jonathan: a global rally rewrites history. inching towards an unheard-of high. david: attention turns to the with hisister abe stimulus plan. japanese stocks jumped the most in five months. alix: and the campaign for the next u.k. prime minister race takes a turn as news that andrea leadsom may leave the race leaving theresa may as the only candidate. jonathan: to our viewers worldwide, a warm welcome. back in new york city. a very kicking off strange market. david: you couldn't have picked a more fascinating time to be

back in new york. we are seeing bond year it's near record lows. we have never seen this before in history. we will be talking about this through the whole program. theme.es, a key it is a testament that is splintering forces in the market. we have one of the most accurate henomists, joshua shapiro, will be here. you don't want to miss this. once again, a historic move that we are seeing in the markets. jonathan: look at the futures markets ahead of the open and we are points away from an all-time high on the s&p 500. and another big headline is on brexit.sie up 20% post back into a bull market. the weaker pound stimulate some stocks with a big flow of foreign earnings. the s&p 500 is going to be in , they madethe nikkei

big lives overnight. the biggest drop since around march on the nikkei to 25. the market is doing its thing. the fx market response with a stronger japanese yen. up 1.84%. a weaker japanese yen off the back of a decisive election with the prime minister over the weekend. does that mean for his stimulus package? we will discuss that to the program. a bond market on friday was fascinating. even with the solid jobs report out of the u.s. -- that will be a topic of discussion. yields on the session, the belly of the curve, up three basis points. to wrap things up, wti is a little bit softer on the session. we trade at $44.92. alix: the risk on rally continues. we want to go around the world

and check in for in-depth coverage on our top stories. enda curran is in hong kong. andlet fu is in london yelena shulyatyeva, post jobs report. we have u.k. politics developing fast and furious. sterling moving higher on reports that andrea leadsom could be retiring? to get: she was supposed ready to speak at 12:00, that hasn't pushed back to 12:15. that will mean that theresa may will win the leadership contest in the conservative party. it is not clear whether there will be a party membership vote to ratify this. mark barton and i were talking about the ramifications and it would mean that theresa may was the only candidate to be the next prime minister in the conservative party. and it is not necessarily woulding she wants -- she

want a proper race to make her case and be properly elected. in this instance, if she just becomes the next prime minister, she really doesn't get to make her case. she has less of a political mandate. alix: interesting, her viability in the market. u.k.ll street meets politics, we have george osborne making his way to businesses today. what can we expect? scarlet: it is a global roadshow. he will try to win over u.s. investors. he has already met with investors from goldman sachs and jpmorgan to defend london status. travel this month people to asia, singapore and china. his message is to woo investors and to tell them that london and britain is open to business. he reinforced that message with an op-ed in the wall street journal that discusses attracting private investment.

for instance, infrastructure such as new roads, high-speed railways -- what we can expect to hear from george osborne is an emphasis on spending cuts and tax reduction that have been part of his hallmark. he says he aims to cut the u.k. tax rate to 15% or lower from the 17% that it is set to reach. i a point of contrast, six years .go, the tax rate was 28% alix: thank you. scarlet fu joining us in london. obviously the market action started in asia today. jonathan: it did. interesting moves with the pound. equities up 20% from a february low. the attention is very much on asia. following a weekend election in japan and a decisive victory for the prime minister's party. and joins us now.

talk to me about the win and the consequences? enda: good morning. this is a clear win for prime minister abe. he is taking on the green light for fresh fiscal stimulus. we don't have the details of the measures yet but it will involve spending being rolled out over the coming months. such a member why japan needs to do spending. we are talking about the .hird-largest economy this year alone, the yen has searched 20% and that is hurting exporters, the backbone of japan's economy. it hurts their expansion plans and they don't want to increase wages. so when you take that altogether and you take his big win, it gives him a green light to push ahead in the fiscal spending side of things. we will see if he delivers on the structural reform side of things. jonathan: are was looking at

stimulus in terms of holding a bridge? what about the reforms that go with it? will they be delivered? pace ofthink the structural reforms have left many disappointed so we will have to see if he steps up. since see if he gets distracted into wanting to make changes to the constitution. that could become something of a diversion for him. me say here -- guess who came to lunch today? ben bernanke was in tokyo. some people are reading this as a signal that perhaps they are for guidance on what to do in the future. jonathan: thank you very much. and occur in from hong kong. david: you would like to hear about that conversation. jonathan: i would like to be a fly on the wall. david: we will come back to the united states, we had surprising jobs numbers come out on friday. we are joined now by yelena shulyatyeva to talk about those

numbers but the yield didn't come up at all? and looking this morning at w.a.r. p in the terminal, there ina 4% raise chance coming july. what would it take to move the numbers? yelena: the payroll report for june was clearly an encouraging development. but if by no means puts the july meeting back on the table. it comes back after significant deceleration in the previous few months in a payrolls. and it might not be sustained. i think that it still shows us that the pressures remain limited and it should give the fed some comfort that they will proceed very cautiously. but at the same time, it also assures them that the domestic economy is doing ok. david: so besides the wage pressures, the other one is the

job anticipation rights. they remain somewhat depressed low what graphics would indicate. is that an important factor in what the fed looks at? absolutely. that is another factor that will give the fed some hope that there is slack remaining in the markets. developmentsitive that the latest report showed us. anticipation is increasing. and it comes on the back of some increase sentiment. finances are looking better and better and that might encourage them to get get back into the labor market and try to look for a job. david: thank you. that is bloomberg's yelena shulyatyeva. that's get an update on what is making headlines outside the business world. outheresa may is laying what she calls a different kind of conservatism as she tries to

become the prime minister. they outlined her vision for a fair economy. on workers her work on the board and pay finding. and she said monetary policy has helped homeowners at the expense of those who cannot afford to buy. germany will take on greater military leadership in global conflict according to plans for the country's first overhaul of the security policy in a decade. angela merkel's government has already taken a conservative stance. it has armed kurdish rebels in iraq and helped with airstrikes in syria. there was another protest in aden rouge against police killings. as many as 40 people were arrested for blocking a highway last week. less week a black man was shot and killed by police officers in baton rouge. president obama heads to dallas tomorrow to meet with the families of five police officers who were killed.

global news, 24 hours a day. powered by our more than 2600 journalists, in more than 120 countries. this is bloomberg. jonathan: thank you. coming up, is the race for the next uk prime minister about to take a big turn? andrea leadsom will make a statement in a few short moments. we will head there live when she begins speaking. this is bloomberg. ♪

jonathan: another twist and turn in the race to be the next uk prime minister. simon kennedy joins us now from london. andrea leadsom is making a statement right now in the united kingdom. talk me through what we can expect. the bbc sheding to will be pulling out of the race to be prime minister. she was down to the last two.

it is not confirmed. jonathan: looking at the reports from this statement, they are saying the leadership race is undesirable. they need a new prime minister in place as soon as possible. i'm sure everyone at bloomberg has got around a table to talk about this. if she drops out of the race, what does that mean to theresa may? prime instantly become minister? simon: the word last week was they didn't want a coronation. they wanted to wait until the for the 150,000 members to have their say. like ad now look coronation but whether there is a legal rule in the party, i don't know. this would suggest that theresa may -- if no one runs against her -- she is the

next prime minister. the headline -- andrea leadsom withdraws from the leadership race. that is the headline right now. she assures mayo of full support and withdraws from the tory leadership contest. walk me through something. this can be misguiding something but but what happened today on the sterling chart. any dots between theresa may being the sole candidate for the tory leader uk prime minister and what happens in markets after that? simon: i think you can. and the timing of that leads to the reports. two thoughts. this delivers greater certainty if theresa may is the next prime minister. we will now know that sooner rather than september 9. there are a lot of questions about who is in charge of britain at the moment and it

would answer that. he second reason and a more cynical 1 -- theresa may was part of the remain campaign. quite a quiet member of the theresa make repaying campaign. willid promise she perceive the referendum decision and withdraw from the european , and she was against andrea leadsom who was a vocal member of the brexit campaign. so there may be price action there with the. that theresa may won't be as probe brexit as she has maintained she will be. certainly not as much as andrea leadsom. simon kennedy joining us from london. the headline now -- andrea leadsom withdrawing from the prime minister contest. leaving theresa may to be be sole candidate. another big twist in a big race. david: quite a drama.

i wonder what this might do about the timetable. and whether this offense is the entire timetable. to say there will be a prime minister sooner and we need to act? jonathan: theresa may herself said not until the end of the year. so if she is concerned as the prime minister -- and i stressed she is not that yet -- she is just the sole candidate -- you wonder but she said not until the back end of this year. that and you could argue the pound rallying is a reflection of that kind of movement in the markets. david: we will bring in dan moss now. this is right in your area. it does this mean, globally for the market? dan it is another example of a global economy that is expanding and taking some hits. course.not knock it off

at the same time, there is not a lot of momentum there. it is really a question about who is in charge of the u.k.. you could argue that mark carney is in charge. they were hers for this and they planned for this. they have been clear about the intentions of the bank. so what does that mean for thursday? many economists predict a quarter-point cut. thisu go back to earlier year and last year, many people are talking about the u.k. getting to the point of increasing. alix: right, we were debating whether the fed or the year we were the strongest data point. dan: right and that hasn't played out. david: expand this out a little bit. there is a bloomberg news piece

out today on the drift economy. dan: this tells us it is a global economy which, overall, has defied the naysayers. it took some hits. we have guests on the show and some beds. into seven years now and it is true of the major components of the economy. andu.s. hasn't gone back china hasn't imploded but there is not a lot of momentum there. point, josht shapiro is joining us. you could make the same case but you are much more negative when it comes to the u.s.? joshua: moore in 2017 then this year. we see things unraveling in 2017. and that is on the back of declining profit margins. pressure on the corporate sector

that we think will result in aggressive cost-cutting that will weigh on the labor market. of recessionnd does this wind up looking like? joshua: it is hard to say. alix: is it steep? joshua: i would think in the beginning it is not steep because we are not coming off of a boom. it is a withering on the vine kind of thing. the fed has a very small window if they are going to move. just about to begin earning season. a number of economists to come in here say that they think they are looking towards good earnings because energy, year over year will be better. and the dollar was too strong. what do you find wrong about that analysis? joshua: i don't see anything wrong with it in the second quarter. jobs data isverall better in q2. i think what you want to look at is the overall trend. if you bounce off that, the

trend is still downward interns of corporate profit margins and we would expect that to continue overtime. alix: this brings us to a little bit of the u.k. and the u.s. which leads us to japan. a vote of confidence for abenomics. does this actually wind up moving the needle? it was a big vote of confidence for a human. in japan, the opposition parties are desolate. we talk about the u.k. labour party being in a bad place but in japan, much more dire straits. yes, another japanese fiscal stimulus package. widespread expectations that the boe is going to ease. we have heard it before. and it keeps hanging in there. the japanese downturns tend to not be sharp. deep.ds to not be they tend to be shallow but they are not getting much traction

either. in a population where the demographics are working against them, it is awfully tough to get to lift off without massive support. david: so why haven't the attempts in the past worked? does it tell us anything about this one? joshua: in japan, it is demographics. do something that changes the demographics in that country -- which means immigration -- there is nothing they can really do. alix: this ties together with what we started with with u.k. politics. there is a huge inability and central banks to actually get any kind of momentum within their respective economies. you wind up having political opposition which promises something different but it doesn't wind up moving the needle. what is the end result of this? is it all breaks it? is that the outcome? if we go back through the postwar decades, we are used to seeing a singular growth driver.

whether it is japan in the 90th 70's, the u.s. in the 1980's-19 90's. china in the early part of this century. there is no theme. we are just drifting along. one more thing that you add to the mix, on friday we will be talking about china gdp figures which will be out. again, go back to the start of the year. people were talking about a recession in china and an implosion but that hasn't happened. it is not powering ahead either. david: what could be the next main driver? let's go back to japan. the about women in workforce? that was a main driver to increase productivity in the united states. other other drivers that could get the economy going again? joshua: it is hard to see that in japan. they need more young people. their demographic profile. the only way to do that is to

start having babies and it starts to take a while it while before you have an effect. are you allow young people into the country which they don't have any intention of doing that. david: the u.s. is a large driver of global economies. are there potential drivers? we did have the driver of women in the workforce. either other things waiting in the wings that could trigger increases in the economy? joshua: we need a lot of structural reform which requires political leadership and people working together. and that is hard to see in the near term. i think in the united states we will see more pain before we get to the other side and get politicians who do what they need to do. monetary policy is over. the fed and every other central bank in the world has done what they can do. alix: that is a great tie into what we talking about in the u.k..

future probabilities. -- this isate hike for the u.k.. we're looking at a 70% chance of a cut in july. it keeps growing. a 90% chance of a cut in a year. this means nothing then to the growth of the economy? joshua: i don't see where does a lot with growth. interest rates are not the problem here, except that they are too low. alix: wow. ok, a great wrap up. a lot to talk about in the u.k., the u.s. and japan. his piece on the bloomberg, don't miss that. leadsom, one of the leading candidates to be the next prime minister in the u.k. has pulled out of the race. paving the way for theresa may to become britain's next prime minister.

that has not been confirmed. we will discuss that throughout the program here on "bloomberg ." this is how it is playing out in the market. stronger pound story bouncing off session lows after reports circulate. they are trading a little bit stronger, up 2/10 of 1%. the big question -- who will be the next prime minister in the u.k.? it could be theresa may. futures are positive, equities rallying. much more on "bloomberg " here. ♪ get ready for the rio olympic games

by switching to xfinity x1. show me gymnastics. x1 lets you search by sport, watch nbc's highlights and catch every live event on your tv with nbc sports live extra. i'm getting ready. are you? x1 will change the way you experience nbcuniversal's coverage of the rio olympic games. call or go online today to switch to x1. one of the leadsom candidates to be prime minister pulls out of the race leaving teresa made to be the sole

candidate. the move in sterling is the story off the back of this with a slightly stronger pound. we will bring a much more on this story as it develops. the big market move today is nintendo, up about 34% in two days. ames the new pokemon go g which has added $79 billion in market value. the other big story is that asia is buying planes. asia will air --, air order as much as 100 new plates -- new planes. the other story we want to watch our italian banks. today.e all lower some of them turned positive but

only unicredit is lower. ban wast-term selling extended for about three months. that is providing some technical support for this bank. this is one of the key stories. jon: joining as is mark chandler. great to have you with us. last 30king news on the minutes as we are down to one candidate in that it for the next british prime minister and x market showse er a stronger pound. which way is the market bias? >> i think it's a question of uncertainty. we don't know when they will finally file the divorce papers with article 50.

they say they have found a different lover but have jilted the europeans but don't want to pull the trigger. a lot of uncertainty about the bank of england. a bloomberg poll showed the economists divided. week and ia cut this onnk mark carney will err the side of a preemptive strike. jon: are you concerned that the only leader in place is the governor of the central bank? we don't have a prime minister. should that be a concern? there is a powerback -- vacuum -- a power vacuum. i think it's a short run issue. clarified inl be the next couple of weeks. --hink the u.k. will trickle

trigger article 50 and it will trigger a gradual divorce proceeding and then we will fight over custody. trickles the sterling -- triggered an article 50? >> many people don't think that england well. there is still hope out there and people talking about a second referendum. most likely, the u.k. will trigger article 50 and even if they don't, they have solid relationships with the eu especially now that we see the chancellor of the exchequer u.s. toto the campaign about english tax levels almost down to the irish tax levels. it's not a war of words but i think it shows the escalation of tensions. david: we can be sure that the pound is volatile.

what event do you think will settle the pound down? will we figure out what the negotiations lead to? >> i'm not so sure it settles down. you have to think about the currency market differently. period of high volatility is followed by more volatility but eventually it comes back down. there are a number of uncertainties beside the political situation. u.k.ad does the yo economy get hit? the move seems more important than the level. when does the u.k. consumer psyche stabilize? then i think sterling will stabilize. i predicted at $1.27 and below that $1.50. will the euro stabilize?

european side is still lurking. the italian bank situation is only the tip of the iceberg. three large banks are the biggest risk to the global systemic -- pose the biggest systemic risk. after the italian banks, the portuguese banks are next. europe still has him headwinds coming. these are festering problems. glenn brady made a statement for the tories. he said there will be no second contest. we are waiting for some more headlines coming through. it's not clear whether teresa may automatically becomes the next prime minister. he says they need formal confirmation.

side, theyropean have a better idea than they had yesterday as to who will be the next prime minister of the u.k. the approach from europe is critical. what we have seen over the last month is maybe cherry picking. they need to take a different approach with the u.k. hermentioned divorce seedings. what are we likely to see? >> i think it will be eight mess at first. -- it will be a mess at first. the eu does not want to make an easy onor make it too the u.k. to encourage other companies to leave. some of thetime, issues the u.k. raises are generally shared. the most and are thinking about the election is the tory candidate who looks like me is left of the tory party.

she was in favor of remain. the challenger to the labor leader is to the right of the labour party. waras in favor of the iraq and in favor of some of the cuts from welfare. the tory candidate has talked about having worked with representatives on corporate boards. politics in the u.k. are in flux. what does it mean to be conservative anymore? alix: all around europe as well. whether there is another referendum, we have referendums coming up and they can dictate how those countries act in the eu like the italian referendum on the senate. those affect decision-making and the european union. >> even though i have been a -- ir bull, i recognize thought politics would come in

as a later factor but it's happening now in the midst of monetary divergence. our politics in the u.s. is a bit of a circus as well. we could see donald trump name a vp candidate this week. many things are in flux but i think european politics is a greater threat to the economy. it is that feedback loop you are talking about. david: where do you see the dollar headed being a dollar bull? i'm pretty bullish on the dollar against the euro. i think will be closer to $1.05. dollar-yen is a different story which i have been struggling with. maybe we have seen the autumn at $100 yen. i think it could be up to $125. now i hope we get back up to $1.10. alix: when you see this selloff,

what do you do with the yen? >> i will just watch things carve out. i don't think -- i think we knew that abe was going to win and the super majority is misleading. is not in favor of constitutional changes to allow greater military power for jim -- for japan. they will be back to old-fashioned liberal politics with monetary stimulus maybe this month and then a weaker yen. those are the three legs of omics. david: where is china headed? >> they are still likely to raise interest rates this year. there is a misunderstanding. i don't think this is the china officials trying to drive the currency down. i think they are allowing market down. to take the remmbyi

the chinese stock market is among the worst in the world. good to see you as always and thank you very much. it's a great perspective. last 15 minutes, theresa may is set to succeed david cameron as leadsom has quit the prime minister contest in the united kingdom. next.live to london this is bloomberg. ♪

alix: this is "bloomberg ."

hour, up in the next ethan harris from bank of america, global head of economics. ♪ jon: breaking news from the united kingdom is that andrea withdrawn from the leadership contest to be the next prime minister leaving to --et meas the sole candidate leaving teresa may the soul candidate. the 19a statement from 22 committee, the conservative administrative body. talk us through what happens next. >> and then there was one. it started as a race of five. leadsom has

withdrawn. teresa mays like will be the next prime minister of britain. jon: i guess the prime minister goes to the queen to issue an official resignation. from there, where do we go next? what have we learned from teresa may and the last few weeks as to how the dominoes fall? remember about her is that she was a member of the remain campaign ahead of the referendum. .he is quite skeptic she made one speech in the campaign. throughout the campaign for the prime minister, she made the point that brags it to brexit means brexit.

she said article 50 will not be triggered this year. she might be pressured to move quicker on that. she will come under pressure from europe to build an exit strategy which we don't have at the moment. try toy, she will broaden the conservative face from -- away from austerity. she will talk today about broader policy and curbing executive pay and putting workers on board, much like the labour party. they are looking to broaden the base and make the economy that can share more. it seems like history is being made almost every day in the u.k. when it comes to politics. many of us don't know teresa may. we know she was mildly for remain. what can you tell him us about

her leadership as home secretary. what would indicate what she would be like as prime minister? it appears she will be at this pivotal moment in u.k. history. >> she has been home secretary for the last 15 years which makes of the longest-serving one who is tough on crime and tough on immigration which will appeal to the european skeptics. she has been tasked with reducing the immigration ratios. she has made an attempt to rein in immigration which was central to the brexit campaign. what would call for an earlier election? >> she said she would not do so but a general election would be

a proof of her own mandate. they think it's time for the government to implement brexit. one thing that will come from this will be maybe a coronation of teresa may that could put more pressure on her to call an early general election. we have fixed terms. currently, there is no elect ion scheduled until 2020. dangerous game. it is a stronger pound story. do we assume the market looks at this and says less uncertainty

around her the next prime minister actually is? is that a little bit of relief? the message will come from the bank of england this week. what do we expect the response to be? economists y of expect a hike in interest rates and some say they will wait until august. the betting is we will see an interest rate cut this week. they might cut more on things like funding for lending and qe and the central bank has warmed there would be economic turmoil from brexit. jon: simon kennedy from london, thank you. teresa may is set to succeed somid cameron as andrea lead

has pulled out of the race. david: this will be in the history books 100 years from now. up, the first signs of how much turbulence donald trump flight to theis republican nomination. this is bloomberg. ♪

nexttwo candidates for the prime minister of the u.k., one drops out. leaves home secretary theresa may on course to succeed david cameron as the u.k. prime minister. leadsom dropped out of the race. u.k. politics of the lead

story but we have a presidential race going on back here. let's check in on the morning must-read about the potential fight over the donald trump nomination at the republican convention next week. joining us now is steve yassino from clean -- from cleveland. the battle may not quite be over for the republican nomination. how realistic is this that they can actually stop donald trump at this late stage? >> this is the last straw. they have tried for months to stop donald trump. itthey are going to do it,

will happen this week or we will see the signs of that momentum coalescing this week. the chance is still very slim. committee members are gathering this week in cleveland. there is a platform and credentials and rules committee. the rules committee is the most important. that's where the anti-trump elegance will try to unbind themselves. states vote across the country in the primaries and the delegates are bound based on how voters vote. there are number of delegates that we know who are bound to donald trump don't want to vote for him on the convention floor next week. they will try to insert rules or change language that might allow them to vote their conscience next week. there are 112 members on the rules committee and the only really need 28 people to change a rule. in front of get it the full delegation next week.

the likelihood of a full delegation voting on his is unlikely. -- voting on this is unlikely. david: it's a jump ball for the entire convention. do we think and of delegates want to be freed of donald trump? something we like to stoke up in the media? >> a little of both. there is a difference between their being enough delegates on the convention floor who want to do this and of delegates who feel that they can do this. they have some cover from paul ryan and other high-ranking republicans who said you should be able to vote your conscience. no fulle gotten throated endorsement of this. there has been no real high-profile leaders helping this process. you have this rogue band of delegates doing all the work.

even if there are enough delegates on the convention floor, which we don't know, to pass this, there has -- they have not gotten the cover they need politically to do it. democratic side, it's not so much in the rules as the platform. there has been a tussle over trade between the hillary clinton faction and the bernie sanders faction. what happened there? sanders hasbernie not dropped out of the race. hillary clinton has been talking to his campaign. for weeks now, trying to come to some resolution. he wants to push the party as far left as he can and get more progressive things in the platform. one of the things still on the bernie sanders wishlist is a denouncement of tpp. is something that hillary clinton was a part of when she

was secretary of state and something president obama has back. party president to turn on one of his achievements would be catastrophic and yet the sanders folks are still pushing this. they reached some compromises. hillary clinton has proposed things from education to health care. there are still things on the bernie sanders list that he still has not gotten. david: thanks very much. alix: lots more coming from there. more to come, the head of client strategy at j.p. morgan asset management will join us and more news out of the u.k. ♪

david: this is "bloomberg ." we are looking at teresa mayo appears will be the next prime minister for the conservative party.

it will all be about record low yields on bonds but it may not be. jon: that's the big story in london. , the equity market is another story. bond yields are near all-time lows and we will investigate that dynamic today. streetou also have wall with george osborne heading to wall street to shore up confidence in britain's post-brexit economy. david: welcome to the second hour of "bloomberg ." it's an historic day in the u.k.. jon: we know there is less

uncertainty. we have a race for prime minister of one. here, the focus will be on teresa may and her relationship with the rest of europe and when will article 50 be triggered. we don't know how many years this will take. david: boris johnson came out and said let's get going. alix: he said she will make a good leader and teresa may wants to crack down on corporate irresponsibility and george coming to wall street so there is still more tension within u.k. politics. jon: this all triggered the last hour. decided to pull out of the race to be the next u.k. prime minister. >> the interest of our country are best served by the immediate appointment of a strong and well

supported prime minister. i am therefore withdrawing from the leadership election. and i wish teresa may the greatest success. i assure her of my full support. we are joined from london by the bloomberg chief executive editor. i can't even imagine the newsroom in london. what does this mean if it actually happens? will she be the next prime minister? >> it seems like a pretty fair assumption. they have ruled out any other candidates in the race. she had the overwhelming support of the parliamentary party so it's a safe bet. she is in a car coming back to london right now from birmingham where she made a speech on the economy. when she gets here, that will start this british process of appointing a new prime minister. the theater of the prime

minister going to the queen to hand in his resignation and as we go from there, global investors want to understand where to may stands on the european issue and what kind of negotiations we will see with her. essentially told a whole bunch of people that anyone who thinks "bloomberg will not happen is in denial. clear there would be no effort to get out of brexit. she will push for a softer form of brexit. her initial probe and look into what can be done to make sure that the u.k. retains access to the european market. it accelerates the whole process. might bring forward the triggering of article 50. the british civil service will need time to come up with a list of options for the new prime

minister. it seems to accelerate things a bit. jon: it's not the first time we have seen this kind of thing. we saw it happen with gordon brown. we saw it happen before that. that this be a sense was not enough, the fact that they did not go to the membership to confirm teresa may if they decide not to do that? will there be a sense that there needs to be another election? >> that will be a question over the next days and weeks ahead. she has ruled it out. she could argue that there is too much to be done right now and election will take too much time. no one is really talking about that is a realistic proposition. we need to look at the u.k. opposition. that we of pressure

might have expected to come for a new election is not going to come from the opposition. jon: a very fluid situation. imagine covering this story in london. alix: it must be crazy. london..ies out of george osborne is making a trip to wall street. scarlet: george osborne is beginning a global road trip for two weeks. he has arrived in new york state to pitch to u.s. investors. and a previous couple of days coming a spoken with executives from j.p. morgan and goldman sachs to play up london as the financial capital. his message is that britain is open to business. he had an op-ed in the wall street journal. he talks about infrastructure and digital networks and he said that he will be telling wall street that we want more finance in london, not less. he referenced how the u.k. is a

global hub in finance. emphasizect him to how the u.k. has done a lot to reduce spending and cut taxes. in the wall street journal, he says he aims to cut the u.k. corporate tax rate to 15% or lower from the 17% it is set to reach. to years ago, when he began be chancellor of the exchequer, it was 28%. he mentioned he has spoken with paul ryan, the speaker of the house a couple of times to discuss a stronger trade relationship. he will meet with treasury secretary jack lew in london later this week. u.s. investment in the u.k. is 10 times what it invests in china and british investment in the u.s. is about 50 times with china invests in the u.s.. there is a lot of money at stake. don't leave us is the end

statement. thank you very much. david: for more on the ramifications on great britain, let's bring in meg maclellan from j.p. morgan, welcome back to the program. we are observing what's going on here. what do you make of it and what effect will it have on the market you are involved in? >> certainty is one of the most important things for markets. when we look at the fed minutes from last week, it reflected the uncertainty in the central policymakers mines as well as the volatility in the market and the investor's minds. knowing that we potentially have a prime minister now and someone who can potentially get on with it in terms of eu negotiations is incredibly important for the markets. you have seen the pound react already this morning. as the prime minister, she can go to europe and say she campaigned to remain area of she

had ambitions to be the prime minister. is their significance that it is going to be teresa may? >> it's too early to tell because this is happen very rapidly. what we will be focused on in we markets is how quickly can reinvigorate interest in business investment and get the u.k. economy on track. is inflationisk and potentially contagion. her relationship with the eu is what we will focus on. 100 is entering a bull market today. opportunities if we wind up seeing stability in the u.k.? >> i think it's too early to play in. we have not answered real questions yet. multinationals would benefit if the u.k. can negotiate a strong

trade agreement with the eu. it's a little early to tell so we have two years to figure that out once article 50 is invoked. that would be a quick play and you're already seeing that in the ftse this morning. what point will businesses decide to go back in and invest? do they know what the rules are? i think you will need to see some certainty in terms of how labor can migrate between the u.k. and the eu and whether london will remain the financial capital of europe. trade agreements, taxation, import and export our questions yet to be answered but it's too early to make a long-term bet on those. , as we haveresting seen the pound fall, some of the u.k. property funds have gained so we have seen some nascent interest in investments in u.k. property. weekend --st the

weakness of the pound but it's an asset that can produce income of it's a rental property. that's longer-term so it has a fundamental bias versus a political bias. up, government bonds and u.s. equities are viewed as risk on/risk off components. they are near record levels and we will discuss which rally ends first. we will discuss that on "bloomberg ." ♪

jon: the focus of global markets is on the city of london.

some historic news in the u.k. after that vote to leave the european union. we have a better idea who the next prime minister will be. teresa may is the only candidate. market thatequity is points away from an all-time high. are trading positive in futures market, up about eight points in a rally that extends to the rest of the world. that youic is the fact can have equity markets and all time highs and bond yields near all-time lows. the big story in japan is not the yen, a much weaker japanese yen after that convincing victor y from the prime minister. in dealing with the

president of the euro group in the debt finance minister, the group of finance ministers are meeting to discuss the state of spain and portugal and if they've succeeded -- if they've acceded there legit requirements. thatys it's important spain and portugal take budget action. he points out that italian banks as well -- sorry -- he says the decision on portugal and spain is correct and finance ministers are meeting over the next two days. more about the big story in the equity market which is stocks to record highs and bonds never record lows in terms of yield.

this kind of relationship is quite historical. charted at a long-term and we have seen lower yields and higher stock markets in the past but nothing to this extent. we are getting close to a high on the s&p 500. it seems that futures will open higher. it seems we are well-positioned. you start to think about why yields are low and why bonds are high. we got more news from overseas that it looks like it will be in a low interest environment and that's a good thing for stock market participants. they wanted a backstop to equities for a long time. you look at the bank of japan but the equity markets are near one-year lows. the u.s. equity market without is doing well comparatively

to european and japanese equities. >> the bulls will tell you that's a function of what you're using qe for and what the economic backdrop is. we are starting to turn to positive earnings in the u.s. expectations are slightly down but we always beat so we can have positive earnings. we get alcoa kicking off today. we have had pretty solid economic data that a surprising over the last couple of weeks. we are in a tightening regime perhaps where the fed is pricing it into the market. hopefully it will be for the right reasons. if we are bringing abridges rates, it will be on the backdrop of a good economy. it and japan and europe, we know it's happening. japan is still struggling to kickstart their economies of it

on have a stronger base situation the u.s. has. oliver says this is good news. these highsr seen in equities and lows and bond yields. this is -- is this central bank interest -- is this central bank intervention around the world? does it reflect a more troubling underlying economic situation? is it good news? >> it's mixed. the dynamics of the global yield regime shift money into stronger economies. the part of equity markets that's interesting as we have dividend yields and excess of the 10 year u.s. government bond yield. with investment-grade credit, high-quality companies above 3.5%, you can get dividends that look like that for investment grade companies in the stock market.

don't underestimate the power of a basis point in a low yield environment. it speaks more to yield than it does to the underlying fundamentals. is this dichotomy of stocks and bonds really about the yield curve? we have seen a flatten so much. there is a selling in the short and. it's the idea of the fed hike but then the curve isre-rating for a longer low rate fed? the deeper looks at things that demonstrate this phenomenon is he is if you look at the higher bond universe, it has gone from 80% of investment-grade bonds being the top and now it's 40% of that. there is less investment-grade high-quality out there for people to buy in addition to the

central bank buying the sovereign debt. that is forcing the yields down. where we see opportunity is if david: david: ddd which are the cheapest look relatively attractive. is preciouspoint and there are many left to go. carry is going to be king in this environment. you can seat record high markets and record low bond yields and you asked which asset class got it right. is marketme this forces playing out and will continue to do so. construction, if the bond market and equity market are moving in tandem, how do i get a diversified play? this is a question among our individual and institutional investors.

you have seen a huge inflow with record inflows last week into commodities especially gold. there is no cost of carry anymore. owning things like gold as a diversified or is attractive. longer term for institutions, they love a real assets. own something that is inflation protected like property with darling rates at all-time lows in household balance sheets especially in the u.s. is at their healthiest in decades. we like real assets and old is something you can own is a diversified. r. don't get out of the stock market but look at higher-quality companies. we like emerging markets as a relative carry trade. the dollar is a strong as it will get probably in the near term. alix: we have seen the rush into islities even though the p/e trading high, it's hard to give up assets when you have the bond yields so low and bond investors

are turning to equity investors. in a perverse way, the immediate reaction post brexit was kind of positive for stocks. the fed say the rate hikes will get readjusted and you saw the gap between the thed and the s&p 500 versus 10 year yield. if you look at all the reasons why the market has been rallying, you will see those scenarios continue or strengthen. you have this giant gap between the s&p 500. of companies are yielding more than the 10 year. it's incredible. six months ago, if you tried to time your move based on p/e in

the sectors that are most worrisome, it would not have worked. alix: you can't actually time your calls anymore. the fundamentals have broken down and it's all about relative value. if you look at corporate balance sheets, borrowing costs are incredibly low in that means asset reflation. post crisis that across the board in every asset class. it will probably benefit things with yields. that's stocks and bonds and some of these diversify her assets that don't have a carry cost. alix: great to have your perspective. much more coming up on "bloomberg ," including an update on the news out of great britain. this is bloomberg.

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>> the interest of our country our best served by the media to appointment of a strong and well supported prime minister. i am there withdrawing from the leadership election and i wish to iad the name -- i wish wish teresa may the best success. m pulls outaleadso of the race and england. it's a fluid situation in the united kingdom right now. i would take you back to comments from theresa may in birmingham earlier this morning. and we will brexit make a success of it. she may have campaigned lightly she is drawing

support from the tory membership and she said a lot of stuff that is anti-eu. meant we have to hope she it. people say things to get elected and then they have to govern and they are imprisoned by what they said while they were running. alix: other officials are weighing in. boris johnson said theresa may will be an excellent prime minister. earnings season kicks off today but much of the focus will be on wednesday when the banks start reporting and we will give you a big earnings preview next. this is bloomberg. ♪

get ready for the rio olympic games by switching to xfinity x1. show me gymnastics. x1 lets you search by sport, watch nbc's highlights and catch every live event on your tv with nbc sports live extra. i'm getting ready. are you? x1 will change the way you experience nbcuniversal's coverage of the rio olympic games. call or go online today to switch to x1. jonathan: from new york city this is bloomberg. i'm jonathan ferro. to london we go with the potential that we have a new prime minister and theresa may.

-- in theresa may. lows, thethe february ftse 100 potentially closing in a bull market. foreign revenues coming back into the u.k. stimulated by the weaker pound. a much weaker japanese yen as prime minister shinzo abe secures a victory over the weekend. everyone looking forward to a stimulus package out of the japanese government. in a bond market, yields higher. spreads pushing higher on the periphery as well. a big move is coming from treasuries. yields up 4.5 basis points. a softer session for crude throughout the day. wti down .4%.

global equity rally with the u.s. in focus. we are looking for a new all-time high. will that happen today? let's get some headlines. here's taylor riggs. >> the way has been cleared for theresa may to become britain's next prime minister. her opponent has dropped out of the race, saying support from conservatives was not enough to lead a government. she said, brexit means brexit and we are going to make a success of it. it may be a sign that bernie sanders is about to endorse hillary clinton. he will campaign with her tomorrow in new hampshire. last week he made the most pro-clinton comments today saying, we need to do everything we can to defeat donald trump. the longshot attempt to stop trump from becoming the nominee

enters its final day. rule makers, party will debate how next week's convention will operate. anti-trump forces want to allow delegates to vote any way they want in the first ballot. that could open the door for another candidate. jonathan: now to today's morning meeting where we hear what key banks are looking at. ethan harris joins us with his outlook on the u.s. economy after a better-than-expected jobs report on friday. an upside surprise. what was the take on the jobs report? >> it's a big sigh of relief. there was an outside chance that that very bad may number was a sign of a new trend.

when such anrry important number comes in so low. the june number basically canceled out the number in may. this is still a healthy labor market. i would say there's a big side of relief among my fellow economist on wall street with that number. jonathan: it was equities rallying. bond yields pretty much pinned to the floor. funds futures. if you look at the implied probability of a rate hike that market just did not reprice. why did that market not reprice? >> the bond market is marching to a different drummer and other markets in the u.s.. the bond market is being pulled by incredibly low and negative interest rates outside the u.s. the bondpeople in market has pretty much decided the fed is never going to hike

again and it's going to take a lot of convinced them to get people to believe that -- convincing to get people to believe that. you have this downward pressure on u.s. yields that is ok u.s.ming what are economic fundamentals which we can see in a better stock market and a better credit market. and the u.s.et market is very much in the throes of the global condition right now. jonathan: gdp is below trend. we are calling it the drift economy. it keeps on drifting along. does that continue? if that what the yield curve is kind of suggesting -- isn't that what the yield curve is kind of suggesting? >> what the bond market has wrong is not the growth picture, which is drifting along sideways. -- what the bond

market is missing is we have actually reached full employment. we are starting to see wages accelerate and core inflation pickup. we know from history these are very lacking inertial indicators. once inflation starts to pick up a bit it persists. part of the bond market that is disconnected with economic reality. u.s. is exiting very slowly the low-inflation trap that many big developed market economies are in. very weak growth going forward, no big story there. we are going to get a little bit of inflation in the united states. jonathan: i want to talk about the news of this morning out of the united kingdom. you learned that theresa may is pretty much debt set to be the next prime minister in the united kingdom. what do you tell clients that actually means for the months and years ahead? >> we think this is a market friendly outcome.

she's going to try to negotiate that doesn't deal throw away the strong trade relations between the rest of europe and the u.k. we need a negotiated deal that recognizes that you don't leave entirely. you still are part of the european economic region. that's why the markets reacted positively to her. harris, thankn you very much for joining this program. david: we are turning to what brexit does for banks. earnings season begins this week. ed perks.ow is it welcome to the program. that.talk about we are about to see these earnings out of banks. what is brexit going to do to earnings? >> you clearly have a couple

different forces at work. with all the talk on yields declining record low levels that does pressure bank earnings in some form. really hurting this anticipated expansion of net interest margins. there's another side to the story. there are some concerns about credit quality. that is an aspect where banks could show some improvement or alleviation of the concern that might be out there with some investors. david: what about on the trading front? thebanks really took a hit, ones who were into trading. will we see that again? >> i think a little less so. volumes were down substantially. with the volatility we have seen more recently we think volumes have stayed more elevated. alix: maybe there is a different issue on debt for banks.

we have seen equities in europe fall off a cliff whereas their debt has held up. how are you positioned in terms of debt? >> we look across the capital structure for our strategy. we have been a bit more exposed to their hybrid debt securities for yield. these are fixed floating structures. they moved to floating. move to floating. highestit is clearly be correlated stocks to treasuries have outperformed and those that are lowest correlated have underperformed. we think there is value for a longer-term investor. i would see us swinging toward more equity contact -- content as we move forward. david: what about mortgage income?

wells fargo is big in the mortgage space. do you expect to see an uptick? low interest rates have clearly been around for a while so there has been tremendous refinancing activity. ultimately we think the consumer is pretty healthy and that supports the mortgage market in general. alix: european banks have gotten completely hammered, in particular in italian banks. what kind of banks do you see the value? if there are european banks that have more global franchises, those will stand out as pretty interesting opportunities. taking a longer-term perspective. david: for example? >> c holdings is one. we think there is a dividend yield that is attractive. do you feel like banks can

earn an adjusted return close to what they did in the last cycle? those that have expectations that returns will normalize and go back to prior cycle levels i think really miss the fundamental change that has happened with financials. our expectation is that returns will be at a lower level than they have been historically for banks. that may still offer a pretty attractive opportunity. yield can be a pretty important component of total return from investing and financials. jonathan: hsbc yield stands at about 7%. you're not worried about that? >> it is certainly something you all to look at with dividend stocks. similar to other industries whether it is pharmaceuticals or energy companies we tended to see higher dividend yields from

the non-us major players. is banks area cheap for a reason. we are finally seeing bank stocks rewrite to a lower for rate to a rea lower for longer. that's why we have been more tilted toward those. andhey become cheap enough that is fully reflected in the valuation we still expect economic growth even though a modest level of economic activity we do think at some point reaching this kind of natural rate of unemployment we will see rates tick higher. alix: what other kind of company do you really like in europe? i think some of the major

players on the industrial side are interesting. we do a little basf. you are playing a team of -- game of -- we think that company in particular compares favorably to its peers. the autos have really been impacted. counterparts are underperformers. that's the nature of this environment of moderate global economic activity that those are still areas to find value. david: ed perks is staying with us. he will be talking how he is putting his money to work in energy. this is bloomberg. ♪

david: this is bloomberg . i'm david westin here in the hewlett-packard enterprise greenroom. coming up, david malpass. >> i'm taylor raikes. asian airlines are providing the biggest boost to boeing and airbus at the air show in the u.k. chinese airlines have signed a deal to buy 30 boeing 737 jets. discount carrier air asia will order as many as 100 airbus planes. that deal is valued at $12.6 billion.

airbag maker takata is reaching out to as many as 20 potential buyers. is working on restructuring the company. and is open to a sale. one stumbling block is the liability from up to 100 million airbag recalls. ufc has been sold. your bloomberg business flash. alix: ed perks is still with us. i want to talk about energy. it's about 15% of your portfolio. 2.5 percent of

your portfolio is e&p company bonds. make the case for energy distressed debt. >> it has clearly gone through a pretty significant cycle. high-yield e&p companies were a tremendous -- had tremendous access to capital and as a result became a much more significant part of the universe. how we have dealt with this sector is really trying to differentiate. where are the companies with the best assets and ultimately focusing on those. don't thinkh we will actually restructure or file for bankruptcy. some have already and will. the outcome for our investors is really capturing some of that value. being able to take advantage at bonds has been an important part of our strategy. alix: yuan chesapeake debt. -- you own chesapeake debt.

that is the white line. nowcan see the yields are 30, 12%. it had a huge spike. make the case for wanting to invest in something so volatile. >> even earlier this year when the bond prices declined tremendously and it matched pretty closely the lows in commodity prices, some of those lows in the bond prices occurred with the lows in oil prices. chesapeake has not been focused on that -- 75 plus percent of the value exceeds the total debt. how do you deal with that kind of environment, it is really of theg on regardless outcome in the near the value is really there for creditors. alix: but why do you want to own a bond on a company that might

go through restructuring and then you might get converted to equity? you have to go through all that uncertainty and that could take years. why take on that risk? >> there are situations that take a longer time to play out. as we look at the more distressed assets that is a big part of our consideration is how long will it take to realize that value? if it is priced cheaply enough -- chesapeake is an interesting example of a company pulling a lot of different levers to not go down that road. we have seen a meaningful amount of that. the company still has a meaningful equity market capitalization. they have gotten a nice agreement with banks. it extends their liquidity line through the middle of 2017. we also see noncore asset sales. we ultimately think chesapeake will be able to increasingly turn their attention on maximizing the value of their

assets. alix: your biggest position in the portfolio is shell. companies are pretty vulnerable. they are too big to grow. >> we think there's an interesting opportunity for rer ating. when oil prices were substantially lower that was something we really had to consider but as we have seen the recovery we continue to think the amount of capital available for upstream investment in the industry broadly is somewhat limited with these oil prices and that continues to move us in a situation where we think global supply and demand will be more balanced and that will be supportive of prices. alix: i love the counterintuitive. such a pleasure. thank you for being here with us, ed perks. coming up, i take on my afternoon cohost scarlet fu in battle of the charts next. stay with us.

this is bloomberg. ♪

jonathan: breaking news for the luxury retailer burberry. announcing the new ceo. christopher bailey becoming the chief creative office. r. bailey will oversee elements of brand and design. he was the chief ceo and designer as well. a lot of people have questioned as to whether you need a ceo and then someone to have a look at designs and brand in a separate place. ceo will join in 2017. bailey becoming the chief creative officer. david: that is not a total shock. burberry is struggling.

time for battle of the charts. we have an intercontinental battle between scarlet fu in london and alix steel here in new york. knowet: stock market as we is a forward discounting mechanism but this chart really highlights to what extent actual bank lending has been trailing stop prices. this happened in 2008 and 2009. both times stock prices fell and bank lending declined. mid-2012 was when mario draghi made his famous speech vowing to do whatever it takes to preserve the euro. we saw european bank stocks begin to recover. by contrast, lending followed

suit a year later on. steamnk rally ran out of in the middle of last year as people start getting worried about what negative interest rates would mean for profitability. look for lending to turn south as well. it has not yet rolled over. taking a look at european bank stocks, within this sub index there are 30 members and all 30 are down so far this year. the five worst performers are italian because of concerns over that loans. david: that is not good news for mr. draghi. alix: i'm looking at the bond rally. is a term line premium for bonds. how much more you require in order to invest in bonds over a longer period of time. it is almost negative. you are paying for the right to do that. the blue line is the spread between u.s. treasury yields 10 year versus government bonds and

there is a pretty tight correlation. as the blue line declines a means the difference between u.s. treasury yields and bond yields is widening. if we see another downturn in the spread, what does that mean? why not just go by bonds. david: jonathan? jonathan: i'm going with alix steel. morgan stanley was incredibly bullish and neutral this morning. my vote goes with alix. david: i'm going with scarlet because i'm really interested in what's going on with bank lending in europe. control room? alix wins. jonathan: next up, recapping the news coming out of burberry. baileyeo with mr. stepping -- ♪

jonathan: this is bloomberg . i'm jonathan ferro. we are 30 minutes away from the open. the ftse 100 up 20% from february lows stimulated by that

weaker pound story. the fx market is not just about sterling today. the japanese yen is substantially weaker. as prime minister shinzo abe secures a victory in the upper house election over the weekend. in the bond market yields pushing higher. treasuries up five basis points on the session. wti a little softer throughout the day. we are now positive. question 30 minutes away, will we get a record high on the s&p 500? we are counting it down to the market open. ♪ david: we are just under 30

minutes away from the opening bell in new york city. this is bloomberg . i'm here with jonathan ferro and alix steel. chief fixed income strategist will be joining us. later we will be speaking with the author of "a random walk down wall street." jonathan: what a morning. i want to get to the team. here in the united states is matt miller to break down what's happening in usa the markets. abigail doolittle at the nasdaq and mark barton in the city of london. let's begin in new york city with matt miller. the potential for a record high. matt: using the chart you tweeted this morning we could see the s&p at a record high. it could be the first time in 261 days we hit a record high

and the ten-year record low. that is never happened before. take a look at the stocks we're watching this morning. alcoa kicks off earnings season. this is the longest stretch of quarterly declines in a row. we're looking for a 5% decline in earnings this year for all s&p 500 companies. alcoa is going to post nine cents in eps. $.24 in thep from same quarter last year. this company also expected to post a drop in revenue. you can see the stock is up a little bit. date freeport is up 64%.

because of the rise in gold freeport has been gaining steam. it is up more than 2%. botht to talk about huntington bancshares and keycorp. both getting an upgrade today. keycorp is responding fairly well. the analyst did not change his price target. let's go to abigail doolittle in the nasdaq. abigail: yahoo! shares are trading lower in the premarket. tolyst robert peck is moving the sidelines. he has concerns around a core asset sale process. 10% it couldk up come at a handsome profit. the stock could rise by more than 15%.

--ent pharmaceuticals shares will be purchased for $736 million in cash. it will expand the company's international footprint. is also higher in the premarket today after ceo elon musk recently tweeted that he hopes to reveal part of the tesla master plan later this week. let's head to europe with mark barton. mark: stocks here are rising for a third consecutive day. the stoxx 600 is up. every single industry group is rising. big news breaking just a few moments ago. burberry is shaking up its management. christopher bailey will stay on as chief creative officer.

but the chief executive of a french fashion house will take over as ceo. there has been a lot of pressure on bailey. he has been doing this dual role since may 2014. he will focus on the creative design. the new ceo will join the board in 2017. big rally in burberry shares. have a look at the ftse 100. if it closes at these levels we are in a bull market. it hit its lowest levels in february. since then it has risen by 20% led by those minors. thee is sterling against dollar. this is when andrea lets him ledsom stepped back from the tory leadership. sterling is trading higher against the dollar. jonathan: what a couple of weeks

of what is politics. johnson moving away. now andrea ledsom doing the same thing. what's the message for global investors? the irony is that theresa may gave a speech earlier in the set out her stall. she's going to focus on social justice. she is in no rush to invoke article 50. there will be no early general election. she has said that within the last two weeks as well. calls for an early election will fall on deaf ears. the board of the conservative party will be talking right now

about theresa may. byy will ratify the decision the 1922 committee. and then we should hear from the 1922 committee that theresa may is the party leader. when she will become prime , the process will last roughly 48 hours. david cameron has to get out of downing street and the queen has to get involved as well. this is a certainty. there is no more uncertainty. the election was going to be done by september 9. that takes away nine weeks of uncertainty. that can only be good for the market. jonathan: thank you, mark barton. what a morning. alix: and what the week last week. unprecedented time for equities and bonds. take a look at this chart that matt miller just brought up. the blue line is the s&p and the white line is the 10 year yields.

yields near a record low and stocks near a record high. that divergence has not happened in history. lebas. us now is guy how long does this divergence go to? what is the bottom for 10 year yield? combinationl that seems to be sending is that markets are expecting greater central bank intervention over the course of the next six months. unlike the last cycle when you tended to see both god -- bonds and equities, that is not going bute coming in the u.s. from overseas. the bank of england's meeting thursday of this week where a rate cut is widely expected. with the election it seems likely we will see monetary stimulus coming out of the bank of japan as well. alix: goldman sachs sees the tenure at 2%.

-- the 10 year at 2%. nominal u.s. growth is going to get better. what do you think about that call? >> i think there's a lot of signals that are reasonably positive about the u.s. economy. we are in a pretty consistent late stage expansion. what we are seeing the buying come from has nothing to do with the u.s. and that is pretty evident in yields around the world. if you look over the last 30 trading sessions, the ten-year treasury future in the u.s. has rallied by three percentage points. two of those occurred when markets in the u.s. were closed. it is all overseas. jonathan: you talked about this affecting u.s. equities. it's not the federal reserve doing qe here. it's the bank of japan, it's the ecb. they're markets have not performed that well over the last 12 months. what are your thoughts? >> in full disclosure i'm not

inequity expert. equity expert. that history is not particularly inspiring. part of that could be low sample size. only a handful of countries have a lot of track record to track that data of negative interest rates. the signal is that qe is a more powerful mechanism for re-including risk asset markets including corporate bonds and stocks. i think that lesson has been learned pretty well. there are some currency regions -- reasons why the next round of expansion is likely to be qe the negative interest rates. alix: i have a great chart. it is now at a 1956 low. that means you are looking at a yield of about 4.53%.

that is how much it costs for companies with that kind of rating to borrow. that's an unbelievable statistic. to what extent do we have to be concerned about this compression? worthys credit wher borrowers will be able to participate because it is so cheap. that has led to troubles. tothere is a great story tell with the energy industry and how prominent they were in early 2014n 2011 and before energy prices declined. a perfect microcosm of how low borrowing costs can distort risk-taking within the corporate credit markets. don't thinkture we investors are particularly well paid for taking on corporate credit risks. many of our investors are not going for a short-term tactical play. there are pretty good odds of seeing negative returns in the high-yield market. you look at all the

money flowing into credit, what does this do to illuminate the cycle bust when it actually happens? >> the obvious answer is probably although we have never seen a down economic cycle or really down credit like with the degree of central bank intervention we have right now, it probably makes them i miss you a lot nurture. complicating matters has been balance sheet contraction from .ounterparties we don't have that same cushion today. alix: i'm looking at 10 year yield now. what's it going to be like at the end of the year? >> we think yields are going to be moving up higher. we have seen a big drop since the brexit vote. other measures of economic expectations have not deteriorated nearly as much as

yields have fallen. if you take installation break inflationmeasure of expectations they are down a little bit and the entire decline has been real yields. period oferience this decline only lasts a matter of weeks, not months and certainly not years. thank you, guy lebas. all eyes will be on the banks. a preview of what to expect is coming up. and later, david malpass. he will be joining us here on bloomberg go. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg.

i'm jonathan ferro. 15, 14 minutes away from the cache open in new york city. inches away from an all-time high on the s&p 500. the rally in europe. by 1.6 5%. the ftse potentially closing in a bull market. switch up the board very quickly. prime minister shinzo abe's convincing win over the weekend. big question, the stimulus package that comes from the japanese government. when will it come and how big will it be? the bond market yields pushing higher. 1.4% is your yield and the pound gets a bit. d. d. theresa may is now the sole candidate for prime minister. in commodities, the biggest weekly drop for crude since

february. down by 7.3 percent since last week. time for futures in focus. oil futures in new york touching two-month lows. oliverg us now is all slopp. op. is there a fundamental reason we're pulling back? reason, $50 isl a big psychological level that a lot of traders keep an eye on. above that was the november high which we failed by about seven cents not long ago. step in.me hedgers

we got three consecutive closes and 50 day moving average. we have not seen that since february 25. prior to the breakout we spent three months below the average. the 20 day crossing below the 50 day moving average which indicates we could see more pressure here in the near term. jonathan: on the fundamentals it feels like take the price action than choose the narrative. last week u.s. crude production dropped more than anticipated. at the same time the rig count was up. people say that explains the bounce we might get. talk about the fundamentals. what is the dominant force for the crude market right now? >> has the price action take the narrative -- it's an endless tug-of-war between the bulls and the bears. rig counts have been of five out of the last six weeks which

indicates we are seeing activity start to pick up at higher prices. that has some of the bulls on their heels. we also have canada coming back online. they were disrupted from wildfires. we also have nigeria picking up again. they were disrupted by militants. of new factors coming back in focus and more production here in the near term. there's also concerns of demand in asia and other countries around the world. thishan: at the start of crude market plunge it was very much about supply. the story at the forefront of the debate right now. what do you make the demand story? >> right now it seems relatively healthy. we are at peak demand season. as we get to the back half of the summer you will start to see demand slow. there's a lot of global

uncertainty as well. veryd is going to be important going forward in conjunction with the production story. sloup joininger us from the cme. thank you very much. coming up, u.s. bank earnings. and why they may be cutting bonuses. that's next. 10 minutes away from the market open. equities just inches from an all-time high and futures from her. from new york city, this is bloomberg. ♪

david: welcome back to bloomberg go. i'm david westin. a big week ahead for banks as we move into earnings season. blackrock and jpmorgan are reporting on thursday. joining us now is laura keller. you have a story out today and the headline says it all. bye bye bonus. what should we expect out of the banks? >> essentially that says it all.

the bonuses for this year are probably going to be pretty low just based on the net income estimates from different banks. a lot of analysts polled them back after brexit and said, we are not going to have a lot of interest rate rises like we were hoping this year so we are going to have to pull back these estimates. that is going to hurt your bonus down the line. david: i heard from some of the banks that in the trading days after brexit there was actually a huge uptick. particularly in fx exchange. they probably got some. revenue off of that. >> yes. jpmorgan has come out and said this is a one of the best times we have had for fx trading. the question is whether that week was enough to overwhelm the rest of the quarter which wasn't all that great. it was better but there is a lot of choppy trading going into brexit as well. david: where specifically does brexit hurt a bank?

>> it's really an indirect effect. you will see some trading upticks for that week. will be from the interest rate. a lot of these banks are positioned in such a way to not having interest rate rises is going to hurt them. david: interest margins will be squeezed but they will not be worse than they were. they have been pretty low. should they really get hurt? >> for this quarter everyone is saying, it's going to be ok. it's not going to be great. it is not going to overcome our really bad quarter last year. brexit ishing for going forward into the third quarter and fourth quarter you are not going to have these rises. david: what about investment banking? probably when we talk to the banks in june they said, we are seeing an uptick for certain

areas. they didn't go far as to say that for m&a transactions. with brexit moves analysts believe that uptick is gone. david: who is likely to get hurt worse? >> you mentioned jpmorgan. goldman sachs, a lot of their trading. they may benefit as well. you may see something from citigroup. what about wells fargo? >> they are a big mortgage lender. we will probably see a bit of a bright spot for them. we don't know how long that is going to last. at least for the short term it will be good for them. david: there's a year-over-year comparison with goldman where they may come out looking pretty good. >> goldman was the only one who was rising up.

that's just because last quarter was so bad. hopefully we don't see that this quarter there will be a rise. david: thanks for being with us, laura keller. bell justthe opening minutes away. that's next on bloomberg go. here's the scorecard. futures are firmer. europe continues to rally. lowsrcent off february with the potential to close in a bull market. market, it's a weaker japanese yen. from new york city, the open next. this is bloomberg. ♪

>> from new york city, this is bloomberg . minutes away from the opening bell with the global financial scorecard. inches away from an all-time high.

15 seconds away from the cash open. in europe, the ftse up 60 points. 20% above the federal where he lows -- the february nose. and weaker with japanese yen up by two full percentage points after a convincing election. yields, fourket basis points on a 10 year. .hat is the situation the big question on everyone's lips as we kick off this week, can we make a new all-time high on the s&p 500. >> the answer has to be yes. if we make any headway at all to the upside, which futures are indicating we are going to hit an all-time high. i,we stay there, the closing i think is 21.382.

we will close at an all-time high today as long as we are in the green. the dow up 46 points, the nasdaq up 21 points. the s&p, since the last time we had in essen -- had a record 286 days and it has not been that long in a bull 1961 so it was a long stretch for the s&p not to hit a new high. very interesting look and maybe that tells you something about the strength of this whole market or where we are now. look at the chart that hillary put together. it shows the schiller barclays -- no, we don't have it. that is ok. we can show it later because this schiller barkley case index says u.s. stocks may be valued

fully. look at the metal stocks. theseesources, alcoa, stocks doing well today. not just because alcoa is coming up with earnings. they are expected to fall. but because metals and mining stocks around the world have been driven by the gains in the underlying commodities. you see the same thing in the european markets where the basic resources stocks are the biggest gainers. also take a look at southern. southern purchasing, a 50% stake in kindred morgan's pipeline unit, called southern natural pipeline. another power company investigating a shipment of power resources has not help the stock at all. the potential to close at a record close and right now an

all-time high for the s&p 500. one fact playing into the houses early markets which kickoff today when alcoa reports second-quarter earnings out and about. expectglobal says to disappointment. it is the headline everyone will run away with. the performance yield today is up around 4%. which way do you look at this market? if you look at to your performance it hasn't been that terrific but if you look at ftse, that is because the pound is weaker. i am worried about the nominal growth in the world. there is not enough dollars to go around to reach all this corporate earnings estimate. global gdp is $74 trillion now, the same as it was or lower than it was in 2012. so how do you get lots more corporate earnings, which people

are expecting when you don't have more dollars? china's currency is going down which reduces the amount of dollar gdp in the world and the pound has gone down so you have got some some tractors from earning. >> does that mean those equities were so overvalue right now? valued,nk we are fully the bond yields are very low which makes equities more attractive but if you've got a world where you don't have enough organic growth, then how much do you really want to pay for equities in that environment? fully could argue you are valued in bonds because of the rally, so what do you do? >> you can be in cash. look over the past two years, equities haven't done very much. bonds had a good run. so do you really want to play that for another two years.

there is a limit to how slow you can have the world growing. the imf keeps lowering their numbers. japan is getting really hurt by the china competition. there is plentiful capacity going on around the world so where do you get the earnings growth? david: do you think about giving up some liquidity? we had met with violent -- we had make mcclellan. >> there is a little panic in brexit or after the break that vote with a u.k., some of the companies had to arrive and stop or block to put up their gates in order to keep people from withdrawing. we had that in a high-yield market a year ago, summer of 2015, people were very worried about high-yield and the liquidity reappeared. our big risk that isn't so much the liquidity or

the financial system or the debt. debt can get restructured in the current environment because yields are so low. there are lots of -- there is lots of money looking for yield. is to extend its suspension of the u.k. property fund by two days. they want to rebuild the liquidity position. jere ferguson, head of the u.k., saying that a limited number of properties are being marketed. the highest prices achievable for our investors. from a funds perspective that is going to be difficult. .> i am not sure of that with the pound weaker, what is the pound price of real estate in london? going to be some weakness due to people's concern that jobs are moving away from u.k. into the competent -- into the u.k. has aut

lot of advantages that can set up free trade with the u.s. and canada and they are a giant customer for europe. i think property will end up being ok in london. here is the problem. it is going to have these record levels, so how much per square foot do you want to pay? >> in terms of what you are talking about with meg, real estate is something to think about. david: if equities are fully that,, but coming back to if corporate earnings are the crux of this, what are we lacking right now to get them going? the fed policy doesn't make sense for the central banks around the world. the bank of japan, and the european central bank to be buying bonds when yields are at

an all-time low and even negative. under what economic theory could you claim that that stimulated? even the fed, remember as a gross investor it is buying huge amounts of bonds because bonds mature and they reinvest at full maturity. so the fed its self is a big bond buyer at these lower yields and it doesn't make any sense. what that is doing is causing this misallocation of capital around the world where you don't put enough into smaller businesses and into business investment. >> you say businesses should raise rates because then you would have the kind of capital investments that are missing. >> we would have had a better expansion now if they had been raising before. what i would like to see them doing now is not are owing so much from banks. -- not borrowing so much from banks. an a.s. fed borrows to

half trillion dollars from banks every night. we've got this in the bond market where people keep issuing bonds that don't have a good idea of what to do with the cash. do you really want an economy run by bond issuers? no. we know it is supposed to be run by smaller businesses. taxuld like to see policies. we have a horrible tax policy. but it goes on year after year. get that improved. japan really hasn't had very many good ideas about liberalizing their retail sector. they just have too many people working in retail. these structural reforms are important for everybody. jon: something i never thought i'd hear. >> in retail. they have to up so they have population going down. david: thanks for being here.

coming up, his investment budget to the test of time. the author of "a random walk down wall street" joins us next. this is bloomberg. ♪

>> this is bloomberg . here in the hewlett-packard enterprise greenroom. tomorrow, david service, chief market strategist. >> coming up, it is bloomberg markets. mark barton today. you've got to have u.k. politics all over your show. >> you'd better believe it. that as well as record for the

s&p 500. michael jones, with chief investment officer of riverfront will be joining us. it isn't economics but it is politics also. we are live at the air show in the u.k.. chief executive akbar alpaca will be joining us -- akbar al baka will be joining us. som dropped out of the race for prime minister. theing about the top of political spectrum here, the bank of england. widely expected to cut interest rates. what a week. alex: i feel like we are counting down the hours to thursday. 14 minutes into the session, all-time high. may be too high or just high

enough right now. you guys are going to talk to bert, a wall street legend. this is the schiller barclays case index. for european stocks here, it looks at pe and valuations and adjust them for cyclical swings. they made the u.s. stocks as fully valued here. i think bert is going to say o.at to you can see this divergence happening in 2014. hillary's wasn't ready to give it to me at that point, she didn't want to let go of her baby here. but look at some of the stocks moving today. earnings season kicks off. viacom is one, wells fargo downgrading viacom to an underperform. a lot of the earnings have fallen too far, too fast.

about one and two thirds percent. a number of upgrades and downgrades to energy names, upgrading devon and the store oh putting them on its most wanted list. downgrading marathon and phillips. as the market rises, especially these energy stocks, those are big gainers as well. we are going to see a lot of green in today's market. jon: good to have you back. alex: so much love right here. jon: over at nasdaq, abigail? >> we do have trading higher on its fourth day of gains in a row. certainly participating this morning, pharmaceutical shares are soaring at the news that they have agreed to by the small-cap company for $736 million in cash.

is a japanese company that recently celebrated its 50 year toiversary in the u.s. become one of the top 10 companies in the world. faring well are the shares of netflix after it was easy to imagine that puts the drop 40% or more. streaming has gone more mainstream in the stock has lost its momentum. fresh gains would require a new narrative or a new story from ceo reed hastings. now down more than 50%. around the sector and the u.k. in the last 20 minutes. more specifically the real estate funds. real estate reporter jack sears. jack, rejection over aberdeen. what is the story now? >> we have just picked up on the first prophecy that is coming to isket -- first property that

coming to market. there was some debate at how quickly the fund would move. and how quickly they would get properties out in the market. we think there are plenty more out there. what it shows is they are not hanging around. jon: aberdeen also extends its suspension of the u.k.. what you make of that? what aberdeen was saying, most of the investors have submitted with redemption requests and have canceled those. what i think the extra delay is about is just reassuring the sca that those who have submitted reaction requests have had long enough to really think about that because if they don't withdraw them, they are going to have to accept a 70% discount. jon: updating us on the situation in some of those property funds. i can very much.

alex: from princeton university is bert malki all -- bert malkiel. professor, i want to start with a chart that we had up. cape ratio for u.s. and european stock. yes, you can make the case that stocks are fully valued but they have been that way for a year and a half. yet the keep -- they keep grinding higher. >> stocks are fully valued. you inio does not help telling what the market is going to do over the next year. -- there is a zero correlation between the cape and what happens over the next year. where the correlation is stronger is over five or 10 years. because there is some correlation between the 10 year future returns and what the kick

is telling you is the future ten-year returns are not going to be like 10%, which is what we have seen historically. it is more likely to be four or 5% for the u.s. equity market. but that doesn't mean that equities should be avoided because you've got to put your aney somewhere and we've got 10 year treasury at 1.4%. ,elative to 10 year treasury stocks still represent some value. the other thing i think the charts tell you is that europe is cheap relative to the united states. you can see it in the two capes. you can see it by taking a couple of comparable companies .uch as general electric general electric

earning ratio is around 40. even though i don't think brexit is a good thing for europe, european equities are cheap relative to the united states and people ought to be internationally diverse of tying. professor if you would because what we showed was a chart showing european versus u.s. stocks. we did not have emerging markets up there. if we put that up there we see an even greater divergence. what accounts for that difference? what is leading to those differences? >> what is leading to the differences is that the united states is considered, quite properly, the safest market in the world. emerging markets are considered, quite properly, the most risky park it's -- risky markets in

the world. there is no question about the fact that the relative risks are consistent with the different kicks. risk and return have been forted for a century and those who can take the risk, and if you are broadly diversified, that tends to mitigate some of the risk. you ought to have european stocks. you ought to have japanese stocks, which are also cheap. you also have to have emerging-market stocks which have a cape lower than it has ever been. alex: let's turn to the other big story in the market and that is the s&p near a record and the record yield lows that we are seeing as well. i feel like this is the chart of the day and it is a maxed out chart. that blue line versus a 10 year yield. when you look at something like

this, what do you do as an investor. what do you do particularly if you are a retired person looking for income? my view is that it is one of the reasons why equities are so high. suppose you need income. you don't want to put your money in a 1.4% treasury. if the federal reserve gets to its 2% target, that means a negative rate of interest. if rates rise eventually as i am sure they will it mean capital losses. you don't want to be in bonds. i don't think you want to be in high-grade corporate bonds either. yield year bonds of at&t less than 3%. so what what i do? i would buy dividend paying, and stocks. at&t common stock yields four and a half percent.

the dividend for at&t has risen every year in at&t's new history. i can't believe that investors won't be better off with at&t stock than they will with at&t bonds. i know stocks are riskier than bonds but in today's environment , with these ridiculously low interest rates, i think you ought to be an at&t stockholder rather than a bondholder. one of the things that strikes me is when you are told something has never happened before in history, you are inclined to say, why is that? we have seen record high equities and record low yields on bonds. what should that be telling us about where we are. i think what it is telling you is that there is an enormous amount of overcapacity in the

world, that the world is struggling through very modest and inadequate growth, that the united states, which used to be able to count on 3-4% nominal when it isar, even expanding, it is expanding at a 2% rate. what this is telling you is that this is a very tough global economy. alex: you made the case for at&t because the dividend yield is higher than its debt but when you look at p/e ratios, how long are you willing to pay up for i thinknd of stocks? >> as long as interest rates remain is that my own view they are likely to remain lower , as long as interest rates are where they are.

i don't think that you will take that amount of inordinate risk in investing in either at&t or arise in. -- or verizon. paying, even those that have got some modest amount of growth, that are going to serve investors much better over the next years, certainly than bonds, which i just wouldn't touch. alex: thank you very much, .rofessor burt malkiel thank you so much for joining us. don't even touch stocks with a 10 foot pole. on the s&p-time high market, potentially an all-time high record lows on the s&p 500 but in the united kingdom some uncertainty has been removed.

leaving an open door for the home secretary theresa may. this bring does forward the triggering of article 50? david: that team that david cameron put together? she has got a tough job in front of her. was that we would have been confirmed in september, now potentially two months early. david: you saw that reflected in sterling, hopping on that news. our coverage of that story continues right here on bloomberg. 26 minutes into the session. bloomberg markets is next. this is bloomberg. ♪

>> it is 10:00 a.m. in new york, 3:00 p.m. in london. >> this is bloomberg markets on bloomberg television.

vonnie: from new york to london the next hour. covering japan and brazil, this is what we are watching. season kicksngs off, the s&p 500 is setting a record high in today's action. ftse 100 set to enter a bull market. in u.k.e latest twists politics, andrea leadsom dropping out, leaving a clear path for theresa may to become the prime minister. the only question is when. global airline industry get a list? our interview is coming up. first, wn