francine: fast tracked. theresa may is given to day notice to prepare for a new job as prime minister. she vows to make a success of brexit. who will make her cabinet? mark carney says -- prepares to testify on financial stability to brexit. ubs's financial chief says the workforce is now the right size after thousands of job cuts. tax this point in time, i think we are -- >> at this point in time, i think we are where we should be to face the environment we have, to face the regulation we have, to face the forces we have. ♪

francine: welcome to "the pulse." live from bloomberg's european headquarters. i am francine lacqua. we need to look at the markets. equities in europe are rising. theresa may's appointment seems to be reducing political uncertainty could we have encouraging news from japan, as shinzo abe promises policy changes to revise the economy. read into that, more stimulus. yen, 103. let's get to the bloomberg first word news with nejra cehic. nejra. the international monetary urging china to deal with its corporate debt. the issue is manageable is -- if

the country moves quickly. executiveank of japan director says the boj will need to reduce the pace of its -- as it approaches the limit of the bond market. the sequel -- the central bank is aware of it. still governor harry vito corleone says he will expand stimulus if needed to reach his target.tion the ubs workforce is the right size after thousands of job -- thousands of job cuts in recent years so says the division president. he spoke exclusively to bloomberg. >> at this point in time, i think we are exactly where we face the to environment that we have, to face the regulation that we have, to face the forces that we have. now, at this point, our challenge is to execute

correctly when we have in front of us. the firm is very much focused on doing so. nejra: the euro group is missing calls to proper -- to public money to prop up banks. burdened by 306 million euros of nonperforming loans. such problems need to be solved by the banks themselves. >> the rules are fixed. now it is in the hands of toervisors and authorities work with those of rules and the opportunities that they have to .ind precise solutions any solution for italian banks need to be very -- needs to be very specific. nejra: global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. i am nejra cehic, this is bloomberg. francine: you see political news , 24 hours. a lot to catch up on.

the home secretary theresa may is to be the country's new prime minister. speculation -- it seems he is still that he still does not want to step down. let's take a look at what might next guest thinks. patrick armstrong and the europe.or for open role, let me start with you. theresa may says let's get rid of the uncertainty. >> she has been a bit of a mystery. we know what you think's integration, she is quite hawkish. they are looking to be much more one nation, conservatism, more paternalistic, tackling big business. but we don'thange yet know in full detail how that

will look. francine: why did the stocks rally. we at least have a prime minister they can start renegotiations? patrice: we were going to face grandstanding. francine: do people think she is the perfect person for the job. therek: having someone with the potential to govern the nation is much more better than what we were facing. francine: what does the best case scenario look like? -- raoul: the democratic mandate laid by this laid down by the vote which was more control of immigration. francine: given that, what should theresa may's tactic be? give something back? raoul: she has to take assessment of the calls.

that comes in terms of eu contribution in terms of giving some pressure -- giving some preferential access to people. playing up the uk's role in helping the eu tackled the tackle the-- migration issue. francine: let's get in our westminster expert. rob, who will the chancellor be? money is on philip hammond who is the foreign secretary. he is a long-standing ally of theresa may. the rule in british politics at the moment is you want your chancellor to be somebody that you trust. somebody who is not trying to undermine jew. somebody who knows -- trying to undermine you, somebody who knows what you think. flip hammond who was going to be

chief secretary before the chief secretary happened, he knows that brief. he is a steady pair of hands. rather like may, he is not very exciting, but he is going to be calming. i would put my money on him. francine: would that make more sense than keeping george osborne who knows europe and the main players? >> that is the outside bet that she goes for continuity and keeps osborne in place. if i were laying a second that, that would be my second bet. she and osborne have not that along very well. if you look at his speeches, she has been attacking the government's economic policy which is osborne's economic policy. the money at the moment is you get a job swap where osborne goes to be foreign secretary in philip hammond becomes chancellor. she may not give osborne

anything at all. the problem when you are reshuffling your cabinet is there are no jobs you can promote george osborne to except for the one you have. he would not be want to be health secretary so maybe he goes out. maybe he would be happy with that. francine: what does the market that's what is the market looking for -- what is the market looking for? do we need a chancellor in charge? when is the ideal time? patrick: q2 the next year is when she is looking at triggering article 50. she says there is no need to balance the box. those other things you're looking at. we have almost a binary discussion in -- i think we will get the 11th hour deal which is bad news because that takes a long time. francine: rob, you are in insider in westminster.

you in what she has said? -- ithe interesting thing don't think theresa may doesn't surprises. may does surprises. her pitch was she will not be surprising. a lot of people around who would take a steady hand. the interesting thing that she has done even before she knew she had in the back is are moved to pitch the conservative party really on the center ground. the stuff she has talked about about giving representation on boards that goes further than the labour party was prepared to do. there is a whole bunch of stuff that she feels she can do as a conservative without being seen as antibusiness that will say the conservative party will govern for all of britain is going to be her argument. with the labour party in its own of stagenternal row

very far left, there is this opportunity for a government -- for anyone really, to come and govern the country. for three weeks, it seems like there has been no one in charge. i think theresa may sees that as her opportunity and whether she can deliver on that is a separate question. she will have the same problems david cameron has. she still has the conservative party. she is temperamentally of the right of british politics. the stuff about corporate government is really quite surprising. francine: rob, is there any doubt in your mind that she will not invoke article 50. she did not really campaign either way. has made it clear that she will invoke article 50. there is an outside chance there is a longer delay.

we have the french and german elections next year and the concern is if you trigger off a 50 state, at the start of 2017, we have these two big elections in two big countries they cannot negotiate much. you don't want to wait a year waiting for them. she wants to the liver and she said she will. francine: how much do we know about who is going to negotiate? robert: -- rob: we are going to have some sort of exit secretary , a job given to somebody who campaigned for brexit. the ministers who can do this is quite a short list. you would be looking at her campaign manager, liam fox are andrea led some -- leadsom. somebody who the prime minister is simpatico.

the prime minister is going to end up running this themselves it every prime minister running bits of the government itself. tony blair was his own foreign secretary. gordon brown was his own chancellor. george osborne was his own prime minister. i think you are going to see theresa may ends up being her own brexit secretary. the stuff is going to get done at the top level. this is going to be her legacy whether she wants this to be what she is about or not. pound,e: if you look at will we see volatility affect the negotiation echo it is difficult to predict -- at affect -- affect the negotiation? it is difficult to predict. what happens from now? patrick: there is bound to be volatility. we have been selling into the react rally. in europe, the recovery is all

the way done. this is a real recessionary risk. risk assets have really rallied strongly based on more interest rates. equities should take both into account. flat but a very wide margin. francine: a strong composition to start this tuesday briefing. thank you so much. coming up, plenty including theresa may fast tracked for the job of the caper minister. we are live in brussels. george osborne attends the finance ministers meeting. visitors use wings of airplanes to shelter from the rain. we will be talking to the ceo of airbus. profits, no problem at least not for the s&p 500. ahead to q2 earnings.

this is bloomberg. ♪

francine: welcome back. let's get to the bloomberg's is flash with nejra cehic. nejra: daimler says it has been market expectation for the second quarter, boosted by its mercedes-benz unit. they said adjusted earnings before taxes rose 5.6% in a

tally. the results exclude 900 million euros set aside for airbag recalls and legal charges. shares are trading higher. south korea plans to revote certifications and banned sales -- and banned sales of the models made by volkswagen and audi. the ministry of environment says it will hold a public hearing on the german automakers unit on july 22. burberry shares are trading higher after the announcement that christopher bailey is to over.is role bailey will become the president and chief creative officer says despite the exit vote not being the one he hoped for, the company will move on and the weaker pound might be helpful. >> it is certainly not a decision that i wanted or believed in, but it is what it is. i am always a glass half-full

and we now need to move on. a weaker pound helps in certain ways. burberry has always done business globally. we trade all around the world. any trading agreement is something we will always work happens matter what throughout this process. nejra: that is the bloomberg business flash. francine: think you so much, nejra -- thank you so much, nejra. on to another exclusive and after thousands of job cuts, ubs group investment workforce is the right size. that is the message from the company's president. he sat down for an interview with lou berks -- with bloomberg. this point, i think we are where we should be to face the environment we have, the regulation we have, the forces we have.

at this point in time, our challenge is to execute correctly what we have in front of us. the firm is very much focused on doing so. competitionon, the continues to tighten, we will need to more. at this point in time, -- i will use the term comfortable that theorganization has done hard work that it requires to do in order to fix this environment. position where you can add people on that basis? or is hiring still frozen? or. think it is not either i think if you're asking whether we can hire people under that basis in this environment echo the answer is no it if you're

asking -- environment? the answer is no. -- we have never stopped. >> where do you want to hire people? >> since the beginning we have knowledge that our position is unbalanced, if you want to put it this way. it is not to be interpreted -- interpreted as a negative term and where a lot of asia and asia-pacific in our investment bank. we are where we should be in europe. we are probably underrepresented in the u.s. this is a great market. it is the most profitable that exists it we've always said we need to increase our way in the u.s. we have done that in the last four years in some areas, like equities and research, we have seen already the progress that we have wanted to see. in some other areas, it takes

longer to attract the right getnt to integrate it, to the clients to believe that the team is effective, to then work with that client and demonstrate that we can add value to them is taking off. to try are continuing and attract the right people for us, one by one, and maybe a little bit slow but it is the right way. >> what is your message to employees, the ones you got now and the ones you want to hire? my message is if you are not passionate about this business, you should not be in it. on the other hand, we live in a competitive industry, and while patient not be the a chechen point, pay -- bv a traction

point, pay cannot be the reason why you do not join ubs. we need to be competitive. >> what about the people who do not understand that in all probability, they are not going to get paid this year or next year like they did last year echo -- last year? >> i do not think many people expect this year to be a bumper year. i think people understand after all of this year that performance leads to compensation and compensation is probably a topic that is over discussed. it should be something that if it is deserved, it is obtained within certain metrics. this year is going to be a tough one for everyone. francine: let's get more on banks with patrick armstrong, the chief investment officer. when you look at the banks, it seems like you talk about brexit, the big shot, it if you

have an italian bank going under, how much do we know about the repercussions? about the domino effects? depend -- itill be will depend on the bank. there will be contagion. the ecb has put capitalization , this capitalization -- as a whole, europe is much better capitalized. i don't think we are in a banking crisis hit on an earnings perspective, there are a lot of headwinds facing the banks. a slowing economy, it is hard for them to build up equity prices and what we have done, we are not hitting an upside in the banks but we're selling options on european banks. francine: across the board? patrick: banks were trading at 80 p and we get paid 7% to bet the banks are going to fall further than they already have. that is a very high premium.

they are already down 35%. we don't think we are in the midst of a crisis. just selling the downside. francine: the more the share -- e falls -- would that be patrick: that is not bad news. you got sugar banks picking up weaker banks -- you got stronger banks pick me up weaker banks. banks.s an abundance of there are too many banks. francine: how do you expect the italian banks to turn out? the problem is we have to see whether the eu is flexible enough to allow -- with bail ins, right? number of the bail ins in italy is not quite known. there are a number of banks who have capital issues. equity holders are hurt.

you got retail investors holding back which is something the government there does not want their retail investors to feel the pain. subtle tweak to that where the first several thousand pounds are protected and then you are at risk after that. a week compromise. thisine: talk to me about brave new world we have the s&p 500 at a new high. you have a bond yields. how are we pricing these? patrick: you get equities rising in bonds rising at the same time . in 2009, such a banks ring the bell, investors salivate. when you think you got new quantitative easing, by risk. the markets may be complacent because central banks have contained a lot of the risk but their tools are getting less effective. we have recessionary risks in europe.

it is hard it we have been equitiesinto some u.s. . u.s. telecoms have note european exposure and. -- have no european exposure. putting money into companies that don't have cyclical exposure. that is quite attractive. francine: are you expecting correction? patrick: i do not know if there will be in short-term. you got election risks in america but the fed is the thing once the music stops playing, that is when you start to see corrections it that is a lot of the test corrections. that is a lot of the risk you see. -- corrections. that is a lot of the risk you see. we are going to get a very strong dollar. a very strong jobs number with wage growth. francine: patrick, thank you so much. patrick armstrong.

he will stay with us. and little bit more about u.k. politics. the reason may is on the fast track to become the next uk prime minister. we will have more from brussels. this is bloomberg. ♪ get ready for the rio olympic games

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x1 will change the way you experience nbcuniversal's coverage of the rio olympic games. call or go online today to switch to x1. tom: welcome -- francine: welcome to "the pulse." i am francine lacqua. the international monetary fund is urging china to deal with its corporate debt problem. spillover risks are acute but the issue is manageable. the imf will update the economic outlook next week. a former bank of japan director reducee boj will need to -- it is approaching the limit

of the bond market. they say based on commonsense they should reduce the pace of bond baying -- bond buying. ubs' investment bank workforce is the right size after thousands of job cuts, even as challenges emerge from the u.k. vote to leave the european union. the president spoke exclusively to erik schatzker. >> at this point in time, i think that we are exactly where we should be to face the environment that we have, to face the regulations that we have, the forces that we have. at this point in time our challenge is to execute correctly what we have in front of us and i think the firm is very much focused on doing so. nejra: global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries.

this is bloomberg. francine: thank you so much. breaking news from the beer we, we are expecting -- from the boe, we are expecting mark carney to start testifying in about a half an hour. records ofpublishing the june and july meetings and redacted text from march on brexit contingency. we are not quite sure what they are. we think it was a confidential tax -- text that they summarized and relieved just released. they said there is no liquidity buffer. they are also saying the u.k. vote to leave the eu materially changes the risk outlook. this is pretty much what we know. we knew the boe warned of what would happen.

the boe also saying that stability officials are ready to take any more action if needed. we know that a lot of people, commentators and critics have said that there has been one adult keeping everything together and that was mark carney. more on that shortly, but mark, it is relatively flat this morning. mark barton. mark: starks continuing to -- the stoxx 600 is gaining for a fourth consecutive day, up 1/10 of 1%. the gauge is at its highest since june 23, the day of the u.k. referendum. since then the gauge is down 3.6%. it was 10.75 percent lower the monday after the referendum. the one hundred 20 day correlation between the stoxx 600 and s&p 500 which reached -- reached an extra -- a

high yesterday. of course we had the s&p hit a record. the stoxx 600 is 20% below its record set in early 2015. news last night from daimler earnings, they beat expectations significantly for the second quarter. the company is setting aside more airbag recalls and legal charges, just checked daimler shares and they are up 4.5%. in 2016, vw down 20%, m w down 25%. let's just finish with the yen, high expectations we will get a fiscal stimulus package out of japan in the wake of the success of the ruling party. this is a two day chart for the yen against its peers. all 16 peers are rising. 2.2%,day, the dollar rose

the biggest daily moves since october 21, 2014. in's not forget the dollar 2016 is still 14% lower against the japanese currency, the biggest annual fall since 2016, but the yen is falling for the second day. francine: thank you so much. european union finance ministers are meeting for the first time since the brexit vote with theresa may due to become the next prime minister. they now know who is in charge. ryan chilcote is in brussels. what has been the reaction to her appointment? the finance ministers have been pleasantly surprised. i was talking to the irish finance minister yesterday and i think you said it best when he said that theresa may's appointment will be the first removal of some of the uncertainty caused by brexit. plenty remains.

ministers yesterday were just told that brexit could cost the euro zone economy is as one half of 1%. that is the european commission statistics and it could cost the u.k. as much as 2.5 percentage points. the message here is let's get rid of this uncertainty that is causing us harm and the u.k. even more harm. what is the timetable for negotiations? that is not as -- justcause just the because the timetable was moved -- does not mean that negotiations can start sooner. one thing they are all saying is first britain must invoke article 50. theresa may must formally notify the eu that the u.k. is pulling out. then we can have talks and she has said she may not do that until next year. francine: ryan chilcote in

brussels. there is change at the top -- christopher bailey who had a joint creative ceo role will step down. i spoke to him yesterday and asked him what brexit men for the company. notstopher: it is certainly a decision that i wanted or believed in but it is what it is , and i am always a glass half-full and we need to move on. the referendum was done in the right way. the decision was made, but now we need to find the right past to what a brexit might mean. the important thing is getting stability and clarity on the future that affects people's everyday lives and businesses. francine: you are probably the most famous british exporter. the weaker pound helps?

christopher: it helps in certain ways but we have always done business globally. we trade around the world and any trading agreement is something we will always work with, no matter what happens throughout this process. francine: talk to me about september. this will be the first time people can look at the catwalk and buy directly from the runway. christopher: it is really a change in the way we are treating and thinking about the show. historically they have been very much an insider event for press and the media and of course, all of our buyers. the way that we flipped it is that we have been doing very intimate previews with our ,uyers and some of the press and in september and in september it will be much more customer focused, and you will

be able to buy the collection immediately a sin as we do that show. going back to our earlier conversation, change is good. insignia onhad the sayslag on his night that in latin, move forward. i am excited about the changes at an executive level that also in september with the show. francine: that was christopher bailey with burberry. let's get more with patrick armstrong. when you look at pound, just today it actually rose to the highest level in a week versus the dollar. what comes next? patrick: it is going to move lower. the current account deficit in the u.k. is already unsustainable and anything -- thatr bates exacerbates it will lead to a lower pound.

probably going to cut rates and a half measure, 25 basis points in july and in august. those lead to weaker sterling and you can justify save haven flows into the united states. i think you will can's -- see continued weakness. for the: is it better boe to cut rates than continue with the asset purchase? patrick: i think it will continue with the asset purchase . we are in a bit of a data void because no one knows how much of a hit to confidence has been. think you will have a more informed decision to make in august. i think it will show, i am ready, i know there has been a hit to confidence, and it is the start of a process for bank of england. francine: how do you see brexit playing out? it is hitting confidence, real

estate, commercial property funds were frozen for a bit. tothe city of london going lose its space as a financial center? patrick: that is a risk and and a risk is a hit to the economy, so confidence plays a key role. i think with the uncertainty britain is facing there is a hit to confidence. when i was a boy growing up in canada we had montreal and -- in aas the separation of quebec never happened but all of the banks were moved into london -- into montreal. that does hit confidence longer-term you have risks like that to consider. francine: you have a lot of eu nationals that work in banks here and you are talking about them cutting further cost. do you see them leaving london? probably trys will

to relocate some portions of staff, maybe compliance and legal in the eu will have to go to paris and brussels. there is already calls from frankfurt and paris to have banks move back to europe so anytime there is a decision 50/50 that will go in the favor of europe. that is not an insignificant hit for the u.k. economy. francine: and white is japan 10 year, well below negative, the german ten-year is below negative. it started that move about two weeks ago and then you have the or .07. at .06 patrick: inflationary pressure is starting to build and when you have seen sterling fall as far as it has you see the u.k. possibly going into recession

but you also see inflation. people know the bank of england will not stay on hold forever because it will have to combat inflation. francine: this is because of trade, right? we will have to import things that are much more expensive. patrick: you get a bit of a j curve. the current account will actually get wider in the short term before improving from the weaker currency. francine: so we are hit by a recession and suddenly it is more expensive to import goods. what does the boe do? patrick: the playbook now is lower interest rates, quantitative easing, but they are less and less effective. it has worked to some extent but i think the market is saying they are less effective but those are the two levers likely they will be pulling on. francine: patrick armstrong, thank you for joining us.

up next we bring you a bloomberg first interview with the airbus ceo. this is bloomberg. ♪

the --e: it is day to of day two of the farber care show and guy johnson was on the ground in france earlier,

speaking with the breach a the ceo -- fed breach a -- the ceo of airbus. fabrice: uncertainty is not good so the fact that there is now a new prime minister i think is good news for everybody. regarding airbus, we are committed to the country. we are of course very disappointed but we do not expect that it will affect our relationship year as we have more than 15,000 employees. david cameron yesterday confirmed that the u.k. will andin business friendly will support aerospace. guy: let's talk a little bit about the a350. you had expected through -- 50 this year. are we going to get 50 and are all of the issues zodiac related or are other things going on? fabrice: clearly a brand-new

aircraft is difficult for everybody but i am very pleased with the aircraft as such. when we fly it we can test it very fast and the customers are pleased with it. however, we have some supply chain issues. ,ou mentioned one of them capital elements are critical and i expect improvements .ecause there are 37 to go it is challenging but i think we can make it. expect to make that 50 number? fabrice: yes. it is largely zodiac. i think once they fix the issues we will make it work. guy: let's talk about the 320 mayo. issues, msnal

update on what the situation is and are there other issues? do we have hydraulic problems? fabrice: we always planned the first six months of the year at butetty ripped -- low rate, the fuel burn is great so we get more fuel burn reduction than expected. we had some issues at the beginning that are largely behind us. and wea great engine will start to ramp up the second half of the year. we should not forget that we are also, the engine has been certified and the first aircraft will be delivered next week to a large customer. we discovered the new energy is also quiet, that some noise was appearing much higher so we fixed it and this is behind us.

we have no longer this noise issue. guy: so that was part of the delay? fabrice: no, the delay was haved to the engine and we only one customer who made our life difficult. guy: you are not going to name names. let's talk about names, just over your shoulder we have an a320 in the colors of air asia. later on we are expecting an order. are you looking forward to that? expectations were quite low in terms of where demand is going to be. as demand for aircraft falling? --rice: it has an crest increased by 6.5% globally last year and in the first six months we can see another first on year and year. the market is bullish and the allies need more aircraft faster. this is true.

if tonynot be surprised fernandez for air asia would need more 320 aircraft and will make an announcement today. francine: that was the ceo of airbus. let's head out to guy johnson for more on that interview. how much have you been talking about rex it and a weaker pound? guy: i think brexit has been the number one conversation. i think everyone is breathing a sigh of relief that it appears the u.k. government is going to be crystallizing around theresa may. that has been broadly welcomed. clear, bregier making it the airbus campaign 100% for trying to keep the u.k. within the eu. they are clearly disappointed that the vote has not gone the way they help.

they broadly welcomed the idea that we have a new government being formed and they hope to actually move on from here. i think everyone was pleased to see david cameron here yesterday making it clear that the industrial sector will be an important part of the economy going forward in the u.k. people are calming down. francine: i want to see the plane. it is a shame we cannot actually see it. can you say what is taking off? guy: say again, francine? francine: we have lost guy johnson. i know part of the airshow yesterday was canceled because of rain. next, no profit, no problem for the s&p. alcoa kicks off earning season. we look ahead to the reporting season. this is bloomberg. ♪

francine: no problem for the s&p 500, that seems to be the message from investors, as it closes at an all-time high yesterday. scarlet fu joins us to look season. the earnings the first chart? scarlet: it shows the s&p 500 at an all-time high.

the nasdaq also coming about 500 yesterday. the context is the extraordinary rally in sovereign bonds by the treasuries, and that is the yield of the 10 year treasury. it is down. are stocks overvalued or fairly valued when earnings are declining and the economy is slowing down? would besuries overvalued according to some. francine: he was saying the problem is that the market is a little bit crazy because there is so much cheap money. talking about this chart. scarlet: this is the earnings snap chart as we kick off the second quarter. growth bar shows revenue which is expected to increase after several quarters of decline. you know what, i think i pulled up the wrong one. the bottom bar shows average earnings growth and that is fairly minimal.

you have this earnings recession persisting with no signs of interest rates rising. ,rancine: stay with us "surveillance" is up next. we will be looking at mark carney's testimony. ♪

♪ francine: theresa may was given two days notice to prepare for her new job as prime minister as she is asked to make a successful brexit. ae man of action that's on carney mount as the boe governor prepares to testify on financial stability post brexit. the head of the investment bank workforce isrg his the right size after job cuts. >>