carney channels draghi after a quick i told you so. govece secretary michael makes a case he is the man for the job. thanks aft -- banks after brexit. it says it does not need more capital. we will bring you our interview with the ceo. of barclays. live here "the pulse" in london. i'm francine lacqua. we are getting breaking news.

pmi's, this is essentially data that came out before brexit. we had the vote last friday. juneacturing pmi for rising. germany manufacturing came out five minutes ago. that's rising at 54.5. the picture for euro-dollar at 1.1108. let's get you what the european stocks are doing overall. asian stocks were gaining a touch. i guess we lost a little bit of momentum in europe. worldou look at the msci index through the week, not adjusting it for currencies, at the same levels we saw last friday. 0.1%.x index gaining let's get to the first word news. nejra: data out of japan shows

another lackluster month for the world's third largest economy. retail sales and household spending stagnated, and inflation fell 0.4% from a year before. manufacturers confidence health study, although the survey was almost wrapped up by the time the brexit turmoil emerged. the latest figures show china's manufacturing sector treaded water in june. pmi fell to 50. the services sector, he continue to improve with the official gauge rising to 53.7. the justice secretary michael gove is set to make his case to be the next prime minister. the previous boris johnson pulled out of the race yesterday. his sites are sucked on the home secretary theresa may and three other candidates to head the conservative party and the country.

global news 24 hours a day powered by 2400 journalists in 150 news bureaus around the world. much.ne: thank you so i want to bring our viewers and listeners to look at the u.s. 10-year treasury yields. fell to a record low 1.3784%. this is the picture for the 10-year and the f-year. -- the five year. we will get an expert analysis on what that means. the bank of england has signaled a rate cut as it tries to shield the u.k. economy from the shock of leaving the e.u. mark carney says he will not hesitate to act a short the system and is considering what he termed a host of measures. at the end of the session, he defended the warnings he made before the referendum. >> what we said in terms of the risks to the economic outlook, interrupt the risks to financial stability, does anyone in this room not think that those risks

have begun to manifest? does anyone in the country think those risks have not begun to manifest? francine: keeping it classy but to the point. let's introduce our guest, the european head of global market research at bank of tokyo mitsubishi. it has been a week since the u.k. decided to extract itself from the e.u. what are we wiser about, that mark carney was right all along? >> i think certainly if you take the first two days in terms of the financial market response, the way in which financial market volatility can transmit quite quickly to the really economy. yes, of course. i think for sure the warnings about potential risks are very valid. i think the bank of berliner going to back that up with monetary easing either at the july or august meeting. their concerns are genuine and

valid. you know, the fallout means, obviously, first and foremost it's the u.k. the fallout and europe has also been very considerable. smootheroes it feel than we thought because central banks are doing so much or saying they are going to do so much that markets believe them? the chaos we saw last friday was tempered. >> yeah, for sure. in terms ofnce and corporate bond buying has reduced the extent of the fallout. but if you look at some of the moves we have had, and in particular i would say the authorities are probably both concerned about what is happened in the banking sector. looking at italian banking stocks, they are down 24% since brexit. down 53% since the beginning of the year. francine: why is that? why are banks, and italian

banks, so frail? how much does it have to do with brexit, and how much does it have to do with the china authorities not doing -- italian attorneys not doing enough? derek: it is both. when you have brexit which is implications with how banks operate, that has significant applications. just at the point where the ecb were starting to bang the drum in terms of quantitative easing is working, now we have this in terms of a hit to banking stocks. if that is not rectified quickly, there could be implications for the real economy. francine: do you think it will get uglier? we also had a couple days where markets were not believing if article 50 would be triggered. trying to become political analysts. does it get smoother or does he get harsher? derek: we always said that the

fact that absolutely nothing changes for perhaps at least 2.5 years is certainly a reassuring element and all that. but -- in all that. when you have such a big shock that is centralized and focused on by everybody, a larger than usual behavior by a bigger portion of the economy in terms of pulley back in terms of consumption decision and household decisions can have a really big impact on the macro economy. i'm not convinced the markets are fully aware of what the necessary impact will be. of course, it is only the flow of data over the next couple months when we get a full picture. but it could be more severe on the u.k. economy. francine: so, a recession for sure? derek: we certainly think there is going to be a hefty contraction in q3. thetrade, don't forget

initial impact of a devaluation will likely be that j curve impact where the import bill will rise first before you get the boost of demand from the export side. that trade will be hit. consumption, business investment in housing investment. across the lines, there is going to be a hefty -- and recession, can recover? all intents and purposes it is a recessionary hit to the economy the second half of the year. francine: is there anything the prime minister -- the next prime minister can do to soften the blow? we see tax cuts, some type of appetizing package. is this going to take two or three years, or can they do something to mitigate the effects soon? derek: the reassuring element from developments was the theresa may speech yesterday where she said, look, we are going to bin the target of a surplus by 2020 which in

reality, that was just this kind of ideological target for osborne, and it's not really necessary. i think the abandoning of that does potentially, it certainly fors up the less need austerity that osborne spoke about it also, there is some chance that there could be some element of fiscal support measures on top of the monetary policy because mark carney yesterday emphasized all central banks are emphasizing at the moment, they cannot do everything. francine: we will come back to the mark carney speech. derek halpenny at bank of tokyo mitsubishi. coming up, we have plenty coming up including brexit means brexit . those are the words of the front runner to become the next u.k. prime minister. we will bring you the latest on the fast-moving race to succeed david cameron. of barclays down 26% since brexit, we will bring your our interview with its ceo. unicredit appoints a new chief

executive. we will ask if the first non- italian to run the country can halt the share price's slide. this is bloomberg. ♪

francine: let's get straight to the bloomberg business flash. nejra: takata is tumbling after an urgent warning from u.s. regulators that say owners of more than 200,000 hondas and

acuras made between 2001 in 2003 should have the airbags replaced immediately. this morning the company says executives will take pay cuts over the recall. oracle has been ordered to pay $3 billion to hp after a jury found that larry ellison and his company violated a contract to support saw -- software for hewlett-packard. they reached a verdict in less than five hours concluding that hp'se's decision hurt revenue. walt disney has agreed to stake in the digital arm of major league baseball in a deal that values the business at $3.5 billion according to a person familiar with the matter. the agreement underscores the importance of the video streaming business to the future of disney's espn.

which has been losing viewers and advertising dollars to online media. bill gates weighed in on the pharmaceutical industry's drug pricing. the current system, despite some extreme cases that beennk in -- have labeled as inappropriate come i think the current system is better than most other systems one can imagine. i mean, curing of attendance c, c, this is a phenomenal thing paid you have drug companies competing in terms of the quality and the price of that offering. the drug companies are turning out miracles. r&d budgets toir stay strong. they need to see the opportunity. nejra: that's the bloomberg

business flash. francine: brexit means brexit. those were the words of the front runner for the conservative party leader teresa may. she made clear that is knowing going back from last week's referendum result despite having back to the remain vote. yesterday we showed you the arts for the race, to 14 hours later, it has changed with the entrance of michael gove. the exit of boris johnson and the firming up of theresa may as the favorite. let's welcome john for lane in brussels. and still with us derek hal penny. there is lingering speculation that brexit will never happen. there is a great piece he wrote, does boris johnson bowing out make that more likely? the assumption was that if there was anyone politician who could master or turn, it was. boris johnson. with him out of the race and

with the contest likely to be between may and gove in the end, theoes appear as if possibility of going back on brexit is now dead. francine: give us a sense of gove-- stand will may and kagan brexit -- take on brexit. are they harsher on immigration? john: seen from brussels, they are trying to do dissect what they are saying. you have got gove talking soon. gove was a key leave campaigner but both him and may were hawkish on immigration and that could pose a problem in negotiations with the e.u. if to aim is to keep access the single market because the price to pay, according to people in brussels, would have automatically be freedom of labor and movement and freedom of movement of people. francine: derek, what is your

take? it seems that there is a lot of talk, it is ugly. seems once again it is political infighting within the tory party. you almost understand why people don't trust politicians. derek: yeah, that's definite. everything is happened so suddenly in terms of came ron's resignation. it has created this kind of interchange in terms of what is happening, but you know, it looks like i would agree, teresa may looks odds-on. there appear to be an awful lot of mp's yesterday very angry with the way in which gove has gone around doing this. so, i would wonder is there even a chance he might not get, be in the last two when it goes to the tory members? if summary people are angry about boris johnson, perhaps it is may and someone else and maybe a deal with some between gove and may. and may is going to give him a

good post in her new government. seancine: we take the conferences live because it impacts directly the economy. this is not like a general election. this will have a direct impact on what the pound does from here. derek: it does. i suppose from the moment that david cameron resigned and the whichs new of a data whie which we found it would be september 9, the markets of accepted there is a political vacuum and the we are not going to get any progress on anything until the on september into october. is not conducive to the market stability, i do not think it has a huge implication in terms of where we go over the short term in terms of financial market movements. where you are sitting in brussels, is there a frustration that it is taking to find a new prime minister -- taking so long to find a new prime minister?

john: more than frustration. you can also say anger as what is perceived as britain dragging its feet for the brussels view of many officials is that the u.k. has voted and the process to start the two year negotiations should be as soon as possible. but now we're seeing may saying that it will not be this year. and gove is also saying he will not be hurried. and that could start the negotiations with the e.u. not on an ideal footing. francine: derek, we were talking about this during the break. you had the u.k. deficit staying near a record, but by looking into the release, you found some interesting things. derek: in terms of overall financing of the deficit, like last year, it was easily finance three fold in terms of overall financing. but when you look into it, the good news was that foreign direct investment picked up from the fourth quarter.

despite the fact that we had the announcement of brexit, it did not appear to curtail the appetite for foreign direct investment into the u.k. on the negative side, portfolio investors did respond, and we had a very substantial selling of u.k. equities, the largest one quarter total on record. investors repatriated significantly from abroad, perhaps also a sign of concerns over the risk. francine: thank you so much. we will get back to derek and be asking low bit more about treasuries and yields. now, tory party leadership michael gove will be speaking at 11:00 a.m. u.k. we will bring you that live on bloomberg. growing sentiment that abenomics isn't working. we are live in tokyo next. this is bloomberg.

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japan has released a slew of data including the most closely watched indicator of the economy, that is the boj's survey of business confidence. the indicators point to looming choices for governor kuroda. jodi schneider joins us now from tokyo. at bank of tokyo mitsubishi is still with us. mix in japannomic means they are not going anywhere. what will kuroda's next move the? -- move be?

jodi: there are a lot of economies that are telling us he needs to ease. the index helped to study, a survey of business sentiment. however, much of those responses came in before the brexit vote. so, one with think it's not entirely reflective of the period. really concerning to policymakers were the consumer price data. the consumer price index overall index was down and has been down for several months, as was the boj's own consumer prices that exclude fresh food, and that was down 0.4%. so, prices are just not moving. they are moving in the opposite direction of the price targets, the 2% inflation target. francine: thank you so much. derek, when you look at japan and the fact that brexit probably means we are going to get more q.e. or at least see fed, janet yellen, hold off,

does it mean we are going to get helicopter money in japan? yeah, certainly. if you look at countries where -- quantitative easing has taken place, one test in terms of what that quantitative easing is four, monetary policy or debt financing, one test is what the government doing and terms of improving the budget deficit? if you look at the u.k., europe and the united states, we've seen improvements in terms of the deficit going from post-crisis worst points back towards 2% or 3%. in japan, it has done nothing, -6%. in that sense, although it is theyure helicopter money, are not doing anything to tackle its budget deficit. the boj continues with his policy of quantitative easing. i think what they are doing in japan is different to what is being done in other countries. and going for it, i think that will have an impact. francine: i was looking at a

chart which i hope to pull up. it basically shows the rate of unemployment through percent. -- 3%. more women get working or they start with immigration. derek: what is abenomics about? it is about lifting nominal gdp. so, population comes into that. andultimately, immigration participation are ke elements. the participation of women is improving. that element is beneficial. but clearly in terms of immigration it is far more difficult and that has been very little evidence of progress on that. francine: this is actually the chart. this is the unemployment trend. this is the amount of participation. it shows the diversion. will the fed resurrects now that the u.k. has wanted to leave the e.u.? markets don't think so.

we speak to james bullard. he's coming up in a half hour. we will ask derek halpenny whether we should ditch the dot plot. this is bloomberg. ♪ you guy's be good. i'll see you later

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francine: welcome to "the pulse" live in london. i'm francine lacqua. u.k. manufacturing pmi rising 52.1, better than expected. economists were expecting a 50.1. this is june, before the brexit vote. however, we were told we would see quite some impact. so far that has not been the case. manufacturing beating estimates. you can see pound, little impact. let's get to first word news.

nejra: the bank of england has signaled a rate cut within months as it tries to shield the u.k. economy from the shock of leaving the e.u. mark carney says he will not hesitate to shore up the system and is considering what he terms a host of measures. seems plausible that uncertainty could remain elevated with a greater dragon activity. -- drag on activity. its effects will be reinforced by tighter financial conditions and possible negative spillovers s majorth in the u.k.' part trading partners. nejra: data out of japan shows another lackluster month. industrial output fell and retail sales and household spending stagnated and inflation fell 0.4% from a year before. manufacturers confidence health study, although the survey was almost wrapped up by the time brexit turmoil of merger china's

manufacturing sector treaded water in june. the pmi fell to 50. the services sector, it continues to improve. the official grace rising to 53.7. the justice secretary michael toe is set to make his case be britain's next prime minister after he betrayed boris johnson who pulled out of the race yesterday. now his sites are second on the home secretary theresa may and three other candidates to head the conservative party and the country. global news 24 hours a day powered by more than 2600 journalists in 120 countries. this is bloomberg. francine: thank so much. -- thank you so much. let's head to mark barton for your asset check. mark: the three-day rally before today was 6.8%, the biggest three-day rally since 2011. the six day drop from friday his 4.5% after being as much as 10%

lower on monday. gmm function showing indices, currencies, bonds, credit default swaps and commodities. it's a mixed day. i want to move it on because a lot is being said about the ftse, how it's clawed back. this is the chart since friday. 6.9%.se 250 is down by afterday rally up by 8.7% the biggest two-day drop since august. the gauges on track for its best week, the ftse 100, since december 2011. it closed at its highest level since august. not only that, the ftse 100 was the best-performing developed market index in june, buoyed by the weak pound rise and mark carney's reassurance.

the policy will be loses in the summer. citigroup have raise their rating on britain's biggest company. bank amongtsche those bullish. investors had withdraw money from u.k. funds in 8 of 9 weeks. let's not forget that u.k. stocks have been the most underweight by global fund managers for most of the last nine years. so, this is a bit of a seachange. have a look at sterling. dropped yesterday after marconi's com -- mark carney's comments. the pound was unchanged until that juncture. a six-day decline for the british pound index is still 10 .3%. all i can say is that on monday e decline was 11%. we are slightly better than where we were, but the

expectations preferred the rate cuts has pushed sterling lower in the last 24 hours. francine: thank you so much. as central bankers and markets digest brexit, investors are expecting the fed will not raise rates this year. if we take a look at the wirp function there is a probability of a cut, that has been added since the brexit vote. they are not pressing in anything at all until 2016, in february -- in november, 2016. it's really up to december where you have a 92% chance. the dollar strengthened against the pound. derek, i mean, actually if you look at this, there is not really a chance till 2018. that is when they start becoming the odds -- is this going to move very quickly if we get strong data from the u.s., or is this plateauing because of brexit? derek: i think it is a bit of both to a degree. brexit, we've had a big move post-brexit.

40 basis points. that's the big event over the last week, of course. you know, i think, also, investors are concerned about some of the signs pre-brexit vote in regard to evidence of a slowdown in employment. and when you couple that slow down in jobs growth with the corporate profit story, the data which shows the corporate the energycluding sector, has gone negative in terms of annual growth rates, that's concerning. if that continues, then the idea that we could be into a more sustainable slowdown does become more credible. and coupled with the rise in risk aversion abroad. francine: if we go back to the dot plots. james bullard. he does not want to make a forecast. derek: he doesn't. francine: is he right?

derek: one of would like to ask him is, you've had quite a dramatic change. what is behind this in terms of, is it the global story, or is there something more specific concerning him about the u.s. domestic economy? but i think the reality of the situation is that the whole decision-making process of how the fed comes to its decisions is changing rapidly. and the ability to make a decision on dot plots based on the domestic economy is perhaps gone forever. the whole influence of policy has been largely from a fence abroad over the last 12 months. francine: overall, what does it mean for strength in dollars? by a stronger dollar, they are tightening monetary policy. transmissions the mechanism of having to force them to change their profile andre hikes. -- on rate hikes.

no major move, really. i think if we slowly go back to the macro economic theme for the markets and away from brexit and risk aversion, that i think the dollar could perhaps come under a bit of selling pressure as investors look at the idea that perhaps the fed don't do anything in 2016. francine: thanks for staying with us. the european head of global market research at bank of tokyo mitsubishi. we will be joined by james bullard at 10:00 a.m. in london. here on bloomberg tv. up next, we hear from the barclays ceo who tells us how the bank's plan in a post-brexit world exists. this is bloomberg. ♪

francine: welcome back. this is "the pulse." let's get straight to the bloomberg business flash. nejra: takata is tumbling after an urgent warning from the u.s.. owners of more than 300,000 hondas and acuras should have the airbags replace. a farshow they have higher risk of exploding than other models. the company says executives will take pay cuts over the recall. oracle has been ordered to pay $3 billion to hp after a jury

found that larry ellison and his company violated a contract to support software for hp's titanium chip. jurors reached a verdict in less than five hours, concluding that oracle's decision to bail out hurt hp's revenue. walt disney has agreed to theire a 1/3 stake in digital arm of major league baseball in a deal that values the business at $3.5 billion. the agreement underscores the importance of the video streaming business for the future of disney's e which whichen losing -- espn has been losing viewers to online media. hershey's board has rejected a $23 billion bid that would created the biggest candy maker in the world. what surprised observers that her hershey offered no rusher ationale. francine: barclays is feeling

the brexit pain. erik schatzker sat down with a canand asked if the bank withstand added stress on its balance sheet. >> the crisis we are facing right now is a political crisis. it clearly will have economic consequences, but right now we have a political crisis that may lead to economic challenges facing a banking industry that actually is in strong shape, particularly in the u.k. the strategy we have for barclays as a transatlantic, consumer an investment bank is to be large and diversify. so, that when we face a challenge in a given sector, we have the diversification to be resilient. um, we have an investment bank where over 60% of our revenues are actually driven by our bank

in new york and u.s. dollar-based. we have a very good credit card business where 50% of the business is in the u.k. 50% is between germany and the u.s. we will be a part or responding to what happened to the economic environment inside the u.k. we are a very major player in this country. it is our home country. we are a british bank. as the economic response to the political crisis unfolds, just like governor carney was talking about, the bank of england will make, will take corrective actions to try to ease the economic response and barclays will be cognizant of what is going on in the economy and adjust to what we do. the important thing is for barclays to be there for the public of great britain, to be there for our small business and

corporate clients with credit, advice, services. so, we've thought a lot about this referendum, and it went one wa that willy have economic consequences but barclays is going into this process eyes wide open. itsbalance sheet strong, people very motivated and committed to the economy of the united kingdom. erik: i take the answer is yes, you can withstand the challenges ahead of you for sure. your leadership skills are going to be tested like never before perhaps. are you ready? >> we'll find out. 13 it's -- we have spent months getting ready for this referendum, but we created a situation room, which we invoked last week. we had the full executive committee was meeting about four times a day beginning thursday and obviously through the early part of this week. erik: four times a day? >> it was to make sure we all knew what was going on from what was happening in our

branches and call centers. to friday we made 1,500 loans small businesses across the united kingdom. you know what was going on in the foreign exchange markets in the early hours of friday we had three times in the first couple hours, foreign exchange trading through our systems than we normally have a full day. to know what our corporate clients are asking and are institutional clients. we were very prepared and i feel terrific about how the bank handled itself. the other thing which is quite different than what we might have seen in previous financial crises is the coordination between the large banks and write letters. we were on the phone with the bank of england, the pra, the new york fed, etc. there is a recognition that to avoid the next financial crisis banks and regulators have to be collaborative. during this referendum vote that has shown its colors. francine: jeff daly, the barclays ceo, jes staley.

italian banks are trying to figure out their path forward. italian government has been given the go-ahead by the european commission to apply 150 billion euros in liquidity. ceocredit appointed a new after seeing its stock slump 68% this year. let's get morerom the head -- are italianhy banks so frail? mentioned, there is a big problem in terms of nonperforming loans. 1/6 of the credit extended is nonperforming. a huge amount. and, obviously, our legal system is slow. if you want to work out these huge piles of bad debt, it takes a lot of time. this is something that ecb is not tolerating. they are very worried. they are putting pressure to sell those bonds to

international investors mainly. if you have the pressure from the regulator to sell quick, bids are very low. and so, we have to find the right balance between the approach of the ecb, which is sell the debt as quick as possible, and a decent price. otherwise, apart from the losses that italian banks have on the balance sheet, you will find new losses due to the very fast pace you're using the sell loans. francine: the fund was too small. >> yes, investors are used to the old payout sponsored by the government. unfortunately the current regulation doesn't allow the government to spend a single cent to save banks. francine: is it because of the bailout? >> yes.

if you want to bailout banks, if you want to save banks, you need -- bail out debt. in italy, and also on the european commission now, there is much less appetite for bailing. we had a few experiments in italy and portugal and i think we will not get there -- francine: will the rules have to change our world have to see default of italian banks? >> obviously, what we saw theerday with the news of liquidity, emergency liquidity program by the italian government, is that there is som e willingness on the part of the european union to allow some flex ability in the application of rules. i don't think rules have to change. it is fair to say that over the last few years we have seen stricter and stricter banking regulation. that's the final and optimal

outcome. and european union they have to realize thatthe you have to come to terms to reality. francine: when do you expect this to be over? investors that large want the -- so they do not have this worry hanging over them. this is much bigger than brexit in terms of shocks across the eurozone. will be done and dusted in six months, or will it take 18 months? >> to solve the problem is going to take much longer. we can have some additional disability. so, the italian market can become investable again in a much shorter time frame, probably six months. we need clarity on the capital shortfall. unicredit has to get some answers and the new ceo will

probably be getting those answers very soon. once you have more clarity on its position and another two or three banks, investors will know that most of the capital credits are already done and the attendant banking system will become investable again. francine: we have a new ceo. is he going to be up to the job? if you look at that share price unicredit,esa and unicredit has so many more employees. >> now they've decided -- who's boat, westeer, the have solved one of the first uncertainties. the second point is how much money want to put up to fix the boat. or how big or small you want the boat to be. he will have to choose how much to call in in capital increase in how many subsidiaries could fail. the final combination, i do not

know what it is going to be. that is the point the market will need to -- before investing again in unicredit. francine: thank you for joining us. now, coming up, we'll be speaking to st. louis fed president james fuller. he'll be with us on "surveillance -- james bullard. later, we will hear from consumer party leadership candidate michael gove. at 11:00 a.m. u.k. time. we will bring you that live as it happens. this is bloomberg. ♪

>> what we said in terms of the risk to the economic outlook, in terms of the risks to financial stability, does anyone in this room not think that those risks have begun to manifest? does anyone in the country think those risks have not begun to manifest? francine: that was bank of england governor mark carney speaking yesterday with a little bit of i told you so, this would happen if you voted for brexit. let's check in the markets because it is been a week since we had the turmoil in financial markets on the back of that vote. i can't tell you how much the political turmoil has continued with boris johnson yesterday deciding not to run for the prime ministership. european shares erasing earlier gains.

putting an end to the rally that it recouped more than half of the brexit vote. the referendum sparked two days of selloff. european shares going up a touch on the hope that central banks would stand firm. stocks were pretty volatile in the aftermath of the brexit vote. this is a picture for the pound, 1.3308. japanese yen, we are talking about it with derek halpenny. this was the central bank governors intervening in the ftse markets. the vix indexes quite important . we also look at the dollar. with a great interview coming up with james bullard. we talk about the fed and janet yellen. "surveillance" is up next. tom keene will join me from new york. the st. louis fed president james bullard. and we will hear from the conservative party candidate michael gove.

hugo launches campaign at 11:00 and u.k. time. this is bloomberg. ♪

francine: yields take a dive. bonds and stocks rally on central bank, japan and the u.s. betraying boris, the justice secretary says he's the man for the job. brexit banks, the federal reserve joins us this hour, where we get the view of a new regime in st. louis. this is "surveillance." i'm francine lacqua in london. tom keene is in new york. we do have some euro unemployment figure falling, actually the eurozone area is not doing to