Bloomberg exclusive, three hours to set you up, but first, a look at the markets. Yields moving higher from here. Mark lets get you up to speed. Futures on the front foot at the moment, firmer on the s p 500 after yesterdays alltime high. Look at the moves in japan. The nikkei up by two point five Percentage Points and it is a twoday rally up over six fourth Percentage Points. More stimulus potentially from the japanese government. The nikkei rallied and the yen declined. Weaker japanese yen and the dollar yen trading with a 103 handle an approaching one of four. Cable rates gaining as well. The pound doing very well. It is a firmer story for risk assets, but this is what i find the most interesting. We talked about highly correlated markets, equity markets at record highs and bond yields at record lows. Today is different. Equities on the front, bond on the back, little defensive. Yields going much higher. 30 year yields up seven basis points. Yesterday, there was an auction of threeyear notes. Today, we get a treasury auction of the 10 year. Look out for that auction and the demands there. The market has been reacting to it. Aroundor now, lets go the world and check in on a Bloomberg Team for indepth coverage of our top stories. In new york, record highs and john in london on theresa mays imminent appointment as Prime Minister and mark carney speaking this morning. Plus, the European Finance minister meeting today and, kinsey in beijing on the historic ruling in the dispute over the South China Seas. I went to start off with the stock market record yesterday. Danny, s p 500 futures trading above that closing level, which was 2137. What is driving that higher . Are higher this morning after the s p 500 posted alltime highs yesterday. What kicked out the rally was the jobs made do on friday, which was better than forecast trade that bind the Economic Outlook without increasing the odds that the federal would move. What that really has propelled are the more economically sensitive sectors. We had financials, industrials, Technology Leading the gains yesterday, which is reversed with what we have seen this year when we have had safer industries that have led the gains in your today with utilities and telecom, which were the trading. Big question is, can stocks keep rally without banks . 30 stock and s p 500 are below the record high in 2006. Dani you have to keep in mind that we have bond yields at record low. We have sort of a scarcity of fixed income around the world, which has led a lot of refugees pouring into stocks that are not necessarily based grade you have low volatility stocks, quality stocks, dividend payers, which have been propelled to alltime highs and investors will look at Corporate America on whether or not we can get higher and we had a good ticket that you share with good earnings at about collect. Alix and Bank Earnings taking on thursday. See why. Thank you. Of course, you cannot talk about you cannot not talk about the turmoil. Jonathan as david put it, a layer of uncertainty has been removed. We now know who the Prime Minister will be with theresa may. I wanted to bring in john fryer from london. We know it will be theresa may, but i guess that is all we know. What do we need to find out next . John basically, we need to know now who is our team . You would say the most important person that the city wants to know about this he will be the next chancellor, and of course that appointment will remain important. There is an added dimension that we need to know who will head up the brexit negotiations. She has said that her brexit will come from the probrexit team and that will stop a number of people come so that is what people are looking for over the next 36 hours. She will be appointed tomorrow evening and then after that, people will want to know the remaining appointments. Meeting onhe thursday, the market has been building up expectations about what may or may not happen this thursday, but Governor Carney going in front of the committee and people in the United States thought they would go against congress, but this is incredibly political. I have not learned much about Monetary Policy or Financial Stability looking at it today, but i have just turned politics. What have you heard from Governor Carney and the committee so far . That it saw perhaps will be taken out of the brexit debate. Carney came in for a lot of criticism four understating the risk of brexit, but this is a problem that will not go away. No one is sort of thinking about another bank of england governor, but there is the question of whether mark carney will stay or leave after the five years or you will serve a full eightyear term. Part of the conservative party are not letting people forget that he was very much in the remaining camp and he was very much part of this team of giving severe warnings on what will happen in the brexit aftermath. Central bankers never liked to have the role politicized but his role now is politicized. John, we appreciate your insight. Governor carney has had an incredibly bad day over the last couple of months in terms of accusation. David he has been on most all alone in leading the government and now we will not theresa may, but there really has been no one. Jonathan one man standing. David we want to go to brussels , theying in Ryan Chilcote are meeting today, and one of the things we have heard about is the plight of the italian banks. As that of the agenda . Banks are not on the agenda, though i am sure theyre talking about them on the sidelines of the meeting. There are two stumbling blocks to getting a deal done with the them. Ld help the eu is divided as to how they should proceed. The second is that the italians are looking for something unusual. Come in the capitalizing their banks, protect bondholders, specifically, protect those subordinated bondholders. Theyre not supposed to do that. The italians are in a hurry because they want to get some kind of deal in place before july 29. That is when the result of a stress test comes up and theyre concerned that the results could show that a tiein banks are not in good shape and the could have a run on the banks. There is a report out this morning saying the European Commission, the eu, is talking to the Thai Government about how to protect the bondholders, so they could get something but not today. David why is this so important to the Italian Government to protect the subordinated bond holders . So therey interesting, could be as many as 50,000 of these bondholders. Most of them, and pot investors, and these are people that could put down as little as 1000 euros investors, and these are people that could put down as little as 1000 euros which they think is as a present of bank deposit with a little return. As the rules dictate, they are the first to lose their shirt, and then they go vote on that frenzy anduld push his government out of office. There will be a referendum in october november and italy and it is not about the Italian Government, but the Prime Minister has sponsored that referendum and he has said that gethe referendum does not voted in, then he will step down. He is very concerned about what gets decided here and protecting the bondholders and their votes. David thanks. Ryan chilcote will be coming back with us throughout the morning. Now we go to beijing with tom mckinsey about the International Tribunal ruling on the South China Sea. Please, tell us what was the ruling and why was it important . Right, thes Arbitration Panel but this is a significant ruling. It is a significant loss for china because it was a very clear bowling against them and in favor of the philippines. It says that china has no historic claims to the 80 , more than 80 , of the South China Sea that they claimed. Lineso says there is this that china consistently refers to that links to a 1947 map that gal basis and also that the spratley islands that they claim as well, china cannot claim the waters around them reefs andere are some they also accused that china has harassed the looking fishermen. A pretty clear ruling against china and we are looking for the reaction from beijing. David they said they will not recognize it, but to anticipate further action, such as military action in the area . We have heard statements from the Foreign Ministry and they have dismissed this. They have all along christmas the Arbitration Panel and they dismissed the ruling. They say that what we are looking for is any movement on the ground, in the area, and will they put an air Defense Identification Zone in place and will be step up patrols of their fleets . Any other actions, building a military facilities on the island set they claim . That is what we will be watching for. China, beijing says theyre committed to peaceful resolutions, as does the philippines. David thank you. Alix breaking news concerning opec. Rising oil demand will happen in saudi arabia will be pumping near record levels. This comes from opecs monthly report, saying nonopec supply will decline next to buy thousands of barrels a day, but Oil Demand Growth will continue. T about 1. 1 million that basically means opec needs to pump that much more in order to sustain a balanced market. Basically, you are seen oil prices not move that much, up by 3 on the day. Jonathan coming up, so much for the brexit selloff. S p 500 now add a fresh record high. The attention now turns to earnings. Whether the global rally trades up or down, next. This is bloomberg. Onathan i am Jonathan Ferro the s p 500 closing yesterday at a new alltime high, and markets regionally becoming increasingly correlated. U. S. And european equities, the most in sync by some 120 day correlation since 2012 following brexit. Joining us now is cio of center funds. James, great to have you. Lets start with our some of the markets have become correlated across assets and regions. Does that make your life more difficult when you try to buy that portfolio . James yes, it is a dangerous time to be an investor, i would argue more dangerous today been march 2000. Lets not forget the price that you pay for an asset is probably the most important decision that you make when purchasing something. Ignoring all the shenanigans, lets just look at the multiple on cash flow for the s p 500 on equal basis. That means the average Company Trades around 17 times gross cash flow. Even back in march 2000, that was nine times because excess valuation was really concentrated in the Technology Sector and not so much in the other areas of market. You even look at a balanced account in march 2000, you had a tenyear treasury bond on a 6. 5 yield versus 1. 7 today. Even if you said, stay away from technology in march 2000 and he wanted to concentrate on some lieu chip industrial companies, you could go to Lockheed Martin back then with a dividend yield that 5. 2 and it is less than half of that today. You see that across every asset class, even private equity folks. Historically, i started my career in corporate financial valuation and you always paid in private equity because of the discount of rocket ability six times are seven times gross ash flow. There at 11 or 12 times now. Given the fact that you dont have alternatives in fixed income, i would argue commodities and equities are dangerous place for investors. I think the price of hedging, although it does cost something, is a worthwhile endeavor at this point in the cycle. Alix im glad you mentioned price to earnings because i have a chart, 2021 for those of you who can pull it takes a look at the 50 year price earnings. Yes, we are high and we have been higher many times in the past. We tend to sort of loose site. E. Level. A record p james the only debate i would have is if you look at price time earnings today versus other point in time, i find it in better exercise to look at things on an equal weighted basis, that is the average company, so you eliminate the distortions of technology back in early 2000 or banking stocks and certain points when they are depressed, etc. , and when you and equal weighted basis, it shows the market is higher in terms of valuation today than it was back then. More importantly, pes give a false sense of value because margins today are at much higher levels than they have been in the past, and they have been rolling over. Lets not forget when you look at the market from its origins, the bull market in 2009 through today, the market was driven by lets just start with basics. Markets go up for two reasons, price and earnings multiples go up or down or onions go up and down, and from 20092013, it was driven by earnings. Since 2013, it has been because of pe expanding and not earnings. David there is a critical element in times ratio. If earnings are going up, the p e ratios do not look so bad. The question is, as we start earning season, what are we to . Ing james if you look at the market fundamentally on the trajectory of earnings that we are, i can make a better case for the s p 500 the net hundred and i cannot 2200. What i mean by that is if you look at what is essentially the kick in todays earnings, lets ignore this quarter because i think the market because of energy and so forth are expecting minus one Revenue Growth this quarter, but if you are looking at and applied growth rate, what the market is saying, earnings are going to grow for the foreseeable future, right now, that figures a little over 9 . Earnings have grown on a compounded races over the last five years at 8 . We have just been through what we thought was a recovery and an economic extension. We are at peak margins, which rolled over in 2014. A big contributing factor of earnings is the Banking Sector, and that to me is going to face quite a bit of distress because of the flat yield curve a negative Interest Rates, so it is tough to find growth and to find Margin Expansion in the market. Jonathan do you think there is real stress in the Banking Sector right now . How stressful do think it is and how bad can it get . James you have to step back. I started as a financial analyst in the late 1980s, and i think it is a bit back to the future now because when you look at banks, i think you just look at a shortterm perspective, particularly in the 2000 erik, you look at banks in the growth sector. I remember a seasoned analyst told me, how do you value banks . We are kind of back to the future in that respect because why . Lets give the banks and credit. Out of the recession, they were able to increase the return on assets back up to the normalized 1 , but the beauty of the Banking Sectors that you are able to leverage that at because of the increased capital cushion bins the regulatory burden. That roa of 1 , which translated to be 20 return on equity and give you a premium book value, is now in leveraged, essentially. That is why the trading is at depressed prices. The problems at the bank now is the flat yield curve is basically documenting earnings. A long time ago when i was at credit suisse, i used to run a global sector funds on top of American Funds and iran a Global Financial services fund. Anded to have a simple rule say, where do you find investments in various countries and i would say, well, in banking, you want to employ what i call the free 63 role, and that is fine countries with the yield curve dynamics allowed the banks to borrow at the percent from the depositors, lend out at 6 and they can be on the golf course at 3 00 in the afternoon and still make money. What do you have now . Negative, negative, how will anyone make money in that environment . Jonathan james, great to have you with us. Alix i am impressed right now. I want to go by gold. The race for up, the white house heating up and the new bloomberg poll has telling results about collegeeducated voters. This is bloomberg. Vid this is bloomberg i am david westin. The new bloomberg poll Shows Hillary clinton is ahead of donald trump in collegeeducated voters. This is one that no democratic nominee has won since eisenhower won. We bring in megan murphy on more of what this means for this is remarkable. I do not realize that white collegeeducated voters almost always a republican. Megan that is what is interesting. If you take in isolation that Hillary Clinton has a huge lead among collegeeducated voters and voters of postgraduate degrees, that does not seem surprising given the attack donald trump is taken in the race. You have to go back to eisenhower to look at another democratic president ial nominee that has won this demographic and it shows just how they are both really trying to dial into their respective strengths. Donald trump will look at this poll and not be surprised. What it shows is that Going Forward for him, the important thing is going to be to try to increase white turnout, the white working class, which has been his strategy throughout. It can get that demographic higher, he needs to bring it to the 70 and 80 , then the poor will mean less to him. If you cannot do that, because you are not stage together other demographics, this is a problem for him. David Donald Trumps approach is a whole new ballgame come all the rules are different and he will bring in all sorts of new voters that have not voted before. The rules of not he