that might impact it. But that is not want to happen. Or Something Else we cannot expect. Someone pulling a trick somewhere, canceling debt. That is the kind of thing can do it. It will not be term premium. In the u. K. , it will be inflation. Playbook comes true, if your currency. Percent, maybe 50 , there will be important implosion. The bank of england will be helping with this increased inflation. The forwards looking close to 3 . We are forecasting it could be nearer to 4 . What does it mean for bond markets . It does not necessarily mean that the yield testicle up. Necessarilypoint mean that the yield will go up. It probably points upward. It is more than that. Inflation. Done to keep to be done to give the economy a boost. The u. K. Economy is rightly worried about the deflationary and packs. Deflationary and packs. Impacts. Jon just looking at the 30 , you are not comfortable with yields around 1. 5 . Stephen we made the call this morning that the 10 year maybe already on the low point. We have published that. At these levels, we are as low as we can go. I know that sounds bizarre and at the bank of england has just flipped about talking to rate hikes to rate cuts and all the analysts are changing the forecast. Jon steve major. He will stick with us. We will break down the european market. A loosening of qe rules and what that means for debt. Steve major sticks with us. Futures of a little bit. Equities in london continue to rally. The bond market generating headlines. This is bloomberg. David this is bloomberg. Im david weston. Steven major in london. We want to move across the channel to europe. What the people of Great Britain last thursday did not make Mario Draghis job any easier. If you are sitting in his chair, what do you anticipate the are looking at . Steve well, further easing in some form or another. We have looked at the idea that they could cut the rate of it further. That is the 40 rate. They could alter the pattern of the purchases and has been speculation about that this morning. But ultimately, they will have to do more because they will look across at the u. K. Easing and look at the sterling move versus the euro. There has to be an Economic Impact on the u. S. Economy on what is happening in the u. K. , and it is not a good one. It requires a policy response. Alix it requires a policy response. What does it mean for a refill spread what does that mean for peripheral spread . Should portugal be at 3 . You have to take into account that the circumstances are special. The ecb is by a large portion of these bond each month. Early this morning, there was talk in the markets about the capital key purchases being adjusted, so there would be more buying of italy, and less line of germany. There was a dramatic move in the italian bond market. Not as if the italian bond market is being driven directly by the Economic Data in italy, or even the wider eurozone. It is been driven by the expectations of the unconventional policy that is being deployed by the ecb. Bondsi know you are a guy, but you mentioned a 1. 5 on the 10 year did not mean a wipeout and stocks. Do you feel stocks are reflecting what the bond market is telling us . Steve well, yes. Stocks are really being influenced by the outlook for reach for rates. And how the stock markets have done so well after the shock of last weeks vote. It is more about the outlook for rates than it is about the outlook for the economy. How sustainable that is, is a completely different question. Logical witheem yield being squeezed out of the fixed rate markets, that investors will go somewhere else. Typically, they are going jon i want to get your final thoughts on what could happen with the ecb and bring the bond curve. I have two lines 10. Lines, one is zero. You see it out about seven years. Anything below that line, the ecb under current roles cannot by. What adjustments do you expect them to make to loosen those rules . Steve strictly speaking, that 40 is the deposit rate. What was said in the document back in march 2015, the ecb permits buying down to the deposit rate level. It permits buying. It is not prohibited buying below. It does not take very much to imagine how we might move to a world where buying bonds through their. The other thing they could do is change the quantum the purchases compared to gdp. Jon steve major of hsbc, global head of fixed research. He is a happy man the summer. I wont tell you why. Sterling, a week on from the biggest drop ever. York,rom london and new this is bloomberg. A session that has already generated quite a few headlines. The biggest week of gains since 2011 come up 1 just today. Futures unstable. Drop, the biggest oneday ever. An alltime low yield come a little bit earlier on on u. S. 10 year. Wti crude a bit softer at 48. 11. Lets get some news from shery ahn. Out theichael has laid reasons why he should be the next u. K. Prime minister. He bowed to reduce immigration and make the country a fairer place to live. About to reduce immigration. Vowed to reduce immigration. I did almost everything i could not to be a candidate for the leadership of this party. Ery he torpedoed the leadership and mission of his fellow Brexit Campaigner Boris Johnson. On thehas his sights set early favorite to lead the conservative party in the country. The house will vote on legislation next week that includes a provision to keep suspected terrorists from buying guns. Last week, House Democrats staged a 25 hours it into demand votes on gun bills. The gun measure would be part of an antiterrorism package. Donald trump reportedly has vettingformally potential running mates. Hes considering Newt Gingrich and chris christie. Both have emerged as close trump allies in recent months. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Im shery ahn. This is bloomberg. From theweek on historic decision to leave the European Union. Wasfall in the fx market the biggest oneday drop ever for sterling. Heres how the pound has performed over the last week. A recent drop up in the last 24 hours. Mark carney suggested the central bank may need to need may need to ease Monetary Policy in the coming months. Running me now is hans redeker from Morgan Stanley. Joining me now. The boe is set to do more. The consensus is downward adjustment. Where does Morgan Stanley stand on these things right now . Hans we called sterling running limitedrofile that is upside and significant downside. That had to do with the deficit of 7 of gdp, most caused by the balance all of this has been further emphasized by the decision to leave the market. Next is the cyclical acc aspect. We have a situation where the market is now expecting for the next 55 months the Interest Rate level tuesday at current levels. That implies that sterling does not offer any yield nor nominal yield. There is something in addition to that. Currency markets are driven by real return and real return differentials. Inflation expectations are rising in the u. K. That means you have two aspects on the cyclical side which are negative for sterling. Rising Inflation Expectation and that actually means the real yield differential is becoming very destructive. How do you trade that . ,ve heard people who said ok we see the euro as a surrogate may substitute for sterling, a quiet sigh sterling short. Quasisterling short. Is anou have in europe haveonment where banks lost the capability to export capital. That means the euro is getting higher because we are not having a situation where we can create a counterbalance. Point, iustrate that love that call, you are long in a shortterm euro pound bi. European minus u. S. Real five here,ield, the white line that is moving higher. The eurodollar currency continues to grind o a little lower. What snapback will we see to close that gap . We have to understand why real yields are going higher. It has nothing to do with better european prospects or better productivity gains in the euro zone. It has to do with Inflation Expectations falling at the inflation rates. It is pushing the currency higher. Where is the pressure going to come out . I think it may be the equity market. It puts the monetary authorities in a difficult position. Monetary authority tries to weaken the Balance Sheet but does not have the instrument anymore. David the aftermath of the brexit really affected the fx market. What puzzled me was the emergingmarket currencies. They did not react as violently as most of the developed markets. Why is that . Hans the answer is relatively simple. What we have seen so far is the absence of trade affecting the cost of brexit. Activities, global ,hey will be centered in europe making the u. S. Fed a bit more cautious, but it does not do anything to the emergingmarket. Orld in the emergingmarket world come you still have real yields. Going higher, silver going higher, commodities going higher, equities going higher. You see bond yields going lower. That means bonds are higher, too. Is it sustainable and how long will this take . Normally the financial contagion is frontrunning the trade aspect. Yields staying low for a prolonged period . How much does it undermine the European Bank Business Model . What does it mean for repatriation of assets back into the eurozone . Which makes the euro unpleasantly strong. Response, that happened with the g20 meeting in shanghai. We had an emphasis on monetary that fiscalearned policy is not burdening too much the, that may have impacted way of putting everything on the shoulders of central bankers. At negative Interest Rates. That means you are looking for the alternative. I wouldnt be surprised if this talk about coordination of activity that we are talking about a bit more fiscal and a combination with monetary, does that do the trick . I doubt it. In japan, it did not work. Jon good point. Hans redeker, thank you very much for joining this program. A lot to think about. Alix now to todays morning meeting. From jefferies joins us from london with his outlook on oil. You have barclays looking at 40 oil in the third quarter. In part because of some brexit risk. What you see . Jason there is some brexit risk here but it is containable. Oil is well supported around the 50 level based on the fundamentals. Exit that puts a moderation and demand growth, but europe is not an Energy Intensive economy and the slow down there only moderates growth. Alix demand growth was waning a bit. Prices now, prices in the future were coming down a bit. Was there already some weakness in the market before the Systemic Risk of brexit . Jason one thing that had been playing out in the market, there was production shut in canada as a result the wildfires. That is coming back online. That was putting small negative pressure on prices. We have seen a tremendous flattening in the curve over the course of the last couple of months. Islatter futures curve telling us the market is coming into much better balance and the expectations are for tighter conditions as we move forward. Alix that is a supply story. Surprised me was the demand story. The buyers of oil rest in asia and china. s impact onfx path oil demand in china . A strongere is negative correlation between u. S. Dollar and the price of oil. We are expecting demand growth of 350,000 barrels a day in china. Emergingmarket risk from a strong u. S. Dollar could be 200,000300,000 barrels a day lower demand growth. David we always focus on china. Rightfully so. But what about india . How fast are they growing . Could that take up some of the slack . Jason glenn india is growing leaps and bounds right now. They could generate more demand growth this year than china. There is a 9 growth level. China is growing at a 4 rate. India is taking over leadership in terms of demand growth. This also extends to other Southeast Asian economies. Tremendous strength and demand growth in places like indonesia, malaysia, the philippines and vietnam. Alix you touched on nonopec supply coming down. Nigeria and canada we are seeing some of that oil come back online. Nigeria might have a ceasefire. What is the Downside Potential . Give us the target. Jason we look at the nonopec supply being driven more by the u. S. And some latin american countries. If you have the combination in nonopec supply coming back online and demand weakness, you get a 43 type of level. Event a transitory you have a strong support for crude oil prices by the Fourth Quarter at two dollars a barrel. 50 a barrel. David are some u. K. Banks un investable. European financials and whether it is time to buy the debt. More bloomberg is next. Ix this is bloomberg joinhairman of merck will bloomberg onset at 9 30 a. M. Eastern. The bank of england is set to plan easing capital mans after u. K. Decision to leave the European Union. Bank stocks here in the u. K. Rallying on the potential of some capital easing. Has come back down, trading 1. 5 higher. Rbs is to lower on the session, down by 1. 86 here in london. Chris, from what you hear from our story today, give me the calculus there. Back in march, they lifted the buffer to 0. 5 . Dropping it down to zero, does that change anything to these fish for these banks does that change anything for these banks . Chris i been impressed with what hes doing. Heres another move to makes her the banks are able to continue to look after the real economy regardless of what happens in the next 12 months. Jon what he suggests today really fascinated me. Potentially negative rates damaged bank profitability. Became from him at a time when people expected rate cuts. From what you heard, will there be much more emphasis on credit easing . Will the emphasis be helping banks . Chris it will be a cocktail at measures. Pushing down to be to get growth going but will have inflation coming with the decline in the sterling. He has to think about how he balances that. He will Hurt Bank Earnings by hing rates into negative hes giving more capacity to be active in the real economy. Its about balancing earnings with the real economy. The take a look at bloomberg, looking at park place that versus barclays stock. He white line is the debt looking at barclays debt versus barclays stock. Chris these stocks are down 30 . If you think earnings will go down that amount, i would be really shocked given the kind of recession we like to go into. It builds insubstantial problems in the mortgage market, the Consumer Lending market. Quite frankly, i dont think that is the case. It is a profitability issue. Banks have been facing, its difficult to generate revenue. David before brexit, the banks were not having an easy go of it. There was limited growth come Interest Rates were locomotors a challenging time for them. Low, itest rates were was a challenging time for them. Who are the people in position to take market share and take advantage right now. Chris i spent most of my time looking at u. S. Banks these days. There are some winners. In the u. K. , theres been talks of challenger banks taking share. The challenger banks were the market is most concerned, the traditional mortgage market, which is making people uncomfortable. Whether they can take share or whether there will be share for them to take is another question. David what about the swiss banks . Chris good point. Credit suisse is going through the kind of turmoil that barclays is in rethinking their investment banks. In terms of capital rules and the week Capital Market revenues ak Capital Market revenues. They are facing those problems. Still strongre players. Capital position will enable them to continue to take share in the above management industry. People will probably take a lower risk jon Deutsche Bank down 19 . On the back of that brexit vote. The peripheral banks taking a beating. The Italian Government set to step in and get a waiver over eu state aid rules so they can inject cap into the system. Are they using the crisis as an excuse or are they very concerned about the state of their Financial System right now in italy . Chris the one thing weve governmentsulators, learned a lot in 2007. All of them are trained to be proactive. Trying to be proactive. Nobody wants to go back down that road. They are going to take that bazooka. Who has the hardest job right now . Regulators in the u. K. Or the eurozone . Chris the eurozone. Jon great to have you with us on the program. Next up, battle of the charts. Why is the u. S. Stock market rallying a week after brexit . David this is bloomberg. Time for battle of the charts. Julie i am trying to make it one in four, trying to get my win here. This one is for you, jon. Thanks to brexit, weve actually 100 is the best performer among developed Market Indices year to date. This is surprising given the turmoil weve been experiencing. The lead coming just in the past few days on this post brexit vote rally we have the s p blue and way down here is the euro stoxx 50. It is remarkable. David it be the s p after brexit. Alix this comes from Deutsche Bank. The blue line is the inverted vix curve. Right around brexit, you had investors turning to hedge on spike inct this big the vix. Investors were buying a lot of hedges. Once brexit happened, they unwound their hedges and the s p started selling off. Maybe this is over, maybe the unwind weve seen has run its course. Which brings into question the rally weve seen in the s p over the last few days. The same thing happened with the ftse 100. Brings into question the rally there as well. Ie even when the s p 500 usually, the s p would be up and would be down. Jon ill vote for will vote for hillary clark. I found the chart. For julie. Voting julie wins. Jon how low can yields go . Yields on 30 year treasuries fall to record lows. David a bloomberg exclusive. U. K. Bankshares jump on the news. You have brexit risk and turmoil in china, shaking investors worldwide. Hedge funds set for the first the worst first half of the year since 2011. David we are just under 30 minutes away from the opening bell here in new york. This is bloomberg. Alix it was a crazy week. We have another hour of great bloomberg ahead of us come including an exclusive interview with ken frazier. This week has been one to remember. Jon exhausting. Everyone looking forward to this weekend. Lets wrap all this up and give you an idea of where we are trading in Global Financial markets today. The ftse 100 performing decently. What a week it has been. Im sure mark barton will run you through that in just a moment. Boards quickly. Alltime low lo yields. An alltime low on the 10 year. Down by five basis points. As we await the cash open for equities coming here is how the commodities trade is set up. In the the situation markets lets check in with stocks around the world, beginning with julie hyman in new york for look at whats moving and of the open. Abigail doolittle at the nasdaq. Julie i want to bring you some breaking news on Fiat Chrysler which has just come out with its june sales. They rose by 6. 5 , lower than the 8. 9 estimated by analysts. Shares are hanging onto gains for the moment. We will keep track of them. Nissan missed estimates. We should be hearing from ford and General Motors within the hour. I want to get some perspective here. Take a look at the bloomberg and what we have seen over the past six sessions here for the s p 500. Im looking at the intraday movement we have seen here. We had that rally last thursday going into the u. K. Vote, then the tumble, than the increase this week, 6 , setting up to be the best week for the s p 500 going back to november. We are. 7 below last thursdays close. Futures. K at the in the u. S. , we saw some weakness in futures overnight. Since then, we have seen them strengthen back to little changed at this point. A tossup as to where we will be at the open. Weve been talking about tesla all morning. This crash that occurred in florida on may 7 involving the autopilot feature. The driverless feature of a model s sedan. Not detect a did tractortrailer. Shares not taking much of a hit, down. 8 this morning. Netflix stands out this money. Shares nicely higher Come International nicely higher, International Subscriber growth. International subscriber growth could be strong. This is important because the International Growth could offset the more modest growth domestically. The company has put up a couple sloppy quarters in a row. Netflix come of the previous in the pudding when they report on july 18. Netflix, the proof is in the pudding when they report on july 18. Apple is said to be looking to streaming service, tidal. Analysts looking for a big turnaround in micron. The Company Reported their Second Quarter mixed quarter , guidance for the full year slashed guidance for the full year. We will have to see what happens here for last years worst stock in the nasdaq. Lets head over to europe. Mark stocks in europe rising for the fourth consecutive day. The european benchmark is up by 7. 6 . That is the most since february. By a cumulative 10. 8 the biggest fourday rally since 2008. We are at an august high after the biggest twoday drop since august. Come up by ftse 3. 3 . The bestperforming developed market in august as well. We have mark carney suggesting we will get a rate cut in the next few months. That is pushing the pound lower, that is boosting those companies, those big benchmarkers who derive a big portion of their earnings from abroad. Put the 250 down by 5. 6 since friday. Ftse 250. This is the british pound index. We still have not recovered those losses. The sixday decline of 10. 5 . On sunday, sitting on today losses of 11 . Losses of 11 . Weve got new lows in london, new lows in paris. Year at a record low. Is the ecb going to change the way it buys its bonds . Look at outstanding debt. Spain and italy have a lot of debt. Alix it has been an unbelievable story. That rally in global bond yields. Joining us is the Deutsche Bank chief mobile strategist. The main driver of this enormous rally there is one catalyst, Market Expectations for what Central Banks are going to do. If you start with the u. K. , weve got the shock, the bank of england singh yesterday they will use over the summer. Saying yesterday they will ease over the summer. Look at what the banks have done in japan, the ecb, the fed, they are all correlated. The main reason yields have gone down is the market is internalizing the central Bank Reaction function. We are talking about rates premiums aree risk on the wrong side. Alix the bond risk premium is actually negative. You are paying for the right to hold bonds over the longer term. Without any compensation for that risk. David going back to 2002, they were way up and now, negative. What i would point out is if you think about the 10 year treasury yield as Market Expectations of short rates come in the u. S. , the market has priced out any rate hikes over the next three years. Think about the 10 year yield as a short rate and the risk premium, the risk premium is now 90 basis points. That is a historic low. If you were to be buying the u. S. 10 year yields here, you are buying that the fed is not going to raise rates for three years, maybe longer. That seems very extreme to me. Jon is the market view right now that Central Banks are successful and that is why yields are so low or that it is a failure . Stimulus has not generated any Inflation Expectations. I am definitely in the latter camp. Notralbank easing of rates always but certainly over the last few years has not really been stimulus, it has been a tax. That is a longer discussion we could have at another time. The simple fact why bond yields have fallen, the markets are internalizing with the Central Banks are going to do. Move, theother curve and the s p. You had people adding on hedges right before the brexit. Spiked while the s p was around record highs. What kind of juice do we feel now . David the sudden bounceback. I want to talk about this. How much of the correction is simply technical . People saying it is not as bad as we thought. It is largely technical. It is important to keep in mind those go things. Two things. , the equityto shock market is pretty quick to price it in. You get a steep drop and it comes back gradually. Wehave a situation where think medium term beyond the transition, there will be a slowing of growth in the pound, but its not as big a deal as the market action. As to come back just it is usually the second leg is much flatter. This time, it is symmetric. That is largely technical. , peopleas a tail risk take positions in the Options Market when the tail risk is realized to make money. To cash in on the option. That requires buying and going the other direction. Lets get beyond the technical and fundamental we are at the midpoint of the year and the fundamentals, what do you project, what will they look like . And given where we are, it is back to the u. S. Macro data and most importantly, i would say earnings in a couple of weeks. Comes outtor that this morning, the manufacturing pmi, were looking for a continued turn off the bottom in december. All the negative data surprises we saw in the u. S. With manufacturing turning down, bottoming in december, my expectation is it will be a leading indicator in the u. S. Our thesis has been the earnings recession weve had four four quarters of negative growth is largely reflecting the macro drivers of the dollar, oil prices and the volatility we had in q1. The Second Quarter is now over. Macro our view is for a pretty significant five to six point inflection in growth. The narrative should start to change. David binky will be staying with us. Amidst anes down investigation involving their autopilot technology. This is bloomberg. David welcome back. This is bloomberg. Michael has laid out reasons why he should be the uks next Prime Minister. The british justice secretary is vowing to reduce immigration and says he will make the country a fairer place to live. I would only trigger it after extensive parliament ray talks. I have no expectation that article 50 would be triggered in this calendar year. Ery he torpedoed the leadership ambitions of fellow Brexit Campaigner Boris Johnson now, he has his sights set on the early favorite to lead the conservative party in the country. War going on in the president ial campaign Hillary Clinton spent roughly 500,000 a day on television commercials. Meanwhile, donald trump did not run a single ad. Clintons biggest concentration of ads came in three battleground states. Puerto rico has defaulted on its president obama signed the restructuring plan. Puerto ricos governor has declared a moratorium on debt payments. The measure signed by the president shelters rico from bondholder lawsuits. Desperate to rico from bondholder lawsuits. The measure signed by the president shelters puerto rico from bondholder lawsuits. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Im shery ahn. This is bloomberg. 13 minutes away from the cash open in new york city. Futures right now a bit softer, but only marginally. Friday was ugly, monday was even as ugly and the ftse just made a comeback. The biggest week of gains potentially since 2011, up high. 8 . Since 2011, up by. 8 . The 10 year down five basis points. That is the situation across Asset Classes. Julie we have breaking news. Forward out with its june sales which rose by 6. 4 , beating the average analyst estimate of 4. 9 . Ford out with its june sales. Car sales in the month actually fell by 12 , suvs were up 7. 3 and trucks up 24 and at series trucks up nearly 29 . F series trucks up nearly 29 . Shares up 2. 2 here this morning. Honeywell,tion from they are buying a Company Called intel a graded for 1. 5 billion. It is a supply chain and warehouse Automation Technologies company. Shares, lets see how they are trading in the premarket. They are actually little changed here. Headline, Standard Poors is cutting its u. S. 2016 to 2 cast for from 2. 3 . S p cutting its 2016 u. S. Gdp to 2 of 2 22 from 2. 3 . Votvo cut to core neutral. There is uncertainty, the effect of brexit along with a weaker handset market that will weigh on these companies. Coming up, u. S. Regulators investigating a fatal crash involving a tesla on autopilot. We have the details, next. This is bloomberg. David this is bloomberg. Tesla shares are down today after news that u. S. Regulates are investigating the first fatal crash involving autopilot technology. Joining us from washington is tim higgins with more. What do we know about the circumstances of this event in florida . A the tesla was going down highway, a tractortrailer took a left and the tesla on autopilot did not see the tractortrailer. It did not stop and ran right into the side of the truck, going underneath of it. The driver died. Officials are still investigating the cause of it. If thestion will be actual driver would be able to stop in time and whether the technology should have been able to see that tractortrailer. David we know if there have been other complaints about teslas on autopilot . Technology was rolled out last fall, there immediately was some interesting youtube videos of people doing rather silly and foolish things on autopilot. People getting into the back of their car as the car continued to drive down the street. They may changes in early january to make it a little less reckless. The driver is in charge of the vehicle, supposed to keep his or her hands on the wheel. If they take them off, the car will start beeping and eventually slow. They are still responsible. This is not full autonomous. This is not the google car or robot car of the future that does all the work. This is like advanced cruise control. It allows the car to break or slow or speed up depending upon the setting. Alix why isnt the stock down more . Tim the details are still coming out. I looked through the accident report come at one of the interesting things is that tractortrailer did not yield. The investigation will be into who is responsible. At fault hereely if this was just a normal accident but with the driver have been able to stop would the driver have been able to stop . , whatas been the debate would happen after the first fatality . It was inevitable. Look at normal driving, people die on a routine basis. This technology would be at least safer and maybe reduce those accidents. David all the Auto Companies that cadillacing is supposed to come up with a similar sort of modified autonomous driving early next year. What possible ramifications will this have for gm, ford, other Auto Companies . Tim tesla surprised the market where sgm has been working on it for a very long time. Delayed bringing it out commencing they would bring it out when it was ready. Any kind of death would delay, make the public less confident in the technology. And attract more regulation. Safety advocates have been saying this is not ready yet. David tim higgins reporting from washington. Up, the opening bell on bloomberg. Heading for the biggest week of gains since 2011. Would you believe me . This is bloomberg. Get ready for the rio Olympic Games by switching to xfinity x1. Show me gymnastics. X1 lets you search by sport, watch nbcs highlights and catch every live event on your tv with nbc sports live extra. Im getting ready. Are you . X1 will change the way you experience nbcuniversals coverage of the rio Olympic Games. Call or go online today to switch to x1. This is bloomberg. Away from the opening in new york city. Futures are doing nothing most of today so far. Here in london, a rally as we wrap up and at the week of trading, potentially the biggest week of gains since 2011. At the opening bell, the sound of capitalis treasury yields kiss an alltime low in the session. Down five basis points. 1. 42 on the u. S. 10 year. One week after the biggest drop ever following the uks decision to leave the European Union. Things are a lot more stable now than they were last friday. That is fair to say. Lets deconstruct the markets and the week that was with julie hyman. Trading downarkets this morning. Still looks like it might be the best week for the s p 500 going back to november. General motors sales just coming out in the past few moments, falling more than had been anticipated. Decline of 1. 2 . It was 1. 6 , excuse me. The decline estimated was your. 7 . Earlier for kim edwin estimates that beat estimates. What the shares look like at the moment. Motors holding on to gains even after the numbers came out. By the way, these are june auto Sales Numbers for the u. S. Also, news crossing about honeywell agreeing to buy the Warehouse Automation Company intelligraded. Those honeywell shares are up a half of 1 . Mine in focus as well, the company agreed to sell its indonesian copper and gold assets to a local consortium. The company has been trying to get rid of some of its indonesian assets. Ts focus reduce newmon on copper. Dicks has been named the successful bidder in the auctioning off of 31 Sports Authority stores and will also pay for the intellectual property and Sports Authority name. Can a court annuity calls it a massive home run for the company. David it is focus on farmer week here and bloomberg. We are taking a deep look at the global pharmaceutical sales and biotechnology. This morning we are talking about mark. Join me to talk about where the Company Sees Growth is the companys treasurer. We are taking a look to run bloomberg this week at the pharmaceutical industry. More specifically what its doing to transform health care in this country. Thought we would go to specifics rather than talking generalities and talk about a specific drug. Keytruda is in the immuno oncology area. Explain what in the is, what it can meet people with cancer, and what the drug is. Immuno oncology is something that people have been looking at for many years. Bodysgents allow the own defenses to attack and defeat tumors. We have been studying keytruda across 30 different tumor types. It is one of the first agents that has the promise of being a broadspectrum agents across many different kinds of cancers. Does this have the potential to replace chemotherapy as a replacement therapy . It certainly does. In andied keytruda important subset of lung cancer patients. Chemotherapy, while it has benefits, also has tremendous side effects. What the study showed is if you compared a population on keytruda to a standard care of chemotherapy, keytruda did better providing protection against progression of cancer and overall survival. Now you have a drug that has fewer side effects that is much more effective for an important subset of lung cancer patients. That is revolutionary. David give us a sense of an arc of a drug like this. 30 different tumors you are testing on. When did you start, and how long are you in the process . We have gotten to market three and a half years after we first dosed a patient with keytruda. We could immediately see the impact on tumors, so we are rushing to try to get this drug to as many people. We have to study tumor by toomer. David vucevic on clearance for so far . Melanoma, and second line and noncell lung cancer. We are looking at head and neck, classical nonhodgkins lymphoma. We are looking at a number of important different cancer types. We will have many filings over the next year. David how big could this be in terms of number of people affected . It is hard to say how high the ceiling is because, in many ways, we are trying to figure out which tumors it does not working right now. We are very excited by the possibility that this could be a broadspectrum agent against many different malignancies. David give us a rough sense of the investment required. How much do you invest in order to get to market with a drug like this . Every year we spent about 7 billion worth of research in all of our categories. Billionocket, about 2 dollars for keytruda. David that is quite the investment. It really is, and it gets to the point that we have to have a serious conversation in this country about the health care system. David how much would a does it approved, for a customer or Health Insurance company . Year melanoma, 125,000 a for keytruda. If you actually have it administered in a hospital, it will cost more because it has to be infused, and have to pay for the hospital charges. Of course, then there are rebates negotiated by the payers that we work with. David how can our society deal with that issue . A promising drug that could save lives, transform lives. On the other hand, we have 17 of our gdp going to health care. Trees cannot grow to the sky. At one point do we need to say we cannot afford that . Let me make a point about health care expenditures. Everyone realizes there is a significant amount of waste in the system, and we have to figure out how to get the waste out of the system. Keytruda does not fall into that category. I think the debate about health care today is polarizing. I think it falsely picks up pharmaceutical companies against society. Society needs these drugs. The reality of the world is, if we dont have a sufficient return on investment, we will not get a significant capital we need that we have to put up for a significant risk for a significant period of time to continue research. David is that message getting through to the populous overall . You look at the political race for president and it does not appear that either candidate particularly loves the pharmaceutical industry. Why is it that people and politicians do not have an appreciation for the contributions . I think most people who i encounter really do think what we do is important. I think there is a legitimate conversation that needs to be had about how we make health care more affordable. Unfortunately, in the heat of the political season, the discourse around pharmaceutical pricing, just like a number of issues, becomes overheated. I hope that when we finally select a president , we can focus on what works for our society. David i will not ask you to pick a president today. Thank you. David david from what you know, would it make a difference which candidate wins . Both candidates have very of various parts of the platform which are not good or competition and patient access. David let me go back to keytruda and how this fits in with merck. Potential upside, but there are also some competitors in the marketplace. There is an alternative the drug out there. How much of a limit could that put on the rise and revenues for merck from keytruda . Of it that way. There are a lot of patience out there that need these medicines. I do not see as being in competition with these companies. We are competing against this horrible disease. Cancer takes too many people too young. There is anpective, opportunity for these companies to contribute to society. That sounds terrific, but at the same time, you must feel pressure. S go off on your drugs, so you need a certain amount of new drugs coming on board. What is the swing between success and failure . That gets back to what i was trying to say before. Our business is primarily about failure, in that we are trying to invent new matter. Lets talk about alzheimers. David i know that is close to you personally. Absolutely. My father has the condition. Many people in the u. S. Do. If you get to be 85, which most of us hoped to be, you have a one in three chance. In 2050, this will cost our Society North of 1 trillion. This is an important area that has been replete with failure. 200 failed studies. David why is that . There has been a lot of money and effort put into this yet we do not seem to be making progress. I think we are advancing the state of knowledge about the human brain. It is a tough area but we feel good about the hypothesis we are testing with our drug. David most people, i think, amyloid, producing the the plaque on brain cells. There is some question whether that is the wrong route to go down. If it turns out that is not right, will that have a Chilling Effect on overall alzheimers reachers research . That this is the dominant hypothesis right now, and if this is not in the disease process, it may be many years before we discover an agent which will be disease modifying. David i wonder about potential acquisitions. Are you looking at other companies that you might acquire that would fit within your portfolio to give you some help on those new medicines . We are. As good as the research has been historically at merck, and we are 125 this year, no one company can produce enough import drugs to support themselves. We have to look at to scientific innovation. We are looking at Companies Across various therapeutic areas, sizes, but we are looking for value creating opportunities. David when you look at your dashboard running merck, what is the most sensitive thing you look at to determine whether you are succeeding or failing . The environment in our laboratories. Can we recruit and retain the very best in scientific talent . I just want to close by saying this is an exciting, unprecedented time in human biology and medicine. I think it is really important from the standpoint of society that we have sensible conversations about how we can have affordability for todays medicines and access to tomorrows medicines. David thank you so much, ken frazier, chairman and ceo of merck. For more, go on to bloomberg. Com. What a wild week it has been for markets. We will take you through the moves we have seen and where we are headed. David this is bloomberg. Coming up later is keith cratchit. Jon from london and new york, this is bloomberg. The chief equities strategist at wells fargo says markets have adjusted remarkably , but a test of mondays low would not surprise. Looking forward to chatting with him. And we have somebody from moodys on puerto rico. Rules, chairman of formulae, and the latest political news. 25 seconds. Jon looking forward to that. In the u. S. , stocks in positive territory. Abigail the nasdaq is slightly higher. Weak performance in chip stocks including qorvo and qualcomm. Appear that apple is the reason for the decline. Skyworks and qorvo were looking at a downgrade. One analyst said that he thinks the second half will be muted. On qualcomm, another downgrade at a record. The analyst downgraded the share to a hold. Half s the second there will be a lack of catalyst in the second half. Interestingly, we had a week quarter from micron. They slashed their fullyear guidance. Isloomberg analyst says it apples to oranges and the dram pricing at micron is actually turning around. Alix it was quite a week since britain is historical to leave the European Union. The unexpected decision through markets into chaos. Lets take a look at the week that was. We are waking up to a whole new reality. These guys have been here trading since 8 00 p. M. Financials will be front and center. The british people have made a different decision made a clear decision to take a different path. Is the 10 are seeing year guilt moving below the 1 level. We have not seen that ever. We are meeting just a few days after a very painful and regrettable decision from the citizens of great written Great Britain to leave the European Union. We do respect his decision, of course, but it will have to be sorted through and its consequences. If we do not come to a grownup trade deal between the United Kingdom and the eurozone, it will hurt the eurozone. The ftse has just erased is post brexit losses. There will be no negotiations u. K. Until under the it notifies its intention to withdraw. We ought to seize this moment and stand tall in the world. That is the agenda for the next Prime Minister of this country. I have concluded that person cannot be me. Tuesday morning. What is the Asset Classes you will be watching to show you what the world is thinking . I would be a little bit cautious over the next couple of weeks. We are basically about two weeks away from earnings season. I would argue the s p 500 is still the key barometer of risk appetizing the world. A littleng to be unsteady up until we get earnings. Key driver of the u. S. Equity market the last few years has been u. S. Corporate buybacks. As we are now in the earnings blackout period, they tend to go into low gear. I would be a little bit cautious, i would watch u. S. Equities. As we talked about earlier, a sharp bounce back to where we are. If you look at other indicators of how the market is positioned, we have the overlay of even lower rates. That has had a big impact basically on how the different sectors have performed. 500 looks like it is back to where it was, one level below, it tells a different story. The rates are reflected in there, and that performance has not really been pleasant for active equity fund managers. World hard to remember a before we were all consumed with brexit, but there was such a world. In that world, the topic was Global Growth. As you look out to the second half of the year, what are the likely sources of Global Growth . The answer to that is simple and short, the u. S. The u. S. Was the key contributor and driver of the Global Growth up until 18 months ago when we got hit in the prior six months with a very large and severe shock of the dollar going up at the fastest pace ever and the consequent collapse in oil prices. I believe we are the tail end of that risk. I am not a great believer in secular stagnation, so i think growth comes back and a narrative changes. David looking at the increase in the dollar, is that all the fed . Not at all, it was the ecb and boj, and i do not believe they have taken the responsibility yet. Alix a few weeks before earnings season comes out, we still have brexit uncertainty and the buyout blackout. What is the best way to hedge your risk or the next few weeks . I dont think you want to hedge risk. Alix you do not want to buy the yen, gold . Being long on the yen is a good trade tactically and strategically. I would not think of it just as a hedge for Risk Appetite or a done move. It would help, but i would argue , if you look at the japanese yen, it is being driven by lower gdp yield, contrary to the bank of japans intentions. Is the banks intentions actions that are actually driving the yen higher. If you look at where fair value of the yen is, we should be in the mid80s. A you have a driver, committed driver, the bank of japan, and evaluation, i would argue it happens. I am long on the yen anyway. I do not think of it as a hedge. I think it is a tree that you should have on. 85. fair value, thank you very much, binky chad a. Next. Loomberg is jon from london and new york, this is bloomberg. Forward to ang long weekend stateside but it is jobs next week. To jim bullard earlier and he said there were two big things for the head, one was brexit and the jobs report. The last time around, it was terrible. No one expected brexit to happen and it did. The question remains, what does it mean for the fed . Any significance in the near term . David last time we thought the jobs number was so important. This time it is even more important to see whether it was a blip or a trend. Alix last week we had initial jobless claims going down, which is a good thing. How does that jive with the job market . That will be key definitely. Can see what is happening over there with the conservative party. Lets have a look at what is coming up later today. Usign ceo will be speaking to us. David see you on tuesday. We have a long weekend. From new york, i am vonnie quinn. Mark this is bloomberg markets. Vonnie we are taking you around the world to cover stories from berlin to hong kong and moscow. Here is what were watching. Global stocks extending the post brexit recovery into it for today with the s p 500 on track for its best week of the year. Investors speculating central help out anyt to effects. Mark governor mark carney looking to give lenders more flexibility if the u. K. Economy slows down. Rico defaulting on 2 billion worth of securities today. The island creating a moratorium on debt payments after president obama signed a law sheltering the commonwealth from lawsuits