Transcripts For BLOOMBERG Bloomberg Surveillance 20160629 :

BLOOMBERG Bloomberg Surveillance June 29, 2016

Lacqua in london with tom keene in new york. Theave to talk about sadness of International Terrorism and then we look at the referendum and the fallout. Tom we will go to is been bill istanbul later and speak to an expert. If you did not know it was about brexit and the eu, you would think it is about someone arguing about the summerhouse. Francine we talked about metaphors with the divorce but there has been quite a bit of anger especially in london where 70 of the people voted to stay in. Emotions are changing and we saw an emotional David Cameron yesterday. Lets get to the bloomberg first word news. Blaming Islamic State for the suicide bombing at the airport and istanbul. Three bombers opened fire and blew themselves up after police started saw them. 40 people wounded killed, 200 wounded. Recent months, islamic and kurdish militants carried out bomb attacks in turkey. David cameron used his final European Union summit to express regret over the brexit vote, telling final desk telling leaders you could have won the referendum if they have not refused to reduce immigration to the u. K. The eu leaders said there could be no turning back for the u. K. Get ready for a recession in the u. K. According to a Bloomberg Survey three quarters of economists polled say the british economy will fall into a recession since for the First Time Since 2009 and they believe the bank of england will add more stimulus and cut Interest Rates in the Third Quarter. Believe money market derivatives we are a long way off from the next fed Interest Rate hike. There is a greater probability the fed will cut rates. They do not have more than a 50 chance of a rate increase until 2018. In a speech in pennsylvania, donald trump ripped the pending transpacific trade agreement and vowed to renegotiate deals with canada and mexico. Global news 24 hours a day powered by more than 20 600 journalists and analysts in more than 120 countries. Tom let me get to the data. A new wants a nuance in the market, lower euro. The vix showing an odd 17. 81 in the volume list. Sterling stronger, yen does not know where to go, and there is the headline. Odd curve flattening off of without questioning safe haven moves into paper worldwide. Francine when you look at stocks we see the relief rally that was started yesterday continuing. The european stocks gaining. Banks are gaining some 2. 5 . Let me get specific onto the banks. Cut barclays, hsbc and others after the brexit vote but they fell by so much they are regaining a little bit of ground. Tom lets go to the bloomberg. Surface of famed ovd sterling. What this shows on busy axis is axis isty and time z volatility and time. There is a massive bet toward weaker sterling. It is rare to see this much of a curve, a smile, or a smirk right here on this bet. The message here is a huge bet, a oneway bet toward weaker sterling. Francine interesting because i chose something similar. Basically this is the correlation. Britain is grappling with its exit from the eu and the 30 day correlation between the poundeuro exchange and the europe stock 60 has reached the strongest since before the introduction of the single currency in 1999. Tom we have done too much mathematics in the last minute and a half. Can we all go home . Francine lets, we have not had enough sleep. Is when you look at these currencies and the easingity that they are a little bit on the expectation how uglylbank policy . S it going to get vasileios i am not sure this easing is coming on the back of the Central Bank Policy because there is a gradual easing. U. K. Is much more a specific idiosyncratic event rather than an event that is happening, ramifications on a global scale. To see we are going gradually some normalization in risk assets. As far as sterling, i expect volatility pressure will increase. Francine are the markets completely getting it wrong . Certainly we are not expecting ,nything for almost 2018 now from the fed. You are referring to a situation where it has to do with Monetary Policy being on hold compared to being a big tighten where it is now. , i doot really believe not buy to the argument that the market is expecting a lot. Tom to summarize all of this mumbojumbo, there is a thing called epsilon. You arepsilon so great under the table doing nothing until things settle down, or can investors be opportunistic here given all the systemic risks and oddities . Sony it is a very binary that. Depending on how much confidence your understanding and reading of what is essentially a Political Risk situation, you can enter the market or not. Given how leave and how little even insiders know and what the timeline is going to be, the safest assumption is to be on the sidelines. Also going back to the earlier point that you were making about the markets normalizing slightly, i think that is partly due to the fact that the realization has dawned that nothing is going to happen really soon and that there is a reasonable chance, i would say even as high as 50 , that we may not actually see a brexit. The market is digesting that information that there is no particular Prime Minister candidate in the United Kingdom. Not David Cameron and possibly not yours johnson, who will likely pull the plug on article 50 and trigger a brexit, knowing certainly that it will trigger a , Financial Market turmoil, and a breakup of the United Kingdom. Tom when you take the oddities of the market right now, how do you express a believe in sterling . Do you use cable, do you use euro sterling, or do you have to use a basket trade if you are going to bet strong or weak sterling . Vasileios going back to what i have heard and then i will elaborate on that. The only issue i see with whether or not the article 50 will be triggered, regardless of what happens down the road, this injects a lot of uncertainty into the market and postpones investment plans and consumer spending. The argument for a u. K. Recession, even if the article 50 is not invoked, is not disappearing. From that respect i remain quite bearish on sterling. I think eurosterling has plenty of upside largely because we are going to see a lot of reversal of this safe haven flow that we have seen during the eurozone debt crisis years. Francine thank you so much. Both stay with us. We have a special interview later on Bloomberg Markets, Erik Schatzker speaks to blackrock ceo larry fink. And live from the aspen ideas forum. Francine welcome back to bloomberg surveillance. Francine lacqua in london, tom keene in new york. Whats get straight to the Bloomberg Business flash. Inra Economic Confidence the euro area fell slightly on the eve of the brexit vote. Economists had forecasted that Consumer Sentiment would remain same and conference confidence improved in the industrial sector. Verizon will sell bonds backed by customer payments for mobile phones. Bank of america is the lead underwriter for the 1. 2 billion bond offering. Fidelio investors want to inject more money into passive investment so they are cutting fees on 26 index funds. Their average ratio will go from about 11 and a half basis points to 10. Investors are putting money into passive funds. That is the Bloomberg Business flash. Francine in brussels last night, David Cameron used his last eu summit to express regret as european leaders said there was no turning back from brexit. Britain should seek and europe should seek the closest possible relations over trade, over cooperation, over security. While britain is leaving the European Union it will not and should not, and in my view it will not turn its back on europe. Francine there was renewed pressure to maintain article 50 and cameron maintains that is a job for his successor. Is the first time they talk without David Cameron and the room. Sony that is exactly ryan that is exactly correct. Doing, theyhey are are sorting out what the role of the european commission, the executive arm of the eu that carries out the collective will of the 27 liters is going to be in the negotiations with the u. K. That sounds technical but it is political. What the u. K. Wants to say is this is a political matter and the politicians, not the bureaucrats will handle it. They are having a big think about the future of their own union and how to keep it together. Tom the cliche is everybody is on the same page. I do not buy it. How many pages are there to . Tand by how many divisions are there within the continental eu . Ryan i think there are at least a few. There are some countries that would like to see the eu expand, some that think it is too big, some that would like to see deeper financial integration. Who seem to germans be pushing for more of a political club. You have the Eastern European countries that are more anderned about federalism they want to restrict the power of people so there is a lot of division. Francine Ryan Chilcote in brussels. He will be there throughout the day to bring us any updates. We are back with our guests. When you look at the eu, what kind of message, what kind of political leader and im thinking of Angela Merkel what could she do to make sure the u. K. Comes back in . Sony what she has done so far is played her cards really well. She made it clear there would be no access to the Single Market, no u. K. Being part of the Single Market without Free Movement of people. What it has essentially done is underneathed the rug the leave campaign because their promise of essentially was that we would be able to cherry pick, keep all of the good parts and the city will not be harmed while stopping immigration from the continent. A new prime need minister because nothing will happen before. I know there are rules and regulations. Why can it not be accelerated . I think within the candidacy of the tory party they need to figure out, one thing that became very clear after the leave campaign one was that there was no plan. To the extent they have been removed from the website, or absolutely pod in the sky. They need time to figure out what they want and there is a division where the conservative party within the parliament is proremain that membership is maybe more skeptical. There is a conflict that needs to be resolved and they need to figure out a position. Tom i know when you were in the London School of economics you took an introduction to the game of thrones. Nicola sturgeon does not have three dragons. What is the lead bridge she had that leverage she has to advocate for scotland and brussels . I do not see it. Ofy the vision, the optics her having meetings in brussels and starting preliminary negotiations whether they have any Legal Authority or not, is more than enough to essentially send the signal to the whole of the u. K. That a brexit is equivalent to a breakup of the United Kingdom, and i think that is the best thing she can be doing for scotland as well as the u. K. , and she will continue to press with ever greater urgency. Hopefully this more than anything else will be the one thing that will still likely keep the u. K. In the eu because no Prime Minister, no british Prime Minister wants to press the red button when he or she knows that they will go down in history as the Prime Minister who elected the breakup of the United Kingdom. Tom maybe it is a blue and white button in honor of scotland. We move forward this morning on investments after this political and during this political crisis. David harrell will join us on ownership of European Bank shares. This is bloomberg surveillance. Francine i am Francine Lacqua in london with tom keene in new york. We have been focusing a lot on the banks so i picked out as my morning mustread the moodys letter we all got yesterday. The managing director talked about the downgrade on the outlook for the 12 u. K. Banks, writing, we expect lower Economic Growth and heightened insecurity over the uks future trade relationship with the eu to lead to reduced demand for credit, higher credit losses, and more volatile wholesale funding conditions for u. K. Financial institutions. When you look at the city of , im not sure if he is pitching his own and trying to get the business to go to france but he said the clearinghouses will be in trouble and financial transport is also in jeopardy. There is very little doubt in my mind the European Union will play hardball with the u. K. In every conceivable dimension. As far as the clearinghouses, that has been there for quite some time. The ecb has complained about some clearinghouses doing heavy work. Vote do get the article 50 , that is going to give a lot of leverage to the ecb to say basically you guys are out of merger restrictions so i cannot allow you to do that. Francine what is attractive for a banker . With a move to frankfurt or paris . Vasileios i do not think it is an easy answer. Think itget a brexit i is a process that will likely take a significant number of years. It could be split evenly or unevenly between all of these major cities, dublin, frankfurt, and paris. One thing to remember is that where we stand right now london still has Significant Competitive edge. Tom mervyn king was with us yesterday. Are you telling me erik nielsen is going to move to some place back on the continent . That is not going to happen, right . Vasileios that depends if there is a cafe nero. Tom i do not buy it. Vasileios about cafe nero . Erik moving back to the comp does continent. Continent. Francine we will be back in a couple of minutes talking about the stock market, and these are the banks year to date. Tom good morning, everyone. Surveillance from new york and london. Difficult news from istanbul. Nejra authorities in turkey are pointing the finger at the Islamic State for an airport suicide bombing that killed at least 40 and wounded 200. Officials say three suicide bombers blew themselves near the entrance to the arrivals hall. In recent months, islamic and kurdish militants have carried out bomb attacks in turkey. The race to replace david as leader and Prime Minister shifts into another gear today. Contenders are likely to make themselves known before the deadline tomorrow. May kept a low profile during the Brexit Campaign and supported the remain camp. The italian navy has uncovered the migrant ship that sank last year with an estimated 700 people on board, one of the worst known tragedies of the mediterranean migrant crisis. On capitol hill, Senate Republican and democrat leaders are promising to finish the rescue package for puerto rico by friday, when they must come up with a 2 billion debt payment. The house passed legislation to greet a coal dust control board to oversee the puerto rican debt. Democrats say a bill that would take away funding for birth ebola, and battling while the republican say democrats are playing games with public health. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. This is bloomberg. Tom it is a gateway to europe and asia. The airport in istanbul is far larger and more dynamic than many of us in the west perceive. Isobel finkel joins us now. There have been many tragedies in turkey. Changing event for the country . The first is not error attack. There was a bombing in ankara that killed 500 people. Death toll has risen to 40 at the latest announcement, 13 for nationals. Biggestistanbuls airport and tourism is an industry that accounts for almost 10 of the economy. It is going to have devastating effects. We know that Islamic State is losing ground in parts of the middle east. Is there a correlation train what seems to be more and more attacks abroad and then losing ground . Although you could situate this attack on a continue on with things that have been going on in turkey, it bears a resemblance to the tragic events of brussels earlier this year where in a similar fashion isis militants detonated suicide vests. The difference is that the istanbul airport has extremely there are checks going into the airport and another set after that. These attacks court made it, so it, court made coordinated. Tom will this spring the nation together . Is turkey so divided that an event like this cannot bring them together, or will it actually coalesce Political Support in turkey . Right you are absolutely. One of the many sad things about this spate of terror attacks is they have only increased division in what has already is already a divided nation. In the wake of hbomb, you will note that twitter and facebook gets locked as is the case at the moment, leading to a climate where it is a lack of information that breeds mistrust. That seems to be the case here, although there is some degree of consensus about who is responsible, which has not been the case before. There was fingerpointing at isis, the Islamic State, and homegrown kurdish militants. Francine thank you so much for the update. Of the to update you tragic loss of human life. We have to try to get through it and see the implications for global terrorist threats around the world. Lets get back to our guests in london. Are very good

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