Doesnt have much room to rise. Is the crude rally done . Welcome to the program. Half an hour until the market open. Good morning, caroline. Lets talk about whats going on in terms of the equity market. After the volatility of the last few days, today looks relatively benign. We are looking for a reasonably flat open, a little bit of the softer side. 1 10 ofutures, ftse 100 1 higher, Everything Else looking softer. Caroline yeah, and the ripples of the italian concerns seem to be failing as fast as asia. Msci down, the first time we have seen a drop in that market in the week. We are seeking a move to new havens. The dollar is trading lower, yen trading higher, yields really pushing lower. U. S. Treasuries near a record low, aussie bond yields of 1. 94 , crashing to new alltime lows as the rba holds fire for the Interest Rate changes and italy yields are just pushing up slightly. Clearly, concerns once again about the banking system, the need for recapitalization and merkels decision, not wanting to see any recapitalization using the taxpayers. Lets get to the first word news, with haidi lun. Haidi thanks, caroline. The central bank has upheld in conclusive general election and fallout in britain quitting the European Union. Glenn stevens and his board left 1. 75 . Sh rate at a. The bank says it sees inflation remaining quite low for quite some time. The uks Ruling Conservative Party will ballot its mps today as five contenders are hoping to succeed David Cameron as party leader and prime minister. Theresa may has secured most endorsements and is also the bookie favorite, but Energy Busines the Energy Minister haso gained the backing of boris johnson. Sayseo of the oil trader speaking explicitly to r saiderg, ian taylo slowing demand and efficient refinery practices are to blame. It to be a little bit higher, assuming demand continues to increase, which i think it will, maybe a slightly we willte, but i think be in the high 50s or early 60s. But i always give this a health warning, you know that. Ryan that would be at the end of next year. You see 60 oil . At the end of 2017 . I could see 60 oil. Haidi and the juno spacecraft has successfully entered orbit around jupiter. [cheers and applause] haidi as you can see, the news was met with cheering, clapping, and hugging at the control center in california. This is the closest encounter yet to the biggest planet in our solar system, 500 million miles from her. Global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. This is bloomberg. Guy thank you very much indeed. Top , capture all those stories. A new story from the bank of England Governor Mark carney, cracking open the toolbox in todays Financial Stability report. Capital to d he is he seems to be ready to use Capital Requirements in the wake of brexit. Joining me now onset is richard jones, strategist from bloombergs first word. Richard, glass halfempty. When carney opens his mouth and talks about the things he can do, he is signaling that the u. K. Economy is slowing down. What hes doing today is announcing macro prudential claus, we can back off the things we have to do. Richard he is. And it follows on from what he said last week about rates where they are definitely on the table, validating what Investor Expectations were for rate cuts in the near term. Probably more qbe, and this is another prong of the bank of england attack. Bore,e going in full because they are concerned about the indications of brexit. Guy he has a lot more tools of the box, but given the kind of wider remit of the bank, theres quite a lot the economy can do. Whether it has an effect or not is open to question. Richard there seems to be a greater willingness from the treasury to provide fiscal stimulus in addition to the Monetary Policy and financial policy stimulus. Carney does have more tools, but it seems treasuries are willing to help out. Speak, weard, as we are looking at the pound down by 4 10 of 1 . Give us a sense of where we see the adverse reaction. Some saying that u. K. Business expectations have fallen off a cliff there is so much risk aversion and the pound has been feeling the brunt of it. Richard yeah. I think a lot is priced in, certainly to the sterling rate market. I think part of what we have seen in decline in the pound is due to that. I think it is also due to risk sentiment being damaged. For me, the interesting thing now will be over the coming weeks and months to see how sterling reacts. What does the eurosterling rate to do . We have seen a sharp rate already, but it could be that concerns about the euro area and spillover from whats happening in the u. K. Will affect the euro economy, then perhaps it will moderate. Guy what about the bond market . Its hard to judge what it will do. The sense seems to be that we will get some qe more rate cuts. The story im getting from the market that its not the primary weapon he will use, because he knows that rates are low and qe will have a longterm effect. In terms of how you would wait, in terms of the policy response, how important are those two factors, and what is the lead into what happens in the gilt market . Richard i think its a traditional thing they employ, the first thing they do, and given the fact that there is concern about the u. K. Economy and this is a concern that was out there before the Brexit Debate begin. In january and february, investors were pricing the potential administrative cuts, and the whole brexit saying has intensified it. In terms of whats going on with the gilt market, i think you can probably see, as long as the bank of england will be supportive, you can probably get in the nearterm, as you guessed in our previous segment, the gilt market will be well supported. Richard, give us a sense, if we are seeing pound potentially remaining under weakening expectations, but the euro aware how are you interpreting the eus response to what is going on, and indeed, the Central Bank Policy that might be helped by the ecb . Is it going to the arrays to get the banks out there and lending when it comes to mario draghi, and what can be pulled out of the bag by mark carney today . Richard the interesting thing in terms of the Exchange Rate is that you already have aggressive easing being priced into the u. K. Curve. In many ways, the u. K. Is playing catchup to what the ecb has already done. What the ecb does in the next six to nine months will be very interesting, because it could be that they lower rates again. It could be that they extend our expand qe. For the nearterm, the folks in the bank of england is what investors are looking at,. Anna pretty sure the Banking Sector will be all years as well. Thank you very much. Richard jones, always great to have him. And happy birthday to him as well. We will be bringing you mark carneys address in full from 11 00 a. M. U. K. Time. Plus, bloomberg users can follow the the report and News Conference on the top live blog. Up next, another centralbank weathering the storm. The rba policy makers have been holding on rates as the world falls apart around them. We go live to sydney, next. Caroline welcome back to bloomberg. On the move. A weak day in the start of trading; lets get you caught up with the Bloomberg Business flash. Suspending trading in its 2. 9 billion pound u. K. Real estate fund. It is the strongest signal yet that the turmoil from the brexit vote will probably have the property market. The suspension of the fund, prime commercial real estate assets, will be reviewed every 28 days. Standard life adjusted the value of the underlying efforts last week. E Italian Government is reportedly studying a capital plan for multitasking without saying where it got the information. The move could include new convertible bonds and support from other funds. Theyding to the paper, could do worse by at least 3 billion euros. Goldman sachs has told Asset Management staff to tighten belts amid poor performance, according to a report. It says executives have issued a needed that to thousand employees must curtail spending, with a ban on travel not associated with meeting clients are winning new business. And that is your Bloomberg Business flash. Caroline haidi, thank you very much indeed. Calm after the storm or in the storm . Australias central bank stood still in the midst of rising uncertainty, holding rates at a record low 1. 75 . Of the rba is tackling record low inflation and international headwind after domestic political turmoil. It continues to be the key provider of stimulus to the economy. Lets go live to sydney and Michael Heath, here with us. Michael, could the rba be forced eventually to cut rates soon . It held as every economist forecast. Ichael it certainly could, and soon as the operative word. It was fairly similar to last month except for a key line at the end where he said that policy Going Forward would be data dependent. The hint is on inflation. A week before next months meeting, Second Quarter inflation data is released, and if it is as weak as it has been, that could well be the trigger for another cut by the rba. Caroline are there parallels . Give us a sense of the Ripple Effect from the united kingdom, that the central bank is Holding Things together. How much is the rba being depended on as we get an election that is inconclusive and a bit of a political issue as well as in australia and the u. K. . Michael yeah. It had to do the heavy lifting for the past five or six years. We are in a situation where it butossible, not certain, possible that australia could have a second Home Parliament in six years. Beenentral bank has putting pressure on politicians in canberra to undertakes a some Infrastructure Spending and boost productivity without much luck. As a result, they have been forced to cut Interest Rates to a record low. To try and help businesses outside the mining industry. Yes, they have been front and center in terms of Economic Policy in australia, and given the situation with the election, it looks like that will continue. Caroline Michael Heath in sydney, thank you very much. Meanwhile, the yield in australian bonds pushing ever lower. Thank you very much. Guy, we will be discussing bond markets in the next. Guy we certainly are. What i found fun was the aussie statement, selling off as they got to the last point. Joining us now in london is john dalton, global head of j. P. Morgan Asset Management. Good morning. Good morning. Central bankers are looking at the political chaos they see in front of them. In the u. K. , the eurozone, australia. The markets are pricing this, and you can see it quite clearly. Theres a longterm chart of 10 year yields, continuing to grind ever lower, particularly down toward the zero line. The moment is at that without anything else changing, that story is not going to really alter, that we will continue to see the flight to safety, piling into treasuries. Yeah. And i think that is very reasonable. Certainly what we have seen is that the Central Banks have moved from necessarily looking at the fine details of their own economy and looking at monthtomonth inflation towards their mantra, first, do no harm. The comments from mario draghi, looking for no one going off to quickly on the Monetary Policy response to the turbulence. Obviously the data dependency indicated from the reserve bank of australia suggests that theres a great deal of sympathy for the fragility of the Global Economy right now. We are in a world where investors demanded a discount in order to protect inflation, and now what youre seeing is that investors will pay a premium to protect against disinflation. Thats a significant shift in mindset, that i think will be with us for time to come. Caroline where are we going to see the outperformance when it comes to the bond markets . Are we going to see the money moving into the u. S. , at least showing in excess of 1 yield when youre looking at the 10 year . Posse as well, australian posse aaussie as well. Are these the countries that will benefit from the flight to these havens . I mean, its very much a real yield game. Ultimately, what we have seen as a real yields have been compressed significantly in australia from the beginning of the year. But they are still positive in terms of other global bond markets. We have 700 billion shortfall in next supply this year relative to demand. Of course, Bond Investors ultimately want a positive real return, so the australian bond, u. S. Treasury, ultimate recipients. Guy you alluded to something earlier what we are seeing is equities for Capital Gains and bonds for yield, but that has flipped on its head. What are the indications are that . You are going into highquality equities, kicking out 6 yield, not from the bond markets. Is this a shortterm shift or a longterm trend . Activeave been very much in looking at longterm Capital Market assumptions, which are 10 to 15year views. From a balanced portfolio of stocks and bonds, the fact of the matter is that you have seen a lowering of potential terms, and inexorable if you get that, you have to have balance. You have to have some stocks. You have to be willing to take relative value views, as was alluded to earlier on, picking between different parts of the bond market, equity market. You have to be what i would consider prudently opportunistic. When you do see markets selloff, dislocations, be willing to lean into them. That favors more of an active approach. Otherwise, the return is from a simple, static balance portfolio. Guy stay with us. Minutes away from the European Equity market open. Up next, potential corporate movers in todays trading. Is always about the banks, isnt it . He will take you through what comes next in terms of whats happening with the italian Banking Sector. The open is eight minutes away. This is bloomberg. Guy 7 53 in london. We are minutes away from the european open. Lets talk about the stocks it will focus on. I want to take it to the mrr function, the Banking Sector for europe. Yesterday, significant selling. The nps getting really pushed down hard. The Italian Government is in crisis mode about that, but the italian Banking Sector sold off heavily yesterday, unicredit pumpedeally getting pretty hard. We are seeing quite a lot of selling in terms of the italian Banking Sector. Are we going to get resolution today . Theres an article saying we may fund, but maybe not big enough. Caroline a drop in the ocean, 3 billion euros to 5 billion euros. The ecb is asking to selloff. They want 14 billion euros in nonperforming loans. I have a chart to show the underperformance, not only of sector, justing since january. We have seen that seriously underperform, 70 of its market value, tracking it for me normalized point of view. Here in germany, the issue is on the merkel is on the low merkel doesnt want to see a taxpayer bailout. Theproblem is italy is Retail Investor that holds a lot of this bank debt overall. Guy yeah. Its going to be a political fight. A lot of editorials talking about the fact that italy should get on with it, the brexit is a good enough excuse. Lets talk about where we are in terms of the open. Euro stocks calls down by around 1 , london looks like it will be a little better, European Equity markets look like they will open around 1 lower. This is bloomberg. The open, next. Speaks at 11 00 a. M. Today. Can he soften the blow of brexit . Is there a Silver Lining . In a bloomberg exclusive, ian have ays will doesnt oil doesnt have much room to rise. Looking at the futures, we look like we are lower. Yvonne i think we probably guy i think we probably will be. Keep an eye on the italian banks and the Banking Sector. London looks like it will outperform. This was the back end of yesterdays trading session. Were just going to come to the open. The ftse looks like it is beginning to try to push itself a little bit higher. As you can see we are up fractionally at the moment. Open. Lly, its a flat here. Ndon market is up, we are getting a little outperformance from the under market but this is the pound sells off a little bit more. We saw asian stocks drop for the first time in a week and in europe it looks like we are seeing the same trend, pretty much read across the board. Andsia it was Energy Banking stocks leading the losses. Energy leading the losses followed by utilities down 6 10 of a percent then followed by financials. It looks like Consumer Staples is the only Industry Group heading slightly higher. Lets take a look at how the u. K. Guilt markets are opening up. We always keep an eye on this 10 year yield. It looks like we are down three to four basis points. It fell below 1 for the First Time Ever in the aftermath of brexit and it seems to be heading lower today. You,ve three here for starting with Standard Life. I wanted to show this after Standard Life investment, suspended tradings in the 2. 9 billion pound u. K. Real estate fund yesterday. We will probably hit the property market. Managersye on asset Real Estate Investment trusts in the u. K. 0. 6 atsome numbers up the open. It was ever so slightly higher. At 1. 9st revenue came in billion pounds and said it is too early to say how brexit will affect the homes market. Finally, of course, italian banks are very much in focus. We are italy planned a 3 billion euro fund support. A couple of things i want to talk about. Now, andappening right this could account for the differences, we are seeing another leg lower. This is the cable rate. We are now sub 132. We have taken another leg lower on sterling. As we were just discussing oftener. Looking at the discussing off air. Looking at the ftse 100. Market continues to take it on the chin and sterling is the story partly behind that. Lets talk about what is happening in italy. Nero was talking about fts. We are seeing broad selling continuing. Broadly, we are seeing banks trending lower. These are the last two weeks of the u. K. Banking sector as well. It is certainly a story that has been written across europe and the u. K. Bank is certainly being hit. The bonus story will be interesting as well. Also the payouts could be cut by at least a quarter. Abouttalk a little bit what is happening in the Banking Sector. We are still with john bilton. Lets talk first of all about an opportunity. In the headlines we talked about the possibility of a Silver Lining. Be wondering if brexit could a Silver Lining. What it provides is a great excuse for banks to pull back on remuneration and maybe look to read domicile workers, to do some of the restructuring that they have to do. You can see it really clearly at the swiss banks. U. K. Banks as well and maybe even the u. S. Banks as well. Our Bank Executives sitting there saying, this is bad, but what would you do with all of this over here. Lets look at what the bank sector really needs. You dont get a bull market rally in most economies without the Banking Sector delivering. We have not had one in europe where the Banking Sector hasnt led we have the diametric opposite right now. You have to really reach to see that there is a Silver Lining. You could argue is we had a shot across the bowel early in the year when we saw concerns about bad loans across the italian Banking Sector and just maybe, cover could give the air for the italian banking authorities in order to recapitalize certain parts of the Banking Sector. Potentially it could be a positive, injecting capital allowing them to work the loan problem could be a positive. Right now it is difficult to see an environment where Political Uncertainty and Economic Uncertainty made for a Good Environment for the Banking Sector. Volatilew it is a stock. It trades in the sense that we are seeing it halted in the trading in italy as it slumps more than 7 . Bruising area. When we have mark carney coming to the four later today, how much will this hurt banks further . Are you expecting quantitative easing . Central banks are trying to walk a tightrope here. Mark carney cannot be seen to sit on the sidelines and do nothing. Clearly there will be an expectation of a lower u. K. Outlook, both in terms of the u. K. And general stability and as a result, it has to act. At the same time he will be aware that by lowering base rates generally, if you are to hint at stepping back into qe, that potentially wreaks havoc with sector earnings. An think you will see any commitments or promises today but what you will see is further suggestion that the bank of england stands ready to support u. K. Economy do i need to think of at the banks as an opportunistic player . Seeeurope recovers or we significant help from the unicredit traders on a. 23 book. Do you just need to have some of this tucked in your portfolio. Ecause it is so cheap it may be of value trap and it may not but you dont know. The option of putting it in your portfolio is fairly easy. Need to own the banks . Upside will behe huge. You can look at the higherquality and of any sector. When we looked at our active Asset Allocation view, one of our elements is upping quality. Guy you dont want the nonquality and of the spectrum. To get into that you have to be a lot more opportunistic qualityherwise, good sectors are businesses have been dragged down. If you are willing to take a much higher risk, and maybe would look at the italian Banking Sector but it is sort of a caveat in many regards. When you look at the balance portfolio the idea is you need some financial exposure. If we get the kind of support we need to see from policymakers and order to repair some of the capital holes that exist. Digging much more with john milton into what is coming up with the bank of england. Toolbox. T is carneys this is bloomberg. Guy welcome back. A quick look at the markets to see what is going on this morning. Big foreignee, the earnings dominated companies are performing well today as sterling takes another leg lower. Continental markets are suffering. Italian banks are down roughly. Lets get you an update. What do we need to know . Here is haidi lun. Australias central bank has held steady. The rba governor Glenn Stevens and his board left the cash rate every as forecast by economist surveyed at bloomberg. The u. K. s Ruling Conservative Party will balance the 330 mps today on the five contenders hoping to succeed David Cameron as party leader and prime minister. Has secured the most public endorsements from colleagues and is also the bookie favorite. But the Energy Minister topped a poll of Party Members and gained the backing of boris johnson. Hashe juno spacecraft successfully entered orbit around jupiter. [applause] juno, welcome to jupiter. As you can see the news was met with much cheering, clapping, and hugs. This is the closest encounter yet with the biggest planet in our solar system. Day,l news, 24 hours a powered five powered by more than 2600 journalists. Mrs. Bloomberg. This is bloomberg. Story for investors today will come from the bank of england governor. Mark carney will crack open his toolbox in the Financial Stability support. What can he do to soften the pain of brexit. Lets ask john milton. You are telling you that you are expecting support to come for the bank of england. Are they enough . Were hearing talks of tax cuts and incentives for them to come from the treasury side of the equation. How much do you expect mark carney to be a lifeline . His job is to centralize and reassure markets. That theanticipate base rate will come down to roundabout zero over the october and november meetings when we get the various inflation reports. Right now it is mark carney verbalizing his support for the economy more probably. Sector we haveng already seen sterling do a lot of heavy lifting in terms of providing support. We sit that comes to the export facing segments of the large gap market of the ftse. The thing that will push mark carney to consider qe, or credit easing or other tools is the fact that base rates are still at 50 basis points. There is not a great deal of room before we get into negative territory. The idea that we would get a significant boost to the u. K. Consumer probably isnt there is it wouldve been. Potential forand qe would be on the table but it thends a great deal on how bank of england believe the economy will perform here on and. Guy how much of this is about keeping sterling down. Economically a cheaper sterling. Manus guy . Guy i dont think we need to worry about that. Guy you could see sterling rising versus the euro, that wouldnt be great news. For sterling we need that relationship to stay cheap. Petrified about the breakup of the euro zone of the eurodollar traded up to 145. The fact of the matter is mario draghi does understand. Unilateral we see a currency were kicking off, doesnt help anyone. That was part and parcel of his comments when he talked about onelack of efficacy of large uncoordinated block of policy. Indoes he surprise himself this new world that he will say i am not worried about the currency channel . Weapons if his main will be keeping currency down. This fact of the matter is his big concern is how we maintain stability with the u. K. And how we prevent any significant damage coming to the Housing Market and any rise of of liquid seas or worsening Debt Service Ratios which is why he will use the front and rate as his first tool. Potentially he would look at Credit Information for small to medium businesses which comes more into the credit easing and macro prudential policies which the bank of england and other authorities have worked with before. All ofg is a casualty in this and it is highly likely that we would argue the sterling will continue down against the dollar. Unlikelyhe euro, it is that the ecb will lower rates at the front end significantly. The idea that we get it tanking is a little bit out there. Sterling is weakening against the euro, but more against the dollar. Thats certainly the playbook i would be looking for. Caroline you can see the sterling heading toward 1. 25. It is phenomenal. More negative yields. Minus land entering 0. 01 . Weve had one of the contenders saying Leadership Party the next government should borrow to help the productivity. Using fiscal sides of the equation come into help the u. K. Economy . It is back on the agenda. It came on the agenda at the g20 meeting with christine thatde having suggested Monetary Policy had run its course and for the World Economy to pick up from here, we would need to see fiscal stimulus of some sort around the globe. It big question is, does take a crisis to prompt fiscal stimulus or will it be rolled out to prevent a crisis . We are still going through that debate right now. There are certain parts of the world where it is more likely we see fiscal measures brought in. Japan could be one of them and it is certainly being brought talked about amongst the conservative leadership. The design of it, the understanding of how it might work has yet to be thrashed out in the corridors of power. Guy we need to talk about what is happening with the ftse 100. Indicated,already mark carney will address the stress facing the Financial System following the brexit vote. Off an hour early and we will start it off an hour early and run you through everything happening in that story. We will have a chance of the the chat of the hour. Back, next. Caroline welcome back to on the move. I what digit i want to dig into our chart of the hour. Nejra cehic, you have been analyzing how the chart has been doing the last couple of decades. Nejra we have been talking a lot about the ftse 100 bouncing back over the last couple weeks but since the birth of the eu in 1993, it has underperformed some noneu peers. Indexg at norways obx and purple, and in blue you have the stocks 50 index. The ftse 100 right at the bottom in what. In doll in white. In dollar terms, the ftse 100 has been underperforming since 1993 and it is up 85 since then compared to a 350 jump for the smi and a more than 400 rally in the kobe x. Those inrencies the obx. Currencies, though stocks have searched twice as u. K. Or more than the index. Guy why is the ftse 100 on default . First and foremost, we had a devil of a banking crisis in 2007 and lost a couple major constituencies. Secondly, the ftse is a very defensive index. It has miners and it and oil in it. Of theabout a fifth index. Staples and health care together make up around one third of the index. Over the long haul, there have been sectors which do not necessarily provide that much excitement. So you are seeing the fact that you have a large cap with a low index coming into play. You had pockets of localized programs going off. Relativeund sterling to other currencies has been stable to the dollar in broad terms over that period. Can put speaking, you around 1. 6 as being your average through their. There are so many give us yourbut view as a global head of multiasset strategy now, doing a long, do expect the weakening of the pound to be a will to help that benchmark . Where do we put our money now . We would not be advocating anything significant at the moment, not least because we are still in uncertain terms. We are seven days in to the post brexit world. Seven years to figure out the fallout. The idea that we would go racing into u. K. Assets because they happen to look as though they have cheapened up, we would not necessarily be looking to do that. Instead we would be up in quality where there is a decent earnings story. From dollar and oil have dissipated for this year and some of the data we are seeing coming through suggest that the u. S. Consumer is doing generally ok. Guy plenty more still to come. This is on the move. Caroline welcome back to on the move. The picture is one of fred. Stocks is one of red. Toxx 600 down Financial Services is also woeful. Not poorly0 is performing today. It is one of the out performers being held by that cheapening pound. The cac 40 is also lower. Interestingly the ftse trading in italy is trading flat. Nejra cehic has it all. Absolutely, i am starting with this shares are actually halted after a 7 drop after we heard they are considering a capital plan for this. Rally, it was one of the best performers yesterday, really increase in the price of silver and gold. Both falling today. Silver tumbling after posting its biggest twoday advance since 2011. Some technical indicators suggested that it was in overbought territory. Finally, looking at land securities, another one of the worst performers on the stoxx 600 today. This after Standard Life investment suspended trading in the Real Estate Fund yesterday. This is being seen as the strongest signal yet that the turmoil from the brexit vote will probably hit the property market. Land securities are down. Were also told to keep an i on Real Estate Investment trust and Asset Managers at the open and into each rotors, aberdeen Asset Management, Standard Life as well are all down 3 . A couple of things happening now. We have seen a turnaround in the italian taking sector, mps. Is trading to the upside of where it opened. We will see a turnaround in the euro as well which seems predicated on this move. Clearly fx traders are watching what is happening within the Banking Sector. What is happening . Our European Finance reporter, eliza joins us now. Do we need to think about mps different than the rest of the Banking Sector . We need to think the target over the recapitalization that they have been focusing on. There is talk of more money going into the acquisition of bad loans. If that worked to happen and banks were able to remove some of the debt burden off of their box, they could ease the capital concerns to many of these banks. Job number one is fixing pesky. Pasqui. It does appear to be that is the focus. This is a bank that has already the built out twice since financial crisis of this would be the third package of government money that the bank would be taking. How with the Commission Deal with this . The deal is to play the key role here. From what we are told, there is some leeway within the rules that will allow the government paschi in extraordinary measures. Caroline looking at on the low merkel, she doesnt looking merkel, she angela doesnt want to see if it were a bail and, it is really the Retail Investor that britain is most worried about. That is what we saw at the end of last year which really triggered the latest selloff of the last seven or eight months. Banks that were bailed in under the new rule and that really triggered the selloff that has made it very difficult for the banks, including unicredit which needs to bolster capital to think about attacking the market. It really we need to look at the direct impact on taxpayers lack of the protracted confidence in the longer term effects of that on the economy to be a will to conclude which way to go. Have isatest flash we that italy is set to consider a capital injection for paschi. How big would that need to be . The newspaper reports this morning pointed to between three and five. The devil will be in the detail. Does ascii issue sick does paschi issue securities to the government . We need to find that out. Not much time ahead because the understanding is that this all needs to be resolved around the stress test which is due this month. Caroline they come out july 29. Thank you very much. Even more of the viewpoint on what is happening in italy in the Banking Sector. Our partner at munson capital is in rome. Marco, give us your response. Saying italy is considering injecting fresh capital to boost its finances. Is this a longterm savings prospect if they can support this bank . It has so many nonperforming loans. Carolyn and guy, i thought elisas comments were very pointed and precise. Paschithe reasons why has gone down, is that for the first time in decades, the Market Capital is less than one billion euros and people are panicking. What really needs to be seen here from professional investor points of view is the canary in the goldmine which is the bond of paschi. The subordinate paper has not dropped significantly. A bank with a market cap of less than one billion euros with bonds still trading at very normal yields does not make sense. One of them is mispriced, either the bonds are mispriced or the shares are mispriced. The shares are mispriced. The banks youve mentioned today are down more than 80 from their highs and are recovering. One of the things that your viewers must forget is that monte paschi is the oldest bank in italy. They have assets they have held for hundreds of years. Many are fixed assets like palaces, buildings, and castles. In italy they are called immobile. They cannot be liquidated or monetized quickly and that is really the problem they have. Is a liquidity crisis. Talk to us about any potential rescue of the bank. I know you are saying it is perhaps mispriced but many investors will be looking at the fact that the company is being 14 billionfload euros of nonperforming loans at very quick speed. They have only been selling down 2 billion euros since 2015. They are being asked a lot of by the ecb. Would a bailout to the tune of 3 billion euros help at all . It looks as though they are being sold convertible debt. It is like trent to put a bandaid on a dam that is bursting. It is not going to do a lot of help. There are problems here and im the first to admit that there are problems. Paschi has tonte come to terms with their loans. Until now, the italian banking at 37 included them from selling at less than npls at significant discounts. In italy, the lost not exist. Exist. Laws do not it is difficult to sell nonperforming loans at clearance prices because it is a reputation thing. If the word got out, there would be hell to pay. Nobody would pay and the whole world would go kaput. They have to continue to pretend and demand to get paid 100 cents on the dollar. That is unfortunately part of the Italian Culture and what elisa said, with this new injection of liquidity, the devil will be in the detail. 3 billion euros will help. But the market cap today with monte paschi as of a few minutes ago was less than one billion euros. There are small and Mediumsized Enterprises that have larger market caps the matt and i find it difficult to believe that the bank with the history of monte paschi, with its international network, and far flung connections cannot find a way to do this. My belief is, there has been too much Government Intervention for decades. We have Political Parties interfering. Thought for a moment. I want to update everyone on what is happening with the stock at the moment. Had a little bit of volatility, let me show everybody what is happening. The stock is bouncing around all over the place. Stock looks, the quite volatile. I want to spin you forward to the referendum coming up. Ifnps cannot be saved, paschi cannot be saved, how will that feed into the political story and the banking story . That is a great question. Holy cow. [laughter] firstpaschi cannot of all, the last time there was a serious bankruptcy in italy was over 100 years ago, a roman bank, that cost a lot of damage. Changed thenister minister of treasury in italy at the time. A lot of political price had to be paid by the then controlling majority of the parliament. The senate was a monarchy than but things were different. Florence will have a difficult plate of problems to solve. Thee paschi is bank in italy and it is very well entrenched in all the provinces and regions of italy. Theyve had their banking facilities there and it would be disastrous if they could not be saved. I dont think it will have the repercussion on the vote because, for better or for worse, he never had anything to do with this. He is tuscan, but he is from florence and monte paschi has been run as a political trough for a lot of people and a lot of people have eaten very well. Those are the people who should pay the price and give back to the government what they have. Aken, incorrectly and unfairly guy just wrap it up, brexit should be seen as an opportunity by the italian and the italian Banking Sector. How wide do you think the window of opportunity is to get this done . Is only going to be until october. The reason why is, the referendum in italy will overtake everything that we have spoken about until now. Your viewers must not forget renzi was not elected by anyone in italy. Power legally but he was not a popular vote. He is there and he would like to prove to himself and all of the italians that the italians are behind him. The referendum will be the test to determine whether he will stay and continue his changes that he has done. He has more to do, but that is really going to be the timeframe. Im sure that the bank of italy, the European Central bank and i hope that the European Union will have some flexibility and letting the italians solve their problem. One of the reasons they left brexit is that england was tired of the European Union telling them what to do. I think they should have their own liberty to do certain things and not be dictated by the gods of the European Union. Guy on that note, we will leave you. It is interesting. He speaking at the moment talking about spain. Maybe there is some support elsewhere around the European Union. Lets talk about what is happening with crude. Is the crude rally done for . Up next, our exclusive conversation with ian taylor. I think stock levels will come down. As is expected. I cannot see the market really roaring ahead because we have so much oil. Caroline some breaking news. We have had the spanish pmi coming out. Italys number showing expansion. Much faster than anticipated. The expectation from the survey than. 9 is much stronger previously anticipated and a significant pickup from the contraction that we saw back in may. Are notices sector looking to go bad in the eurozone. Lets move on and talk about oil. Oil may not have much more to rise. That is the view of ian taylor. He spoke to Ryan Chilcote in an exclusive interview. I think there are special factors in the Second Quarter. Strikes, canadian wildfires, and nigerian destruction which helped create tighter supply. Demand continues to be good. I would say the market feels that maybe we have a slight balance for now. Having said that, the second half of the year, i think we do expect to see a little bit more of a draw in the u. S. Is the production levels for onshore shell come down. That goes through to the actual stock levels which are pretty high. A lot of the oil is going east and i think we are seeing a little bit of extra product coming out from the refineries now. Surprised to see us ending of the year not too far away from where we are now. You have a bit more bullish . Maybe a tad because of the supply disruptions. Most of those are beginning to correct themselves now. They still take quite a bit of oil out of the system. Where do you see the price in 2017 . We expect the cuts of the capex to affect production. Having said that, we do still see nonopec feel coming back. Like probably the backends, some of the offshore u. S. Gulf fields. Higherprices to go assuming demand continues to increase. But i think we will be in the high 50s or early 60s. I always give this a health warning. That would be at the end of next year . You see 60 oil. By the end of toy 17, 2017, i could see 60 oil. Guy the final reading for the pmi data from june with the services coming through a 40 9. 9 bang in line. Next, the race to be britains next prime minister. This is bloomberg. Guy you are watching on the move. The you ks conservative party will take the next step forward in choosing the Uks Conservative Party will take next cac 40 choosing the new prime minister. Step in choosing the new prime minister. It does sound a little bit like tv game show. What are the details . Little tting a caroline there are five in the running. All five in the running so far. We will lose one at 7 00 p. M. This evening. We keep going to this process until we are left with the winner. Beenard from one who had an outsider until recently, but now she seems to be doing better. Members of the party, which is what counts right now. She was trying to differentiate herself, and particularly around eu nationals trying to work in the u. K. Guy she is talking about caroline hyde. Anna exactly. Others have not ruled out using them as a bargaining chip. We saw a number of Business Leaders writing an open letter to the government saying, we need clarity on the work rights of these people who find themselves in other parts of europe. It is a serious business. Caroline the power is a bargaining chip. Theyre just getting the power of German Services coming out. 53. 7. More expansion than expected in terms of the growth and services sector. The final number for germany and a composite number coming in. It is interesting what is being said in the german press about the politics of the united kingdom. This is a local paper. The front page saying that both George Osborne and David Cameron politicians are on the attack in europe. They are on the offensive. This is being talked about, the overall tax rates. There seems to be shock coming from germany and shock when it comes to the brexit vote and viewing that this might not be legally binding. Thats whats coming out of many politicians in germany. Anna we will see where that story goes. The five contenders are on different pages. Some say you have to trigger that as soon as possible and other say that you need to wait. We have heard from George Osborne on the . 15 tax rate. To go downady going to 17 but this could open a real can of worms. Another element to the bargaining that will go on between the u. K. And the eu is what one country or one region can do. To play for in 20 of negotiations but apparently we are not negotiation because we are not having prenegotiation negotiations. Continues to fall as we speak. The bank of englands conference is coming up at 11 00 a. M. The pulse is next. Francine khiem nyfix what brexit broke yet go the governor prepares to unleash Emergency Group assembled in the aftermath of the 2008 financial crisis. Postxit, post course boris. The italian impact. Shares are halted after falling 7 in the first hour of trade. The government has a plan. Francine welcome to the pulse