Throws their support behind theresa may. As she sealed the deal for the top job in britain . We are going to discuss all of this with our allstar guest lineup today. In a moment we will be speaking to socgens chairman, and later in the program, the head of the european stability facility. Plus, ecb president mario draghi speaks in 30 minutes. Were half an hour away from the European Equity market open; lets show you what the terminal was telling us about where we think the story will go. To the fair value calculation, euro stocks down by 8 10 of 1 , london looks like it will outperform, but sterling has been smashed. Dax called lower. Caroline quite phenomenal moves. We sawwas pummeled a drop to its lowest in three decades. One of the most accurate forecasters when it comes to fx see it at one dollar 16 come september, even more pain for sterling. Money moving into the yen we will be watching german bond today with 0 coupon money into the haven that is gold. Clear risk aversion lets get caught up with the first word news and haidi lun. Haidi thanks, caroline. Theresa may has taken a clear lead in the first laid of the race to succeed as the next uk prime minister. She got the backing of a hundred and 65 mps. Previous competition was meanwhile the pension secretary chose to drop out. The president of the San Francisco fed says the rate hikes could still be warranted this year, brexit or no. The decision to leave the eu wont derail the u. S. But is expected to lower growth by 1 10 of one percentage point to just under 2 . Chief says thed decision to leave the eu could escalate into a significant headwind if it triggers wider turmoil. Hillary clinton will not face charges over her use of a private email server while she was secretary of eight although the fbi described her actions as careless. The news came as she campaigned with president obama, who says he believes her and that she deserves to be in the white house. Global news, 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Is bloomberg. Guy it certainly is. Mark carney says brexit risks are beginning to crystallize and the market seems to agree. Are drivingy funds denver market sovereign yields to alltime lows. Sterling continues to be hit and hit hard. Lets go to paris for the International Finance forum we are joined by the chairman of socgen and former good morning, sir. Financial markets are driving global to developed yield to new record lows on a daily basis. Do you get a sense that markets are orderly, that markets are rational . Uncertainty. U have you dont know whats going to happen. Its difficult to make any forecasts and there is no rationality, no basis, just very emotional. On the other hand, given the uncertainty, what Governor Carney said is right. You have all the fears about the effects of brexit and people are starting to withdraw from the market and to save assets. I talk to you about the way the market is functioning . You cant see this the libor spread, the u. K. Libor spread. It is by no means as elevated as it was at the financial crisis, but it is beginning to elevate, and we are back at levels that we saw august, 2007. Do you worry that we are at the beginning of another crisis, that the market may not function, that interbank lending may start to dry up, or do you think that is something that the central bankers have controlled . Well, as we mentioned in 2007, we thought the column was back until one year later when we found out it was not solved. Compared to 2007 the Central Banks have learned a lesson. They are out there, a ready to absorb all the shocks, but at least it this is different compared to 2007. Caroline does more need to be done for the italian Banking System . You aboutd aboure the unraveling . Does the European Commission need to allow a bailout . Well, we are getting into a situation where there is contagion the whole banking market is under pressure. Aboute adopted some rules how and when and under which conditions to inject new capital into the Banking Systems, and these rules have to be assessed where there isnt a systemic crisis. His rules foresee the , and eveny to suspend small investors are getting out. I think its a situation where we have to assess some suspension of the rules that may need to be applied. Guy come back and talk about that in a moment. Can i bring you back to what is happening in europe, and how the effects of the brexit are likely to be felt . My first question is do you think a difficult divorce can be affor avoided . How do you see it working through . Well, first we need a plan by the u. K. Government. Its difficult to start a negotiation without knowing where we want to go. Would be a new region solution but that doesnt seem to please the british government, so what is the alternative . My fear is that we are in for a long negotiation and that is with the markets are afraid of too,. We could start with the region and then develop from their the swiss agreement took a very long time to negotiate. Thats what the markets are afraid of a long period of uncertainty and the british economy sitting on a major imbalance, 7 currentaccount deficit. You can see the pound sterling. Anna give us a sense of your longterm view on the eu. Will we see a domino effect . Could we see other countries leaving the European Union . Will it remain, even a 28 member state . Could the u. K. Remain part of it . Well, to be a bit cynical, it will depend on what happens over the next few weeks and months, and if things develop badly people will be dist discouraged. Its a key moment. We tended to think we are in front of the major disruption one year ago we were discussing grexit, and europe in the end was able to manage. Lets see if we are able to manage this time. It will require some major leadership on behalf of the prime ministers and heads of state of europe. It all depends on them, in the end, whether they are able to look over the longterm and try to fix the series of things not working in europe. Guy id love to pick up on some of those points, by can i talk to you very quickly you talked about a longterm negotiation. Do you think the u. K. Can avoid a recession during that. . And what would be the appropriate response to deal with that recession . Is Monetary Policy beginning to get to the end of the road . Is a fiscal response now required . We saw the chancellor talking about reducing corporations taxes walk us through what you think it should look like. Well, frankly, in front of uncertainty, people dont spend, dont invest, so its a real economy phenomenon. This will have impact on the Manufacturing Sector in particular. That if theraid reaction is a coming of corporate taxes, in a context where you have a discussion in europe, what will happen to other countries . Will they also cut . There is a risk of competition to cutting taxes on the most mobile factors, which is capital, and that will not necessarily end of the right way. With biggerup deficits and debt in the markets will not like it in the end. Idea from the point of view of britain is to try to have a clear view of where we want to be one or two years from now and clearly showed to the market that the negotiation will and with the relatively good compromise and that this will help confidence build up again, spending money, throwing money around that will burn the money. Potentiallybout london losing its allure as a Financial Hub . You said that you remain committed to london why . Will he not see more bankers moving to paris . Well, we are in a privileged position, both in the continent and in london. We are able to move our business wherever it will be more convenient. This is different for other banks. We are waiting there, committed to london because we think london will remain a major financial sector, but it will be the only one in this part of the world. I think we are wellpositioned to adjust. We are going to take a quick break. We will be back with you very shortly. We need to discuss with happening in more detail surrounding the italian Banking Sector. We will be back in paris with the socgen chairman very shortly. Italian banks are front and center; this is one of the biggest stories right now, and we will discuss it further. This is bloomberg. Anna welcome back to on the move. Italian banks have taken center stage as the u. K. Votes to leave the eu. Its devastated share prices are bearing the brunt. The stock hit a record low yesterday, as they are looking to inject capital into the embattled lender in its third bailout since the financial crisis. The market regulator has been shortselling in monte de paschi today. By. Smaghi is standing you said earlier we could see a systemic crisis spreading out of the italian issues what is needed right now to help prevent that happening . Well, what is needed is a european solution. I think what has not happened so far is we have had national solutions. We need a European Solutions and a clear backdrop to the safer expectations that drive this contagion Banking Sector. Some italian banks have a couple of problems and one is a nonperforming loan. Many italian banks are less profitable so if you put your u wont solve the problem. You need restructuring of the Banking System which gives you an opportunity to consolidate the italian Banking System as it becomes more profitable. It also requires some political determination because that means also restructuring, costcutting. That has not been really addressed. The german Banking System, if you look at stock prices, they are going down, and there are too many banks in germany that are not profitable. Profitable is not attractive. Guy can i pick up on the political angle you were just discussing . I want to talk about the political will to change the way and peels are dealt with. Is there any point dealing with the bad loan story until you change the legislation . I wonder if we are getting the sequence wrong here in the way we are tackling the problem. The government has implemented some tools to speed up recovery. Its not clear where this is sufficient, but there has been some movement. Now they need to deal with the stocks of nonperforming loans and incorporate the losses. Whatever the losses are, they have to be recognized if you need something that clears the way. Then the next step is how to make these banks valuable and avoid them being zombie banks, just because they are not able to be sufficiently profitable to generate new loans. Is a series of effects that are politically costly i know theres a referendum in october and banks are delicate issue and you have to reduce employment and put money into banks when its not politically easy and to sell to the public. Anna you are talking of recapitalization. Germany wants to see the recapitalization done by the private sector, by those that hold the debt. Does it need to be the taxpayer that is the backstop for italy and the wider european Banking System . Well, in theory, it shouldnt be. We have implemented all these rules to avoid the taxpayers having to fill in for the private sector. But when you have a systemic crisis when there is a risk of and fulfilling expectations the Banking System has problems, in these situations you need the taxpayer and the public sector, union policy to step in and to intervene but the quicker the speculationop the and then you need to get out. Its not as easy in some countries, but ultimately if you dont accept the taxpayer as the ultimate resource, there is a risk of systemic crisis. How do we get to the point where we can spin the Banking Union . The germans say the rules must worried to, they are about the fact that we end up in a series of situation where the rulebook gets tossed out the window. We seem to be in one of the situations again. I understand that this is a difficult situation, but arent we effectively drawing a line under the Banking Union and saying this is never going to happen . There are always situations and developments that allow us to sidestep the rules. German once the rules germans want the rules and others dont. How do you do with the aching scenario . The banking scenario . Cant govern Financial Systems on their rules you need to interpret them and you need an institution which implements them. It cant be automatic. C that theor procedures are suspended. The question is are we in this situation or not . And who decides the commission, the ecb . If this happens, we should interpret the rules and apply way tod this is the best make sure that the system in the Banking Union are really implemented in an appropriate way. Lets not forget that you are missing some elements of the Banking Union. Weould say to the germans, interpreted the fiscal rules in the past in favor of germany also and we need to be pragmatic like a policymaker. Should you think the ssm i be housed within the ecb . Do you think there is a case because of the concerns . Ssm and moste Central Banks see a supervisory function that goes back to Central Banks you have this in england, in the u. S. This idea of fleeting supervision is and ifstoric in my view you separate them they dont talk to each other and we have a problem is a function of the financial market. Guy we certainly learned that in 2007. The socgen chairman, thank you very much for joining us. Discuss what all this means and where it takes European Asset classes. Andrew perry is the head of equities. Good morning. You have been listening to a former central banker, a current chairman of socgen, who clearly has some concerns. Will you look at what you are seeing in front of you . Do you think we have a grip on it, an understanding of whats happening . I come back to the ios story thatent at 2008 levels, we are beginning to move a little bit higher. Yeah. World isveryone in the being heaped on the shoulders of but what brexit has illustrated is the underlying Security Issues that existed beforehand. The italian banks have been underperforming for quite some time, the u. K. Funding crisis has then potentially there and i think this is whats happening we are shining a bright light on the underlying fragility and now we have an informational deficit for market participants. There is a lack of understanding of what the details are going to be. Its not a surprise that we get this febrile environment. Question. Ew, quick good morning. Do we need a european version of the troubled asset relief program. To the tune of 700 billion, to prevent exit of the italian bank . The previous chart on mpls in italyly versus america it was a great chart. That shows what that part of the european problem, not gripping the situation decisively and taking definitive action. Italy have doubled since 2009 and in america they have fallen by 70 . The tarp is the shock and all of we. Many smacks their hands and thought that was job done and were very complacent. Europe has been a series of exercises and this is whats coming back to haunt us now when we have this challenged environment. Guy thank you very much. This is bloomberg. Guy welcome. You are watching on the move, right here in london. I am alongside Caroline Hyde in berlin. We are moments away from the start of european trading and you have the morning brief. Caroline i do. Hurricane brexit hits the market; risk sentiment slashes global yield in sterling ducks below 1. 30 how do investors weather the storm . None are stared. Italy banks, while investors flee u. K. Property funds. Where did the biggest risks life . Yday. Ad support thrown behind theresa may has she sealed a job for the top job in britain . And mario draghi about to speak at the ecb statistics conference here in germany. We are monitoring on the headlines throughout the morning. Guy we certainly well. Thing butst exciting futures are pointing to a negative start, the ftse likely to perform better. Up and it is opening can bring you what we are looking at here this is the lower,ac sharply all kicking lower by around 1 10 see and we will wait and we are expecting a similar picture in germany. Lets get the details and find out what happens with nejra cehic. Lookingve got the imap into the Industry Group for the stoxx 600 and how they are performing. Financials are the worst performers at the moment, down 7 10 of 1 , closely followed by energy stocks, down 6 10 of a percent. Betters of the performers, it is down and read across the board, health care up by 2 10 of a percent. A lot of risk aversion, meaning we have seen record lows again in bond yields globally, the japanese 20 year, and now lets look at the u. K. 10 year yield as the guilt markets open looks like we are down five basis points, 77 is what we are looking at on the 10 year yield in the u. K. We are moving lower on this as well is at a record low . I will let you to check. Lets look at the stocks we are watching today, starting very much on a u. K. Commercial investorsocus, aviva one of the three companies that suspended trading in Real Estate Investment funds. We are talking about 9. 1 billion pounds and they are also hosting a Capital Markets daytoday, and if the fundamentals are plans to increase its 2017 dividend payout ratio to 15 . It cant quantify the exact impact of brexit so the u. K. Is an attractive market a lot of news to absorb around this and i wanted to bring this up because we have numbers from this company new orders in the First Six Months to about 2. 5 billion pounds, putting in place robust plans to deal with the leave vote in the u. K. And revenue is expected to increase. 2. 5 , theg higher, up volvo up because they are facing record fines from the eu for charges of pricefixing. Caroline thanks very much. We are keeping a close eye on houses and ecb president mario draghi is delivering the welcoming address to the eighth ecb statistics conference, about the need for staff and banking supervision, saying it needs more granular data. We will be digging into the headlines coming out of mario draghi by discus