Live from bloombergs European Headquarters here in london. I am Francine Lacqua. We will be joined by the prudential ceo, mike wells. The Company Reports earnings and a half hour from now. He joins us 40 minutes from now. 10 minutes after the release. We will be talking about brexit and all of the challenges he has to do in the wake of negative rates around the world. We will be talking about guilds. We are grading were getting breaking news out of the doe. Yesterday was the first time the boe ran into this stumbling block. The second day it was buying that it expand this qe program. The boe seeking offers and 1. 1 7 billion field operation. Do what it to is trying to do is it will include a shortfall. I dont know whether they are buying shortterm maturities which are easier to there are more sellers of that. Boe is saying it will seek office in this 1. 17 billion pound guild operation. I dont know if they are changing that much in terms of timeline. We will bring you any new boe headlines. Lets get to the bloomberg first word news. Nejra turkey and russia have moved toward repairing relations that were broken in november after meeting in saint petersburg, the president said the downing of a plane had cast a dark shadow. They discussed a long contemplated pipeline to carry russian gas to turkey and europe. Brazils senate has voted to put suspended president on an impeachment trial. Ofators voted in favor opening the final phase of the process that began last december. She is accused of illegal government spending. It could strengthen her success for as early as this month. Central London Property holdings that made him uks wealthiest has died at age 64. He died at the Royal Hospital in lancashire after 70 after suddenly falling ill. With an inheritance of land, he owned he and his family had a fortune of 9. 4 billion pounds. Arabia is said to have told opec that its oil output hit a record high last month according to two people with knowledge of the data. The kingdom said it pumped barrels of crude a day in july. That comes ahead of Opecs Monthly OilMarket Report later today. An informal gathering of Cartel Members later next month. Pimcos total return Fund Increased its data in u. S. Date u. S. Debt. A loaded up on Government Debt for a third month. The yield has bounced back following a stronger than expected u. S. Employment report. Global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. I am nejra cehic. This is bloomberg. Francine lets return to the bank of england, bond buying it we just had that announcement. Now the bank of england even bought some gills after the market prices and investors clung to their holdings. Lets just hang on lets check out the chart of the hour. The white line is the weighted average price. This is my dream chart which shows the operation window. This red line is the highest accepted price. We were hoping to find out more. The mark carney in the boe have put out this statement saying it will include a shortfall from yesterdays option in the second day of the plan. It seeks an offer in this 1. 17 billion pound guild operation. Lets bring in paul dobson. O with us is the ceo lothar mentel. Thank you both for joining us. Paul, help me run through this. The market was expecting some they werean b which unable to buy these longerterm maturities. I dont think we are getting that from the boe. Paul it sounds like the bank of england has run with the status quo. Family not a bad idea. You dont want to worry investors unduly by taking too much action too soon into the program. It was only the second bond buying operation yesterday. The shortfall was relatively small. We are in the middle of the summer where liquidity is thinner to a lot of people are waiting. Business as usual. Hoping that interest will pick up. Francine paul, analysts looking at some of the teams work. It was clear we were expecting the boe to hint at some kind of constant review of qe. We dont have that for the moment. Does it mean they are less concerned about it . Think one way or the other, it is a big deal or pretty big sign for the market that if youre going to be able to make the qe program a success, youre going to have to be prepared to pay higher prices to get a hold of those bonds. The investors we were spin to exactly the investors we were spin to yesterday, who said the day after brexit, people want to buy. They said we are not selling even though prices are going up a long way since then. Lothar, what does that mean francine lothar, what does that mean . There was just not enough stuff for them to buy out there. A couple ofeans things. Markets are expecting to get even higher bids. Yield to fallild to the german level and down to the zero line. That is why he wouldnt sell. In makes iting is more understandable why there are quite a few members of pushing for more purchases in Corporate Bonds which is a bit more you can buy at that end. Thirdly, they can means there is an opportunity for the government to perhaps restructure the Government Debt a little. If there is that much demand for the long end. You could just restructure from the short end to the long end. Francine it is just because we dont know what will happen in the and what will happen in the next two years. Carb loath though lothar why would you hold something that yields less than the rate of inflation . Francine paul, what is the one thing we know from the bank of england echoed what they came out with today echo and white mark carney is so aggressive. Is this situation under control . Paul there is a lot of uncertainty out there. The reason they took this action is because the outlook for the economy is so uncertain following the brexit vote. Although the Economic Data said forwardlooking. Theres not enough to draw any conclusions. Going out there aggressively to reassure the consumers the British Public that theyve got our backs and the economy will continue to remain. Francine risk pricing. Risk. Ort curve may be if you look at the u. K. Twoyear , it has been narrowed since october 2008. Is anything on the level . Lothar bonds may feel like there. How long can that bubble last . It can last as long as the bank prefersnd at the moment on the side of caution and the impact of exit is going to have a Material Impact on the u. K. Economy. Not just in july but also Going Forward. They would rather take preemptive action than wait. Therefore, it will last and we have already seen over the last couple of weeks that it can swing very quickly once investors to come to the conclusion that there will not be a buyer at even higher prices Going Forward because the economies than well. These things could go the other way quickly. That would be one of my concerns. Francine thank you lothar and paul. Lothar mintel stays with us. Paul, thank you for being with us. Stay with us. We bring you an exclusive interview with the potential ceo, mike wells and we talk earnings and brexit impact. Euro stoxx slip from a sevenweek high could we bring you the mornings market. This is bloomberg. Francine this is the pulse. I am Francine Lacqua here in london. Lets get to Bloomberg Business flash with nejra cehic. Nejra e. On posted a firsthalf net loss of just over 3 billion euros after writing down the value Natural Gas Storage assets. That comes after also fuel plants the decision to separate unit per unit is one of the most radical responses yet to germanys unprecedented shift toward wind and solar rent solar generation. Well be talking to michael said. Entertainment one has rejected a 1. 1 billion takeover offer. The company that owns the right to pepper pick says the offer was too low. Cheers went up again today and jumped 50 since bloomberg wasrted in april that itv considering a takeover. It cut its fouryear forecasts. That income is seen it revenue expected to fall 11 to 32. 5 billion bid analysts are believing the story yen, increasing competition and higher raw material costs. U. K. Bookmaker william hill has rejected a 3. 2 billion pound cash and stock offer from aaa holdings and ran group. Shared in theing new company formed to make the acquisition at william hill says the proposal substantially undervalues the company. Gays against guns, a group formed after the june massacre at a nightclub in our gland us orlando will focus on blackrock. The group chose a blackrock because some funds run by the worlds biggest asset manager ,old shares in smith wesson guns used in previous mass shootings. That is Bloomberg Business flash. Francine european shares slipped for the first time in six days, dragged down by energy producers. It jumped from its highest level in almost six weeks seven weeks. Is easing behind the Global Equities rally . Lothar mentel. K we were talking about the problem became to boe, we maybe mispricing things. Spread overall between bonds, sure yen and higher end of the curve are becoming smaller and smaller. Does it mean youre concerned about lothar what sort of levels are inflation are ahead. We are seeing physical still is coming back. Were seeing this will stimulus coming back. A recipe for getting inflation back in and we have to ask ourselves, is the bond market mispriced . I am less worried about the equity market. Francine you are sure this will spur inflation. Looking at the qe in the last seven years that is been put out there, it is insane that inflation has stayed where it is good are we looking at different models . Are you sure the fiscal spending will spur inflation . Only qe doesnt actually get that money moving. Is if the government starts to spend, it puts money into the economy. If youre stimulating demand in the overall equation from the government side, yes, that gets money going. That puts money out there. It buys goods. If it was trying to buy more m a, it drives of inflation. That money if that money is not but the work, it doesnt do anything. Francine it seems everyone in your chair says fiscal spending is the obvious choice. Policy by itself cannot be the end all of having to fix things with a magic wand. Lothar the endall is to get the confidence how do you achieve that . The first eight years we thought gradual improvement with qe and Monetary Policy, it will do the trick. Since we have seen brexit, having politicians have realized they could quickly get very adverse results. Is it confidence or being competitive . We are not competitive in europe anymore . You need to push the Structural Reforms so we can counter the u. S. Lothar i am not sure that is what it is it where competitive at a level. We are not going to be ever competitive in the production of mass steel. Francine where are we competitive . Lothar i tech product hightech product. We are good at exporting but we also need to invest, you know to grow these things at the moment. Companies are just sitting on the cash piles and not reinvesting. That needs to change. Francine you the equity markets in one way. You have bonds going the same way. When a we going to see that corrected . When are we going to see that corrected . Lothar in making more nervous about the bond market, because one of the two sides is wrong. I can meet the macro Economic Data from around the world. Take us are the u. K. , it is going in the right direction and we are getting as desk getting a stronger second half of the year. Therefore, that should drive equity valuations up, particularly as Central Banks by more bonds and increase the relative attractiveness of equities. It is the bonds that worry me. Francine lothar, thank you for that word of advice. He stays with us and we check in on the markets. The yield spread between the two year and thirdyear is at its narrowest since 2008. We bring you the mornings moves, equities are down. This is bloomberg. Francine these are your markets would equities under a little bit of pressure following a lot of pressure from asia. Overall, i will point you to dollar weakness. It seems like it is a binary market, because today what investors are looking at our unequal global growth. The Federal Reserve will stay on hold so they are slow to raise interest rates. That is putting pressure on european stocks overall. They are flirting with positive territory. You see it currently unchanged. Look out for crude oil falling toward 42 a barrel overall. France reported a drop off in industrial output. Still with us is lothar mentel. Thank you so much for sticking around. We had a great conversation on boe and Asset Classes in general. What is one Asset Classes you would want to be in right now . Is there any value in commodities . Bonds in japan . Lothar emerging markets are getting interesting. Certain countries. I think you could, if you are more highrisk investor, start to contemplate investment in european banks. Not that i am a longterm fan. They are looking like they could be quite some upside in there if anything changes. The Global Economy seems to be on track. Francine on track. Japan has really done a lot. It tries to do a lot and the u. K. It will get on to the u. K. In his second are you concerned about japan echoed the good thing concerned about japan . Is a thing demographic problem even if the account for inflation. Lothar japan is in sync with the Global Economy. The Global Economy does well, then japan will also be pulled long. It helps to counter that demographic that issue we spoke about in japan could my concern is that last week, there was a disappointment around but that fiscal package actually happened to be. It wasnt really what we had expected. Are they really in control of what they are wanting to do . Three eras of strategy of the rb government doesnt seem to be of the abe government doesnt seem to be working. The counter factor is very easy print we dont know what the world will look like have it has a not gone to negative rates. Mark carney says it could not be worse lothar sigil bankers are turning up negative rates dont do anything. Why would you want to go toward negative rates . Mark carney made it clear last week that it is not in the gift of Monetary Policy to get the , ifntial of the economy that is a political issue that needs to be addressed. It is good of the central bankers to get that message out that they have getting toward the end of what you can do with rates. It is a dangerous game because in january that was one of the reasons we saw the massive market selloff. We run into trouble in the economy globally. Backlash that is why the link which is still fairly careful. At the moment, at least weve got some tailwinds from the Global Economy. Francine currency wars . We are not. So yen can do whatever they want. Lothar, thank you so much for now. He stays with us. Well be talking more about u. K. Well be talking later on to the ceo of potential. We talked to the e. On cfo. It writes off billions. After that, the interview i was talking about with the ceo of potential, mike wells. We understand that prudential share price is currently being halted. Those earnings coming up in four minutes. We will be looking at the impact from brexit. This is bloomberg. A francine welcome to the pulse live from bloombergs European Headquarters in london. I am Francine Lacqua. We are getting breaking news from prudential, one of the largest british companies. First half asia operating profit, 743 million pounds. I dont know if we can get the share price as i do this. Up first interim dividend some 5 for 2016. The dividend being up 5 brings it to 12. 93 pence per share. What were seeing is a betterthanexpected operating profit. The way they calculated is ifrs. Analysts we had spoken to were expecting 1. 86 billion pounds. The share price is gaining some 1. 6 . In terms of what the ceo is saying about guidance for the future, they are on track to achieve their 2017 financial objectives. Then they break it down with u. K. Life. This is almost like a capital buffer if you are a bank. Solvency mired in controversy. That is a surplus for them to actually comply with solvency. This seems like a good set of numbers. Shareholders seem to be pleased. We will quiz the ceo shortly. He is mike wells. Andill be asking about exit some of the outflows. Mike wells coming up at at 9 40 london time. In the meantime, lets cant to the bloomberg first word news with nejra cehic. Nejra Brazil Senate has voted to put doma was have on impeachment trial. 5921 in favor of opening the final phase of the process. Shes accused of illegally financing government spending. The move could strengthen her successor as early as this month. Rousseff has likened the efforts to remove her to a modernday coup. The duke of westminster, the u. K. s wealthiest nativeborn person, has died. Gerald cavendish grosvenor died in lancashire after suddenly falling ill at his estate. Land, henheritance of and his family had a fortune of 9. 4 billion pounds. Saudi arabia said to have told opec that its oil output hit a record high last month. According to people with knowledge of the data, the kingdom says it pumped 10. 7 Million Barrels a day in july. That comes after an informal gathering of Cartel Members at the end of next month. In goes total return Fund Increased its stake in u. S. Government debt in july. It loaded up on Government Debt u. K. Third month ins the vote to leave the eu sparked a rally that drove the 10year yield to an unprecedented low. The yield has bounced back. Global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. Im nejra cehic and this is bloomberg. Thank francine thank you. Still with us is lothar mentel. Mentioning Treasury Holdings by pimco. The curve is quite flat, but in it because of risk aversion, the yield has gone back of a bit. Lothar from that perspective, you could say the u. S. Is still the one with the higher yield. If there is buying pressure around the world, that will spill over into the u. S. And perhaps lift the boats over there, i. E. , expect the yield to go down again because there will be demand coming from the u. K. , europe, and japan. Best dealwhat is the if you were into bonds . I know you are into equities. Is there a bond that seems undervalued for all they or all they are priced to perfection . Lothar is anything priced to perfection . It all looks quite odd. I dont see any obvious opportunity out there. I think theres a lot of speculation as to what the Central Banks will buy and you will be able to be bid higher. I think it is all a bit of a game this morning that the trading markets are doing. Francine again, will that end badly . Lothar it could peter out slowly. Francine so no violent moves for markets. Lothar im not saying there wont be any violent moves. Once sentiment gets around that Central Banks are starting to buy, so there wont be a higher bidder down the road, these low yields are somewhat dangerous compared to what we actually have in the real economy. Watch out for it. Francine somewhat dangerous, i like that. Thank you for coming on. Lothar mentel there joining us on the pulse. , our exclusive interview with prudential ceo mike wells. We will get his take on brexit and get his look on the companys outlook after secondquarter earnings that Beat Estimates thanks mainly to strength in asia. The share price is gaining. This is bloomberg. Francine welcome to the pulse. Credential reported firsthalf profits that beat analyst estimates, boosted by higher earnings at asian in u. S. Units. The share price up 3. 3 . Prudential not only saying they Beat Estimates, but they are on good track for 2017. We can now join schools of the prudential ceo mike wells. Great pleasure to have you in the studio. Congratulations on these results. . Ow difficult will 2017 be you have negative rates, brexit, and all the like. Mike the results, very pleased with them. Earnings up, cash up, asias performance outstanding, increasing profitability and cash generation. These are on u. K. Currency basis. The local currency is even more dramatic. Weve been derisking the portfolio for about a decade. About 16 of the groups earnings are spread based. The bulk of our earnings arent affected by rates directly. Theres some accounting noise, but as far as pure economic value, we are positioned. Francine talk to me about asia. You grew double digits. Is this a trend because the appetite will continue getting higher . Mike it is a key part of our strategy. You have two material elements to the asian work it. You have clients buying insurance for the first time. The key is to make it affordable. You are getting them protection from health concerns, from savings for childrens educations, from retirement, similar things youve seen in the west. Markets, the competition is delivery. It is getting to first time consumers. That is detached from Financial Markets to a great degree. In the north, youre competing with more sophisticated clients. Tend to see more complex cases as you would see in the west. Francine how did the company fair through brexit . Mike very well. You have the majority of our earnings outside the u. K. The company is internationally based in earnings and currencies. The key impact for brexit for us would be about 10 of Energy Assets based on european clients. We want to make sure we can service those. Ive got 265 european employees. I want to make sure their status isnt in question. I want to make sure my status isnt in question. Francine are you expecting the outflows that continue in the first half of the year to stop, or is that still in question . Mike they are improving. Second quarter was better than first quarter. When you saw the european inflows, and its pure scale and reputation as an asset manager, it drew a disproportionate amount of the funds when there was instability in europe. We will see if european investors see londonbased and u. K. Based assets as a place to be. I think they will be a part of european savers Going Forward. Francine given what you are saying about your model, you are still committed to the u. K. Business . Mike we are. It is tremendous growth. We are moving to a capital light model. The pensions reform, consumers in the u. K. Are now responsible for their own retirement savings. Sales are up very dramatically. The products weve built are all working well. Sales for the u. K. Business now exceed a historic high level. Our combined businesses in the u. K. Compete with anyone on any front. Francine are you happy with your solvency . The surplus is 9. 1 billion pounds . Mike it is a good, strong number. Weve said all along, solvency to is not a good fit for our group. What you see on dividend, what you see on local capital basis, those are more important. The u. S. Regime for the u. S. , the asian regimes for the asians. Francine i want to come back to brexit. Has client behavior changed at all ends the brexit vote . Mike there is a slight, where you see the most is profits on the u. K. Life company. I think that is more a reaction to the market. The more volatile the markets are, the more desirable our products are. That, if you are a u. K. Investor, that is a very desirable product to have. Francine talk to me about the frozen fund. Mike Real Estate Funds. It is an interesting debate. Working with the regulator, and angie made the decision to close the fund. The key is the first client outcome of last client out. There is a balance there. Living here, the property is a major part of peoples retirement portfolios. U. K. Consumers see that as a key element. I agree with them. The question is what structure should those funds have. Say, werd competitors had 30 cash and therefore we didnt have to close. Im not sure i agree with that. Those clients were paying a Real Estate FundAsset Management fee. The object of those funds is to invest in real estate. I think we were correctly invested. I think closing the way we did was correct. Theres not been a Material Change there. We will create the liquidity we need for the fund. Theres a longer discussion on how those funds should be structured. Francine final question on asian growth. How are you planning to grow there . Any acquisitions or all organic growth . Mike seven of 11 countries we are in in asia have doubledigit growth. It is the benefit of years of work. It is not just because it is the last half of the year. We will continue to do what were doing. Weve got incredible distribution, brink partners. Every major market, we have the products and the people we want there. We have a good footprint. Francine also in china. Mike china continues to grow. We service in china, in hong kong, singapore. Of oure now about 13 operating income in asia. You are not going to succeed in asia without seceding in china. Succeeding in china. Francine thank you. Prudential share price of 3. 3 . Up next, eon posts a loss and writeoff billions. We speak to the chief financial officer. This is bloomberg. Markets a little bit flat. Lets head back to the bloomberg with nejra cehic. Nejra certainly after yesterday the Risk Appetite seems a little calmer. We saw a bank of America Merrill lynch measure of risk falling to a sevenmonth low. We saw stocks in the u. S. Rally toward a record high. We saw the dax moving to a bull market. It is slipping ever so slightly today, but still up more than 20 from this february low. The stoxx 600 pretty much unchanged for the first time in six days and also dropping from its highest level in seven weeks. Were talking about a little flatness in a market of Risk Appetite. Let me take you to the u. K. Guilt markets. Weve seen the u. K. 30year yield fall below 1. 3 for the first time ever. Were at 1. 307 at the moment. Looking at the 10year yield, that has dropped to a fresh record low, 0. 54 . Yieldsse, we saw these come down as the bank of england hit a stumbling block in the first stages of its expanded qe program. You had some comments today from the bank of england. It basically failed to buy enough gilts to reach its stated goal yesterday and it said it is going to continue that into the second half. It will include the shortfall from yesterdays auction in the second half of the plan. A big story that we are tracking closely. With this theme of Risk Appetite, emerging markets doing really well, both stocks and currencies. Fx, most of them gaining against the dollar. We are seeing a bit of dollar weakness. South korean won up more than 1 against the greenback. Taiwanese dollar up 0. 8 . If we take a look at emergingmarket stocks, the msci emerging market index over five days, this is actually heading for its highest those since july 2015. Francine thank you so much. No lets get to the Bloomberg Business flash. Entertainment one has rejected a takeover offer. The Canadian Company that owns the rights to a canadian cartoon character said the offer was too low. Shares have jumped almost 15 since april. Peugeot has become the latest company to raise prices to counter the plunge in the pound caused by the brexit vote. The french carmaker has listed prices of its vehicles by an average of 2 . U. K. Consumers are seeing the cost of items go up as companies try to make up for the 10 plunge in sterling since the eu referendum. U. K. Bookmaker william hill has rejected a 3. 2 billion pound offer from rank group. 45 ofders offered shares in a new company formed to make the acquisition. William hill said the proposal substantially undervalued the company. Guns, a group formed after the massacre in orlando, will target blackrock to kick off a campaign pressuring companies to cut ties with the firearms industries. The group chose blackrock because some funds run by the company are makers of guns previously used in mass shootings. That was the Bloomberg Business flash. Just weeks after opening the gates of shanghai disney, ceo bob iger said the parks prospects are so good that it is already breaking ground on an expansion. He told bloombergs david westin about the significance of the project. It is the biggest investment that we made outside the United States in the most populous city in the most populous country in the world. T was a 17year journey for me i obviously was quite involved. We dont something that is really large, very complex. Theres a lot of original product in shanghai disneyland. It opened flawlessly. The reaction in china has been great. The visitation has come from all over china. It has taken great advantage of shanghai as a tourist destination. Intent to visit is very high. People are staying about two hours longer per visit than we expected. That suggests that people are enjoying the product a lot. We had estimates, but we really were just guessing about how it would do. It is a brandnew product in a brandnew market. We are extremely pleased with what weve seen so far. Businessects for this look really strong, so much so that weve already Broken Ground with expansion. Bob, last question. Give us some advice. We talk a lot about china and doing business with china and u. S. Companies going to china. You spent 17 years. You had a lot of success at learning how to work with the most senior leadership. Other companies have not had as easy a time. What advice do you have for others who want to do business in china . Ive thought about that question. Ive been asked a few times. It is not an easy answer. Im not sure any two situations are the same. Disney is well known in china. Certainly not only a trusted brand, but a trusted company. It took a tremendous amount of communication, a lot of patients, a lot of perseverance and tenacity. It would have been easy to full power tent and say it will be too hard, yet we didnt do that because we truly believed in the market and we believe in how our product would perform in the market. We had created a tremendous rapport with not only our partners, but multiple segments of the government from beijing to shanghai. Ultimately, you build a trust really believe what you are saying because you are speaking the truth. They have been great partners to us throughout this process. My only advice would be, it is a big, complicated market. It is a market that i think, theres a lot that doesnt meet the eye. Even though you may feel that you are an expert, there are a lot of surprises. They come from a variety of directions. You have to have real patients and real commitment to be there. I think the patients that we showed paid off not just because we hung in there, but we were respected for having the patience because it was not an easy deal to negotiate and it was not an easy product to build. We all feel great about not only the partnership we created, but the product weve created. Francine stay with us. Surveillance is next. We will be talking through all Asset Classes. We will talk to pimco manager mike amy. This is bloomberg. The bank of england problem carney cannot find enough sellers to meet the debt purchasing target. They will make up the shortfall in the second half of the program. Boost Treasury Holding for the most in two years following risk aversion pushes to an alltime low. The secondtrump and amendment. Donald trump makes headlines again with a hint at Hillary Clintons assassination. Is it a joke gone bad