100 debt financed. Is draghi now driving mma . Good morning. Less than 30 minutes until the European Market equity open. But show everybody what is happening, in terms of where we think we will be opening this morning and a much more positive picture for european equities. The ftse 100 is up by 1 . Tehe cac is up by. 8 . The dax is up by 0. 5 . Equities, at least back on the front foot, though it has been a difficult few days, hasnt it . Caroline it certainly has been. That we have a little bit of Risk Appetite in asia. Talking of mma deals. Being fueled by that ceaheat debt. Mma . E ecb driving equities are pushed higher as Energy Stocks do particularly well, but there is some risk aversion. Movement into that haven that is gold. Software see, avast for 1. 3sing avg billion. It is so easy to access the debt markets right now. First, lets get to the bloomberg first worrd news. Reporter u. K. Business confidence sank to a four year l ow after the brexit vote. This is the lowest since december 2011. German Industrial Production unexpectedly fell in may. Production adjusted for seasonal swings a fell 1. 2 from the previous month. 1 omists had predicted a rise. This is a sign of Political Uncertainty in europe. S P Global Ratings has lowered the outlook on australias aaa Credit Rating from negative to stable. This is after the outcome of the saturday election. As in th says s p says there is a one in three chance that they lower the rating in the next two years. And danone is to purchase whitewave foods in a deal worth 12. 1 billion. Growthe targeting sales of more than 5 by 2020. Consumers are seeking healthier eating at home. Global news 24 hours a day, powered by 2600 journalists in more than 120 news bureaus around the world. Bloomberg. Guy . Guy thank you very much. Property Investment Funds have been suspended, meeting the large market is now frozen following the vote to leave the eu. We are now joined by neil ofs x saxothe cio bank. Give us the latest now. We have until midday today to find out what our investors are goniing to think. Have frozen at the moment. Investors from tuesday at lunchtime that are going to be affected. I take it as a sign of panic that followed afterwards. But now clearly, more and more investors are taking money as more and more funds close. All eyes today will be on the last big fund that has not frozen for redemptions yet. Anna clearly, the funds sin to seem to be affecting each other here. We cant actually analyze the full impact of the eu referendum. The numbers look relatively strong with the amount of completions they are doing. How much is the underlying risk building here . It is entirely a question of sentiment. If you are an investor, first of all, 45 of the Property Investors are overseas. Many of them wanted to get out of the assets, and that is contributing oto this. Secondly, if you are a mom and pop investor and have had a good run, you are wondering whether it is coming to an end. If you look at the house prices on an income basis, mortgages are cheap, but they are expensive based on historical averages. Thes steve, the canary in coile mine . I doubt it. I think the fact that you now assets list foreign is adding to the noise around the property market. Than a more of a buy sell. Was already, this happening. What else was . The brexit seems to be shining a light on things that we already kennew about. We were scratching our heads about what was going to happen. What else is there out there that we already knew that is going to be impacted by brexit . I like to say we have the fast track to the core of the problem. Last time we had a surplus was 1982. Is, itthink it does resets the ability of the u. K. To compete. Priority andhe top sterling will benefit. The inability to do anything politically over the next one to two years. If you look historically, sterling has a spent very little time below 140. Anna steen, u. K. Assets look to. Look u. K. Assets cheap. How about the pound . How much has that been paid out at the moment . Steen i think sterling is the number one thing to go to. Dollar, with the the fomc minutes out, is showing the fed is not going to hike this year. I think they are more likely to cut rates than hike rates. I think sterling is going to be just fine. Theif you look for fundamental values, sterling is the goto for the next five yeraars. Guy thank you. Neil, it was been tracking this entire story with his team, some great work being done there. Us. N jakobsen, staying with more on the central bank minutes, next. This is bloomberg. Anna a sunny start her ein berlin. You are watching on the move. Finally, after three days of losses, the dax is up. 6 . Lets get to the Bloomberg Business flash. Reporter danone will purchase whitewave foods in a deal wo rth 12. 5 billion. Based danone is targeting a sales growth of 5 by 2020. Quarter sales fell 1. 9 from a year earlier. Food sales fell by. 9 . Meanwhile, the british retailer says it is early and they cannot yet couple of by the implications of a brexit. It is also too early to assess the impact of the brexit on the u. K. Housing market. The sectors fundamentals remain strong. And the associated british foods, the owner of the clothing chain, has raised its earnings forecast for the year. The pound is weakening in the wake of the referendum. As revenueoming grew 3 year on year at Constant Exchange rates. That is your Bloomberg Business flash. Now, the Federal Reserve is losing confidence in its need to tighten. Minutes from the fomc meeting last month showed officials facing rising uncertainty about the outlook for growth at home, and indeed, abroad. Jobcymakers want proof that creation has resumed at a healthy pace, and the inflation will eventually hit their 2 target. Bill gross said sovereign bond yields at record lows are not worth the risk. He told bloomberg, it is too risky. High durations, which we have now at low Interest Rates, even a small change in terms of yield can produce a significant loss. The sovereign bonds are not up my alley. Not up my ally. Steen jakobsen, still with us. Are they up your ally . Absolutely. Think about japan. The chinese continue to devalue their currency. 1 to 2 is still the best game in town for risk. Guy i want to show you this chart here, which we created here on bloomberg. This is the 30 year yield for the United States, the s p 500 dividend yield. Down here, those two lines cross. Let me zoom in here. This is the bond market for yield. Ewed up in a very crudscr world, dont we . Steen this is clearly a very different game. The best performing portfolio this year is a portfolio that has a little bit of everything. Over0 year has performed 12 . Gold is up over 20 . Equities are just flat. I think you must have a balanced view. Lets go to japan. If there is no reform and no productivity, it will sink ever lower. Equities are a better place to go if you want dividend yields, in terms of pick up. Caroline you brought our attention to japan. You are looking at japanese yields at the moment, showing you how across the board, global sovereign debt, we have got 10 trillion worth of sovereign bonds with negative yield. The blue line, show and japan is trading significantly in the negative territory. Overall, you have the overall sovereign bond index at a record low. Income. O show the fixed where is the best opportunity . Steen i think again, you have the balance fixed income portfolio. But shy away from anything that has a negative Interest Rate. I should understand it, but i do not understand why i should be paying people to lend the money. Im just back from emerging markets i am just back from south africa. This is a country which has seen the worst of everything. So, i would probably add that what i am looking at is emerging markets and countries that offer the bigger risk in terms of t hat. South african yields are about 9 to 10 in an economy that is clearly slowing down. Guy that is not local currency. Do you want to do the local currency bonds . Steen i will do both. Guy what does this number look like in six months time . Steen it is bigger. We are crowding out the ability to actually be productive and i dont think there is any solution coming through. Everything is about debt, issuing debt. Usedf all debt issued is to service already in place debt. We are going absolutely nowhere. Guy to quickly follow up, draghi is underwriting this effectively. Is this the logical conclusion that everybody should come to . That Debt Financing should be accelerated, not decelerated . Steen everything has an infinite upside, right . When the Interest Rate curve does change, when we do have to reform, when we are beyond this Political Uncertainty, the rate will go up. Before the next six months, i dont think so. Why wouldnt you be doing the Debt Financing . Guy stay with us. We are minutes away from the open. Up next, we will look at potential corporate movers. We just spoke about danone purchasing whitewave foods. 11 minutes until the market open. This is bloomberg. Caroline welcome back. It is 7 51 in london and 8 51 in berlin. Lets get a look at the stocks to watch. Subdued consu t seems, that will only ramp up this post brexit tune. Also guy, danone, mixed calls. Some say it will rise 1 and some say it will fall 1 , but it 19 lashing the cash, a premium for the owners of these particular brands. They will be purchasing whitewave. That is 10 billion. Mma on the agenda. We have another mma deal on the agena. Give us a sense of what the targets are. I think it is expensive when you operate in a world with zero Interest Rates and 100 Debt Financing. I think, i have a hard time understanding these deals. This market share is globally falling. I find it very concerning. I actually think we are looking for canaries in the coal mine. It is probably more of a coal mine event, than having the Property Funds in the u. K. Being closed. Guy they have rich currency and cheap debt. Shouldnt they be out there purchasing the world right now . They should be in the airport, waiting to grow currencies, absolutely. That is what we saw the swiss do last year. That is what Japanese Companies should be doing. Caroline fascinating, were going to be getting the swiss foreign reserves a little bit later. Will we see more intervention coming from the likes of japan . Maybe they will be looking outside mma. Will the government be trying to keep them lower and start to push down on the yen . I think everybody is waiting for the elections in july. Post that, i think the government has a plan ready. Rumor has it they will have a 2 expansion. Of course, that is the road to nowhere, but that is what they do. Policymakers and Central Banks continue to be very pragmatic. The analogy to the press officer in iraq, he kept claiming they were not going forward. I think the central bak and nk and policymakers are doing the same. They have saturated the world with debt. To some extent, we can see that in the political scheme. Im i dont might what is going on in terms of the macro sector, that we have to watch those macro structures. The companies are doing very well and the cash flows are good. Guy weak industrial data out of germany this morning. The bond markets are signaling a number of things, that are they signaling and i am assuming that they are incredibly large growth for a long period of tieme. Germany is a huge exporting machine. They will do better for longer than the rest, but generally, the yield curve is indicating we have a significant slowdown. People have to realize, brexit or not, that would have happened anyway. The whole set up was doing that. Guy it short circuit ied the whole story. We are now minutes away from the equity market open. That story, next. This is bloomberg. Guy good morning. Welcome. Youre watching on the move. Im guy johnson alongside careline hyde. She is in berlin. Careline has your morning brief. I do. Property panic. Four more u. K. Real estate funds squeezed in the brexit vote. Can carney do anything to stem this tide . Too risky. The Growth Market is to expensive. Is it time to sell . Buying organic growth. Danone catches white wave in a 12. 5 billion deal that will be 100 debt financed. Is draghi driving m a, guy . Guy lets talk about where we think these equity markets are going to open. We think it is going to be a positive start to the day. That is the futures. We rallied a little bit into the close yesterday. This is where were expecting the soy to go here. The cac is open higher. The ftse is climbing as well. Were expecting a decent 1 gain for the ftse this morning. For the Market Makers initially pushing us up around. 8 . There we are. Back to where we were just before the close yesterday. Equity markets at least on the front foot this morning after the panic of the last few sessions. All climbing around just over 1 . Lets see what is moving these markets. Negligence ra tells us everything we need to know. Nejra look at the i map and how various Industry Groups are performing. Up. 9 followed by utilities up. 8 and lacking a little though still gaining healthcare up. 3 Consumer Staples up. 6 and industrials following closely up almost. 6 . Now lets take a look at the 10year gilt yield. Looking at this down one basis point or two basis points now on this as the market opens. Well keep an eye on that as the day goes on. Were at 76 basis points right now. Now down four basis points. Lets look at the stocks that were watching today. Danone agreed to buy white way foods for about 10 billion, 12. 5 billion if were talking enterprise values. It is one of the Fastest Growing food companies. Danone expects 300 million in synergies by 2020. Also sort of sticking with the Consumer Sector, ab foods has raised its profit forecast on the post brexit decline in the pound. This company gets half of its profits from outside the u. K. Were seeing that gain this morning. Keeping an eye on m s. Same store sales of clothing and home good have fallen almost 19 9 . Analysts expected a 5 decline. It is worse than expected. Guy, caroline . Caroline thank you very much indeed. Well bring you all the news coming up. Angela merkel will be speaking from poland. Well be talking about italian lenders now. How much it has fallen year to date. It is now down to less than a quarter of its value from the start of this year. Talks between italy and the European Commission to recapitalize the nations struggling banks have reached a Sticking Point according to eople familiar are the matter. The smufe higher. Get in on my screen at the moment. Every single bank is in the green as we speak at the moment. Every lender trading higher. The italian lenders leading the harge. The italian banks are starting to surge but not one single bank is in the red this morning. Fascinating moves youre seeing on the Banking Sector. Lets dig into more whats happening in italy. John joins us now with details. Remind us of where the talks are about the recapitalization of the Banking Sector. John yes, well, the pressure is on of course with the declines in shares that you mention and we have been told by people familiar with the talk that there is a Sticking Point, basically who should foot the bill. The plan according to these people familiar is to design a plan which would help to verhaul banks and possibly european banks afterwards. The Sticking Point right now is where the burden sharing should kick in. Where there is state aid. It is an explosive political issue for them. Guy talking about the fact that u. S. Funds could be interested in buying up some of the italian banks. How realistic is this given the uncertainty that surrounds them . John the a pool of four u. S. Funds which are interested in buying up two banks and this interest has apparently been reportedly been with expressed already in the spring and their advanced talks. It is a possibility. For the moment it is an expression of interest. It is not actually a formal offer but it is being seen as encouraging news that Foreign Investors could be interested in italian banks despite the crisis of the sector. Guy thank you very much indeed. Jpmorgan in a note this morning says that the italian banking issues are political and not financial. The sums involved are relatively small compared with greece and that italy can foot the bill itself. It just needs the political will elsewhere. Is that realistic . Im sure it is at some point. You have a constitutional vote coming in at the ends of the year. Needs this to be placed. You have the state aid that is impossible under the e. U. Laws. Given another month or two of crisis. Guy it is not impossible. It just needs somebody else to say this crisis is big enough. I think he will get his banking deal and then well have to look at the referendum that happens later in the year. That is a big event still for italy. Italy still remains a political issue. To say that the nonperforming loans is a mere financial note, i think is also a little bit honest. O be caroline there is a political and economic issue. What do we do if were trading these sorts of stocks . Today were seeing very volatile stocks. Italian lenders in the green. Is this a buying opportunity or do you just wait and see what unfolds . In addition this case the answer has to be what is your horizon . In the shortterm it is probably a little bit overdone. I think there is a deal at the end of the rainbow. If you look at the Banking Sector, certainly banks are under pressure. We keep talking about this. We have Regulatory Framework and zero Interest Rate going into negative Interest Rate in terms of the ability to carry that forward to declines. The Banking Sector remains under pressure in terms of earning ablingte ability. When we talk about talk stocks being down and u. K. Banks down 30 since the brexit, we are overdone. I think shortterm, absolutely fundamental value at some of the better banks but longterm the Banking Sector remains a sector which is challenged by all the things you just mentioned. Caroline how one needs to be privately bailing in rather than bailing out. Were looking at Angela Merkel, the leader of germy speaking at the nato discussion. Talking about the post war order. The chancellor of germany merkel addressing the parliament before she moves over to the nato discussions later today. Well bring you all the breaking news from her speech. As she addresses them before tomorrows summit, they are expected to dominate the agenda as well. Well have the latest from berlin. It is up next as well as the football thing anticipated later today. Guy lets give you some numbers and show you what is going on. The dax is falling touch. The london market up 1. 1 . The paris market is looking pretty similar as well. Lets show you what is going on in terms of the movers. Stoxx 600. Lets pull that up and show you whats going on here. Abf in ment, you have the u. K. Trading up. The real standout surprise to me this morning, this kind of makes sense, Equity Investors are looking at it, hey, thank you very much indeed. Were not involved in this. Some of the Property Companies in the u. K. And the Asset Managers as well, aberdeens trading higher. Downside, the German Construction and Services Company down as well. Thats a mix in terms of europe. I think the surprise is whats happening with danone. Really interesting story this morning. Lets catch up with everything you need to know. Here is haidi. Haidi the Federal Reserve is losing confidence in its need to tighten any time soon. Minutes from the meeting last month held a week before the e. U. Referendum, they showed an uncertainty about the Growth Outlook at home and abroad. They want proof that the jobs have returned and inflation will hit the 2 target. Bill gross says sovereign bond yields at record lows not worth the risk. He spoke to bloomberg television. The durations which we have now at low Interest Rates. Even a small change in interprets of yield can produce a significant loss. The sovereign bonds are not up my alley haidi investors seek to dump Real Estate Holdings in the aftermath of Britains Brexit ote. Trading was suspended in aberdeens assets. The investors who asked for their money back have time to reconsider their orders. Singapores Investment Firm has been in portfolio decline for the first time in seven years. The value of holdings stakes decreased in the year to the end of march. 25 of assets are in chinese equities. Lobal news 24 hours a day. This is bloomberg. Caroline . Caroline thank you very much indeed. We have these breaking headlines coming out of the bundestag. This is Angela Merkel. The chancellor of germany. She has been saying there is a focus on sovereignity. This week they seem to be aimed at russia in particular, concerns about building up of russias presence specifically in the baltic. It has shaken eastern nato. She says they should be strength tng presence. They should be strengthening and bolstering natos presence in the baltics and it is time to strengthen security as well. They said a nato Russian Partnership remains valid. Well bring you all of those breaking headlines from Angela Merkel ahead of the nato summit. Steen remains with us. Give us the sense of where the e. U. Goes in terms of post brexit era. What are you expecting . Do you see the u. K. Indeed expect iting the exiting the e. U. . Seen the i was very surprised to see in this morning in the u. K. Media that was survey that less than 37 pnth think the u. K. Are going to leave ultimately. I still think they have to leave. I think we have to respect democracy and i find it interesting a lot of media and pundits telling me that the u. K. Should not leave. Why did we have this referendum . Why do we like democracy when it goes the other way . I think it is interesting, merkel which we just saw on the screen, she said very, very clear to the e. U. Commission, hang on a minute, if were going to have talks with the u. K. , we cannot have unelected officials negotiate on behalf of the e. U. With the sovereign head of state. That is number one. We will see more merkel. They will step up in terms of taking the reign here. We will we have the political aspect. If the u. K. Delays until next year, france will be in the full spring of having the president ial election going on. We have the u. S. Election in december. I think we have a very projection here in terms of what goes on. What remains the number one thing is we are on the fast track to have all of these kinds of conversations and questions being answered this year and not next year. I think that is very good for overall outlook politically and economically under the e. U. And u. K. Guy i thought merkels comments about sovereignity were interesting. Is she she may be talking about the baltics and the fact that russia needs to respect sovereignity but i think she is talking about Something Else as well. We may have got on the the point where they are not respected. That may be partly to blame with what has happened within the brexit. Does she have a point . Yes, sovereignity is border. It is what the protest votes were about. Guy it is about less europe. That is her saying maybe we have got on the the point where we dont progress this experiment anymore. The context here, i think she has been provoked by the foreign minister of russia by saying that the brexit vote is that want to nt expand. I also think it is a little bit of push in terms of relative to what russia has said during the brexit vote itself. Clearly merkel is the one politician we need to watch. She is the key to how well see the result in termsor u. K. Dont forget she has been the most the politician who has een holding back the most, who constantly said we had to be patient. What u. K. Needs now is time to think about its position. Lets see what happens in a couple of months time. Clearly merkel is in the driving seat. For the sake of u. K. And the u. S. , it is probably a good thing. I want to get your calls as we do navigate what is going to be a politically tortureous few months. We were talking about the French Election and we have the german election as well. Where do we see strengthening and ann raveling to have eurozone and what does that mean in terms of Asset Classes . Where are you seeing the dollar euro . Where are you seeing opportunities to buy within euro . I think the fact that the euro is not lower in this whole debacle clearly shows you to that the micro structure of europe is better. I travel to all 28 countries, now 27, over the year. You see for the first time that countries like greece, porch gal, spain is now portugal, spain is now competitive on a labor cost basis. Im not concerned about corporate inc. Europe. Im constantly seeing that political gets in the way of releasing the power of these green shoots in the micro structure. My advice would be keeb keep buying into europe. Urope is in a pressure micro structurewise. I think finally were seeing that the future engine of growth in europe is not going to be germany exclusively. Were seeing all of the smaller nations now making an the eastern border, the Eastern European countries are doing extremely well. There are a handful of countries that have significantly higher g. D. P. Growth than the u. S. The one benchmark we hold everything up against us. Guy one more conversation. Is ink it is nice that nato meeting in warsaw. Up next, gold. The rush for haven assets continues. That is coming up next. This is bloomberg. Guy welcome back. Youre watching on the move. Gold is glistening, isnt it, nejra . Nejra all that glistens is gold, guy. I have a chart showing that global gold e. T. F. Holdings have topped 200,000 metric tons for the First Time Since july 2013. These are the bars that you see sing along with the gold price e. T. F. Holdings have risen 37 this year. Now this amount that were looking at above 2,000 tons is larger than the gold reserves held by china which is the worlds top consumer and also a consistent central bank buyer in recent months. A number of things have of course contributed into this gold. To we have a prospect of further fed rate hikes being pushed further and further out. For all of this as well, it seems to have led u. B. S. To have said that gold has likely entered the early stages of the next bull run. Guy . Caroline . Guy do you believe were in the next bull run of gold . Ive been long gold since q 3 last year when we saw we were going to go to negative Interest Rates. Guy price target . No price targets, as long as it is going up the policy remains the same. Guy ok. Caroline i want to have a look at some of the other havens as well. We have swiss foreign reserves inching higher once again. 680. We are seeing the move from the swiss trying what seeps to be to protect their currency trying to keep it lower. Where do we see the other havens . Is the swiss franc still a haven in fact at all . It is indeed. It has probably one of the best models for not only the Economic System but also the political system. It is productive and i think the response we saw after the swiss strengthening when they the s p stepped back last year has been phenomenal. Everybody i was in switzerland at the time. Everybody was crying foul. It is going to be a disaster. The fact of the matter is employment is up. The economic model is very hard to beat the swiss. Guy this is gold and dollar yen. It has been going up, up, up. Gold and yen, safe havens. They are both and they always have been in history. Yen more so than gold. Again, if you run a broad based asset location model you would have been long the yen and gold in my opinion over the last six months. They continue to produce. Politically you have to be a little bit protective in terms of the b. O. J. Staying up and trying to do something. You cannot intervene in a currency that wants to go stronger. Guy thank you for your time. Guy welcome back. You are watching on the move. Were 30 minutes into the trading day. Lets see how things are shaping up. Im going to take you to the g. M. M. The zacks a little bit of a lager this morning in term turnovers equities. Lets walk you through what else is happening. Youre seeing a little bit a little bit of selling out of the havens this morning. The swiss twoyear is on the move. As is the United States fiveyear and the u. K. 30. I need a glass of water. There ever im going to hand you over to nejra. Nejra we have been talking about the fallout from the brexit on the u. K. Commercial property sector. I have to say i was surprised to see Land Securities actually one of the best performers on the stoxx 600 this morning. I dug a little deeper and saw that barclays has put out a note which says london is the eye of the storm and the heart of the opportunity and due to low Leverage Development exposure, the u. K. Is well positioned to weather the storm. In fact what it also did was raise Land Securities to overweight to equal weight. Perhaps that is one of the reasons for the this stock rising today. Ab foods rising after it raised its profit forecast on the post brexit decline in sterling. Of course ab foods gets about half of its profits from outside the u. K. Meanwhile staying in the Consumer Sector in the u. K. , m s not doing so well. One of the worst performers on the stoxx 600. This is after a marked deterioration in clothing sales. A subdued Consumer Spending ahead of the brexit vote. The numbers we got were worse than expected. Caroline . Caroline thank you very much indeed. Of course were l also having an outlook on u. K. Business confidence today. After a 4 1 2year low. A gauge of sentiments slid to six from 32 in may according to data from Lloyds Banking group. In the midst of the eurozones sovereign debt woes. How will the brexit vote play ut in the current currency era . We successed this with a senior european economist. Give us a sense how youre seeing the eurozone affect bid the brexit. What about the rest of the e. U. . Will we see a Ripple Effect . Will we see a breaking apart of the e. U. . Well, it remains to be seen if a brexit shock will affect businesses, investments hiring in the euro area. As a matter of fact we have to wait for a couple of months before we see the full impact of brecks it in the surveys. The p. M. I. So far has not captured the effect i think this morning the Industrial Productions figures in germany were weak but that is not the result of brexit. We need to wait for another couple of months to get some hard data on this brexit impact, early impact. Guy economists prior to the brexit vote said a vote to leave would be bad or very bad. Where are you on that spectrum . When you look at the euro area, at least, when you look from the euro area from the rest of the union and even from switzerland as whats happening in the u. K. In terms of politics in terms of market and in terms of now commercial property, etc. , you can tually make a case for the brexit shock being positive and actually it could be a very it is a very different situation from one country to the other. It is very clear. There is no escaping the fact that global premium risk will be high. Im not so sure that the next net effect over the longterm will be that negative for the rest of the union. Guy more europe or less europe . Difficult to say because definitely it has put on the table again the debate about the ever closer union. What you do with the Banking Union as a matter of fact as a starting point of more integration. When it comes closer to the public opinions, most important issues, pressing issues in terms of immigration and other areas, defense, etc. , im not sure it will push for more europe right now. Again, it is a question of strategy, depending obviously on what is the post brexit framework will look like. Im not sure it would be great in other countries to follow the u. K. Route looking again at the early impact in terms of financial conditions and politics as well. Caroline youre talking that we could end up being a net positive for e. U. Cohesion, the u. K. Exiting the e. U. What about a net positive for European Growth . You have been downgrading the forecasts. Where do you see it going in the next couple of years . Yes. The Immediate Impact is negative in terms of business. The question is to which extent this will impact the near term outlook for growth. It has come through a number of difficult years already in terms of profits, expectations. It is not great. That is definitely an adverse shock. But the most important transmission problem comes with the Banking Sector. That is my main at the moment where if we had to lower our forecast again to maybe below 1 in the euro area, that would be as a result of a weaker outlook for banks, credit supplies and eventually investments in the euro area including some s. M. E. s which are operating in a very challenging environment already. Guy well go over it in more detail in the next block of the program. First i want to ask you a question. This morning, danone, which was very important to the french, ut now is making a 100 debt fueled acquisition in the United States. Is the message getting through that the debt is free and what do you think that story once it gets through will mean in terms over the investment. Can draghi have anfect here. An effect here . That is a good question. There is not much the e. C. B. Can do beyond the monetary olicies framework. It is a starting point that needs to be accepted from everyone. The e. C. B. Repeating they cannot do more than what the mandate is set up for. But indeed, in transition to the e. C. B. Can help and will help and definitely will be driven by financial conditions, the Banking Sector in the nonfinancial corporate sector, the e. C. B. Can do more. They are at the moment buying corpt debt. A significant amount. More than 6 billion in june alone. They can do more buying a smaller share in primary markets. Increase this share a little bit more in the next few months that could help also companies to make plans for acquisitions, investment plans, etc. What im saying is that the liquidity aspect of this in terms of cuts and access to primary markets for both banks and corporate is i think made much safer, much more resilient thanks to the e. C. B. Guy stay there. Were going to have a conversation about the Banking Sector. Up next were going to continue our conversation. Were going to go back to geneva and talk about the brexit vote and go back to the economy and talk about whats happening within the banking story. Ity talians on that front. 38 minutes past the hour. This is bloomberg. Caroline welcome back to a sunny berlin. You can see the activity building behind me in front of the brandonburg gates. There are plenty of areas that will be spilling over with people. All the germans will be out watching it here from berlin. Lets bring it back to the business side of the equation. Haidi thanks, caroline. Danone is set to buy white way foods in a deal worth about 12. 5 billion. That represents a premium of 24 . Danone is targeting sales growth with half of its business keying on consumers seeking Healthy Eating alternatives. Investors seek to dump Real Estate Holdings in the aftermath of Britains Brexit vote. They have suspended trading in 5. 7 billion pounds of assets. They cut the value of one portfolio by 17 and briefly halted redemptions so that investors who asked for their money back have time to reconsider. First quarter clothing and home sales fell 8. 9 from a year earlier. Worse than the 5 drop anticipated by analysts. The british retailer says it is too early to quantify the implications of a brexit. Home builder bovis said it is too early to assess the impact over the brexit on on the u. K. Housing market. The companys fundamentals remain strong. And thats your Bloomberg Business flash. Guy . Guy thank you very much indeed. Lets get more from our guest, a senior european economist. Lets talk about the banks. You were mentioning it before the break. Never waste a good crisis, that is a phrase that has been thrown around europe for the last few years. Should italy be allowed to recap itself banks using government coffers . To be honest, we have had too many of those crisis. What we need i think is some preemptive action indeed including italy. Let me be clear about that. It sli not the Banking Sector in particular is not the result to have brexit shock, of course. That brings forward the issues that where it still the government is still facing and the hope was that they would deal with these issues. Over a longer period of time. If you have a Growth Outlook, some better conditions in the financial markets, for banks in particular then you can actually hope that this will be over time with private ector money coming in. It is not the case. It may actually no longer be the case. Im a bit afraid that if you say that it is too early to judge the result of whats happening so far, then at some point it is too late. The deadline i think is the stress test result from the e. B. A. That will be published by tend of july. That should thats what i hope should provide some justification. It is not an excuse for the European Commission and and the european government to take more radical action and address those n. P. L. Issues upfront. Guy the problem with all of this is if italy is allowed to bend the rules or use the kind the clause, what is the source of the Banking Union, how on earth duss a Banking Union actually happen, when things dont go right, were going to bend the rules. The germans will never buy into that. The german would never and many other countries would oppose this kind of suspension or break of the rules. The e. C. B. Already said so. It is the end of the Banking Union. Just a couple of months or years after it started. That would be a disaster. It is not about breaking the rules. It is about applying hopefully in a flexible and pragmatic way the rules as they stand and as you know, we have been discussing this in the past few days, there is the option and possibility in the resolution rule in the Banking Unions framework to use precursory measures and use the sovereign to step in. In those very specific cases where you want to have stability. The question to me is whether a brexit changes the situation based on the results of the e. B. S. Stress test and whether or not the e. C. B. And the government Work Together to make this happen. Ot to break the rules. The a solution would be for european money to come in and recapitalize the european banks are they need it. That is not the point. The point is to allow for a more flexible use of the current rules without breaking them. Im aware of the fact that it is a very subtle difference. Caroline do you think if this is not managed to be stopped this is a systemic issue . Where does this spread next . You say italy is the weakest link. What is the next weakest link . I think as long as the market that the adjustment is more or less orderly. It is not the case in the past few days maybe. If there is some stabilization down the road, there are expectations that the solution will be met eventually, then it can fine tune its existing but if this turns into some more systemic financial crisis, the orderly market adjustment then the e. C. B. Has to do something different. All options are difficult. It will be a choice between many evils but the least difficult, the least of all evils to me may be would be for the e. C. B. To buy back banks in that case. It is a huge challenge for the e. C. B. To buy Unsecured Bank debt because they are also the reck regulator but that is something they would do and face the choice between this and financial armageddon. Caroline would germany ever allow that . Germany would have probably no say. It is monetary policy. It is an independent central bank. The governing council would put at least contemplate the idea so maybe you dont get the decision but mr. Draghi is saying in an extreme case, some extreme tools could be used. This is within the mandate. This is not illegal or a breach in the e. U. Treaty. But again, this would be highly sensitive at the political level. Guy who has got the biggest banking problem now . Is itly or actually germany . Italy or germany . Any. Thinks it is germ if germany has to backstop the Banking Sector in some areas, overb think risk is not the same for the sovereign. I dont think it is a situation that you can compare with each other. Indeed in terms of the management of the crisis in terms of the management of the banking rules in the past few years, the situation is also very different. I dont think it is time either for this kind of political fight between those two countries. I think instead, it is time for both of them with the European Commission, with the e. C. B. , to get around the table and find a solution soon, sooner rather than later. Guy as you said earlier, europe has had a lot of crisis. You should never let a good crisis go to waste. Maybe europe finally will figure that out. Thank you. Up next, the u. K. s leadership race, by the end of the today well know the top two ndidates for leader and post brexit leader. This is bloomberg. Guy welcome back. Youre watching on the move. Lets talk about whats happening in terms of the market story right now. Just want to quickly show you the g. M. M. Function. The g. M. Sexmbings up by 2 . What is interesting is the front end over the japanese curve is being bid. Were seeing a bid on the swedish as well. Well talk about that in just a moment. Front end of the United States curve, back end of the u. K. Curve, the yields climb there go. Lets get back to the brexit story and the internal squabbles of british politics. The race to become britains next Prime Minister will narrow to two today. Eresa may and and debrisia leadsom are favored to go headtohead in the battle. Re o to talk about this is anna edwards. Well be down to two. Well know who the final two are. Up until now, it has been down to the poverty pped, the conservative party members. After this process today it goes out to the party meb. What is interesting is the timing i think here because this has been going a little faster than people had been anticipating perhaps. We were told that september 9 is the deadline. That was said sometime ago. W we have tory lawmakerer, the Party Chairman calling on the party to speed this up saying there is there are real life consequences and he is suggesting can we do this quicker by the end of the month . Caroline give us a sense for those in the rest of the continent in europe, they might recognize trades. Andrea leadsom less familiar. Seems to be perhaps overegging some of her previous experience in the city. That is for sure. Anna that is the allegation. She has denied it to some extent. She has a great deal of Financial Services experience. She is going to be talking at 9 30 u. K. Time about the economy. Maybe this is where she will try to distinguish herself away from the other contenders. She has less experience. Only for a few number of years but she has faced allegations the t has been on other three, theresa may. She was home secretary. Michael gove and andrea leadsom. Gove comes with a track record. His reputation is tarnished in the wake of the Boris Johnson fiasco. Many in the party blame gove. Whether the members of the party blame him, well see. Guy will there be a general election . Most people say there does not need to be. Some of these voices have said we dont think we need to get another mandate. No election until 2020. Guy may have credibility. The others do not. Anna, thank you very much indeed. Anna edwards. Stay with bloomberg television. Up next it is the pulse. Francine lacqua will be taking things from here. This is bloomberg. Francine frozen. For more u. K. Property funds holds withdrawals. The tory race narrows to two. The industry manager and candidate lays out her postbrexit vision. We bring you that live. The French Company makes a total billiondollar bid. Francine welcome to the pulse. Live from bloombergs european headquarters. I am francine lacqua