Transcripts For BLOOMBERG Bloomberg Go 20160630

From there in london. The markets appeared to be settling down and we are joined by outstanding guests today. Led by bill gates. He would join us to talk about biotech and drug pricing. Alix cromwell we be joining us more regulatory hurdles facing the banks. But first, we have a slight rally on the table for today. Jonathan features are firming up about. 2 and the ftse is an positive territory and raising all of the post brexit gains. He dax is up as well i want to talk about what is happening in other asset classes. Boris johnson does not run and cable jumps, the pound a stronger marginally. We will discuss why. 1. 52 . Unchanged at we are heading for the strongest quarter for crude since 2009. To wrap up all of the stories, lets go around the world and check in with our Bloomberg Team for indepth coverage of our top stories. Anna redwood is in london on the race to succeed Prime Minister cameron. Julie hyman in new york on the last day of the Second Quarter. Lets begin right here in london, anna redwood joins us. Lets begin with the just shock we had before the top of the hour. Boris johnson giving a long attack account of his achievements at city hall and as london mayor, and everyone, he said was waiting for the punchline, are you going to run question mark are you going to be the next Prime Minister of the country . Was noon, this was minutes before and this is what he said. Mr. Johnson my friends, you who waited faithfully for the punchline of this speech. Colleagues andd in view of the circumstances in parliament, i have concluded that person, cannot be me. Anna this moves the pound. I can think of many sitting Prime Ministers in office, in power who failed to move the currency when they intent to. This is phenomenal, to see this as you dont did, the boris bound. Jonathan i guess the why is something we need to explore. Anna i think people are thinking, if boris is not in the running, it is less likely the. U leaves the home secretary in the u. K. Comes with a great deal of experience, having run one of the great offices of state in the last century and she said, there will be no second boat, there is no staying in the eu. She was, or she that she is, or favorite. E bookies if she will be the one negotiating with brussels and she says we are leaving, it is done. If you are in the market and trading around the notion that perhaps the u. K. Might stay. Jonathan in the campaigning, she remained light. We knew she wanted to remain, but she was not making a big noise. And i think people were thinking, where is theresa may. He said on the record, he is not fit for the job. Anna i would not be the first he would haveht used the latin phrase. Just a couple of hours before Boris Johnson was scheduled to speak, michael grove makes an announcement that he will enter and divides the leave vote and then gives Boris Johnson the decision to make. That borise saying cannot provide the leadership or build the team for the task ahead, some scathing words. I took out, that michael gove wrote about article 50, he says there are other ways we can leave the European Union, not just by triggering that. Interstate to go back to him now, his name is officially in the ring. We will hear from him more in the coming days. Jonathan i struggle to keep up, it is a fluid situation. Delivering aey speech later today, do not miss this. It is at 11 00 a. M. New york, 4 00 p. M. Here in london. A speech from the governor, mark carney. Had you keep up, i am struggling . Used i use you coming i you. Our u. K. Finance team leader is joining us in london. By and large, the banks pass with flying colors, how big a deal was this for the banks . Certainly a show of strength for them and they that a lot of them past and past comfortably on the quantitative side, well above the minimum requirements. Morgan stanley had the conditional approval, other banks had to do that in the past, that is more about the process than it is about the numbers. It is showing a lot of capital strength in the test and because of that, they are able to raise the dividends on buybacks. David what does this mean for shareholders for them to get money back capital out of the banks . Said we the banks have are over capitalized a you to return some of the capital to reward shareholders and also help our hourly metrics. It is hoped it is hard to growingat when it keeps. It is a big day for that and the banks are not showing a lot of growth, so you need to have income if you are a shareholder. David are they making any progress . Michael i think shareholders would like them would like to see them make faster progress. They have failed multiple times and it is always on the qualitative side, the process side. The fed wants them to step up and improve. They have spent millions trying to do that to my but they seem to have a long way to go. On one hand, it is not costing them much because they are not trying to return a lot of capital from the u. S. Units because they have to build capital there. On the other hand, you would hope after two or three years they would have a better handle on this. David that is michael moore, our u. K. Finance leader joining us from london. The end of the Second Quarter really flew by. Julie hyman joins us now. Remember in april where s p was where we are now . A lot has happened since them. I found myself thinking, and if it had been a remain the vote, would we have three achieved the record for the s p 500 . We will never know. It is something to ponder here as folks out there are eating cereal. Lets take a look. I am focusing on the u. S. I will take a look at the return to globally. Here we have the s p, the dow, and the nasdaq. For the quarter, we have not gone much of anywhere. The nasdaq has underperformed. For the year to date it is the same situation with the dow and s p a little higher and the nasdaq lower here looking at the returns. I am looking at the various groups within the s p and how they have done quarter to date. We have tech in the bottom spot, down 4 pure it Energy Stocks have rebounded along with oil prices and i will switch it up and look at the year to date, the same groups here. It has been the defensives that have done better, telecom and utilities have outperformed energy. They have recouped the losses from the beginning of the year and at the bottom of the list is financially, down 5. 63 . It is interesting, as we have seen the outperformance in the groups, rate sensitive yields have been heading lower pretty much all year. Of the huge amount action was focused on commodities, gold, and zinc, you name it. Julie indeed, and it has been a Strong Quarter which is that what you have expected in february. Alone, up byter nearly 30 and up more than 30 now year to date. Old is rising at the same time we have gold up about 7 on the quarter, 24 this year. Having the best year since 2010 and oil since 2009. 3 ,r is oma is only up up about 2. 5 on the year. T has been interesting the numbers do not fully capture the roller coaster that we have seen. Alix well said, and zinc is up 13 . David shery ahn is here with first word news. Turkey has made more than a dozen arrests in the airport suicide bombing attack. Turkish state media says 13 suspects have been detained and three of them are described as foreign nationals. The government there is more evidence coming out about the crash of the egyptair plane. Investigators say wreckage from the plane it shows heat damage and the flight data indicator suggests there was smoke on board. The plane crashed in the mediterranean last month. President obama says he will sign a bill aimed at resolving puerto ricos debt crisis. The bill creates a financial control board that will help restructure the u. S. Territorys 70 billion dollar in debt. They plan to default on more than 1 billion on a general obligation bonds. In more than 120 countries. I am shery ahn and this is bloomberg. Jonathan coming up on the program, defeating the odds. The s p 500 is on pace to round out the first half of 2016 in the green. We look ahead to the second half with bob doll. That is next on go. This is bloomberg. David it looks like u. S. Stocks may eat out slight gains for the first of the year eek out slight gains for the first of the year. Welcome back to the program, bob. Lets start with the first half. Lets look what happened that surprise you and look forward to the second half. What surprised you . The we cannot forget to january a low repeated in february on the back of china and oil prices and concerns about the session and we got the nice rebound and just as we were heading for new highs in the u. S. , brexit smacks us in the face and we go down and now we come back up. It is hard to believe with all of that, u. S. Equities are up. Does the s have a having disappointed in the first quarter, they will not be great in the Second Quarter. Alix you take a look at technical levels, we have butted up against the 2100. It seems like that level is something we cannot break out of. Bob somebody said to me recently, the start market has been flat for numeral six quarters and i responded, and earnings have been flat for six quarters. We have to get better earnings and there is a shot of that in the second half. David why would earnings be higher in the second half . Bob for starters, we do not have the headwinds of lower dollar. We are lacking the compares their. We need the u. S. Consumer to consider continue spending money, buy some new cars, new homes, existing homes. If they keep doing those things we will get modestly better earnings. Alix we do see a stronger dollar and analyst see lower prices in the 30s or low 40s due to oversupply. Does that thesis hold water . Bob the dollar rise here is if itule compared to is gone up this much compared to this much and oil prices, 40, we can handle that. 27 headed to the 17 that concerns people. David a lot of people seem to be holding onto their money, whether it is and a day and corporate investment, are you worried that that may deter Earnings Growth in the second half . Bob i cannot think anyone expected that, will it pull back a little bit, i suspect so. Capital investments are not very sure on, it is mediocre growth. We can get 2 growth in the back cap, that is all we can hope for. See a stronger dollar, you see wage gains at some point that out to eat into what companies actually have. David that concern the put a squeeze on the profit margin. It is more money in the consumers pocket. Bob i think there will be some of both, there were not be huge gains on the profit side without improvement in revenues because there are starting to be cost pressures. David you stepped up and said what you thought what happened did not happen, in terms of things like utility on the one hand and telecom on the other. Is and was that yield is very expensive. People bought yield up, utilities are a perfect example. 20 20 5 pe to the market. It is ridiculously expensive. We would then move into things that are cheap in cash flow terms. You find Consumer Discretionary names, technology names, health care is starting to look a little bit better on the valuation side as opposed to the hogs, ifks yield you will. When Interest Rates are essentially zero and 10 year treasures are 150, absolutely. X was on a my favorite cc thesis. Equitytwo european investors do they become u. S. Equity investors . Bob they have done that in the bond market, why not stocks too . Alix we will find him where he is putting money to work when he shares his strategy for the second half of the year. Of the bill and Melinda Gates foundation, bill gates will join go with his thoughts on drug pricing. This is bloomberg. From the city of london and new york, this is bloomberg. A 5100 that is up again, but only marginally. Former london mayor, Boris Johnson, pulls out of the race to be the next british Prime Minister. We are back with bob doll, the chief equity showed a just. Here in london and across europe, the market is certain to establish itself in the very idea that theresa may, someones that wanted to remain in did European Union. In michael gove, would be risk off. It is something weve boiled down to politics specifically . Michael the world is bob than world is the world is never that simple. There are more uncertainties than certainties of a will bounce all over the place. We do not know what brexit is, we know it is not lack or white, there are shades of gray. Speculation and we have to focus on what the companies will report in terms of their earnings, that will move the stocks. Jonathan it is very difficult for anyone investing cross asset because the political complexity and the risk nature driving yen to one of the strongest quarters since 2008. The correlation you would typically look for a crossed assets has not been there in a big way. I wonder what you make of that. Bob i think what is happening is the world is moving to all kinds of different cross turns and we do not get the traditional relationships. Look at oil and the stock market in the u. S. , for years they were negatively correlated. A very unusual bedfellows here in the weird markets. , itd early on after brexit appears the winners may be some of the u. S. Domestic companies who rely on the u. S. To mystic economy for the revenues. Let me pull up a chart that illustrates this. The people who have over performed since brexit have been domestic and the people who have underperforms have been international. Does that fit with the case . U. S. Growth has been mediocre, but nonus growth has been worse than mediocre. You layer the generally strong dollar on top of that and domestic earnings have outperformed international earnings. Under waiting the multinationals, overweighting the mystic companies has been the maker. Alix what is better, stocks or bonds of what is the return for both . Bob if you think the world will get better, which is the view i have come i think stocks will beat bonds. Ati can buy the s p 500 2000 with a yield over 2 and have a choice of that versus a 150 10year treasury. Alix you could buy the 10 year and then flip it because the yield is one and a quarter. See my view is, we will not 1. 25. I know a lot of smart people are saying that we will. If the economy does not improve and deflation does not run out of steam, we will go to one and a quarter, but i think we are on borrowed time with that piece of paper. David productivity is the big question come at you see productivity kicking in . Bob maybe that much if we are lucky. Late in the cycle it is hard to get productivity gains. We need revenue gains. Alix you are looking at a year and target of 2150. Bob we do not need a big number. If we can see green instead of red, that will be a happy day. David it is topline growth that 3 5 . Drive the three bob more jobs, making a bit more money, the Balance Sheet is in good shape, saving rates are up. Alix great to see you, thank you very much, bob doll, cheek chief equity strategist. Hurdlesp, regulatory facing the bank. He will break down all of the issues facing the financial. This is bloomberg. . C sv jonathan from the city of london and new york, this is bloomberg. Sterling is on the threeday gain, the first potentially since may 19. 134. 62. Rading but spring up the global scorecards to give you an idea where the market are today. What a quarter, it has been choppy. The s p largely flat over the last few months. The stoxx 600 bank in flex come on a five quarter losing streak. It has not been pretty. Quickly,he board very the cable rate is advancing, you have seen that already. A softer dollar on some of the trade. , 111. 41 is how we crude, potentially the strongest quarters since 2009. Of the world are on london, lets get you up to speed on the headlines from outside the business world. A study announcement today in the u. K. Former london mayor Boris Johnson says he will not run against to succeed David Cameron. you who waited thankfully for the punchline of this speech, having consulted colleagues and in view of the circumstances in parliament, i have concluded that person cannot be me. Thery johnson helped leave lead the campaign for britain to leave the u. K. The favorite to succeed David Cameron is theresa may. Francois hollande is backing the likely democratic president ial nominee. He says Donald Trumps rhetoric puts him on the same level as europes extreme right. To buyll have a chance the biggest diamond found in more than 100 years. The 1100 caret diamond failed to sell at a sothebys auction. The highest bid of 61 million did not meet the minimum price. The diamond is slightly smaller than a tennis ball. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. David tom keene joins us for the morning must watch. George soros has weighed in on brexit and his comets have caused quite a stir, lets take a look at what he had to say. The crisis in the Financial Markets comparable in severity only two 20072 dozen eight. 20072008. Brexit is accelerating it. David we have talked about george soros before, this is one of the most read stories in the bloomberg terminal today. He is a very new wants, cohesive thinker. We need to listen to what he has to say. We heard you say from larry fink and, it is not that big a deal. There seems to be a convergence. Keene he isr. Getting quite on in years, i will not that but that against him, but he has been known to make inflammatory statements. Is rap on the street is he talking his buck. I do not know if he is or not. It is one thing to be george soros investor and another one or ata leader at bmp jpmorgan or blackrock where you have a responsibility to give a public message that is more tempered. David pretty much everyone is talking there buck, it is just talking there book, it is just a matter of which book they are talking. Going out and saying he would go short the world, he thought we were headed for bad times. Tom to our viewers that do not know his history, he has earned the respect to be listened to that i am adamant about that. Again, he is an investor talking an angle and in this case, a more allegiant opinion. He does not have a public duty as a Financial Officer to have a more tempered message. In. Have it dovetailed a tempereder with mention tempered message about technology in europe. David i would put him in some way men with a vast amount of experience with connections around the world that some people may miss. He may be right or wrong, but he is worth listening to. Tom exactly like hendry kissinger, the other day, it is an earned respect. George soros has an entire philosophy off the work of karl popper ages ago that is acclaimed. We have to remember that. Within that, you listen to these worthies if you will, always pushing back in your own mind. Book of the year two or three years ago and a lot of that you still argue with. David to ask you to prognosticate, when we have a sense which one is right . This is the critical distinction, in 2007 and 2008, we had three or four standard deviation moves. We did not see that last week. David that is bloomberg keene. Lances tom week. N any day of the alix love standard deviation talk in the morning. There may be tougher regulation in the future. Federal reserve board governor weighing in. I am confident that what we will be doing as part of our review of the stress test system the we have is to change post stress requirements for the amount of capital that banks need to have, even after absorbing the losses that are hypothesized in the stress scenario. Alix we will hear from rodgin cohen. It is great to get your perspective today. Thank you for having me here. Alix what do we expect for the next few years of the stress test . Mr. Cohen i think we start with what they showed, they showed how well capitalized the u. S. Banking system is. Not just the numbers, but what is behind the numbers. The Macro Economic assumptions are close to an end of the world type scenario and they are compounded by counter intuitive assumptions as to bank behavior. For example, a deep recession and ranks keep lending banks keep lending. The tests were positive for the banks. Mesh is veryis a concerning. There is a siren song out there, which is that more capital is always better. I am not sure that is a very good view. Lets take two Key Developments that are going to occur. One, governor tarullo already previewed, which is incorporating the surcharge into the stress test. There is Something Else on the horizon more ominous for the is is least, that trying to develop standardized risk weighting and i think that will significantly increase the denominator in the stress test. David is it possible to require too much capital of banks and how do we know when we were at that point . \ mr. Cohen there is no precise right answer, but there is a point at which there is too much capital, where banks cannot burn enough to attract earn enough to attract investors. At some point, if you put Capital Requirements on that are excessive, the only way banks risk andis to increase there is not a correlation if you go back into the 20th century and the 19th century, there is not a correlation between the highest capital levels and the lowest losses. It can be inverse. David i did not know that, there is not a correlation between capital and lost. Alix bloomberg had a piece saying stress tests make acre banks even better given that risk. That is fascinating. Take a look at the bloomberg, this is a huge take away from tiertress test, this is a one capital ratio for Morgan Stanley and Deutsche Bank in terms of their subsidiaries. You have Morgan Stanley at about 17 , that is the yellow line. Deutsche bank is the red line around 14 and suntanned are santander. Lower,e bank is going the directional shift is down. David these are the u. S. Subsidiaries, but there is a do virgins on the u. S. On the one hand in terms of the capitalizations on the banks. Mr. Cohen there is no question about it. It is difficult to look at u. S. Subsidiaries which are a small part of the entire bank and try to derive capital ratios and strength from that. The u. S. Banks in part may be in large part, because of the stress tests, have built up their capital positions. David lets turn to brexit. We have been talking about this quite a bit. We do not know how it will play out, but london is not just another city when it comes to Financial Institutions. What sorts of ramifications could there be if there is a sharp break between the u. K. On the one hand and the eu on the other . Mr. Cohen let me start with will there be such a break. I think right now we have uncertainty and you were talking with tom about books. Let me talk about a different book. John f. Kennedy wrote a famous youd ed which that, i think, if in fact there is a deep break, there will be a sequel like that because it would drive the Financial Institutions out of london, out of the u. K. There are a number of possibilities which are far less harsh. One, the u. K. Government itself could go in parliament and reverse wrecks it. There could be a general election which would accomplish the same result. Within the spectrum, even if there is brexit, you could have norwaylike arrangement recognizing londons role as a financial center. That is one end and the other end is a total break. For anyone to say, we know what will happen, we have learned the betting in london is not necessarily a productive result. David you are a wonderful advocate, you are now arguing with the u. K. As your client, you are arguing to brussels why you should let banks remain in their business. Mr. Cohen i think the answer to that is that brussels can have no certainty that the migration will be to the continent. It might be to edinburgh, if scotland leaves. It might be to dublin, and instead, it may just spread widely, resulting in a weaker Banking System generally. Alix what are you advising clients right now about brexit . Mr. Cohen what we are advising is do not act precipitously. There is a lot left to come and develop. Think through what would happen in a worst case basis, which is a total break. It is premature to act. Alix i will sum it up, do not freak out. Thank you so much, rodgin cohen, senior chairman of sullivan. David bill gates, cochairman of the bill and Melinda Gates. Undation is next on alix this is bloomberg. I am alix steel. Blackrock chief investment strategist, Jeffrey Rosenberg talks in the next hour of bloomberg. David this is blue this is bloomberg. I am david westin. Bill gates has made the mission of his foundation to wipe out disease around the world. Vaccines have been the tool that has saved the most lives, and even today, inventing new vaccines for hiv, malaria, tb, number of these diseases that are still out literally killing millions of people, that is a top priority for us because it is a largescale intervention. How much promise gene editing has two easier worked as i hate to say it that way but can be done in Vaccine Development . Geneates jean editing editing is such a pervasive tool. Those tools, even for diagnosis, knockouts to understand disease models come you cannot understate what a great set of tools they are. Our foundation sees them, we see them in the plant and animal work because it will speed up plans and help on animal disease. They are complex, but not as hard as human disease. For mosquitoes, this is a superior system to affect either mosquito populations carrying the virus. For Something Like hivaids, it is possible, although there are a lot of hurdles, that they you can do gene editing to cure somebody from the disease. That would be fantastic since we do not have a qr, we just cap lifelong treatment. Wewe do not have a cure, just have lifelong treatment. Many of the remedies are expensive. I am thinking of things like valeant and touring, but also the price of treatment and immunotherapy and drug disease drugs, what is your best way to control costs so the medicals and treatments are not just available to the rich and well d. Short wellinsure mr. Gates i also think the current system, despite in some extreme cases, have properly been neighbored as inappropriate. Curing hepatitis c is a phenomenal thing and you have Drug Companies competing in terms of the quality and the price they are offering. The Drug Companies are turning out miracles and we need their budgets to stay strong and they need to see the opportunity. For things like alzheimers, they can reduce medical cost so dramatically and improve the human condition. The pharmaceutical companies have been great partners of our foundation. When we need help in doing science, they are unique in what they can do. They are also very good about tiered pricing. If you take hepc as the example all the responsible companies do this, they have an approach that was not warranted toward them making money, just driving access. Tiered pricing is often the way you can square the idea that ess and being able to find fund new miracles, you really want both. David that was bill gates, cochair of the bill them in the bill and Melinda Gates foundation. Coverage goll online. Alix we will take a closer look at which u. K. Sector has been hurt most by brexit. Jonathan from london and new york, this is bloomberg. Futures, things are softening up in the last 30 minutes at or so, down by not even a point. 1 . Tse 500 is done by another loss, the fifth straight quarter moving down for european banks. The cable rate is staying positive, but only marginally. The yields are creeping lower too, a bit of risk emerging in the last 20 minutes are so. 1. 51 . Are now Boris Johnson, the former london america movils out of the race to be the next Prime Minister. I think a lot of people share that sentiment this morning. Alix i love the title of the note, he is like, i do not know what is going on. U. K. Homebuilders were some of the worst hit stocks last friday after the british voted to leave the eu. The Housing Market is something that has been in focus in the wake of the vote. Lets look at the movement we saw in the stocks on friday. The chart on the bottom is an index of u. K. Homebuilders and you see the drop by alix steel. On the top with we have the standard deviation. Outliers,t the whether the moves we haves what are the moves we have seen. Movement on friday was 10 standard deviations out from movements we have seen. Very unusual to see a drop of this magnitude. Yesterday, we got u. K. Housing prices for the month of june. They were up. 2 for the month, up about 5. 1 for the year earlier. This is looking backwards before the vote. We will get reaction when months numbers come out. Alix homebuilder evaluations are actually discounting a 5 decline in housing. The prices the ideas that they will go a lot lower. Julie maybe there is more to come. One thing that could support a demand in housing are the Mortgage Rates which have collapsed. What i found fascinating was that they take out very shortterm mortgages, maybe jonathan can shed light on this, two or three year mortgages are the norm in the u. K. They are paying around 2 on the mortgages and if there is a stimulus as a result of the vote from the bank of england, maybe they can go lower than that. Alix one investor told me the we are having a lot of housing buying in california out of london. Jonathan coming up in the next hour, the South African minister , a conversation you do not want to miss. From london and new york, this is bloomberg. E david another shock exit as conservative mps battle it out for the top job in parliament. Boris johnson rules himself out. Jonathan dozens of u. S. Lenders pass the fed stress test. Deutsche bank flunks once again. Alix the end of the Second Quarter, the best quarter since 2008 and oils strongest quarter since 2009. We will look back at one event will quarter. Eventful quarter. David welcome to the second hour of bloomberg. Jonathan ferro is joining us from london. The race for Prime Minister in london just got more interesting. Jonathan i do not know what is going on, it changes from minute to minute. We will bring you the headlines as former london mayor Boris Johnson announces he will not run for the top spot in parliament. Hour, the South African minister of finance, coming up. Gate breaking news, lions lions gate is buying starz for 4. 4 billion in cash and stocks. Bloomberg news have been reporting this in yesterday that it was in advanced talks to acquire the premium cable channel. That deal coming in at 4. 4 billion. The idea is that it would add to the cable channel the agreement with very close for being signed in it appears like the deal has been sealed. Lions gate says the deal is highly accretive and it will find fund part of the deal with bank financing. Stocks popping for both. Stocks popping on those two companies, but not across the board. S p 500 futures down about two points. Index leadings the losses on the stoxx 600, down by one percentage point. Switching at the board switching up the board, we snapped a threegame winning streak. The euro softer. Yields are lower, the 10 year at 1. 5 and crude was heading for the strongest order since 2009. It is down by 1. 62 . Lets get you up to speed on the big stories around the world and check in with our Bloomberg Team. Matt miller in westminster on the race to succeed Prime Minister David Cameron. Michael mckee in new york on the fed stress test and julie hyman wrapping up a shocking Second Quarter. Lets start with matt miller. The hits just keep coming in this dramatic story. Boris johnson was set to run for Prime Minister as the leader of the conservative party, or at least we thought so. Michael go who looked like he was going to run with boris came out and basically torpedoed his campaign, and in a real shock to everyone who has been following, Boris Johnson said he does not want the position. My friends. You who have waited faithfully for the punchline of this speech. Colleagues andd in view of the circumstances in parliament, i have concluded that person cannot be me. A lot of people are talking about what this could mean. Is Boris Holding out on his job because it is going to be so difficult and hoping to maintain and throughout the next Prime Ministers career, or has he just been stopped because he was never very popular outside of london and after supporting the exit campaign, and winning, he lost all of his popularity in the city of london and the metropolitan area. It has been a very interesting turn of events, but we still have a handful of candidates running for leader of the conservative party. They will have to be whittled down to two members over the next few weeks, and then the Party Members will get to vote on them in a postal ballot and will then appoint a new Prime Minister. That is the process and it is going to take a number of months before we establish to the next Prime Minister is. In between, the only functioning institution right now in the u k with the leader is the bank of england. Just arounda speech the corner from the european headquarters. What is the message and is there a policy response from the bank of england from the bank of england . Matt you had the immediate policy response from mark carney after the brexit vote. The shocking result the leave the European Union is going to put 345 billion into the system. The expected qe and listening of policy has been what has brought the ftse backup to at least where it was on thursday, before the vote. The Financial Markets seem to like what they see and you still have the incredibly weak pound. We still have the situation in britain that we have in the u. S. We do not know who the next president of the United States is going to be and you do not know who the next pm is going to be until october. Jonathan thank you. The market expecting some form of stimulus at some point. Other questions for governor carney, do not miss that. A speech from governor mark carney at the bank of england, 4 00 london time, 11 00 eastern. David that should be fascinating. We want to turn back to the United States and the results of those Bank Stress Tests from the fed. The last couple of years, the bank have the bank has struggled with these kinds of things, are they getting the hang of this thing . Mike we end up in a situation strongme where women are and the men are good looking and the children are above average because in round two of the test, almost everyone past. Round one, they did the quantitative side, how your capital stands up in a deep recession. This is the capital side, the planning. Only Morgan Stanley got dinged a little bit. They are still allowed to go ahead with their efforts to distribute capital to shareholders if they get those revised plans in. Everybody else is moving forward because they did get through the test. 31 of the 33 banks. Most notable on the list giving back to their shareholders, citigroup and bank of america which have been stuck at very low dividends and are finally raising those. Foreign banks, a couple of them failed. That was not unexpected, these are small subsidiaries and they all that said they are going to fail. This is not Deutsche Bank as you know it in germany, this is a transaction and wealth unit of and both bankses will be so soon to friday into larger groups that are insulated from the markets. Is,d my question to you how big a problem is this for Deutsche Bank as they go forward with this consolidation with a single u. S. Subsidiary . Toe it is less of a problem Deutsche Bank because they have a big operation that is in good shape. A third year in a row they have failed, they can maybe get together, but they have to show people they have controls in place. David thanks so much. Alix really busy action over the Second Quarter. Who was in julie hyman looking at the last day of the first half of the year. The numbers do not tell a complete picture. Julie you have to look at all the ups and downs we saw in the quarter. We look at the u. S. , the last hour, now i want to look at whats going on in europe. The caveat is things could change a little bit on this last day as markets around the world close. The broad measure of european stocks is down three and a quarter percent. It really is an individual market story, the ftse still up on the quarter and after the rally, the bounce we have seen the past couple of days. The dax is down for the quarter and year to date and so are french stocks. Looking at what has happened in asia for the quarter and the year, the nikkei down on both the shanghai composite, down on particularly steep losses for the year to date on those markets. That is what we have seen globally. Alix unbelievable news. Thank you very much. We do want to reiterate some breaking news. Lions gate will be buying starz for 4. 4 billion. 32. 73 a share. Z shares aree star halting, but lions gate is popping. Swap somes that starz of its shares for lions gate shares which led to speculation that there could be a merger. They have the platform and lions gate has the tv and production side of the unit, so the two merging, lions gate says starz will be creating shortly. Lots of exciting news happening. Lets get an update on whats making headlines outside the world of business. President obama says he will sign a bill aimed at resolving puerto ricos debt crisis. It creates a financial control board that will help restructure the u. S. Territories territorys 17 billion debt. Turkey has made more than a dozen arrests in the airport suicide bombing attack. Turkey state media says 13 suspects have been detained, three of them described as foreign nationals. The turkish government blames Islamic State for the bombings killed or a two people at the airport. 42 people at the airport. More evidence coming out on the crash of that egypt airplane. Flight data indicator suggests there was smoke on board. The plane crash in the mediterranean last month. Jonathan coming up, how brexit is impacting one of the largest publicly traded recruiting firms in the u. K. South africas chief Financial Officer joins us with some perspective. Jonathan this is bloomberg. Joining me to discuss Brexit Impact on the u. K. Met u. K. Labor market, where do you want to begin . The sharet with price, five days, down 35 . What do you say . I have been doing this job for 10 years, so i have seen lots of ups and downs. Is,beauty about the markets lots of shareholders are now thinking is this a great time to buy more of our stock . It is not what happens in the first four or five days, it will be more interesting to see what happens in the next x or 12 months. Jonathan what is the message from the biggest shareholders . Paul you have to understand the dynamics of immigrant business. We have limited revenue stream, we have a much more secure ,osition than our competitors we had an exceptionally well on of upside, and we have more a focus on a good time to buy into our stock, but they have to be concerned about the Downside Risks. The positive is, we were 170 last may and one ready five, last thursday and we are 95 now, so there is nothing at. The people looking at this program right now are worried about the downturn, the cyclical impact on your company, have you seen Material Impacts yet . 60 of our business globally and 60 in the u. K. Is contracting attempt. Months,length of nine we have not seen anything in that and would not expect to see anything in that. Far, have been panics so there will be Great Results around the year, and all the markets estimates most companies, most of our clients coming in monday morning after they got over the shock over the weekend and just putting too think through what they do now, so four days in, we have seen this. On the table, potentially some kind of deal, the politicians, the guys in the leadership race the conservative party to be the next Prime Minister, the Free Movement of people. Effect goes poorly, what does that mean for you, for the recruitment industry . Paul if a look at europe and the u. K. Together, that would be about 55 of our group, there is less than 1 of those people transferring across out of europe to the u. K. Or vice versa. In the u. K. , we are in every town and city, so large part of our job there is an important point to make. I was here since 2006. I went through the euro crisis and i will go through whatever this gives us. At any pointken up over the last week or last two months and worried about where the Company Keeps its financial funds, which banks those a written. There is a lot of availability of credit in the market. When you get down to it, it is not how we feel today, it is as much how long does this last and how deep can get to it in the beauty is neither of us has any view on that, today. Jonathan what are your thoughts on the original impact . Clearly banking is the most sensitive market, but it will impact the greater u. K. Market. Uncertainty always starts to impact the job market. One of the beauties of our business, half of it is in technical specialisms. Half of it is more by candidates. If we have a rerun of what has happened a couple of downturns before, contracting has been very resilient. Goal and it is deeply unhelpful, we have a handle his business, very well run and that what i have confidence on is we will perform better than our competitors over the next three years. Jonathan we have another election race to be the next Prime Minister. The you have a preference . Paul it is dangerous to be involved in politics. What we need is someone that is going to unify the conservative already and start to unify the country and get through the process as quickly as possible to give some certainty do business on agreements and plan for the next future. That will enable as this is overseas to return to investment mode. Jonathan a subtle hint in there. Coming up, Brexit Impact on the Energy Sector and later, south africas minister of finance joins the program to talk brexit. A conversation you do not want to mix miss. Alix this is bloomberg. Globalfears hold push units to record lows and investors are looking for turns in energy highyield. Investors are flooding Oil Companies with capital. Joining us is the chief Energy Strategist over at macro risk advisors. What does this mean for drillers , for budgets, or production for production . Chris the need for yield creates an opportunity in some of the bigger players out there. These companies have more andrse assetbased assets as investors look for yield, they can be more confident in the near term dividends of the equities rather than searching for deals in the highyield market. For yield isrch basically keeping zombie Oil Companies alive. To address that question, directly, we are talking about access to capital. Year to date, we have seen unbridled access to capital in the credit markets and the equity markets and that is set to continue. We saw it in the natural gas markets. Andong as that continues, drillers have access to capital because in the oil business, you do not spend, you do not grow. David it was not that long ago that we had people saying there has been so much trouble in the oil field, that the yield to spread out and people going away because they are afraid to default, there is a shortness of capital that people just retooled that fast. Is you have to prescribe subscribe to efficient market. The idea that you need to make a return above your weighted average cost of capital in order to justify spending. The Credit Rating agencies came in and said we are going to downgrade everyone of you guys and limit your access to capital. In an efficient market, people stepped up, came to markets, when pioneer got there loan in january, and all the big guys and independents. I think the markets believe that if these guys can access capital, we will continue to spend and drill. Has the difference between an pioneer and the weaker companies, what happens to them, did they finally get bought by the big guys . Do they finally go under . They do not have access to capital. Chris we have to be cautious. I look at weatherford. They were able to recapitalize 2. 5 billion in debt. Just because been able to do the debt for Exchange Model all year long. It is tough to say whether they go away or not because these are assets. Build, m a talking toin texas these companies and i think they stuck to their script. They said they will not buy companies, they will do assets and really bolster our acreage rather than headcount. Alix that is what we saw with pioneer, so a shift in the world. Thank you very much. Coming up, south africas minister of finance will be talking about commodities, brexit and the South African economy in a bloomberg exclusive. Get ready for the rio Olympic Games by switching to xfinity x1. Show me gymnastics. X1 lets you search by sport, watch nbcs highlights and catch every live event on your tv with nbc sports live extra. Im getting ready. Are you . X1 will change the way you experience nbcuniversals coverage of the rio Olympic Games. Call or go online today to switch to x1. Jonathan from london and new york, this is bloomberg. As we await data out of the United States, futures stabilizing around these levels, down about a 10th of 1 . The ftse down about nine points. Stoxx 600 banks index in europe, stocks have been hammered, down 14 . That is the situation, here. Alix initial jobless claims for last week coming in line with estimates. The estimate was for 267. Revised slightly lower, so this encompasses the stress that is happening among the fed numbers. You have continuing claims going lower. On the flipside, you have that disappointing jobs report for may. That dynamic continues in the market. Withat point, we are here what key banks are looking at. Now. Ey rosenberg joins us the yield is at. 6 , how do you reconcile the jobs numbers that we are getting . Jeff the initial jobless claims number is a reminder, not talking about the political , we actually have another story that we are going to Start Talking about, which is the weak report coming up on july eight, we have the next labor Market Report in the markets are going to focus on that and what the jobless claim numbers is reminding us of is the job market and we have that week report and it was surprising. The focus is going to be, do you have two of those in a row . People will extrapolate that into a trend. If you have resumption of strength, you have a change to a tle bit of the story and if you get that stronger labor market picture. The we do have david strong word you do not want to mention was brexit. The reaction in markets worldwide, will that make the fed a little more cautious, even if they get a bullish number in july . Jeff absolutely, and the fed is not expected to move and the limiting oris about a Downside Risk to the economic growth, so that will limit the feds ability to move. The issue in the question is, what about the impact on the market, because the market moves so aggressively, we were pricing in and still are pricing in about 25 probability of a cut to Interest Rates. We move normalization to what is the next policy accommodation, so any shift on the u. S. Data front that says maybe the u. S. Economy is more resilient. The longer ability is that you get prices, yields rising because we have potentially overreacted to the Political Risk. A great chart showing that when you look at the rate cut probability and defense in the future does not really see an increase until 2018. That is the chart you wind up seeing, if you look at the probability of a rate cut. Amazing. Hat, that is the probability of a rate cut is that white line. David the blue line is holding firm and the purple line goes down to zero, which is a rate increase by september. One of the things that clearly happened in the aftermath was the government yields on bonds around the world plummeted. It was quite extraordinary. Can that keep going . Jeff it can and whether that keeps going is a function, not of a shortterm blips that we are seeing, but the Bigger Picture story, which is the profound lack of growth in the global economy. When you look at what is the long run determinant of levels of Interest Rates, it is nominal growth. When i say nominal growth, i am talking about the combination of real growth, plus inflation and together, when you put them together, it is called nominal gdp and what you see as is no increases globally. And that kind of environment, that is the fundamental linkage on global yield. Conventional unconventional monetary policy, yes negative Interest Rates, all of those things hold yields lower, but the long run is a function of our growth outlook. Alix longerterm, we will have higher yields, but shortterm, where is there still value in the markets when you have this in normal global bond rally . Jeff hang on, because you summarized it as longerterm we will have higher yield in the point i was making is that necessarily is that is not necessarily so clear. He will only have higher bond yields globally if we can find a way to generate some nominal gdp growth. Growth, you dodp not get the longer run trajectory toward normalization and getting back to normal levels of yield because we are not back to normal levels. David where is there value left in government bonds . Jeff the value in government bonds, because we always want to talk about bonds. We want to talk about bonds in isolation, that is not that is not how investors hold bonds. When you look at holding bonds and you say where is the value in a low Interest Rate environment, where is the value if yields are going higher . Brexit is a reminder because when bad things happen, when everybody is surprised because nobody was expecting that outcome, what happens . Negative impacts on your equity portfolio mean losses. Bond market value goes up when bad things happen. We think less about bonds and yield and isolation terms and more about their value in a portfolio and that is what we have seen and the past week. Bonds remind us that even in a low Interest Rate environment, you have this attractiveness in holding bonds. Alix where is the value . Yes is the answer. Jeff rosenberg, thank you so much. Jonathan a bloomberg exclusive interview, running us from the city of the minister of south africas finance, pravin gordhan. Thank you for joining us. Decision by the u. K. People, the british people to exit, as having a Material Impact on your economy . Pravin hello and thank you very much for having us. Any decision like the brexit decision and in the first instance is part of democratic processes and we must expect that. Haveof these decisions political and economic consequences beyond the borders of a country. The volatility that we have seen in the currency market and exchanges around the world, including is an indication of the kind of shock on the one hand and uncertainty factor which these decisions introduce and that is something that emerging markets like south africa can afford in this time. Additional uncertainty and volatility. Jonathan you can speak specifically to south africa and i wonder if a recession in your country is now inevitable. Pravin we do not think so. We know our forecast was a growth of 0. 9 . Many have reduced the Growth Prospects the young that inow that, but we think 2017, we will get to 1 and beyond. Many processes we have in play in south africa to focus on better growth, better investment, to undertake some of the tougher stuff. Greater certainty we have in terms of supplier and that will continue into the future. A very high level of cooperative endeavor between business, labor and government over the last four months which has enabled us to avoid a downgrade. Moren now cooperate important things for the rest of this year and next year to increase the Growth Prospects in our economy. Jonathan Political Risk is one thing. You are seen as the face of investment credibility in a government that is incredibly fragmented. The way you see things, you have do youeat lengths think investors are convinced . Pravin post thursday, south africa is an excellent lace to investor money place to invest your money. Firms that have an excellent penetration in african markets. Isica for the next 20 years the worlds future in terms of growth, demand, in terms of demographic dividends and new forms of experimentation henri industrializing the continent and exploring its Natural Advantage in agricultural and i were culture and other areas in agriculture and other areas. When you have the extreme uncertainty between populism and other Political Developments in the european context, and we look relatively stable and a good place to be. Jonathan the perception of the world of investors is that you did not have the support of the government. Have your issues been resolved . Pravin i have been in office for six months, and we work extremely well as a government and getting on the task that we have before us and we work collectively within the government and outside of government. As i said for the last four months, if we passed that test, we understand that over the next or months, we have to deliver on the very concrete programs that are outlined to the South African public. During my stay in london, at the Standard Bank conference, i have met a few hundred people, directly and indirectly, and they are not pessimistic about our prospects, like Everything Else in life, it will be questions that might be asked politically and economically, but i think we have a good story to tell in south africa, and we have some results to back that story up, and we will have more results as we go into the second half of the year to justify the fact that we have a good team both in the private sector and in government. Jonathan i do not want to get stuck in the political weeds, that it is very obviously complex, problems between you and the head of revenue services. Firmu have had any assurances that you will not be arrested. I wonder if you could do miss dismissed that on bloomberg for us. Pravin i have a piece of work to do, the work that we have to do in National Treasury and the constitution and various pieces of legislation, i come to the cabinet and president in terms of what we do, and there are no deceptions to that work. Hand,on with the task at and continue to serve the treasurys the national and in a month or so, we have to begin to prepare our mediumterm budget policy statement, make the necessary adjustments that we have to make, predict the fiscal framework for the 20172018 fiscal year, and look at what hour expenditure budget will look like and determine how those allocations work. Other developments at our own desk, particularly the Global Developments that are far more disruptive than anything we have within the country. Jonathan what is far more disruptive for investors is waking up and then going to sleep and waking up with three different finance ministers and a suspicion that one of the most credible ministers in the country could be arrested. Can you dismissed the reports that you are facing an imminent arrest and can you say that you have been assured that it will not happen . You cannot give any guarantees, so you just have to hope. Assurance about who the next Prime Minister is going to be in this environment . We all thought it was going to be Boris Johnson that until about an hour ago. Each of our countries will have developments that might be of one concern or another. The world will be very concerned if donald trump is your next president in the United States and what policies might actually emerge from there. Without even reading your question, i think your emphasis is a bit misplaced. I am in the job, i have the confidence of the cabinet. I am in the job because the president requires me to be in explained, as i have we have many interesting successes in the first half of the year and we have more interesting things to do in the interest of the country and its 65 million citizens and the economy more generally. Jonathan we wish you luck, thank you very much. I appreciate you commenting on some sensitive topics. The minister of finance from south africa. Stay with bloomberg throughout the morning. 11 00 eastern, we have a conversation with the bank of england governor. To him,ll be listening governor mark carney will be speaking to members of the press and you can see it all here on bloomberg. Alix mrs. Bloomberg this is bloomberg. Coming up, the governor of the bank of england will be speaking to the press and you can see it here on Bloomberg Television at 11 00. Turn to techl now go, a multibilliondollar deal was done just this morning. Orns gate is buying starz 4. 4 billion. Paul sweeney joins us now to discuss the deal. One way to look at this is john malone, soon sooner or later gets his way. Shown time anden time again to be very longterm, very patient. He has said that he believes that the content side of the Media Business is going to consolidate. We saw a lot of consolidation on the distribution side over the last several years. Comcast trying to buy time warner cable. At t bought directv. John malone has been saying on the flip side, we need to see so these Media Companies get together and even the playing field. David lions gate is the producer of content, although they have struggled with movies recently. Z is the distributor. Why does taking these companies and putting them together make them stronger . Just putting these two companies together puts them in a better position to both develop their own programming and then to acquire programming from other third parties to put on starz and into the theaters. Consolidation on the content side is just beginning. I think we will see more of it. Viacom may be a company in play and we will have to see how that ownership plays out, but i think we will see more consolidation on the content side because some of the content companies are trying to figure out how they live in a Digital World when consumers can acquire content outside of the paid tv bundle. David yahoo was also in the news is they are having a Shareholders Meeting in california. This may be merciful i are marcel myerslast one. Paul we expect a lot of pressure to be put on the board of directors. Investors want to see asked her movement on potentially selling the company, merging the operating part of the company, monetizing some of the Balance Sheet assets. I think investors are saying this is the last straw, we need to see some movement on these Corporate Action issues sooner, rather than later. David one of the things we will have is a new board with four members nominated by star board. Paul that will be a catalyst for change. Some of the investors and bidders that have been bidding on yahoo s core operations have complained that Marissa Mayer has not been moving fast enough on the process. Those days will come to an end to the extent that we get a more independent board and yahoo and they will push for more immediate change, more action on some of those fronts. David will there be any discussion about operational issues or will it all be sold in the board . The concern is the business continues to deteriorate, which impacts the value that they can actually get for the core operating business. Weve got some buyers out there, but it is almost like every day that goes by, this becomes less valuable. I think that it pushes or creates more impetus to get this deal done as quickly as possible. David thank you so much. Coming up, what do you take banks and big Oil Companies have in common . David this is bloomberg , it is time now for battles of the chart. Julie hyman and alix steel having one last battle. Julie this top panel here, oil prices versus the dividend yield of big oil. Dividend yield and big oil rose as the oil price came down as investors were thinking that big oil is going to cut their dividends. They threw away the stock and the yield rose. As we have seen prices recover, you see the dividend yield come down. Something very similar now its happening in u. K. Banks and that is the lower panel. As that line here happens, u. K. Bank stock deal continued to go higher. The spread is quite wide, very similar to what we saw earlier in the year between big oil and oil prices. The idea is, how much more can you take bank yield rally as the deal continues to come down. David that was terrific. Anything with oil. Im looking at u. K. Banks compared to u. S. And european banks and looking at the spread in the pricetobook ratio between the benchmarks in these various companies and the banks, specifically. We have some investors coming in over the past few days and saying you might want to look at some of the banks. Basis, using this measure, they are more attractive. In fact, we are seeing u. S. At the Biggest Discount to the s p 500 as a whole than we have seen since post financial crisis, trading to about a couple of percentage points. Europe and u. K. , the gap is ofller, there is still a gap about 1 , about the same whether you are looking at european or u. K. Banks. This,an i feel bad doing but because alix steel had a chart dedicated to me, i have to give it to her. David she surprised me on the relationship between the dividend yield. Up, Stanford University professor of economics will be joining us to discuss the Brexit Impact on european banks. Jonathan dozens of u. S. Lenders pass the Federal Reserve test but subsidiaries of Deutsche Bank and santander flock. David lions gate is buying John Malone Starz in a deal valued at 4. 4 billion. Alix it is the yens best quarter since 2008, and the spillover from a political shock. David we just under 30 minutes away from the opening bell in new york, this is bloomberg. I am david westin with alix steel in new york and Jonathan Ferro and london. Former london mayor Boris Johnson will not be running to be the next Prime Minister, another surprise in the u. K. We want to alix get a check of Global Markets with julie hyman with a look at what is ahead of the open. Lets start in the u. S. Julie we have futures trading a little bit lower but i want to see some of the interesting movers. Mobile i is an Israeli Company that trades in the u. S. Executivess schedule to have a meeting on friday. It could be a seminal turning point for mobile eye. And if youoing much look at the bmw shares, they are not seeing much change here today. A couple of earnings reports out from retail that show more retail weakness and quite different types of retailers. And tractorters supply, which has been an outperform or are coming out with earnings per share forecast for the full year below estimates. People not buying as much tractors. Abigail one of the worst performers, priceline down 15 upgraded to an overweight. The company is likely to take the market share in an alternative target space, and they see 25 upside potential. Tolcomm is in a downgrade underperform. Structural issues for the longterm. At 52 and he does not think a turnaround as possible. Nasdaqst stock and the companyron, head of the reporting its fiscal Fourth Quarter after the close. They are looking for a big turnover. Lets head to europe with mark barton. Mark shocks stocks little changed. The fiveday falls 5 . Euro stoxx 600 is up 1 10 of 1 . Lets look at the ftse. It regained all the losses post brexit so i thought when i would show you how they fared this friday. The white line is unchanged but look at it compared to the ftse 200. The best performer since friday, the silver, and gold. Domestic stocks are being lower, losing31 one third of its value since thursday. 30 stocks on the ftse 100 are registering doubledigit losses since friday. Sterlingdollar down friday, down monday, up the rest of the week. Still down by 9 . Euro area cpi, we have inflation in the eurozone. 1 . Mark barton manages to fit just about everything into a 62nd hit. Immediately following the brexit sees thehael purvis resilience and equity. Here to discuss his change of view is michael. Michael it is not necessarily longterm view. I do not think we are out of the way but in the near term, what happens is everyone got caught offside last friday. There has been a lot of very frantic trading and a frantic relief rally since then. I think what has happened is a few things, of all of the safe haven bid, treasuries and sovereign yields have been really well supported. That is very constructive for equities around the world because it makes the relative value argument all the more compelling. When i track is the 10 year treasury yield less the s p dividend yield. That centralbank put is alive and well and kicking from the markets point of view. The dollar moved but not that much and that is significant as well. In many ways, the table has been set for shortterm equity resilience. And tuesday when we had the relief rally you i thought it would fade into the weekend. David another thing you talk about is the vix because it shot up and right back down. Michael the vix curve, during periods of risk it tends to get inverted. That is typically what happens in times of stress. A couple of times over the last year that is happened, it has inverted. Andier this year in january february. When the curve goes back to a normally slope thing upward thing it is a good signal for the market. Alix i can illustrate exactly what youre talking about. Iron looking at the vix curve and this is what we are talking about. This green line is where we were just one week ago. Look at that they pick up we saw in the volatility. We take that away for a second, that is where we are now. Volatility has jumped so low just in a matter of days but what is the risk of the market being complacent . Michael the u. S. Equity martian markets have been saying the u. S. Is an island and they are part right and part wrong. The implications of brexit are potentially enormous for global risk if the eu becomes deconstructed. This is where the Options Market i think thats it right, is that the pace of events of how this potential divorce and further fracturing of the eu happen, it is going to be like watching a really boring movie in slow motion. Very, inng to be a many respects tedious thing. There is not a lot of nearterm tradable events. Pensget a poll saying le Approval Rating is increasing and the french people are t, but for a frexi theres really nothing out there bank. Thats out there. Out there. Is johnson took in some took himself out. Alix what is the risk of the rally that we saw in the u. S. That was Short Covering an end of the quarter half year rebalancing. Wake up on tuesday and it is a whole different story. Michael i think there is some of that but the s p 500 and other indexes were up on the year before the brexit and then down on the year. Chase,d of quarter data the end of quarter data chase probably would not have been such an effect without brexit. David the good news is you say it is not going to happen all at once. The bad news is there is almost an infinite number of individual events that can drive the markets crazy as we go through who is going to leave the u. K. Couldnt we have extended volatility . Michael that is what my thesis has been, if we get a brexit the volatility floor if you will, not just in the u. S. But globally will rise. It comes down to whether, in my mind, whether the political dynamics in the eurozone can be contained. One of the things that is very constructive for risk is that in sunday on on sunday in spain we had the election. Saying,ish people are we cannot engage with more extremist parties and we need to go more in the center. That was a very constructive of tamping down this potential spiraling of Political Risk in the eurozone. Purves. Hat is michael how to play the ecbs bond buying program. Greg peters giving us his strategy. Coming up at 11 00, the bank of carney will be speaking in london and we will bring you that live. David this is bloomberg , im david westin. Riggs withtaylor bloombergs first word news. Taylor turkey made more than 13 arrest and three are described as foreign nationals. Government planes and Islamic State for the bombings which killed at least 42 people at the istanbul airport. Will sign a bill resolving puerto ricos debt crisis. It creates a financial control deal with their 70 billion debt load. Global news 24 hours a day, powered by our 2600 journalists and analusts in more than 120 countries. Riggs. Ylor this is bloomberg. Former london mayor Boris Johnson saying he will not run for Prime Minister. Johnson my friends, you who have waited faithfully for the punchline of the speech that having consulted colleagues and in view of the circumstances in parliament, i have concluded that person cannot be me. Matt miller joins us from westminster for the latest. Matt . Matt an incredible shock for everybody. Michael gove had been seen as a supporter of Boris Johnson or someone who would run on the same ticket to lead the conservative party. However this morning, michael gove came out with his own candidacy and said he did not feel that Boris Johnson could unify the party. As a result partially of that stabbing in the front some have called it, Doris Johnson decided not to run. He no longer will take advantage of the incredible victory he achieved with the brexit campaign, leaving theresa may and michael gove as the two leading candidate in what is now a fiveman race. As also have Andrea Leadsom well as stephen crabb, the works minister, and the former defense minister liam fox. Michael gove and theresa may are seen as being in the lead. Alix amazing unfolding of. Matt miller. A crazy day for politics. Jonathan a crazy year so far for bonds as well. These securities would have delivered a 12 gain, more than double of what treasuries have. I am talking about gilts and the spread between the u. S. And u. K. Is that a 15 year wide. Here to talk about this is greg peters of prudential joining us from new york. Great to have you on the program. I look at that spread and s as well. O other yields can carry on going down and treasuries can continue the advance, is that your view . Greg yes. In and new world we are i think a low yield environment is where we are going to stay. I really like the risk reward around fixed incomes spread products globally. Around this brexit piece, the most important accent is it is a bullish statement for u. S. I think you will see a tremendous amount of money flow into the u. S. As a consequence. Jonathan from your point of it as more of a capital return kind of thing that the underlying prices of bonds increases dramatically rather than seeing it as a yield . Greg there is a little bit of both but i think most at play is the yield itself and it is not necessarily overly attractive or abundant but that is the world we live in. And you are value seeing that in the equity and fixed income market. David take the u. S. Treasuries as an opportunity. Where in the tenor do you see the biggest opportunities to go up the yield curve . Volatile anduite im not sure i would be dipping in right now at this point but i still think it is contained. We like duration, we like yield, and there is a massive yield in massive need for duration. Negative rates are pushing investors into a yield product and the u. S. Has yield to it whereas so many other jurisdictions have 02 negative yield. Alix what does that mean for corporates . I was struck that brownforman and British Tobacco were the first forays into the british Corporate Market. Can you give a state of u. S. And european Corporate Market . Greg still very much like the bond market. Has been lost around the recent debate is what the ecb is doing. They have embarked on this bond soing program of corporates i do not necessarily think the opportunity is what in the ecb is buying but the more tangential securities. They are trying to crush the risk premium and i think investors benefit from those names attached but not direct. Jonathan is that the financials . Greg not necessarily at this point. I think there is a lot of uncertainty but at some point, for sure. I would say more on the highyield and lever loan side is a better opportunity. Financials are really going through, when does this mean for us as a business . I think the easier Investment Opportunity is in high yield and levered loan space. David where in highyield . Greg i would say the one sector we continue to dislike it has been a top performer is the rebound and energy. We still think the highyield energy names still have a high probability of default. We see a tremendous amount of default over the next few years so we are avoiding the energy and commodities space. Outside of that, highyield looks very attractive in the u. S. And europe. Alix i am interested in the divergence between the banks in the u. S. And europe. We have a chart of unicredit ursus bank of america. Default anding on a that has been rising versus the u. S. Bank of america has been falling. David unicredit is blue, bank of america is white. Alix talk to me about the Investment Opportunity when you see a chart like that. Greg there is no comparison around the state of european banks and u. S. Banks. Very different. They are a lot less capitalized, more levered. They still need to shrink so i think there is no comparison. In my mind the u. S. Banking represents a lot of value on the fixed income side. From the equity perspective, i am not so sure. I do not see the return on assets required to make it a good Equity Investment but i think it is a tremendous fixed income investment. David that is greg peters of prudential fixed income. A blockbuster deal is bringing two Hollywood Companies together. David this is bloomberg , im david westin. Lions gate, the studio behind the hunger games is buying stores in a 4. 4 billion deal. Alex sherman is here with more. John malone gets his way. Why does this make sense . Strategy islones to roll off all of these free radicals, medium Media Companies that do not have enough scale on their own to compete with cable companies. Buying saw with charter time warner cable, the providers get bigger and get more leverage in the negotiations between provider and content producer about how much the provider pays the content producer for their content. Now it is time for the content producers to consolidate, get more scale, and become more essential to the providers so when they have these cannot affordyou to drop us because if you do then you lose all of our content. David it seems like a sensible theory for now but this is more or less a traditional premium Cable Company channel with a traditional studio, and the world is all about the future and the overthetop. Its lions gate can put content on a starz channel. This transaction is somewhat motivated by taxes. David i was going to say, i bet it is tax efficient. Canadaions gate is in which is why it is one of the reasons. Also, there was a stock asset swap earlier this year where malone got on the board of line gate lions gate as he controlled starz so he had motivation to put these together. David and had entree through discovery. Will it change the leadership of lions gate . Alex some of those things are still to be determined. I would expect there will be some leadership changes. Alix they will make better movies. Named jeffalso hirsch as coo recently so i think some things will play themselves out in terms of who is going to run the country company. Id i have a bulletin those contracts are all about money. That is bloombergs alex sherman. Counting you down to the market opening in new york city, this is the state of play in global Financial Markets. Futures just a little bit softer. In london, the ftse up about a quarter of 1 . The cash open next in new york city. Jonathan mrs. Bloomberg from london and new york this is bloomberg from london and new york. This is the state of play as we wrap up q2, the midway point of 2016. Futures stable, the ftse up one third of 1 . Negative territory in the european banks. There is the opening bell in new york city. Wrapping up a Strong Quarter for crude, potentially the strongest since 2009 but they are down by two full potential points. The yield on the 10 year is 1. 49 and cable, 1. 34 and a euro of 1. 11. Lets cross over to julie hyman to peel some of that back. Julie lets see if we can make it 343 in the u. S. For three in the u. S. All three major averages up 2 10 to 3 10 of 1 as they have not coup recouped all of the losses from friday and monday. There does same to be some reassurance that the u. K. Vote will not be as serious for the global economy, or at the very least a delay of its effects as the Political Landscape unfolds. I would like to start stock lives with the deal we were just talking about, lions gate and starz. It is interesting that both of these are trading considerably higher. Investors use it as a positive union for both of the parties involved, 4. 4 billion is the size of this deal and brings together the studio that made the hunger games with starz, a previous a cable channel. Lets take a look at some of the other companies we are watching. Downn out with earnings 3. 3 after the fullyear forecast came out below estimates. The fiscal Fourth Quarter andarable sales of 1. 4 analysts were expecting a gain of 2. 5 . Food, looking at conagra, estimates matching sales but the fiscal firstquarter will show doubledigit comparable year yelpyear finally, getting another upgrade, the second one in the last week. M km updating it from a by two neutral because of continued momentum in Revenue Growth for their shares that are up one and a half percent. Alex is smiling at me. Julie hyman, thank you so much. One other sector that is moving as financials. Overall, u. S. Banks have pretty wellcapitalized and that allowed larger banks to announce buybacks that the european banks did not fare as well. Banknder and deutsche failing. Anat admati. Ng in what is the next rung of these stress tests . Anat they look pretty much the same. We have gotten used to playing the banks and the fed. They are running through their models and numbers coming out with capital ratios that we are supposed to be reassured by. David this is a game that is obviously very important to the banks themselves. Is there a point where the banks can be required to hold too much capital . I understand you think they should be required to hold more but could it be too much . Anat not in my view. We are talking about other industries and which we talk about what they do as opposed to how they fund. The fact that there is such a focus in banking on payouts and leverage and that is the name of the game, that is the name of the game that is just endangerment in passing costs to other people. That is a sad commentary about an industry where the name of the game and the Business Model is to lever up. In every industry dividends are paid and there are stock buybacks. Every time that happens it increases the risk of the company if you are a shareholder. Why is financials so different from the rest of the industry . Anat it is because they have such nice creditors. If there are Unsecured Creditors behaved anywhere near they would not be able to pay dividends. The problem with the banks is they have too many backstops. It is a problem that we failed to replace the normal creditors with effective regulators, and that is why they get to live so dangerously all the time. When you do not pay back, you do something good with the money. The question is why is this money coming out to shareholders . The capital ratios we are talking about even in italian banks, or looking good. The capital ratios, regulatory capital ratios look good through the financial crisis so i am not reassured these measures. Alix i am glad you brought us to italian banks. You have been warning on the risk for a very long time. I want to highlight what has been happening. These are credit default swaps for the three largest banks in italy. Basically it is measuring the risk in the market, how much you are willing to pay to protect against default. We have seen a spike in that but we are not near the levels for certain banks that we were in february. You can really see that we are also not wear were used to be when it comes back to the financial crisis, or right around those levels. Explain to us the stress we have seen in the market and why it has not dissipated yet. Italian Banking System is incredibly sick sick right now and it is not a new problem and im not the first to see that. It has been there for a while and they have been kicking the can down the road. They have a huge problem with nonperforming loans and part of the problem is the loans themselves, the fact that they are nonperforming in the way that they have or do not have. Many of the banks are virtually insolvent. Even if you do not have a huge cds price that is because the government is trying to prevent shareholders from losing everything and calling it default. They are trying to use brexit to create bailouts for these banks which are not allowed by the European Union, and Angela Merkel killed the idea so they are kind of stuck. They do not know what to do with the losses, impose them on depositors, on who exactly . There is a huge problem in italian banking. Jonathan the Italian Government, reports in rome that they are looking for a sixmonth waiver of state aid rules to inject money into the banks. Germany opposes that. What is the best option for the Italian Government to put on the table that would be palatable for other european governments and would be effective . Anat that is a really tough question, what would be palatable. It is a bit hypocritical of germany to oppose state aid when it always supports its own banks and no creditor of any german bank has lost. It is not necessarily because their banks are so healthy. In italy, they are going to have to do something and it seems as if maybe they can create some ,und from the banks themselves some combination of things, and the usual m a that swallows that banks into the banks. What we call a bad bank is a real bailout often like in spain. They have to figure out and negotiate something with the rest of the European Union to stop kicking the can down the road. Jonathan just in terms of the ifotiation, i am convinced you can convince the eu that you face systemic crisis that you get that waiver. Are we anywhere near that situation for italian financials . Anat i do not know what is systemic. They worry about contagion. I worry about unhealthy banking all of the time. A dysfunctional system and we keep allowing the same banking. You see it in italy at its worst, but in my mind there is a variation of this in many places. Vaguek they have some idea that something is very wrong in the Banking Union and i think collectively in europe it is one of the things they are going to have to come more to terms with, they need a better Financial System generally and their Banking System is really unhealthy all over. You can do it one little crisis at a time but i think they should rethink their entire approach. Alix the imf said 80 of nonperforming loans are actually corporate loans. What is the contagion effect if europe cannot control the italian Banking System . The italians also have businesses in other countries ,nd whenever a bank gets week and some of these banks are global banks, unicredit. There is just a connection inside europe. , you sort of have a Tipping Point in banking but as i said, i think that before the real crisis and panic and all the stops are pulled, there is more to be done and the interpretation is always to post bond problems. That is a perennial problem in banking. Alix no easy answers but something has got to get done, that is what we can all agree with. Professor, thank you very much. Up, bill gates talks about investing in the world of biotech. This is bloomberg. Alix this is bloomberg , i am alix steel in the heward packet in the heward packet heward pack led you do not want to miss this interview with jes staley. This is bloomberg , im david westin. I want to bring you uptodate on a developing story. This is live at Andrews Air Force base. There is at least one report that there is an active shooter on the base. We are told they are on lockdown and we do not know what is going on. This is a very famous location is this is where the phrase it flies the president flies in and out of. Dignitaries come into Andrews Air Force base so we will keep you apprised as this develops. Jonathan coming up, it is Bloomberg Markets with vonnie quinn. What a day it has been against the u. K. Politics. Vonnie it is stunning and we will be digging into the details and illuminating our viewers on who these five campaigners who have thrown their hats into the Tory Campaign are. We will have mark carney as a guest. As Francine Lacqua said a couple of days ago, he is it at the moment for the markets so he will be here at the 11 00 hour. We will be speaking with david kelly, a jpmorgan market economist as well about his projections on what the bank of england will do and how the markets will, out of this healthier, less healthy . Withly we will be speaking john fryer and he will be talking about why Boris Johnson changed his mind. Jonathan i am still trying to work it out. Vonnie quinn, thank you very much. Governor carney within a statement coming out in the next hour. Stocks opening higher in the United States. Lets go to julie hyman for an update. Julie the global risk on is moderating. Giving up a little bit of steam. Take a look at the imap to take a look at the groups on the move. Here we see much more red on the screen than we have seen in several days. Telecoms and Consumer Discretionarys lower. Staples industrials and tech are counterbalancing that. Movers, we have to look at the Online Service that helps folks find babysitters and other people to do things around the home, and alphabet, Google Capital is taking a stake in the 4. 35 millioning in the first publicly traded investment that Google Capital has made in a publicly traded company. You are taking a look at hertz global and avis edge it after aviss reached a budget after her rich hertz has reached a deal with uber and lyft. Jonathan the nasdaq up 1 10 of 1 . Lets cross over to Abigail Doolittle live at the nasdaq. Abigail one of the worst hit sellers, travel, what we are looking at a rebound. Priceline trading higher 1. 9 and it was down a staggering 15 for those two days. Sees theak says hes story improving around alternative accommodations and has raised his price target, seeing about 20 of side for shares of priceline and we have experiential trading higher although moderating. We have the Tractor Supply Company Trading down for its worst day since december last year after preand announcing the fiscal Second Quarter to the downside. They cut their fullyear forecast. Rbc and Piper Jaffray all saying this weakness is transitory. This is ah is saying buying opportunity in Tractor Supply and a stock that we do not have an opportunity to talk about much at the nasdaq. David this week we have been focusing on pharma. Bill gates has made it his mission to use modern medication to wipe out diseases all over the world. Take a listen. Wherethere is some areas the impact will be more on developing world diseases where there is not much profit opportunity. D,iarrheal disease, there is not that much of a market. We will do Risky Research on those diseases. We have made per annum related investments. Emma core which was investment , we saw thatcules those molecules were particularly effective for neglected diseases. To make sure they could go full speed ahead we made an investment in that came out pretty well. There molecules not only were helpful for the diseases we prioritized but some others as well. the money the Gates Foundation made will be recycled into the program . Bill exactly. You put money out but any money that comes back then is redonated. You are not ending up making money. You are just cycling the money through. Gnd we do that for some nondru things like helping Charter Schools get cheap rent. Erik in the world of biotech and bioengineering, where do you personally or where do you and melinda draw the line, what is too risky, dangerous, or ethically challenging . Bill most of the things we do you not get you anywhere close to a boundary. Like the it feels restraints on how we do drug trials and recruit and stuff like that feels a bit like we are over constrained so the cost and the time are a bit slow, but fine. That is how it is done, that is great. I wish that a lot of hiv tools had moved along faster. We are inpatient to get those to getng impatient those things going. Of saving lives when 6 million children a year are dying, it is pretty clearcut. The resources have not been there. Do you feel you should be spending more money on developments that allow thing to accelerate . Bill capitalism in general under funds research. To society are much greater than what the innovator captures. It has always been known that it is underfunded. The other thing that is underfunded is things that benefit people with very little money. Where you see those two combining is the research on diseases of the poorest, that is very underfunded, and therefore philanthropy and governments have to come forward and say malaria is a priority despite the fact that people will not make much money. We go to the Pharma Companies and say, we will fund some of this, they donate some of it, and we have gotten their attention. We have a very strong malaria drug pipeline. David that was bill gates with bloomberg asked erik schatzker. For full coverage on pharma visit farm ago. More go is next, this is bloomberg. Jonathan almost 25 minutes into the final trading session of q2, the midpoint of 2016. Equities in the United States opening up marginally higher. The ftse up 2 10 of 1 . Stocks in mainland europe down and down by one full percentage point if the stoxx 600 is anything to go by. Was three Straight Days of gains for sterling, not so much anymore. Yields grind lower again, down by three basis points. Quarter for crude that could be the strongest since 2009. We are down to one half percent on the session. Alix looking at exxon and , on target for gains. Still ahead, mark carney will be speaking at 11 00 a. M. New york time and we will be taking it live. Afterwards we will have erik schatzkers interview with jes staley. It is a big day. Dayd we come in every expecting you to bring us some news and you have not let us down. You have mark carney and jes staley coming in. Jonathan just thank the quirks of british politics. David it has been quite a week. Thank you so much for joining us on bloomberg today. E it is an 00 a. M. In new york. 3 00 p. M. In london and 3 00 a. M. In hong kong. Im vonnie quinn. And i mark barton. This is Bloomberg Markets on Bloomberg Television. Vonnie we are going to take you from new york to london to milan and cover stories in boston and johannesburg, south africa. Another shock in the u. K. Former london mayor pulled out of the race to succeed Prime Minister David Cameron. To unify therns party. Unleashed a Financial Market crisis. He says it will be a great calamity for the eu and the refugee influx. Spearheade new ceo to italys largest bank