francine: risk aversion smashes records. the pound and 20 year yields no negative. -- go negative. three of the uk's largest property funds hold production as brexit hits home. desk is the brexit follow fall out starting -- fall out -- startingt go ♪ back go -- starting? francine: welcome to the pulse.

live from bloomberg's european headquarters. i am francine lacqua good we have a great -- lacqua. we have a great show lined up for you. the west leader economist joins us on set. that is to name a few of the guests. first of all, let's check your markets, because there is plenty going on good risk aversion swing the markets. signs that the u.k. markets are taking a turn. your stoxx 600 down. the pound dropping. 20en demand -- we saw that year japanese government bonds, you can see it there on the screen. 0% for theng below first time ever. we also saw 10 year government yields on guilds the first time at a record low.

let's get to bloomberg first word news with their change. nejra: three of the uk's largest real estate funds have frozen 9.1 billion pounds of assets. investments in standard life desha standard life investments have halted withdrawals because it did not -- they do not have enough cash to pay investors. theresa may has taken a clearly in the race to succeed david cameron. she won the backing of 165 mps. former defense secretary, liam fox, was eliminated after attracting 16 votes. stephen crabb chose to drop out of the race. the president of the san francisco fed said a rate hike to be warranted this year, brexit or no brexit. the decision to leave the eu will not derail the u.s.

the new york fed chief william dudley says he u.k. decision to leave the eu could escalate into a significant headwind if it triggers wider financial turmoil. generaleman of societe says a possible systemic crisis -- he says europe needs it credible backstop for its banking system. >> is to make crisis when there is a risk -- citations, and the banking system has problems, the -- in thismy situation, you need the taxpayer and the public sector to step in and to intervene. the quicker the better because you will stop this situation. nejra: german factory orders failed to rise in may as uncertainty over the global outlook.

seasonal swings in inflation were unchanged when they fell 1.9%. economists addicted a 1% rise -- economists predicted a 1% rise. britain publishes its long-awaited reports in the conflict. john chill cooked is announced -- is due to announce his findings seven years after it was set up. -- for the role in the u.s. led invasion at the handling of the subsequent observations -- subsequent occupation. hillary clinton will not face charges over the use of private e-mail although the idea did color action -- the fbi did call the action careless. president obama says he believes in her and she deserves to be in the white house. global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. i am nejra cehic. this is bloomberg. francine: nejra cehic there.

three of uk's largest real estate funds -- in the wake of the vote to leave the eu. joining us is neil canavan. show also look up to the marie owens thomsen. thank you for joining us. neil, thank you as well we are talking contagion. three of the funds had to close because of reduction. >> panic spreading among retail investors because the reader cross on monday is it will not be sprang to us. yesterday, maybe we'll have to look again. 20% liquidity in the fund, it looks like -- we have been trying to get enough of the energy -- and energy on it 7%.

owningey were doing is real estate shares. theirthe brexit vote cut ability rapidly. francine: how ugly can this get? people are afraid because if it go back before 2008, lehman's went down. neil: real estate is a function of the economy. the economy was in a recession, that is not good for values. foreign investors have been putting out which leaves a smaller amount of buyers for what comes on the market. it is going to have a reader cross and prices. [indiscernible] that is because there is no evidence. you are going to see lower tenant demand as well.

side,n the presidential london is building 50,000 homes at the time. they are targeted at the higher end of the market. meant as rentals for bankers and those bankers may not be in london anymore. francine: marie, how concerned are you? something more systemic in the banking system that we have not foreseen. marie: the real estate sector is the private sector to benefit from the lower pound. prices were high in london. now with this correction, it will be in a opportunity for anybody outside of the u.k. to get back into the u.k. property market. the lower pound is going to put a floor under the evaluation. the funds are a different issue. streetsvestors in the

do not really appreciate that these are liquid assets. it is not a liquid fund. you cannot sell property overnight. i think that is what is sparking the moves that we are seeing. francine: do you worry about liquidity in the markets overall? this is the first time where brexit has put the spotlight on some of these. marie: for sure. in any crisis situation, liquidity tends to disappear. a how generous the central banks are. generous thehow central banks are. we understand that the world has not come to an end because of this vote. managerst year asset -- bank credit loans went to bond funds look as if they were tightening up. we look to see more from the real estate side. we do know the u.k. and european banks when they were lending in

britain that they were giving a this time value rate around, so they have a bit more buffer. we don't know what the asian banks were doing. they lend at a higher ltv. francine: you said something that brexit is not the end of the world and we are seeing yields across the board go down for the first time the 20 year in japan went into negative territory. does it feel like the markets are not afraid of some -- of something? marie: at the moment, there is also high expectations on very easy policies from the central banks. people are responding to that with or without the fear element. we would have probably seen lower yields anyway. if we think we are going have lower growth certainly in the u.k., that makes equity markets relatively less attractive.

of course, bond markets more tractive. i think in this context, we sort of have a drive toward global yields convergence. this benefits all of the other markets as well that have a little bit -- they do offer more pick up than the mature european market. francine: neil callahan and marie, -- chief economist stays with us. also what janet yellen cannot do next. stay with "the pulse." how does europe's largest toy company plan to expand in an uncertain economy echo we will talk -- economy? we will talk brexit. three u.k. property funds stave withdrawal. brexit is a crisis work britain and globalization. this is bloomberg. ♪

francine: this is "the pulse." let's get to the bloomberg business flash with nejra cehic. makeup consumers in the u.k. -- nejra: consumers in the u.k. are preparing -- against smart card. this comes two years after -- the processing fees the company charged were unfair. the claim which could be fired -- be filed by september would be the uk's biggest and one of the first filed under the 2015

consumer rights act. china resources building is to raise -- in hong kong shares sales did this help finance the purchase -- with sabmiller. sylvia bellis coneys long quest to find a new owner -- appears to be close to a conclusion. that is the former italian prime minister says he agreed to deal with a chinese group. he also said the condition of the sale is the new owner invests 400 million euros in the club over the next two seasons. francine: italian banks have taken center stage since the u.k. has voted to leave the eu. the stock hit a record low yesterday. looking to inject capital and what would be a third bailout

since the financial crisis. the country's market regulator -- let's get more with marie owens thomsen. a little bitng about brexit and talking about liquidity in some of the property funds. how much bigger could a banking crisis in italy mean for the euro back up it is bigger -- euro? .t is bigger than greece marie: i think the european banks are lagging with their restructuring compared to u.s. banks in the wake of the 2008 crisis. banks in general have not done enough. on that score, there is of course a fundamental weakness in banking in europe. on the other hand we have the ecb now, as the banking regulator. we have banking union. we also have safeguards and resolution system with which to respond which we did not have before. the problems are real, they are not new.

it is a shame they have not dealt with them sooner. we are better equipped to mitigate the fundamental risk. francine: they are not new, the problems with the italian banks are not new. we're talking about a possible run on the banks, a possible bailout. what happened in the last several days where people are worried about the italian banks? marie: these are fear behaviors. there is a lot of fear in the markets, triggered largely by the u.k. exit vote. personally, i am not convinced this is an italian problem, per se. it is a european wide banking issue that has not been resolved yet adequately since the 2008 crisis duties ecb only became a regulator recently. hopefully this will speed things forward to an look

more solid european banking system. francine: you think it will be solved in six months? six months goes very quickly. what does it mean for the european economy? -- marie: need banks we do need banks to make sure things happen in the economy. it is inconceivable that we can survive without a solution to this issue. regulatorulty is the has tried to do a lot of good , buts with good intention it has made life harder for the banks. not saying it is the regulator's fault. the bank should of done these things earlier. intent was being compounded -- was being -- was making the -- a more fragmented system than we had before. that is clear and the aching

profitability is being increased density banking profitability is being increased. you can respond to that by running your bank better. the sweetest banks get approved that you have a decent -- the swedish banks proved that you can have a decent profit margin. francine: do negative rates work? another problem for the banks. --an, there is debate about psychologically, it means people think they are worse off than they actually are. marie: this is the policy i was try to hint at. you do prevent banks from lending. if they are worried about lending, where are the banks going to put their money? they put it with the ecb and the ecb does not want this capital to keep late in their vault. they want that money out in the real economy. they cut interest rates and make it expensive for the banks to leave their money at the ecb

could it is a problem -- ecb. is a problem when the money gets stuck at the ecb which is the situation we have today. money is not going out into the real economy. francine: we are given all of these issues. can janet yellen hike rates this year that go -- rates this year? marie: i think the u.s. economy warrants a rate hike. we will obviously see what happens with the payroll number on friday. the q2 gdp number that we are expecting at 2.6% annualized. that is a very strong growth rate. estimating potential growth in the u.s. at 1.5% is almost twice potential. this is a strong expansion. it had a strong expansion in europe as well. also more than twice the potential growth rate. under normal successes, rates should of gone up in july, but

given the current circumstances, i think that is impossible. francine: marie, thank you so much for joining us today. are 170 one days until christmas and we asked the ceo of lego, about brexit. the outlook for the global and his predictions for this december's big sellers. this is bloomberg. ♪

francine: lego launches its new headquarter in the hometown. how does europe's largest toy company plans to keep expanding with a certain economic outlook? i am pleased to work up the ceo knudstorp.ergen vig thank you so much for joining us. how concerned are you about brexit? how much d so to the u.k. and how important is it that the have access to the single market? joergen: good morning. it is too early for us to really speak of the consequences of the brexit. there is aar is significant uncertainty to the current outlook. for us an efficient and well functioning europe are of high importance. we closely monitor the situation

in the u.k. and other european markets. the longer-term implications of the referendum will not be known for some time to come. francine: heavy not model the possible impact for lego? joergen: no, not yet modeled that. we are working through the different scenarios and outcomes. francine: give me a sense of your main concern about -- is it currency? you have not modeled it. the ceo of a company that has been done externally well, how do you negate all of the economic uncertainties? joergen: that is a but -- that is a very relevant point. what we do in our thinking is working across the different risk factors. for us, the antiquity of the passporth is the shared areas which the kate was never a part of but that exists

within europe for a number of itntries and therefore allows for a very fast transfer of goods across former national boundaries. for instance between denmark and hungry or denmark and the czech republic. they are very important concerns to uphold in a common market. that is one logistical aspect and a free movement of goods. another one is the free movement of labor. we are very global company. we do less than 1% of our business and our own country of denmark. we rely on the free movement of labor. -- across countries including the u.k. i would say the eu plays a very large role for us in providing a .ommon market regulation it toy safety, chemical regulation are very important concerns for us.

the eu provides a very modern and coherent legislative framework. the existence of that and the continuation of that is what i mean when i talk about an efficient and well functioning common market. this is going to affect us. concern.is always a francine: the asian market accounts for 23% of your sales. probably your most rapidly growing market. joergen: i don't know what sort of market share we are looking to achieve, but with the growth of the emerging middle class most important in china, we are expecting that a proportional part of our growth in the future is going to come from that region. having said that, what we have had in the past 10 years, 12 years, the size of our business and a large part of that has

been markets such as russia, central europe and north america. i think we can continue to grow strong in those regions. francine: thank you so much. your convict knudstorp there. this is bloomberg. ♪

pulse"e: welcome to "the live from european london headquarters. nejra: three of the uk's largest -- mmgave halted investments, aveva, and standard life have all halted which rawls because they do not have enough cash. theresa may has taken a clear lead in the first round to

cameron, followed by some. -- andrea leadsom. stephen crabb chose to drop out of the race and liam fox was eliminated. no systemic risk and the banking sector there, saying the financial sector is in better shape than before the 2008 crisis. so easy tot understand why banks have these additional problems since the referendum but i do not think it all that we are in a systemic situation. prices all over europe and worldwide actually, many steps have been taken to strengthen the banking system. also in europe, we have done that, banks have doubled their capital since 2008. we have new regulations.

the banking system is stronger than it was before the lehman crisis. nejra: global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: it is definitely risk off on the markets. let's head to the bloomberg with mark barton. we are seeing record low yields and a flight to safety. mark: stocks in europe down the third consecutive day, just two industry groups are rising. basic resources and utilities. the longest losing stretch since june 14, and europe's benchmark has fallen 7% is june 24, the day the referendum result became apparent. get sterling compared to the dollar going back to 1980, yesterday hitting 1.27.

the lowest now since june 1985. sterling has plunged by 13% against the dollar, the biggest nine-day drop since september 1992. the pound is oversold against the pound -- dollar. the relative strength index is at 26. bnp paribas losses risk remain 1.27 as theide with starting point. it is forecasting a 25 basis , 25 inut next week october, and 100 billion pounds of kiwi which includes corporate bonds to be announced by the november meeting. there is a wonderful shot, sterling 1980 two 2016. in5 was the all-time low

1985. let's talk about bond deals because we have seen a new low for the japanese 20 year, going negative today. 10 year yield in australia and the u.s. hitting fresh lows. new lows for the german 10 year, the french 10 year. money moving out of peripheral bonds. spanish yields rising and italian yields rising but there is very much a continued flight to safety. just to continue to comment on that story that netjets was talking about -- bedrest -- nejra was talking about, freezing accident -- assets after brexit forced redemptions. the white line down 21%. keep an eye on asset managers as well. they are all down between 14% and 26%. morgan stanley sees the

potential of fort further -- --ther stress and property but sentiment generated can still drive a negative feed back loop similar to that seen in the financial crisis. francine: for our bloomberg viewers and terminal users i urge you to read a gadfly piece. it says lessons learned from 2008 as companies hunker down should only be something as last resort because investors have long memory. i urge you to see that place for what the implications of this is. brexit is a crisis for britain and globalization. voteore on what the recent means for the economy, she joins us now in the studio. thank you so much for joining us. israll, i guess brexit concerning because we are not in a great rosy spot for the world economy at all.

2008 or are there checks and balances that nothing bad systemically can happen? >> we have known for a while about the fragility with the financial sector that is still present. a number of european banks and china, the debt is still up there, and that uncertainty causending brexit can .ome uncertainty to be bigger francine: how long? this brings us back to 2008. when will we know how bad it can get? margareta: what will be decisive is how fast the u.k. gets on in terms of negotiations and speaking with the eu because a lot of it will really settle and reduce uncertainty, and give a new framework. francine: you have this new

report on the global economy but also global information technology report. he talked about innovation. how does that fit with a possible brexit? they are saying, we are going to innovate. is it countercyclical if you are not part of globalization? margareta: innovation -- the larger market the economy has access to the more it can get out of innovation producers. easy, so market signs really play a key role to innovation. in terms of talent and investment flows, they are important to innovation so keeping the country open is going to be important. francine: the west has done over the last decade so much work in bringing people together. how discouraging is a that the u.k. does not want that?

does not really want those link? margareta: i do not know if the vote is not about wanting those links. the u.k. remains a very open economy after all. francine: you do not expect that to change? margareta: i would not, because the benefit of openness are huge . that would have a devastating effect on the u.k. economy so especially after the brexit vote, there is a little bit of a hangover. they are pro-openness. francine: re: surprise the markets are resilient? it seems like we are only expecting central banks to keep everything calm. margareta: there is still a lot of trust in central banks and the system, more than we would have expected before. francine: i was reading your report and you mentioned countries such as sweet on -- sweden. is there a u.k. -- a model the

u.k. could replicate? margareta: a number of the nordic countries are doing really well in terms of leveraging the digital economy. especially sweden. tradeis an openness to and investment. i think this is the model the u.k. will have to embrace going forward. in terms of fostering the digital economy, we see the u.k. companies are very strong in adapting business models to digital technology which is a key strength that they will be able to leverage. francine: when you look at the digital economy, how much percentage over our western economies will it make up for? this goes back to productivity and the fact that central banks struggle because of this digital economy. issueeta: there is a huge

about measuring the digital economy because we do not have accurate numbers. many at the -- methods are under way especially in the u.k. to measure the digital economy. it is really difficult to have a concrete number right now. what we know is that going forward with the revolution and convergence of the cyclical and digital world, the digital economy is going to be a significantly higher impact on productivity and growth. because it changes the way we measure it or it takes a bigger place in our lives? margareta: it will take a bigger place in our lives. now we see a segregation -- separation between the digital world and goods. we used to buy tires and now we are increasingly moving to renting tires. that has a data flow associated

with it and it is digitalized. legally,lking about they used to make toys and now they are printing it out in 3-d. there is a lot of convergence between the cyclical world and digital world. issues related with the digital cybery, regulation, attacks for example, protection from cyber attacks will be crucial to making this link work. for could be really crucial the long-term and making sure that productivity increases. francine: thank you so much for a great conversation. the lady economist at the world economic forum. does the lead economist at the world economic forum. paris with the ceo of france's biggest asset manager. ♪

francine: welcome back to "the pulse." three of the uk's largest real estate funds have frozen 9 billion pounds in asset. what impact is it having on european real estate and what does it mean for france? to speakd to paris with yves perrier. thank you so much for joining us.

first of all, a comment on real estate. how worried are you about liquidity? the brexit as you know has a direct effect, which was a market correction. all in all this correction was quite limited. a compensated for the increase of four the vote. is no present time there significant problem of the market as a whole in terms of which has to do with the ecb intervention on the market. francine: you seem to suggest you are not too concerned about what it means for real estate in general. have you had redemptions at certain real estate funds that

you manage? that what i want to say is exposure in the u.k. is very limited. it represents less than 1% of our total assets and we have no real estate funds in the u.k.. for the fund we distribute in ofope, we are not concerned the problems of liquidity. is not only for real estate, there is concerns the problem will go beyond property funds. do not think this is a concern? it is not like 2008? yves: there was some noise. can you repeat? francine: i was asking whether this was a concern beyond property funds and whether you were worried that this felt like

2000 and eight. -- 2008. were listingen we at the end of last year we have objective,nancial which was 40 billion euros and an average net increase in net income of 5% per year. ,espite the current environment with the assumption there will not be any major shock we confirm our financial objectives for the next two years. francine: where do you see the possible next shock coming from? italian banks? difficulty is to and identifyshock

in idea on this. i will not answer the question because it is the best way to grade a shock. -- theriously, "and is key question is to suppress the level that has been created by the brexit. that is why i hope the discussion between the eu and u.k. will begin very soon. in order to define the future framework between the eu and u.k. because you know what markets do not like, mainly it incertitude.de -- francine: have you heard of any tension in etf funds? yves: i read the newspaper about

this, but we do not distribute state funds in the u.k. so we are not concerned with this problem. amundie: the ceo of asset management. record low bond yields, european stocks dropping a third day as brexit fears drive risk aversion. this is bloomberg. ♪

>> it is not so easy to understand why banks have these additional problems since the referendum, but i do not think at all that we are in a systemic situation or a crisis. all over europe and worldwide actually, many steps have been taken in the last two years to strengthen the banking system. also in europe we have done that, banks have doubled their capital since 2008. we have new regulations in the banking system and it is stronger than before the lehman crisis. understand, the government in talks with the european union. let's get straight to the bloomberg business flash.

nejra: three of the uk's largest real estate funds have frozen almost 9.1 billion pounds of assets after the britain shock vote to leave the eu sparked a flurry of exits. they have all halted withdrawals because they do not have enough cash. consumers in the u.k. are preparing a 19 billion pounds class-action lawsuit against mastercard almost two years after a court ruled the processing fees they charged were unfair. the claim could be filed by september and would be the uk's biggest and first filed under the 2015 consumer rights act. holdings plans to raise $1.2 billion in a hong kong shares sale to finance the purchase of a stake in a chinese venture with sab miller. consider more mergers

and acquisitions as it plans and expansion across asia. for $5holdings last year billion. they also sold $12 billion worth in november an ipo and the stocks have fallen more than 30% this year. medivation have entered into confidential agreements with other companies who have expressed interest in buying the company. this would bring an end to the hostile takeover attempt. pot -- sees says he a systemic possible crisis for the italian banks. >> when we have a systemic crisis when there is a risk of expectations,g

the banking system has problems and the whole banking -- the economy has problems. you need the taxpayer and fiscal policy to step in and to intervene, the quicker the better. nejra: the president of argentina says that brexit could be an opportunity for south american nations to improve their links with the european union. he spoke to bloomberg in berlin. >> in that sense it is also an opportunity because the european union can expand its region ines and the which they have a lot of links because we are all sons of europeans in the america. i think it is natural we should work together. nejra: that is the bloomberg business flash. francine: thank you so much. nejra cehic.

,his is a picture of our yields overall it is very clear what mark barton is saying there is a clear flight to safety. the pounds sinking to a 31 year low as the brexit vote continues to reverberate on financial markets and is having an impact on yield. 10 year u.k. bond yields are at a low. intoe jgb they fell negative territory for the first time ever. the british pound, 1.2944. u.s.is more than four cents reached the day after the u.k. referendum on june 24. this means people are concerned about the future of this country and they are looking at the pound. yen, 100.71.into crucial level because

if we go below 100 it is something we have to be watching out for. surveillance is up next and i will be joined by tom keene talking about central banks, currency moves, and the very latest from some of these italian banks under pressure. ♪

♪ risk aversion smashes records, global stocks sink with the pound fund to save its financial system. financial system. property goes cold as three of the uk's largest property funds halt exits. life after cameron as theresa may takes a clear lead in the race, but an eventual victory is far from guaranteed. this is bloomberg