>> the brexiteers get shy. the leave campaign softens. >> a dismembered eu changes its tone. how can the eu keep its credibility. sufferasset classes whiplash. ♪ francine: welcome to our bloomberg it special.

i am francine lacqua with jonathan ferro. jonathon: the city of london is probably happy it is the weekend, because the market is closed. francine: they are watching us. they are raising analyst reports, trying to figure out how monday will pan out. jonathon: shall we get you up this bead on how the carnage laid out. beginning in equities. the ftse closing down the three percentage points on this day. the big carnage was in mainland europe you the dax down 6.8%. the biggest one-day drop since 2008 and the biggest one-day drop on record for the european banks. at a 99ar-yen yesterday handle at one point. a big stand out the bond market and i will whip you through. down 14 basis points on bonds. francine: the problem is that

there are so many angles. we have to look at the european union. how or if they are negotiating. we heard they want to kick out the u.k. and the political turmoil. jonathon: listen to european leaders. >> i regret the vote of the united kingdom but i respect it. it is a matter of democracy. we have to think about the consequences and conclusions. in the european union framework, we have to organize the exit of the european rest of the united kingdom in order and buy the rules from the treaty. >> if it is possible for the raised on article 50 or informally. but we need to start as soon as possible to avoid possible crisis. >> i do not think great britain was setting an example for europe. listening to our own population, i think there is a big majority

in favor of europe and european cooperation. >> the independence referendum is clearly an option that requires to be on the table and is very much on the table. francine: we are across all of the action today at edmonds and was mr. -- jonathon: let's get to anna edwards in westminster. scotland starting work on their referendum all over again. will this really happen? anna: it was talked about at this time as a once-in-a-lifetime or once in a generation decision. things have changed so much that this could be back on the table. that is what nicole sturgeon was adjusting. legislation is paving the way for a possible in independence

referendum. she is in talks with the eu for immediate discussion. the timing will be interesting. will they be able to get the independence referendum on the radar before the u.k. and eu go through the divorce proceedings and enable scotland cannot actually believe the eu. talking with those disappointed results yesterday, as 62% of scots wanted to stay in the eu, we also have a petition calling for another referendum. it seems unlikely this particular petition will be successful but it underlines the divisions in the country. francine: given the uncertainty, will there be a coup in labour and a possible general election? anna: that is being discussed. we heard from jeremy corbyn, saying if there is another leadership challenge, he would stand again. there has been a no-confidence

table motioned by some in his own party. it gets the 51 signatures needed to get another leadership vote in the labour party. fast-moving story. another is how much pressure the government will come under from brussels to get these conversations happening quickly. we heard a lot about that from the brussels side, which a lot of that hinges are run article 50. few voices from the conservative party speaking. the ones we have heard from the saying it is in the u.k. court. we know that michael gove, one of the key leave campaign is wrote this document before the results of the election -- of the votes were known, where he talked about article 50 being one of only a number of ways the u.k. could leave, saying that we

are in control of the process. like a man inund a hurry. we will see if the leadership of the conservative party as a whole, whoever that may end up being, whether they are in a hurry. jonathon: anna edwards, thank you. joining us from westminster. , it embodiesket the carnage in the markets. a once-in-a-lifetime day in sterling. for david loom, a historic day. he says there are certain days that you do not forget. he joins us now, the global head of strategy at hsbc. why did the market get it so wrong in such a big way? david: thank goodness they are not always right, or else i would be out of a job. the market got it horribly wrong. the bookmakers got a horribly wrong. certain sections of the

political establishment got it horribly wrong. francine: how did that happen? was there a horde mentality? david: opinion pulls were net and neck or the argument was that the people undecided would want to remain. that was an assumption people made, which was wrong. this is what happens. .t is a referendum we voted and we voted to leave you now we have to live with the consequences. this is the choice we made. jonathon: the options market heavily into the downside risk. it was miss price. you look at cable in a different way. at the poundook now has changed fundamentally. walk me through that. david: previously, sterling was highly cyclical as a currency. have you seen industrial reduction. do you think the bank of england will raise rates. we never asked structural or

political questions. but now sterling has gravitated to a political and structural currency. the politics does not look good. the structural element has a huge deficit of 7% of gdp in the first quarter. it means the currency has to adjust and flex. and it has. francine: are you expecting more volatility as to what we had friday? david: we color more than friday. [laughter] francine: what does it mean for mark carney? does have to decrease things asap? david: no. the markets have been orderly. this has not been a disorderly move. about a swissad franc move, sudden massive moves that people could not handle. but markets were orderly. in the current deficit and fiscal deficit, the currency needs to adjust low wear.

that is what it is doing. i think it is what it will continue to do. this is not for the bank of england to say it is the wrong price, it is disorderly. this is the bank of england saying we need markets be orderly and things happen in the proper fashion up in the proper fashion is happening. you cannot expect a currency that is not political and structural not to flex. jonathon: looking at this market and the broader economy in the u.k., we are still in the eu. for over two be years because they still have not triggered or invoked article 50. when you're discussing, does that continue indefinitely? david: the point i am making is it is the political uncertainty that keeps dragging on the currency. nothing has happened, but markets are forward-looking. what do you adjust to? what are the new rules and regulations? we do not know.

so the adjustment process will take place over two years. francine: what is worse for sterling? if article 50 gets invoked in the next few months and then two years of uncertainty or the article does not get invoked at all for now? david: it is hard to tell. currencies and markets do not like that. the future is uncertain anyway. if now you put a huge uncertainty of all sorts of different things -- who is the next conservative leader, the next prime minister? we do not know. how can that be good for their currency. how can you invoke article 50. we do not have a prime minister, a new one. every time there is an announcement, there will be a move. you heard nicole sturgeon talking about independence -- will that happen? aancine: we were hoping for

binary outcome. we have more uncertainty than last wednesday. david: what i have argued is every time an ill wind blows in this world, when countries have the current fiscal efficiency of clinical problems, which is usually african countries and mexico and the sort -- not the united kingdom. francine: and emotional david loom. we have a full day of special coverage starting at 5:00 a.m. u.k. time tomorrow. jonathon: coming up, we talked to moody's after they cut outlook for the u.k. ♪

>> the british people voted for brexit. we had been saying for at least a year that a brexit vote would lead to a downgrade in the rating. >> i do not believe this will end up being a long-term drama. i think all of the market disciplines will be able to cope with the short-term volatility. a shock and disappointment. life goes on, though. everyone is excited this morning. people in britain will continue

to travel to europe and europeans will continue to travel to britain. canquestion is if the u.k. find a way to stay in the single market. was from some of the bloomberg guests on brexit. jonathon: we know the snb entered the market, but we heard nothing from the most influential central bankers. one thing though marketshare, for the u.s. at least, we are looking at the bloomberg terminal. the brake light at zero and zero the rest of the summer. perhaps nothing the rest of the year. david bloom, global head of fx strategy at hsbc still with us. david: last time i saw that thing, i got nervous. every time now, you look at markets. i think this referendum has changed people's attitudes to what markets price in.

at the end of the day, you have to say what do you believe -- the market is such -- is just the aggregation. payroll, the labor market comes back. we were at 4.7% u.s. unemployment. then before you know it -- francine: you think it would swing on a good payrolls number? david: absolutely. francine: if you have even two years of uncertainty on brexit, why would you not -- talking the u.s., not the u.k.. slowly, the fed are listening to us. the market rates are not going up, according to their dots. they are going according to our thoughts on the market. but the fed seems determined to want to raise rates. and raise rates they will, at one point. every time we think they are

going to raise rates, it never happens. jonathon: in some ways, the fed probably has it the easiest. the ecb, i am looking at continental markets, the spread the widest since qe began. banks stocks hammered. what does this mean for president draghi and the ecb? it looks like they have fired a lot of there any nation already -- ammunition already. david: the euro is what they have left. some people argue that will weaken substantially. we have lost the signaling device. that is because the ecb will probably frontload some of it, so that signal is gone. if europe is in serious trouble, you will see it in the euro-dollar. i do not think it will happen. i think the euro-dollar will stabilize. others think there will be

contagion. if it hits europe, it hits the u.k., and then the fed goes no. is a contagion that wins out? the eu ordo you think the eurozone will break up? david: no. the euro is there. every time it has been tested, it held firm. fed,hon: we discussed the the ecb, and the boj pay the dollar-yen. the 99 handle. if i bandied that number around, analysts would have told me that the boj would have stepped in. we had the snb stepping in. .ut dollar-yen is going back we change on the basis of partially this vote to leave the eu and risk aversion rising. we think dollar-yen is heading towards 95. we were at 115 one that bank of japan was doing more qe.

but this is going to its fair value of roughly 95. there's not much they can do about it. francine: if we see a lot more volatility on currency, what is the scenario in which central banks come together? david: disorderly. francine: friday was not enough? david: friday was a big political event. for that political event, and adjustment happened. but the market function, when you look at what happened as a factor of points. you do not know when it would stop there. jonathon: coordination -- they all want different things. euro-dollar south of 1.10. i just wonder what coordination looks like between the major central banks? david: what we are doing is assuming something new is happening, and therefore that colonizes them as a unit. this current situation, i agree. there is no chance of

multilateral action. but if the markets are completely disorderly and it is bad for global growth, they could get together and say "enough." francine: thank you. it seems like a lot of the countries and current policy makers are looking inward. global head of strategy at hsbc stays with us. jonathon: we has by show brexit coverage starting at 5:00 a.m. u.k. time. ♪

jonathon: special coverage of the u.k.'s historic decision to leave the european union. let's go straight to the u.k. bond market. gilts rallied aggressively. the yield down 25 basis points. 10 year yield down 29 basis points in a single session. despite the view of the market, moody's lowered its outlook of the country from negative to stable. they say the impact of brexit was certainly negative, but also potentially pretty negative in the long term. depending on what kind of trade agreement the u.k. signs with the eu. the trillion dollar question. francine: quadrillion dollar question.

so joining us now is -- what about the political turmoil? >> the political turmoil matters. apart from the economic strength and the fiscal impact, we are looking at institutional strength. component.important essentially, that is a proxy for when events and issues arise and happen. how easy it is or policy makers to bring things back on track. the reason that matters here is that everyone in whitehall will be very busy for several years, trying to disentangle eu and u.k. law. while the institutions them selves are not less effective today than wednesday, the capacity may be reduced. jonathon: it is the opinion of a credit rating to lower and rating. the market has an opinion as well. right now, the market -- it is a good credit.

gilts yields are incredibly low. what do you take away from that someone from a credit rating company? colin: we pay attention to what happens in financial markets, but our focus is on market fundamentals. part of what you saw it yesterday was a flight to safety. exposed to are sterling, you want to be in the bond. if you're more international, maybe you had a flight to safety in gold. over the longer term, those factors should normalize. we think the market can overshoot and then come back to fundamentals. we come back to economic onength, which will weigh spending decisions. institutional strength. the capacity to respond is probably reduced. profile will be you

worse. and we have susceptibility to event risk. one thing we talked about last night, we have not changed our view on the risk element at the top line level so far. to havehis were significant changes in sterling as reserve currency. francine: what about the banks. does it change the outlook? colin: we are assessing credit implications for the banks now. in terms of individual names, many were already retreating from europe. others may re-house operations from the u.k. into the eu. francine: thank you to colin ellis. jonathon: coming up, how will a dismembered eu respond to britain? we hear from a former finnish finance minister alexander stubb. ♪

jonathon: welcome to special coverage of the u.k. decision to exit the european union. of thee: representatives eu founding members gather today for a meeting. with thatpoke -- , now 27.ber states we start the discussions.

if it is proper for the u.k. to or informally,t we have to start as quick as possible to avoid any possible crisis. francine: negotiations began in berlin today. they will continue in brussels. is there a clear sense of urgency from the founders of the eu? from the you heard it leader, the foreign minister of belgium saying to avoid a crisis , they are pushing this through. they want the opposite of what , to buy once -- wants time until october, they want break next beat. brought together ministers from france and to a beautifully lakeside retreat in the sweltering heat because they demand respect from the u.k. for the other 27 countries.

france wants to work quickly to avoid any domino effect. they're concerned about the rise of the right-wing, concerned about the immigration that is causing concern. they are concerned about the lack of jobs in spain and italy for the youth. they are wanting to avoid the crisis the belgium minister spoke up. david cameron will be forced to discuss informally with the rest of the eu at the council meeting on tuesday. even though he wants to wait until october. interesting talks, of course. angela merkel talking of the desire to avoid ugly negotiations. things starting to brew in brussels. let's head over there now. ryan chilcote joins us now from brussels.

here is a man who used to oversee financial services. talk to me about what this means for potential negotiations. ryan: what it tells you is that period, thesitionperio uk's role in the eu in guiding policy will be in limbo at best. is that of a lame-duck at worst. jonathan hill was not just the commissioner. what does it mean in terms of sensitivity? it was the guy in charge of financial affairs and was pushed out because the eu said i cannot work with you. ryan: that's right. there were members of the european parliament that never liked jonathan hill. someone described it as having a

fox guard the hen house to have him in charge of the eu finances. one of the most sensitive issues will be looking to negotiate, what is the role of the u.k. financial services going to be? will they have passport in privileges or are they going to lose out in some ways to frankfurt, to paris as alternative financial centers? a very sensitive post. jonathan hill has passed that on president -- to the vice president of the european commission. ryan chilcote in brussels. tone was soft -- as the weekend progressed, things have started to brew. francine: we heard some harsh

-- let's get some reaction from alexander stubb, the foreigner finance minister -- the former finance minister of finland. we've heard the concerns about domino effect. what exactly are they concerned about? knee-jerk reaction, knee-jerk referendums? mr. stubb: in many ways, we are here.harted territory we don't know exactly how it's going to work out. the article 50 procedure, it is only a few years old, we never had a big country leave the european union. i'm not concerned about the domino effect, actually. i'm working to about the future of the european union and the u.k..

it's important that we slowly and call me negotiate a package whereby the u.k. stays in the internal market and free trade. that's why we should take it quite carefully and not rush things. been in finance minister meetings very many times. greece.looked to punish the italians in spanish would not follow the same suit. many say they will do the same to ensure thatn they will not get a good deal. do you not think that's going to happen? mr. stubb: i was a prime minister previously. there is a significant difference between the u.k. and greece. greece did not stick by the rules and that's why we needed to make sure for euro stability that rules were followed in the future. a new situation

whereby the u.k. has expressed through a referendum its willingness to leave the european union. it will have not only political and economic ramifications, but also have politicalnd ramifications. feels likehis also blackmail. if you were to put a referendum to certain european countries, they would want out, too. is atubb: it self-inflicted pain. i am pro-european. the u.k. has always had a great impact on european integration. now, it is marginalizing itself. great britain has become little england. there is a significant difference -- i guess the u.k. can stand on its own two feet. there are a lot of smaller countries that simply cannot do

that. with country like finland borders with russia, the way in which we can be in the core of europe is by being fully involved in all kinds of integration. you say it is self-inflicted but many would say back against that and david cameron went to the eu and could come back with enough to people and u.k. that they should stay. eu stubb: i'm a bit of an nerd. i've been studying the institution. the u.k. has always been a reluctant bride in trying to stay inside european union. i never felt the referendum was going to be about the core issues that were renegotiated. it wasn't about rationality or economics or politics, it was more about emotion.

52% of the british population did not feel emotionally attached to the european union. that's why come at the end of the day, they left. i've always had the u.k. is one of the most civilized countries in the world. their debate on european affairs is anything but civilized. it is actually quite uncivilized and that emotion won this summer. what would be your prescription for germany and france to do to keep the eu together? need to take it step by step heard a motions always running high immediately decision.lossal palm down, take it easy, see how we get out of this and be constructive in one way or another and not start throwing punches left and right. there will be a bit of debate about the timing, how fast things are going to go.

let's take the historic perspective here and think about this as the moment akin to the end of the cold war, the moment when the u.k. rejected european integration and globalization. and then we start taking it down from their step-by-step. that's from there step-by-step. it will take four or five years and then we will see where we stand. jonathon: what are the odds article 50 is not invoked at all? mr. stubb: i'm very bad at betting. double will be watching the -- iern ireland wales game look at that from a european integration perspective and i will not give you a bit on this. --, but i will not give you a bet on this. -- afraid this is definite

we can start thinking about a new deal for the u.k. whereby as partll be u.k. in of the single market. let's see what we can find a way out of the u.k. i'm quite worried about what's going to happen to scotland and northern ireland and how that whole issue will be dealt with. do you think brexit is a precursor to donald trump winning the white house? world is: i hope the not that crazy, to be quite honest. i'm a firm believer in liberal democracy but not a believer in populism. i'm a believer in responsibility and i hope the americans are responsible.

much,ne: thank you so alexander stubb. jonathon: banks battered. the financial sector bears the brunt of brexit's wrath. ♪

>> june the 23rd needs to be a national bank holiday. [applause] requires fresh leadership to take it in this direction. >> britain will continue to be a great european power. jonathon: welcome to historic

coverage of a historic decision right here in the u.k., a boat to leave the european union. -- a vote to leave the european union. the stock 600 fell by the most ever on friday, the worst performing sector in all of europe. at one point, it was scary, barclays open lower, down 29.93% . it was across europe, it was ugly. francine: fast and pretty brutal. brutal moves need some decisive action. let's bring in eric nielsen. before we get onto the banks, overall, with the brexit, was it uglier than you thought it would be? me 20if you would ask hours before come i thought it would have been worse than that. you want to compare it not to thursday, but the previous friday. nice -- we days of

thought these undecided voters would swing the other way. some, but notown substantially so. worse. have imagined jonathon: how much worse? what were you looking for? whends are wider than she we began. -- when qe began. it has to because certain for the ecb that that risk off spreads out in a risk off event like that. the 10 year bonds were five basis points lower than one week before. me a week before what would happen in the scenario, i would have guessed 30, 40, 50 up.

is it a concern for the ecb? yes, but you have to give it more time. you are not in a crisis mode. you want to watch this carefully and think about whether some of all this we've achieved in terms of leveling the playing field -- there is best between what we charge in loans to these businesses -- when you're go, it was a 100 basis point difference. is it something more sinister than we think or was it just part of the selloff? isn't an investor panic or do we need to look at the concerns? could it be even worse next week? it could, i would guess not. the surprise meant risk off in a big way. it used to be that you would

then in europe would sell the peripheral. isn't that a worry that the proxy now for stress is to sell the banks? the next 2, 3, 4, 5 years will be the negotiations between the eu and the u.k. the either ignore what happens in the financial system -- eric: i'm quite optimistic on that. the negotiations will not be around the ecb and regulators. the key problem in the banking system is that we are at a state when the regulation is almost no one wants to spend -- maybe you out could get to that point.

maybe the ecb says the qe goes into senior bank debt. francine: what about consolidation? i know it is more difficult because you have a single regulator. what about taking out the weaker banks? eric: europe is still over bank then you have to get there. you've seen this in italy and -- noy lately with there country wants to do it. europe is saying at there is a bit of a problem, i would have to pay the bill if there were to be a run in the banks and therefore, i want to be involved. that has to be resolved. francine: thank you so much. we will talk more about the political implications for the other countries going to elections. spain goes to the poll on monday. could brexit have an effect there? ♪

>> this country requires fresh leadership to take it in this direction. >> britain will continue to be a great european power. francine: welcome back. it is a busy week ahead. this is a week after brexit. spain hold a general election -- jonathon: a true date you leaders meeting on brexit kicks off on tuesday. that will be a big focus for the week ahead.

given the underlying tone of the current standoff between the eu and u.k. jonathon: it's interesting how they are trying to keep the tone relaxed and measured. i can feel thing starting to brew now. nielsen is still with us. we were talking about the banks, talking about the storm this brexit vote engendered on friday. eric: i don't think there is a there are two things you will see come out of this. that -- theysee will see that immigration has been a big issue in this referendum. we will see crackdowns on immigration in europe. to second thing is they have

start to think about -- these willzing be the two key things you want to look out for. we've got spanish elections this weekend, french and german elections on the horizon. they will be in credibly distracted by what's happening at home. eric: the spanish elections are moving. i'm not too worried, they just --e to figure out how to this is why they want the negotiations to start. therent to be sure that is no illusion that you can lead the retreated quite well. you have to play by the rules or you have to walk away. there needs to be progress on

the migration issue. particularly for francois on. holland.ois francine: are you still optimistic overall? my optimism was always that during the crisis, there will be a solution to this. it is a political project. the populist mood is challenging. --till cannot believe that you get into the second round of the most likely and you have to worry because something could happen. a scandal or something else to the other candidate and that is scary. we should not be here. the odds are still ok. jonathon: but we are. if they change their mind on immigration, do they change their fiscal position as well?

for sure. that is happening with big announcements. the spanish and italian's have started doing it. the germans are tired of policing the others. francine: what great would you give the outlook of the relationship between the u.k. and eu? and b forr the u.k. europe. that will have a spillover effect. , it will be ok. it is not that important in terms of the business sense. francine: eric nielsen from unicredit. on sunday, we have a full day of special brexit coverage starting at 5:00 a.m. jonathon: we leave you with a

light shot of the beautiful city of london. within 48 hours after that historic brexit vote. ♪