Us here on set for a talk about the boe, brexit, and his outlook for global rates continuing to grind lower. Global strategist will join us with his outlook for european banks in the second half of 2016. Again, the story is global yields. Jonathan record lows and its a remarkable story that we will continue to talk about. Lets check in with a Bloomberg Team with indepth coverage of our top stories. Guy johnson joins us on the bank of englands News Conference in the last 90 minutes or so. And the latest on the votes of the uks next Prime Minister. And if possible capital injection into italian financials. In new york, the latest on treasury rates hitting new record lows. Paul allen joins us on this weekends election. I want to bring in guy johnson the bank of englands new policy response. The significance . Guy he is essentially signaling a recession and this is giving the tools by the chancellor and he is now putting that into reverse. Saying tougher times are ahead for the k economy. It is very clear that it l be a command story Credit Demand store that the u. K. Will have to do with. Jonathan you talk about demand and they cannot really do anything about demand but they have to meet with supply. He talked about Monetary Policy about being targeted and the unintended consequences. It does not look like a governor really ready to pull the lever. Guy the Monetary Policy committee starts deliberations later on this week. He talks about unintended consequences and its code for we are a bit worried about negative rates and what they may end up doing. What he is saying there is that maybe actually the mpc may look at other things that he can do. He has the opportunity to cut 25 basis points as a gesture of goodwill, but nevertheless it looks as if that is not going to be the primary weapon he uses. Jonathan what is your take away so far from the reaction and policy response from the boe . About messaging and signaling as much as it is about policy formulation at this stage. He is signaling clearly that the Financial System is adjusting and will be there to support whatever the u. K. Goes through next. What he wants to make very clear in his tone and everything he has adjusted with his body lang which is calm and calculated and we are in control of the situation. Jonathan guy johnson, great to have you on the program. The lead Campaign Said brexit would create jobs. Executive for International Government joins us to discuss the latest on u. K. Politics. How many openings have we got . Im losing count. [laughter] lets begin with the race to be the next Prime Minister coul. Tell us about it. Ofn this is the first round about 7 00 where we are theecting announcement of the result of the first round of results. One candidate will be eliminated and then it goes to a second round on thursday and it will go down until there are two candidates. Jonathan there was a near of obsession, but there is momentum. John there are concerns and if you talk to people and government that they have not had the strongest track record in government that you might think, but she is extremely popular with the rankandfile. To most u. K. Voters, she is not really a household name. She was a prominent figure in the leave campaign. There is a lot of momentum with her and that was thoughts that teresa may run away with this and there may need to a coronation. There are probably 50 or 60 mps behind her. If she gets up to 80 mps, it would be very difficult for this not to go to the rankandfile. It is a process that would mean that we did not get a Prime Minister until september. Jonathan some of the job openings post brexit in the case, great to have you. A busy week for politics in the u. K. Im getting no sleep. John, getting no sleep for at least the next two years. Alix i went to bed at 7 00 p. M. Thomas to bea, so be that. Allies that, we are looking at a record low for the second straight day. We are hearing that italian officials are going to pump money for the second straight day. We had been picking that up for the last week or so that they has been an inclination by the Italian Government to put some money into recapitalizing the. What transpired in the last 12 hours has been that the bank has received state funds twice since the financial crisis, but it is burdened by a very large bad debt. It is just as record low Interest Rates are profiting across the industry. Alix the real issue has been what can italy legally do as part of the eu . Germany kind of killed that id, so legality is the key. Elisa there are rules that would allow state aid with little burden sharing by other stakeholders, such as predators and shareholders. The key really is now whether and will end up in brussels what decisions they are comfortable with taking and how much leeway is given to the government to provide state aid without some of the strings that might have to be attached. Alix that stock continuing to get hammered while other italian banks are getting relieved today. Thanks so much. David we are turning out to u. S. Government treasury bonds. New record low yield on u. S. Treasuries, even as we are getting ready for those minutes coming out on wednesday. Is the sky the limit on how high the prices can go . One shot can make a difference in the life of Global Investors as you well know. Andstory is about brexit the uncertainty from the fallout on brexit and how much of an impact that will have on Global Economic growth and u. S. Growth. Combine that with a search for a positive yielding asset and you get a mad dash into u. S. Treasuries. Wheres the bottom . No one really knows. The question is how low can yields go . David we do have minutes coming up from the fed later this week. What are you looking for in the minutes . Susanne they will reflect a cautious fed, because they were still concerned about the slow and disappointing jobs growth that we have gotten for the may jobs report. Then hastive since shifted and has shifted from when will the fed raise rates to how much of an impact will brexit have in the u. S. And what can the central bank do about it . David thanks so much. That is suzanne barton. Now we will turn to australia and paul allen joins us from sydney. They had an election, but they do not seem to have a government yet. When do you expect the results of this election . Paul it could be days or potentially weeks. Votes arrived and they are not going to get those counted in an afternoon. There are seats in the lower house and the magic number that she knows you when government. Number will let you when government. The seats to form a majority government, but he needs support from minor parties to get over the line and negotiations could take weeks. David paul allen, great to have you. Lets go to Abigail Doolittle for a look at markets. At ago we start off with the abigail we start with the equity markets. Gas is down and its a second session it is down in a row. Looks like the brexit recovery hopes have faded a bit. Indiceshasing manager revised upward. It looks like the auto sector is leading these declines for the German Cartel office. The risk off in equities, we have the commodity complex trading down. Wti crude down 2 . One of the worst day since last thursday, but it still stands out that opec revised its production for june. We have been talking about the record u. S. Bond yields and we in the the 30 year here u. S. At a record low, not just on brexit recovery concerns but also the payroll report on friday. People are worried we will have another dismal report for june. David we have headlines outside of the business world. Mma saudi arabia is the latest target in a wave of terrorist attacks. A suicide bomber killed himself and security personnel at one of islams holiest sites. Two other bombings caused minimal damage. In baghdad, the death has gone up from the truck bombing. 175 people were killed and almost 200 were wounded. The Islamic State has claimed response ability. Responsibility. President obama will campaign with Hillary Clinton for the first time today. He will join hurer in charlotte, nor killin north car. Donald trump will also be campaigning in the state later today. Global news 24 hours a day, i am amit chandra. This is bloomberg. Jonathan coming up on this program, the prospect of another recession. L the bank of englands cuts be enough to support the economy . Jim karen gives his brexit resolution and outlook for the second half of the. Year. From london and new york, this is bloomberg. David this is bloomberg. Bank of England Governor Mark carney wrapping up a News Conference over in london. D the u. K. Has entered a perio of uncertainty and economic adjustment. We will not be able to fully offset the market volatility that can be expected while this adjustment proceeds. Guy johnson is back with us in london and jim caron is here and is responsible for a little over 400 billion as an asset manager. Set the scene for us for what exactly mark carney did and said. This is the first part of the reaction from mark carney. Action, whichc in is different from the mpc. This is issues surrounding banks and leverage ratios, etc. , and this is where he is starting to tinker first of all. He has reduced the countercyclical buffer. The banks have a hold and have tightened during an economic cycle. He is taken those back down to zero. What he did do is acknowledge the fact that there may be significant available to of Credit Demand. This is the first part of what he is likely to lay out over the next few days because the Monetary Policy committee starts over the next few days. We are getting the response that may come in the form of rate cuts or other qb. This is the first part of the puzzle. David he was quite specific about what he meant for terms of available credit. Guy he is basically saying that we are going to be making sure that the banks have the capability to lend lots of money into the real economy. This is not going to be a Credit Availability problem that the uks going to suffer from. He is just making absolutely sure that that is not going to be the case. Demand is going to be the real picture. He is going to try to spur demand using other aspects like the cost of money and take around with a whole lot of other things. This is just the start of it and we will see plenty more from the bank of england over the next two days. David the bank of england governor says theyre going to have 150 billion in more Credit Availability. Is that going to work for them . Is that a good tool to use right now . Jim right now waiting to do something and they need to reassure the markets and that is what they are doing by making liquidity more assessable and available. Europe is doing much of the same thing with their own programs. The number one thing that you have to do is you have to make sure that liquidity is available and accessible and its plentiful. That is one of the ways that they try to calm the markets down so there will not be liquidity shortages or squeezes. That is where prices really gain traction, so they want to avoid that. Jonathan we should look at todays meeting and News Conference as a focus on the supply of credit. When the Monetary Policy committee meets, that is going to be a price of credit story. We are 50 basis points. When you cut rates in the eurozone, there has been a focus on the fx channel. Not much of a move on the fx channel for cutting rates, considering the huge adjustment we have seen on sterling. My question is what is the point of cutting bank rates . Jim it is more symbolic and communicative of this point. You can cut the cost of credit, but will you increase the demand for credit . What we have seen in this recent slowdown that weve been having in the markets is that credit is plenty available and cheap and Interest Rate are low, but two people have a lot of demand for the credit to actually invest . That is really the missing link. David you draw a distinction between uncertainty and ambiguity. Apply that analysis to what mr. Carney is trying to address right now. Jim when we look at uncertainty in the market, we think of normal distribution and that there is one very likely outcome. When we think about ambiguity, what we are saying is that there are many outcomes with near equal probability of occurring. But that does is that when we think about the markets and we think how is this going to unfold, there is goin a multiple group of events that can actually unfold. Carney does not know which ones are going to take hold. The one thing he does feel couple with is that this is going to create some kind of financial stress. In order to have that off advance, we need to flood the market with liquidity so you do not want to wait for the event and address it. You want to make sure the event does not ever occurred by making sure there is plenty of available liquidity in the markets. Jonathan just to reflect on the structural issues in the u. K. , you have a record current account deficit. I want to take you to the gilt market where yields are at alltime lows. For holdings of the gilt market are at an alltime high. Do you anticipate that to change in a radical way in the coming year . Jim i think it is went to take some time, what you said earlier with the fx channel is key. Those two are connected so if you get sterling to weaken enough, then those gilts become more attractive. I can by the guild bonds. I think those two are connected right now and they are not going to happen all in tandem. We need to see the currency and sterling weaker. My argument would be around 1. 2 1. 25 . Even though there is a current account deficit, i think it is more of an event of getting the currency weaker to make the bonds more attractive. One has to happen first and then the second. I want to think guy johnson and jim caron is going to stay with us with his view on whether global bonds can keep going after the best months since 2008. This is bloomberg. Alix the rush to safety continues. Jim caron from Morgan StanleyInvestment Management is still with us. Take a look at my bloomberg and all. Says it it is basically a chart showing the record lows we have seen and japan, germany, the u. K. , and the u. S. This was yield curve is now negative after 50 years. What is the breaking point . When do we stop . Jim good question. It is want to sound very simple, but it is supply and demand. One of the things that is out there right now is that as governments buy back their own government bonds, there is less of that available supply in the markets. Many people still demand it. When you say pension liabilities , where are you going to get a positive yield . In the u. S. , where we expect the dollar to be a little bit stronger, it still has a positive yield. The 10year note is around 1. 3 on1. 4 . It is still positive compared to bunds. What is interesting is to think why there is such a need and such a demand to have these bonds at such low yields. The view is that there is a higher risk premium being assigned to these and bonds offer some safety. There is some guarantee that if you buy a quality bonds that there is your principal b ack. At this point, its the best the market can do. Take a look of the u. S. Yield curve, that just continues to flatten. Deutsche bank now sees a 60 chance of a recession based on the yield curve. What do you see . Jim when we look at yield curves and flattenings, we have to think about the context. We have to ask why that occurs. It typically occurs because a fed is hiking Interest Rates. They height a lot and front and curves hike up a lot. What we are seeing here today is not a bear flattening where rates are going up. What we are seeing today is that the front and twoyear is pinned and it is a backend yields collapsing. I do not leave those recession signals are as strong as they were in the past because the causality of it is making the curve flat. David very briefly, what is the one Asset Classes benefiting the most . The money has to be going somewhere. Jim emerging markets. Local emerging markets are up 10 on a yeartoyear basis. Emerging markets needed this extra boost and they are getting it. Alix great to get your perspective. Thank you so much, jim caron. Banks and european the 5 trillion d currency market that has serious volatility. You guys be good. Ill see you later [ bark ] [ bark ] bye. See ya pal. Ever wonder what your pets do when you leave home . [ laughing ] aw you cutie pie. Aw. Aw. Aw. Aw. [ barking ] [ washing machine running ] partys on know what your pets are up to with xfinity home. Xfinity. The future of awesome. See the secret life of pets, in theaters july 8th. By switching to xfinity x1. Rio Olympic Games 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 the beautiful city of london and to our viewers worldwide, this is bloomberg. Not so beautiful along the cable rate. A pound rate near fresh low against the dollar in london. Abigail, get us up to speed. There is a risk off tone and we see lots of selling and equity markets. We do have the british pound down to levels that we have lasting in 1985 with brexit uncertainty lingering. The u. K. Did offer its First Successful guilt auction today. It was the auction of the fiveyear guilt going off at a record low of 0. 377 . Another measure of success was at 1. 8. So a very successful auction there. Despite all this uncertainty, we have the ftse up. Speaking of record lows, we also have the 30 year yield trading at a record low around the uncertainty of the brexit. We do have the big payrolls report out on friday. For may, there was a shocking 38,000 jobs added. Investors may wonder whether or not the headli