Fromme to the pulse live london, im francine lacqua. We have a great show lined up. At 9 30, we have our weekly show brexit, whats next . Now, we speak to the italian ambassador to the u. K. Does renzis referendum also pose the same risk as the brexit vote . Then we bring you a panel discussion. Postbrexite latest data. First, to the markets. We are getting breaking news out of Deutsche Bank. Deutschenderstand the bank ceo speaking to employees. This is why we are looking at Deutsche Bank. 7 . All down we had this great new story yesterday saying that Deutsche Bank clients are set to reduce some of the collaterals on trade. The ceo writing to employees saying that Market Forces are harming confidence and banks overall. Rdlyainly investors are ha confident in the markets. Crude oil 47. 15. The volatility index gaining 6. 3 . Lets get straight to the first word news. Marcus thank you very much. Japanese Consumer Prices feel fo fell for s ixth straight month in august. A rise in Industrial Production points to modest Third Quarter growth. U. K. Consumers appear to be shrugging off initial brexit concerns as their worst fears about the economy are easing. Increasedence index six point in september, regaining the ground lost after the vote in june. Household expectations for their Household Finances improved, as economy. Utlook for the Business Confidence remained low its longterm average. A private gauge of chinese indicates expansion in september and further signs of stability. The manufacturing pmi reading came in in line with estimates. With the economy stable for now, and home prices in major cities soaring, analysts are betting the policymakers will switch from easing to a tightening mode. Tradinghore yuan is lower against the dollar this morning ahead of its official admission into the imf basket of currencies. It becomes one of five global reserve currency is tomorrow alongside the dollar, the euro, the pound and the yen. Beijing is hoping for a boost in the Yuan International usage with his share of global pavements. Global news 24 hours a day powered by 2600 journalists and analysts in more than 120 countries. Francine thanks so much. Deutsche bank shares have plunged to record lows as concerns intensify about the health of the german legend, fears about the european banking center. Ins cross to Caroline Hyde frankfurt. We just had this memo from the basis for there is no speculation he goes through some of the positives including the liquidity reserves, more than 215 billion euros. Overall, what is the mood like in frankfurt . Is one of the mood concern that the crisis in confidence becomes a real crisis. Behind the, gloomy in frank for. We see the share price dive, because it was a Bloomberg Newss yesterday that started to rattle nerves. Hedge fund clients, millennium ten, had already started to take some of their cash off the table. Still,of 800 clients but were starting to see those fears rise about doing business at Deutsche Bank. Goldman sachs put out a note saying Liquidity Position stood 124 liquidity coverage ratio. That is better than bnp pa ribas, but it is still the capital concern. Size of the fine . This is a crisis of confidence. Deutsche bank has been coming out and saying clients are sophisticated. They get it. But maybe some of the Retail Investors dont. Francine thanks so much. Again, Deutsche Bank saying that it is fulfilling all cap requirements. This is a memo Bloomberg News got hold of, a memo the Ceo John Cryan has written to employees. He says, the reason behind the Market Action is Market Forces. He says there is no basis for speculations. He reminds his employees that Deutsche Bank liquidity reserves are more than 215 billion euro. Lets welcome james evan. Were also joined by the bloomberg columnist. Very quickl, a question. If you are john cryan and every day you see your share price touching record lows, do you need to address your employees to make sure you do not lose to makeor do you need sure that shareholders understand what the plan is . James i do not think it should be or, it has to be and. He also needs to speak to his customers. And there is a fundamental challenge. Deutsche bank sits within the ecb. The ecb policies are externally difficult for all european banks. Through whatk us we have learned. Im going to bring you uptodate with this memo. This is john cryan commenting to staff saying that Deutsche Bank has fulfilled all Capital Requirements. The liquidity reserves are more than 215 billion. He says there is no basis for speculation. And yet, even yesterday, we understood that Deutsche Bank clients were reducing collateral on trade. So, there is something going on, or at least there is fear out there. Towhile cryan is right reiterate those numbers. I do not see why he says there is no basis for speculation. A lot of fears about what is coming tomorrow, the u. S. Fine, exactly. I think the market is pushing for more. Saying the same numbers day in day out without the Capital Requirements and we do have 220 billion, the market wants more. What is happening now with the contagion on the u. S. Markets and european markets, that might be the cap needed to get politicians to say something. Francine what does he need to do . Does he need Angela Merkel to step in . Does he need to start how much do we know about what is going on behind the scenes . I think you dont feel sorry you feel sorry for john cryan because a lot of this is out of control. The last thing you want, the worst outcome is a Capital Increase that is driven by an client confidence. Without any clarity on the numbers. This has to go above cryan. It has to be germany, the u. S. , the ecb. Francine is there a concern with the, often with market psychology, that this gets ugly unless something i do not know if it is drastic or there is a backstop in place . James i think it goes to the heart of what the Central Banks have been doing in terms of having very low Interest Rates, which makes it extraordinarily hard for banks to make an appropriate return on capital. Your capacity to weather the storms and to replenish her capital is limited. Francine but nothing has changed since monday, apart from market fair. Which is unfounded. Ow car crash across the financial world because of negative Interest Rate policy. Because of the fact that we have negative rates. We have negative rates covering 25 of the world. That is an extraordinarily difficult environment for which banks have to operate. Francine i was on a panel where it was clear that the blackrock chair was saying negative rates, i do not understand a lot of the models. What will the industry look like in three or four years from now . He also said that banks were uninvestable. I do not know how smart that comment is, but im interested in contagion. Deutsche bank, if this was just Deutsche Bank, we might be saying something different. But this is spreading. Solid banks that are normally perceived well are being hurt. Us. Equities, too. It is obviously not the same kind of situation as in lehman. There is more capital and the system, but clearly, investors get scared in the same way. If solid base are looking to someone to do something. Francine who is the person to do something . If you look at the share price 10 euro 1. 3. Is there a level at which the government has to intervene . John cryan saying that the uncertainty doesnt justify the share fall. It what does . James this is now in the hands of governments and not Central Banks. To the banks run mandate. That mandate is quite fixed. They do not have the capacity to use fiscal policy. And i certainly think that there is always a straw that breaks the camels back. Fine coming out of the adverse news coming out of wells fargo. It has diminished confidence. People going, do i want to take the risk . Cant see how they are going to make money. This is not one of the ways to make money. Its governments coming to the table and saying, lets get real about how were going to engineer a better global economy. It is not going to be down just to Central Banks. Pulling the levers. We have to have coordinated fiscal policy. We have to have a strategy where by the banks and transmission mechanisms can be profitable. Francine thank you so much. Stay tuned. We will speak with the commerzbank cfo on the job cuts and stability of the german sector coming up at 12 00 p. M. London time. Plenty coming up, and we look ahead to the final quarter of 2016. And opec. Cut we look ahead to what will be moving markets. Does renzis referendum pose a brexitsized risk . And 99 days of brexit or since the referendum. We get another out of the u. K. Economy. Services and manufacturing data at 9 30 in our weekly brexit show. This is bloomberg. Francine these are your markets this friday morning. Stocks overall are sliding because of Deutsche Bankj jitters. Yen, gold and bonds gain. Commerzbank down 7 . Just ays, rbs theres lot of concern from investors about the Financial Health of germanys biggest lenders. That rattling investor confidence. This is the vix index. It is gained 6. 8 . Quite a good benchmark of how people see risk. I think it is coming. 5. 3 . Aining off the days highs. Its also the final day of the Third Quarter as we move into the final months of 2016. Global rates low and Political Risk in the form of the u. S. Election and. The italian referendum will continue to dominate the environment for more on what to watch, james bevan is still iwith us. I dont know whether i should ask you how do i make money. How do i make money not lose money . Vix will benk the going up. After all, you just have to look at the two to 10year spread. It tells us were going to have to have a higher vix if that relationship is to persist. Francine on the banks, we talked for little bit about how it could get resolved. It seems like it may get messy. It may be protected p rotracted. James there are some great opportunities within the natural sector. Tactically to take opportunities out of the mess. I would identify the fact that the netherlands and luxembourg are doing relatively well. I would say that some of the domestic banks in eruurope are well placed. Icole, for example. When when things about developed marking banks and operating an emerging base. One sees reservoirs of opportunity. And real growth opportunities. So, i would be looking at hsbc, standard chartereds. But for me, there is a relatively tactical bet. At Financial Regulation and litigation will make it hard for the banks to make sustained profits. I think the theres a much more rosey future. Francine like prudential. But then we have concerns on china. Worry about china in the short term but i look at the emerging middle class in the far hugeand i see a opportunity for projected to generate Strong Capital return. I would have prudential as a longterm core holding. Francine commodities. We have this opec agreement. Unclear to me james i dont want to go there. If you said to me, how do i build a portfolio today . I would say i would build a core in quality defenses, companies with high return on capital. Looking at you unilever. Companies that i think fantastic companies. A fantastic company. I think it is incredibly cheap. You think about the return on equities for shareholders. Francine your basic concern is no recessions. Otherwise, these companies will be slapped. I do not think there will be a recession. I think there is a for the economic slowdown. We will have a positive policy response. That will be good news for equity valuation. In terms of how one allocates assets, i am overweight exiting and using risk budget fully and then environment. Francine what is the one thing that you think markets are mispricing . But the people are worried they say im still invested. When will it burst . If, at all . James i do not think that government bonds well blow that far, because we are going to be in an environment where growth is low. Inflation is low. I think we will get a pick up in inflation in the next six months. In 12 months, we will be back to facing inflationary pressures. I think the credit spreads, in tight. Elds, are too and what we need to have is a major failure in junk bonds. And people go ive not been paid nearly enough to take that risk. For me, that scenario is looking quite frightening right now. Francine thank you so much. Renzisnext, referendum. Does italys vote pose brexit sized risk . We speak to the italian ambassador to the u. K. We are also looking at live pictures from jerusalem. Morning, World Leaders gathering there for a final farewell to the former israeli leader shimon peres. Those are live pictures of present obama addressing the crowd. We will have plenty more news on the top stories. This is bloomberg. Francine stocks sliding in europe. Deutsche bank jitters means there is a boost for haven assets. Another concern among markets italy. Italy votes on a referendum on which the Prime Minister has staked his political future. He backtracked on his political future a bit. As the economy struggles with sluggish growth and the banking dector weighed down by ba loans. Im delighted to have the italian ambassador to the u. K. Great to have you on the program, because italy, after a lot of is always consider the naughty child in europe, the onw e where the next problems will come from. Should International Investors focus so much on italian banks . No, i dont think so. Actually, you mention a number, that number isut the number of the, no nperforming loans. Then if if you look at the net figure of bad loans, this goes down to 85. Haveo match this 85, you 122 collaterals of real good assets. So, there is no problem of instability of risk of systemic crisis due to mpl. Of course, there is a huge backload of mpls due to the recession. And now the government, the private sector as well, have started the process to speed the andet of mpls, to offload consolidate this burden on our banks. To make them more effective. Francine do you worry about the referendum . We have to explain something to our global audience. Its unclear whether if this referendum does not go through, what we are left with in terms of Political Risk. I do not think there is a risk of political instability in italy following the referendum. If the referendum is won, rnenzi will be empowered, will be politically Even Stronger than he is, particular in this moment whether rest of europe is facing elections, uncertainty and so on. If the referendum is lost, anyway i do not see any instability because in our system, its the president of the republic who ultimately takes the decision about the government. So, i expect that the president of the government would ask renzi and the government to soldier on. This has been said, also, by the no campaign. They do not expect the government to fold following the referendum. Francine ambassador, thank is so much for now. We will be back and talking about brexit. We would do our weekly show brexit, next . Whats next . Francine welcome to our weekly brexit show in london. Im francine lacqua. We round up the conversation that will make you smarter about what is next for britain and europe. This is brexit, whats next . We are getting breaking news out of the u. K. Economy. We have loads of things to go through. First of all, the economy grew 0. 7 in the second quarter. That is a betterthanexpected figure. It is more than was previously estimated. So, that u. K. Economy in the 0. 7 . D quarter up then we have the current account deficit at 5. 9 of gdp for the second quarter. Lve deeper into some of the data that has come to through the month of july. The index of Services Much better than expected. We were expecting months on months of 0. 1 . It has come up at 0. 4 . And also we had a revision for the earlier month. That july figure, ro servic for services. The pound 1. 2967. The brexit stories that matter this week. Lets get to markus karlsson. Marcus the bank of england began its Corporate Bond buying on monday. Bonds of bae systems were among those purchase. The central bank plans to buy 10 billion pounds worth of corporate debt over 18 months. Meanwhile, the Deputy Government of the bank of england defended this to me this measures the central bank took in august. Speaking at a bloomberg most influential event, she says britains economy was being hit hard by the referendum results. No doubt looking at the data that we face that the u. K. Is expressing a sizable economic shock in the wake of the referendum. Any reduction and openness or the need for reality resources will necessarily imply a slower rate of growth for the economy. Moreover, the reality of the protective process of withdrawn from the European Union means we still know very little about the nature of our future trading relationships and this uncertainty is weighing on Business Investment. Trade secretary has extolled the virtues of free trade saying that encouraging exports in new markets will be the key to closing the account deficit. The European Union has a massive surplus in goods with the u. K. Who does it harm more