ringing] u.s. stocks closing slightly lower ahead of the jobs report. oil false 5%. joe: but the question is "what'd you miss?" matt: all eyes on tomorrow's u.s. jobs report as the federal reserve looks for clues on the next policy decision. joe: theresa may and andrea leadsom are set to face off for the battle for prime minister. and we look at the brexit impact and what it could mean for london's financial hub. let's kick it off with our market minutes and we have gains on the nasdaq today, although the s&p and dow jones came down and did not ounce up as we saw yesterday. joe: pretty listless direction

ahead of the jobs report tomorrow. consumer discretionary leading the way whereas the ultra defensive utilities both days weekend. matt: i'm glad you bring that up because i thought the same thing before the program. i put together three indexes here -- the s&p utilities in -- utilities index down. people pulling out of defensive sectors and the biggest gainer of the 10 industry groups are the momentum stocks. that's why the nasdaq had a gain. -- isomething i and keep am keeping my eye on in the world of government bonds, this is a three day chart of the bond spread between italy and germany. that's one of the places you

want to watch peripheral sovereign risk as we learn about political contagion. a lot of anxiety about those italian banks coming into focus. keep an eye on that spread. this is much narrower than it was during the worst days of the crisis. matt: anything having to do with italy, especially the banking sector. i want to give you a quick look have onecy because we of the most brilliant minds and currency coming. you see more dollar strength and that leads to yen pound and aussie weakness. interesting to see the vote in australia -- the aussie dollar not as volatile as the pound but more so than the japanese yen. joe: gold is still doing well -- a two-year high -- a remarkable year for gold. matt: i absolutely love it

because i love goldbug conspiracy theory, zero hedge, so i always watch gold. joe: oil intraday got slammed on inventory data. -- what is interesting about this as we have been hovering around that $50 level and we are sort of breaking down for that. keep an eye on that as we failed to break above 50. matt: that has to be the biggest deal in the market today. and something i'd don't think is related to the brexit. let's take a deep dive into the bloomberg. you can find the charts all of us use. we usually show you the function at the bottom of the screen and you can manipulate those charts for yourself. i'm looking at an economy

we don't talk enough about. this is greece. we got the latest april unemployment data and on one hand, the good news is that it's at its lowest level in four years. still 23.3%, unemployment. precrisisabove levels, so it is sad that the best level in four years is so extraordinarily high and we have been focusing a lot on the issues in italy, the u.k., spain and portugal, but the fundamentals of the greek economy are extraordinary. i think we finally see who has been pro-euro, the monetary union, that it's not necessarily working well for everybody and certainly not for the greeks. dave wilson chose this for his chart of the day. white, the

guggenheim s&p spin off etf. when the smartest guy in the room is selling, i don't want to be a buyer. spinoff index has really come down against the s&p 500. that doesn't change much today even though white wave was purchased, it was spun off by dean foods. , it hasyou bought that been an incredible stock. "what'd you miss?" for prime-person race minister after theresa may won the votes needed in the second ballot for conservative party lawmakers. she will go up against andrea leadsom to pick up the pieces post brexit. alex morales joins us on the phone. conservative party

members get to vote on who they want to lead the party and the country. how is that race going to shape up? : they've got a couple of months and up to now, the race has focused on the tory party lawmakers who whittle down the field from five to two. now he goes to the wider party membership of about 150,000 people. it's a small electorate and they will be choosing the next prime minister. a have theresa may who is vastly experienced some secretary, the longest holder of that post and its traditionally known as a graveyard of politicians so to hang on for us so long is quite an achievement. she's up against andrea leadsom who's a junior leader and hasn't had much of a public profile until now. she was a prominent campaigner during the referendum and was a

pro brexit campaigner and appeared on a couple of television debates and was widely perceived as doing well, especially among the party grassroots. it seems thett: british parliament is totally out of sync with the british constituency. jeremy corbyn in the labour party has so much support. he has no support in parliament by his own party and his own mps and here you've got leadsom who had less than half the votes in parliament that theresa may got and on the other hand, theresa may voted remain and the majority of evil who voted in the poll voted to leave. what is going on there? was put nicely by one of the conservative party mps. it is the establishment versus the people. what we are seeing, we are seeing it in both parties.

jeremy corbyn is very popular with the grassroots of his party but is widely perceived as unelectable and they cannot see winning a general election with him in power. conservatives, it is still to see whether theresa may or andrea leadsom will translate that grassroots message into actual support amongst the party. been there for a long time and was the tory party , so shean back in 2002 has experience speaking to the grassroots. we will have to see how it spans out. joe: alex morales, thanks for calling in. matt: stocks were in negative territory for most of the day, drag lower after inventory data but the market managed to parents losses ahead of tomorrow's job report. us and let meins

first ask since we just finished talking about the u.k., i don't know if you are tired of brexit already. have been two weeks since the vote. but the pound is one of the most interesting asset classes. the amazing fall -- we had a 1.28 handle yesterday and some people are forecasting another 10% or 11% drop. what do you think happens to the pound and what does it mean for british stocks and the british economy? guest: i think for the economy, very largek's in a current account deficit close to 7% gdp. unless they are able to get capital inflows, that deficit will put downward pressure until it begins to equilibrium eight supply and demand. they had foreigners coming at capital coming to the real estate market, all of that is

probably on hold. you had a discrete event. it flows more quickly than trade flows, so you got the looming trade and current account deficit. you are not going to get the flows and will have to overshoot in the currency. it takes a long time for that to feed through the economy, encourage people to flow capital back into the u.k., so i think this could go on for a while but i think we are getting into overshoot territory. we had the vote but we don't even know who's going to be leading the negotiations and who might succeed david cameron. they may have totally different approaches to this. how long does this uncertainty last and how does it affect the capital trade flows? started with five and a

limited one every day, so we are down to the final two. one might think we would move quickly. my understanding that it is early september before they have the vote. that's two months of a lame-duck leader not knowing where they are headed. cameron has indicated he does not want to do a lot of the heavy lifting. markets dislike vacuums and uncertainty and i think we are going to have that. it's unfortunate this is going months another two because it leaves this uncertainty out there. may wins,ming theresa she has said she would not trigger article 50 this year, which means it will be three actualefore you get an or. we have heard several people say that they don't even believe it's going to happen. i think the chicken and the egg lack of inflows in

the economy and the action of the central bank bringing down the pound because you knew that they were really going to bring down rates and you -- and loosen monetary policy and indeed they are doing that. they were going to broaden its borders as to what it could buy to pretty much everything in europe. can the boj do that? i see it working with the pound and with the euro but it seems no matter what he does, the yen continues to gain strength or is it because he's not doing enough? bob: i think he's done plenty. i think there's a re-think going on about the whole idea of negative interest rates by the boj and ecb. has a different problem, the opposite problem of the u.k.

the bank has a large account surplus and the deficit they built up after the earthquake has gone away because energy prices are down. they are running a current account surplus. if they don't get capital uncertaintyt pushes up. with all the uncertainty, you are not getting a lot of capital outflow out of japan. joe: we have the jobs report tomorrow. how do you see the risk in the various possibilities? our chief economist has been looking across the claims data and everything else and it all looks ready solid. we may find out that may was a bit of an aberration. joe: would that be good for risk assets? how in the market interpret it? the if you got a report in 275 range, that's probably good and reasonably good for assets. joe: this is bloomberg.

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ramy: fbi director james comey was grilled about his decision not to pursue charges against hillary clinton overusing a private server. >> i have defended your integrity every step of the way. you are the definitive voice. i stand by that, but i am mystified. because youfused listen to your fact pattern and come to the conclusion that

there is no consequence? i don't know how to explain that. ramy: komi says there's no ofdence the former secretary state lied to the fbi. there's only one president in the last 100 years for prosecuting a gross negligence item and no reasonable prosecutor would bring a case. after weeks of pressure from his democratics -- democratic bernie sanders will endorse hillary clinton on wednesday. it will come during a campaign event in new hampshire. he promised to throw his support behind electing clinton president. authorities in tennessee are declaring a state of emergency after flooding. some areas have seen as much as six inches of rain. crews are performing rescues and a flood warning is in effect in

areas of middle tennessee's -- tennessee through today. and another sign of the diplomatic fall between the u.s. and cuba. the number of americans traveling to cuba is at 84% compared to the same time last year. those figures were released by the cuba tourism ministry. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. joe: "what'd you miss?" negative yielding assets now make up more than a quarter of the global fixed income market. the managing director and head of high-yield strategy joins us to talk about the credit market i know that more than 85% of german and japanese debt is yielding less than zero but how

big of a presence are negative yields on the corporate side? there are portions that are negative yielding. just for that search and reach for yield mentality. stories of the big since -- since the brexit vote, it brings to mind some of the concerns from last year and last december, what are some lessons we learn from that time in december that may apply and is that issue still there for the junk-bond market? guest: in markets in general, there is poor liquidity and even 14 or 15ries, we saw

and i think it's a big problem and an high-yield, that's no exception. the 3rd avenue was unique -- it was a distressed fund acting in a daily liquidity vehicle. there are a few funds that are like that in high-yield, but if you get significant outflows retail investors, i think it could be a real problem in high-yield and you will see big drops in price. i've pulled up the dis function on the bloomberg -- i look at this a lot and you can graph the number of bonds traded or issuers traded, you can see that we peaked in 2016, the highest we have seen since 2008, but we have come down significantly.

do you see more supply coming online because of brexit? michael: i don't think you'll see a big pickup in the lowest quality portions of the high-yield market. if you look at the issuance of triple seed that, it's -- that slope down that you saw from the february -- february 11 ties is a function of higher commodity prices. so energy through things out of whack? michael: absolutely. we saw a big move into bdi today and that continues to trend toward 30 or $45, i think you will see energy selloff again. joe: when we had the worst of the market last year, people said we know energy is bad the rest of the high-yield market is not that bad, how is high-yield

and energy looking at the moment and where you see default rates going? michael: not great. default rates are going to be relatively benign. fundamentals haven't curated quite a bit. if you look year over year at earnings growth over the last it's the worst ever in a non-recessionary time. it is pretty phenomenal. asset write-downs in the fourth quarter, non-commodities are the highest they have been since 2008. companies are actually writing down the eval of their assets x commodities. leverage is at eight all-time high. if you take out telecom, which is a highly levered sector. joe mentions these real estate funds. the first thing they have to do is pay back the people who want out and they will borrow money. have to take out loans in the second thing they have to do is

write down assets because prices are going to fall. michael: i think we will see a lot of that over the next six or 12 months. and you will continue to have a decline in earnings that will send leverage higher as well. joe: thank you very much. matt: coming up, the two charts you can't miss before tomorrow's u.s. jobs report. this is bloomberg. ♪

joe: i'm joe weisenthal. "what'd you miss?" tomorrow, so we are looking at labor data. i'm looking at initial claims data. after may, some people said

watch initial claims because they will either signal whether the jobs report was a blip or one off. matt: it was a horrible number we got in may. joe: but the claims data has been rock solid. the 52 week moving average that smooths them out and gets her to seasonality as a new post crisis low just keeps going lower. is there something wrong with the labor market? it's not showing up in the initial claims data at all. matt: the number is the lowest it has instances 70's. i have read mohamed el-erian's bloomberg view column. he has a column showing me what i should look for. he says you should look for as far as the headline number is concerned is job creation. but labor participation is key for him to look at. we came down, we came back up a little bit, but we have dropped

off and wage growth is a key number. wage inflation is important for janet yellen because that leads to more money in the consumers pocket and that would be good if we got a pickup and that. , which isgrowth better than a stick in the eye. the estimate is for 2.7%. joe: that labor force participation rate had climbed starting in early 2015 other was a lot of talk about turnaround with a few ugly months in a row. alan krueger says people have to retire. he had to keep the number down because of demographics. but there are people who say that's not the case. coming up, executives at the biggest u.s. investment bank meet with george osborne. we discussed how london fights to keep it status as a financial

hub. this is bloomberg. ♪

ramy: i'm remy. this is your first word news. fbi director james comey was in the hot seat four hours come answering questions over not hillary clinton over e-mail use on a private server. he was told he was setting a dangerous precedent. >> i have defended your integrity every set -- every step of the way. you are the definitive voice and i stand by that, but i am mystified and i am confused because you listen to your fact pattern and come to the conclusion that there is no consequence?

i don't know how to explain that. , he said there's no evidence the former secretary of state lied to the fbi and noted there was only one precedent the past 100 years for prosecuting on a gross negligence item and no reasonable prosecutor would bring this case. president obama says he is deeply troubled by the recent fatal shootings of tube lachman by police officers. the president writes in a facebook post at the shootings in baton rouge and minnesota are not isolated incidents. he says we've seen such tragedies too many times in our hearts go out to the families and communities who have suffered such a painful loss. more federal aid is on the way forest virginia to provide debris removal and restoration of flood damaged areas. fema has approved more than eight teen million dollars in individual assistance to help people with medical and housing support.

flooding is a huge problem in china where massive let's have left at least 181 people dead. downpours have broken levees have cities and villages and halted public transportation. water levels are starting to reseed. the president has ordered the army and armed police to help in the disaster areas. global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. matt: let's get a recap of today's market action. we had to gains in tech stocks and as you point out, consumer discretionary stocks picked up and were the biggest winner. that means investors were willing to get into riskier stocks. utilities and telecoms and the energy stocks -- i don't think those are defensive sectors. big shocker is we

did not get a new record low in the 10 year yield. that's the exact price today. "what'd you miss?" today some executives from goldman sachs, bank of america and jpmorgan chase met with george osborne, british chancellor of the exchequer hoping to keep london's status as a financial hub after the post brexit vote. i guessed joins me on the phone from the netherlands. prospects for london remaining a major financial hub after the brexit negotiations are concluded? guest: clearing for the the market may move to paris or frankfurt. matt: jamie dimon today is talking about moving 16,000

people out of the u.k. and , just staley who runs our klees has said he plans to keep his people in london and it will remain a financial hub. where is the bulk of the business going to go? i think the odds are out between frankfurt, paris and dublin, because dublin is english-speaking. i think the major parts are help by frank for an paris to get a lot of the clearing business for derivatives. dublin also has much lower taxes. bankers don't like to get ripped off i the man and you are realng at high taxes and difficulty hiring and firing people. but inthat is correct the end, you need a place where

you can do euro settlement and theon will be out after brexit negotiations, so business has to move. them -- it is an open question. joe: we keep hearing this term about pass porting rights and how the u.k. would lose those. explain what that is talkfically and when you about the business london will lose, is it conceivable in the negotiations that they could create summary -- some relation where they keep those rights? guest: no. that is a nitty gritty legal thing. research shows -- you mentioned the five u.s. investment banks. they have 90% of the staff in for a moment, with the passport, they can do business in every european

you can use the license in one country, you can use it in another. once you are out of the european or the european economic you after brexit, then cannot use the license anymore to go to other countries. if goldman sachs wants to race it in then netherlands or france , it needs a new license to start a business. why they want to look for one major place for the new passport. matt: jamie dimon was saying as long as you get the right people in the same room together that you can solve reletting problem. wouldn't he be able to solve the pass porting issue as well? if you get agreement before , a goodreplaces cameron negotiation in brussels, couldn't they make it work? guest: no.

it is in the end a legal issue. citizens,u give to how can you give to someone in canada a u.s. passport? you can only give a u.s. passport to someone who is part of the u.s.. it to someoneive who's part of a financial firm. if they are outside the legal domain, i think that's the big thing. it's not about willingness and that kind of thing, it's about your addiction and you lose the passport. what else should we be watching for in the negotiations as it pertains to the city of london? both sides are keen to keep the relation good.

people will look wherever possible to work together and not to bring in terrace. but only legal issues. companies from china and operator, the car they typically go to the u.k. and move further, they may reconsider their location. i think it is amazing. how many jobs do you think will come out of london? 15,000 fromr about jpmorgan, that's only one of the big banks that has the bulk of its business in the u.k.. without jobs in total

pass porting and without seeing able to do the euro clearing business will have to go somewhere else? it's very difficult to get a persuasive estimate, but estimates are about 20%. a lot of the back office people in trading people, we have to dublin orfrankfurt or paris doesn't have the capacity to get these people off of a team, so it will be an incredible process. and it is a small possibility the u.k. will stay, but it is a small possibility. you see it happening in real estate, some of the commercial real estate, they had a complete dip because of people move out, offices won't be rented anymore.

so you see it already moving in the real estate market. joe: thank you very much. matt: have you ever read the book "ugly americans? one of the interesting things is they were trading stocks in osaka, but the big kahuna's wanted to live in tokyo. so they would hire kids out of college to live in osaka and it phones to in on their the kids and no soccer. definitely.ok coming up, is italy in a banking crisis? that is next on bloomberg. ♪

the bloomberg business flash -- a look at the biggest business stories in the news right now. aetna is preparing to meet with department of justice officials as it hopes to win approval for a takeover of humana according to people familiar with knowledge. to weeks afteres a similar session with anthem and sigma who are pursuing their own 48 ilion dollar merger. the energy -- doj officials worry it could stifle competition. wendy's says hackers were able to steal customer debit card and credit card information. hamburger chain says some cards were used to make fraudulent purchases at other stores. wendy's reported the hack back in january. boeing says it is testing nonstick aircraft coatings designed to cause ice to harmlessly slide off the planes wing.

dangerous ice buildup and cause stalls or make planes hard to control. it may also help to ease the impact of blood -- of bug splats that disrupt the flow of air over a jetliner wings. joe: "what'd you miss?" is risingin italy amid reports of the country and the european commission are in deadlock over how to boost italy pot roque and banking system. theier, we discussed banking crisis in italy. stressthe ecb is running tests after brexit and they say -- you -- you have been were to assume another 3% or 4% gdp hit. but remember, this is an assumption. i think here, the panic is

stemming from the fact that we are running a stress test scenario and that is just assumption. it's not there and going to happen. -- we aret, they need talking about the net wealth of the country. the number i wanted to get to. this is a chart of italian banks and it is pretty ugly back to december of 1980. that's with a leg down yesterday. that chart tells me the italian banks are in crisis. you are telling me they're not. do you flip over to where the market vigilantes are? in my view, what is happening is lots of the money in london has ultimately and

anglo-saxon decisionmaker. , they said england is going to be fine. let's sell europe because there will be a european breakup. it is the secret anglo-saxon dream to rake up the euro because they gain more benefits on trades. i think with mario draghi, you're are not going to break anything. here in my view, it is a great long-term investment. if you look at the ecb stress test results, it's the one with the most capital in europe and you can buy it at an all-time low. >> even if it is 500 million euros that they need, there are

rules that they need to stick to it you cannot subsidize. should the eu be flexible? even if it is 200 euros, someone at the commission said put those in italian banks? my view here is the rules would be followed. there are rules under circumstances where you can do preemptive capitalization using state money. its banking70% of system and public banks being recapped with 200 ilion euro in public money. everyhas been privatizing bank, bringing them on market. i cannot believe for a country that did not require state aid -- nowy ranking system we are discussing a couple of ilion.

-- couple of billion. tom: what you are saying is the opposite of what is out there. do they need to be more draconian and do some sort of lower the bond holder value to get this thing fixed? guest: we specialize in hybridizing global city and i as a the capital is there were toon tool if you have a 2008 event where gdp does minus five or six globally. is running at .0 .5 plus one and we shall see whether we see a repeat of the 29 crisis. stressed to take a 29 crisis and at that point, it

might get converted into equity. -- theyest risk you run are yielding 8% or 9% and clearly you are not getting paid eight or 9% if there was no risk. the question is is that they write risk or not? in my view, it is a great risk reward. coming up, china's foreign-exchange reserve increased in june by $13 billion. we will tell you what that says about the u.s.. this is bloomberg. ♪

matt: "what'd you miss?" china's foreign-exchange reserve increased by $13 billion in

june. some economists think the number show that pboc did not intervene heavily in the u.n.. betty liu joins us. this goes against what we have thought all along, that the pboc is always in there messing around, but $13 billion is not a big part of $3.21 trillion. betty: and are member the reserves were a lot larger because they were intervening so much. what investors are taking away is they are taking away a little more confidence in chinese regulators and the government because suddenly, even though the currency has dropped almost 2% since exit -- since brexit, the chinese have not had to spend money to support the currency. they have let it fall and that says the system appears to be

working better. the currency system appears to be working. joe: i remember when they had that the prize 2% valuation. people looking back said maybe they screwed up. maybe one part of the government was not communicating with the other part. is the view now that they are a gearing things out more and not making the same kind of mistakes? betty: and some of the things they did after the august back all are working. one of the things they did was they changed how the yuan is fixed. it used to be fixed only against the greenback. now it is against the greenback and a basket of currencies, so they can choose and manage better the decline in the currency. even no it has fallen to percent against the dollar, it has fallen less against this basket

of currency which makes it more stable. after what happened last august, the government -- they don't call these official controls but tighter controls on how much money can go out and how much can come in. they obviously want more coming in and going out but the estimates are like $40 billion net going out of the country whereas a few months ago, it was $130 billion. they are definitely controlling it better. "bloombergi was on , we looked at the spread between the offshore and onshore. it throughout last year during and post devaluation and that tanked the stock market. not just in china. but here, the spread has come down to almost nothing.

betty: that is a great point. that gap has shrunk so much that it means to some analysts that the currency is right. it is priced right. matt: there are still concerns that there will be another devaluation and that is going to hit the equity markets hard. : there's always that concern and that is what currency analysts were wondering weht after brexit -- are going to have another august hit again, so they are relieved after seeing these numbers. remember that it's a little under a week, so we will see. matt: you can catch ready at 7:00 here in new york and 7:00 a.m. in hong kong for "bloomberg

a break asia. you can watch it on the bloomberg terminal and catch it on your set top boxes. joe: coming up, what you need to know to gear up for tomorrow's trading day. ♪

>> don't miss u.s. jobs report tomorrow obviously, i'll be looking at that payroll number. get a bounce back. >> i'll be looking at the unemployment rate. finally gets low enough. to me the feds definition of full employment. 4.8% a tick up. >> average hourly earnings key

question. to 2.7% in the way this is a whole ball game. toes start to rise, you got figure the fed will be pretty happy. >> thanks for watching.

>> i'm john heilemann. i'm mark halperin "with all due to donald trump there's no wall that can keep this out. mosquitoeswant around me. es.on't like mosquito john: lot to cover tonight. comey was grilled over theral hours by republicans. comey's recommendation, not to for theillary clinton way she handled classified information on her e-mail server. for more than four hours, he an