♪ 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. >> at this point i think we are

exactly to where we should be defaced the environment that we have, to face the regulations and forces that we have. francine: this is bloomberg "surveillance." francine lacqua at london, tom keene in new york. we have to look at banks and of course the political system in the u.k. tom: i agree, united kingdom politics is front and center. we will have a little bit in the 6:00 new york our as mr. sanders i believe is going to endorse secretary clinton today. feel and youbetter really wonder if brexit is moving on to a new stage. let's now get to the bloomberg first word news. nejra: theresa may now has just two days to build a team to rescue the u.k. from its worst political crisis in a generation . she is going to replace david

cameron by tomorrow night and will need to decide fast who will be in charge of negotiation's to leave the eu and will lead to elect someone to steer the economy. in japan, the prime minister's government is keeping people guessing on a stimulus passage -- package. he says he will spend money on transportation and told ben bernanke today that he wants to accelerate japan's exit from deflation. manila, hundreds of demonstrators gathered outside china's embassy to protest the claims over the south china sea. the philippines is waiting for a u.n. tribunal to roll on a lawsuit and they want it to end its -- evaluate all of bernie sanders will appear with hillary clinton, raising

speculation he will endorse her for president. he has not officially ended his run for the democratic nomination. goes to dallas to make with families of five white police officers killed last week by a black man, and .ill meet at a memorial service it is the 11th time in his presidency he has spoken at a memorial from violence. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am nejra cehic. tom: let's look at our risk on data set. continue to advance. year, change in the 10 call it 10 basis points. oil finallys and catches a bid after a week of saw guinness. the vix -- saw guinness. iness.g

12.92 is pretty done good for the vix. from 76 to 82 basis points, and sterling bid this morning before we hear from governor carney. francine: that is probably the most important news although people are saying because we have someone who we believe will be a good prime minister in terms of stability, it does not necessarily mean we have seen the lows for pound. there is a little bit of buoyancy in the s&p 500, and ,rude, i have a contango chart 45.41. tom: let's look at the bloomberg and the stock market, record highs have blown out to say the least. you have a 20 year and 10 year regression in red. we are even above the 10 year regression.

on the green line, doing better than good. that is not inflation-adjusted. i sold right at the top. all in cash. the boat has left the dock and i am standing at the dock. francine: now that the pound is cheaper maybe you can still go to the dorchester for drinks. we have been talking a lot about the price of oil and on the surface it seems the recovery is strong but look at this. i wanted to show you something that shows the contango. near 50 and in blue is brent crude, white is contango. term arehere near cheaper then the year ahead, and it has almost doubled in the last three months. that suggests we may see a little bit of weakness ahead. let's bring in nandini

ramakrishnan. it is a global market specialist. to have you on the program how crazy is it where we have an s&p at a high and treasury yields lower? nandini: it is an extraordinary time. we are getting more action and the equity markets as well as people coming into bonds or treasuries as a safe haven. what are ways to protect on the downside is the upside might be reached? francine: is there concerned there has been a huge correction or is it just the fact that central banks are there and we expect them to be there longer? nandini: of course, more than one third of government bonds are yielding in negative territory. the central banks that are supporting this are not going anywhere. we are going to hear from carney today, the bank of japan and the

fed in the next few months. you are going to have higher valuations across the normal core asset space. brexit threehad weeks ago and the s&p at a record high. our people feeling better about the political system or japan? nandini: it is important to remember the differentiation. brexit is a shock for the u.k. market but for the s&p 500 isestors, the consumer looking at their s&p on their screens and it has very limited market affect. perspective for us in london and is very much a good deal but for global markets there is much more going on. tom: do you see any indication of a diminished business in the united kingdom? nandini: of course, that is what we have been seeing before the brexit vote.

you saw 20% declines in investment intentions and companies are readjusting, is the u.k. a fruitful ground for investing? it is the investment part of business, if it does not come through and you are hearing theresa may talk about u.k. businesses as one of her primary areas of speaking at the moment. -- been anyere any knocked down a fax from the referendum where businesses have said, we are not going to do business here? nandini: technically and legally nothing has changed until now. article 50 has not been invoked so it would be premature for large or small companies to make drastic changes in investment or human personnel until there is a bit more certainty. norman amendedhn his sterling call? is it ever gloomier? people say 140 down to 130.

what is the jpmorgan dynamic? nandini: the sterling bid we have seen is certainly a nice flash in the pan but not anything indicative of a stronger sterling going forward. the uncertainty will be john out for at least the next few months until we see what the prime minister -- drawn out for at least the next few months until we see what the new prime minister does. francine: although we have not seen companies say they want to move out of london, if you are and 80 you national you do not know what your statuses and we are not getting -- and eu national you do not know what your status is. , we talk abouted the u.k. economy and recession but we are going to import inflation if we do not have a good trade deal and at the end of the day we do not know what the financial status of london

will be. nandini: that is a hot button question. there is no way for us to know whether or not corporations or employers will remain firmly footed in london. that is something we are waiting and watching but markets have to continue every day, people are working and making things work in london and across the world. francine: we are just getting breaking news at of italy. italy sells one-year bills at record low yields of minus 0.176. when you look at italian banks, it is kind of crazy they can issue one-year bills at this record low negative. nandini: the reason we always point to is the ecb, a large buyer in the house buying with the correct ratios across the eurozone countries and buying government bonds, pushing the yields down. there's the big elephant in the

room about the italian banking issues. francine: that is the biggest concern that investors and what isare watching, the possibility with bail and rules? testifyney is set to and in just a few moments we will bring you that coverage live. ♪

francine: welcome back, i'm francine the clot in london, tom keene in new york -- francine lacqua in london, tom keene in new york. asserting abeen sweeping ownership in contested waters in the south china sea

and this international tribunal's ruling on a challenge to the claims by the philippines. the hague report is publishing the rolling saying it was something they should not have done. sayingesponded swiftly they do not recognize the hague tribunal. we will have more on that for the day but china has no historic right to the south china sea according to the hague. -- this is an: arbitration panel with the philippines clearly opposing it. i found fascinating that wikipedia is back to 1951. this is not a new debate. i attended a u.n. meeting once, clearly sponsored by the philippine government talking about the environment, talking about some of the politics

involved but again, it goes back over 50 years. francine: you can actually say that control of the south china sea is the most contentious and .xplosive issue in asia let's get to the bloomberg business flash. nejra: boeing and airbus battling for a potential blockbuster order worth $12 billion. the rivals hope to sell as many as 100 planes to india. two years ago they were struggling to survive and now they are looking to expand. the head of ubs' investment bank is signaling that job cuts have come to an end. is at the workforce right size after many jobs have -- moreminated but many regulation could force ubs to cut more. to itss is moving closer

goal of becoming the world's best selling luxury carmaker. in the first six months they sold 20,000 more vehicles than bmw. that is the bloomberg business flash. francine: thank you so much. have been speaking with her bury chief.- burberry he spoke about how weak sterling is affecting his business. that was an exclusive interview. >> the weaker pound helps in certain ways but we have always done business globally. we trade all around the world and any trading agreement is something that we will always happensh no matter what throughout this process. francine: christopher behler, burberry's chief creative officer and president. he will still remain in charge. still with us is mangini -- is

-- nandini.nd any the u.k. does not export that much. nandini: it depends on which index you are looking at. the ftse 500 sources 75% of its revenue away from the u.k. and .he 250 has far more it depends on which index you are looking on to get that exposure and the ftse 100 is looking like a goodbye with the pound being low. francine: how low do you think it could go? 1.25, and when article 50 is invoked i think there will be a knee-jerk reaction. francine: when you look at pound overall, what are you worried about? we are looking at one, possibly two rate cuts and are expecting

them to do more in terms of asset purchases but when we start importing inflation the government will have a headache. nandini: a year or two ago mark carney was probably looking for inflationary pressure and you are now getting that with import prices being a lot higher. one or two rate cuts this year and perhaps something into quantitative easing, maybe cheap lending for banks in the u.k., something to not go to negative because there has been hesitation of the boe to go too far into the negative territory. tom: sterling has made a remarkable move. i understand there is 18 opinions about what it is going to do. how about that? that is why we went to the moon. there we are with sterling coming in. what i want to know, within the brain trust at jpmorgan does currency goose exports?

nandini: it should. it should support the kinds of companies that will look more attractive to foreign buyers, and it is not actually just the exports. we are talking about property in the u.k. where on the first read you would say london or u.k. properties will be hurt by brexit but now they are on severe discount, and that might boost property prices or general prices in the u k. francine: thank you so much. we will get back to you shortly. these are live pictures of where mark carney is expected to testify. it is a british institution and i think they are just introducing him. the boe also releasing some minutes and they actually talk about stability but they are ready to act. tom: so this is like a routine thing? francine: it is.

i remember a particularly exciting one with bob diamond when he was barclays. mark carney is accused of many things including working for goldman sachs. you have politicians having a dig at mark carney. i think we will get to it in just a couple of minutes. ♪

francine: this is bloomberg

"surveillance." tom keene is in new york and i am francine lacqua in london. sharp is the, mr. stability official, richard sharp. this is the man interrogating him, but we have heard from richard sharp talking about stability, saying that brexit has been a profound shock to the economy. is usuallyl, this telling of exactly what lawmakers think. only listening to the question needs that you can understand what they are thinking. the boe has released what they discussed back in march before brexit and we know the boe was discussing the risk of freeing u.k. banks to lend more and that backfired because it may prompt investigators to award the fed. tom: this is like humphrey hawkins. does the staff rate the questions for the

parliamentarians? do you feel like they are talking greek to governor carney? francine: i do not know who writes the questions. i think my favorite one, if you cover like we do markets same day, some of the questions were frankly bizarre. there was one parliamentarian the four brexit accusing mark carney of being biased against rex it because he was still working for goldman sachs. because he wasit still working for goldman sachs. let's have a listen to what mark carney is saying at this testimony. is carney: the committee presented with a series of analysis and it has robust discussions about where we see the risk, and what we should do to respond to that, whether we catalyze it directly in terms of actions of the fpc, other parts

of the bank of england, or other bodies. , andis the way it worked specifically in the case of the assessments in march, which were taken under our statutory responsibility to identify risks to financial stability, w nine of the act -- >> that mating in particular, the team meeting we are discussing, did you have any discussions of a general nature chequereir chancellors ex about any public statements by the bank about the effects of brexit? mr. carney: not prejudging views of the committees, no. limited --seem to be mr. carney: i have, as governor

i have discussions with the chancellor on a wide range of economic and financial issues as you would expect. the views of the fpc are the views of the fpc. the views of the mpc, each member is individually accountable for those views. disagree, of the mpc those disagreements will be recorded. what was in the march record and what is in the july fsr are the views of the fpc. they are not prejudged, they are not pre-decided, they are based on analysis and robust discussion -- was just asking if you have any discussions with the chancellor about the likely line the bank of england might take. mr. carney: and connection with the risks of brexit --

we have discussions about, as you would expect, most economic and financial issues. lines of the bank of england with respect to these issues are the lines of the independent policy committees. -- your discussions with the -- mr. carney: i did not prejudged the lines nor could i. that is not the way the system works. >> at your meetings with the chancellor? mr. carney: for financial discovery meetings there are minutes kept and released as required. ofany other records kept

your private conversations with the chancellor? mr. carney: the private conversations, let me say firstly, i think it is important that governors and chancellor's are able to have private conversations about important economic issues. we would be derelict in our duties if we did not. i would expect that notes are taken by private secretaries of those discussions. merithink there might be to relay public concern that those be examined on behalf of the committee by a senior staffer of this committee. would you be agreeable? mr. carney: let me say a couple things. ofst, i would be very wary

establishing a precedent which limited free-flowing discussion between future governors and chancellors. i would appeal to "extraordinary circumstance" and i would not look -- i would not want to create a situation nor do i think it is in the interest of the function of the system that every conversation and discussion between the governor minuted,ellor is recorded, and tweeted in real-time. >> i do not think anyone is disagreeing with that. mr. carney: i think we should make that absolutely clear. >> we have in the past successfully. there are precedents. there are a number of documents to give the public reassurance, highly confidential documents,

from the last parliament undertaken on several occasions. mr. carney: i am aware of that. successfully, without undue concern being raised. i think there is merit in going down this road with respect, as you say in these extraordinary circumstances, for the exchanges you have had with the chancellor . i would be grateful if i could have your confirmation and cooperation. mr. carney: i think we can , whicha process which is relies on the discretion of you as chair and the committee so we are not putting things into the public domain, which can be immediately commercially sensitive. replyt is a reasonable and what i suggest along this exchange on this point of

, if you couldcess have a discussion outside this meeting with me or if the staffers, we can set up a framework for doing this. mr. carney: we will do that, chairman. , theo be absolutely clear assessment of financial and myty in march comments as chair of the fpc which were entirely consistent with that assessment, and the assessment contained in today's record release this morning and is fsr, these are the assessments of the fpc. it is an independent body. it is not based on women, prejudgment -- whim, prejudgment, it is based on analysis and robust discussion.

the point i will finish with this is that we have an obligation to make these assessments. the debate cannot be about whether we should have made an assessment. if we view something as the biggest risk we have a statutory obligation to make that clear to parliament and an obligation to the people to come straight with them. it catalyzes action and hopefully we will have a chance to discuss what was done in response to this that has helped mitigate the risk. the debate can be about whether we made the right assessment. an entirely legitimate debate, not whether we should have made the assessment. >> i understand. one of the most prominent , horace johnson, is claiming that you have done a superb job. i am sure that makes you feel good -- boris johnson, is

claiming that you have done a good job. i am sure that makes you feel good. i will not give you the rest of the quotation. but as to these four very senior people, there has to be some explanation for their extraordinary outburst. have you got one? mr. carney: i think it is a question for them, quite frankly. and i think also that times have changed. the responsibility of the bank of england has changed, the demands of transparency has changed. things are different. we do not keep things under wraps. we identify risks and try to respond. we do not look to have exchange-rate crises. we look to have exchange-rate adjustments. these people are deeply

emotionally committed to their what happens when senior politicians can briefly become a neighbor created -- francine: that was the bank of england governor mark carney. usually it is a little bit more explosive. .e see sparks fly sometimes a little bit more temperance from lawmakers, a subdued mark carney as he answers. very monday and questions about whether this was predicted. our carney saying yes, i predict it it last week. an exclusive conversation on banks, this is really what people are worried about and want to find out more about. .e are joined by chris wheeler banks, theok at the boe had discussed the risks of

lowering banks buffers because they were concerned that the banks and institutions would reward investors instead of lending back. the keyhat is right, thing is to keep the banks working with the real economy. i said before brexit when people asked what is the bank of england doing to prepare for the vote, it was always going to be about liquidity and staying close to your clients because a lot of them were clearly confused about what was going to happen. this is all part of that process of saying the real economy is essential. francine: in terms of exposure of u.k. banks to real estate, 65 billion pounds, is that terrifying? it is a big figure but it does not seem like the end of the world. been unfortunately far too many downturns in the real estate market. commercial real estate is always

one of the biggest when we go into a recession. the good news is, the work being done by the banks themselves will certainly not avoid losses but will mitigate those. not wildomething i am about at this stage although it would impact earnings. that banksd suggest are a leading image maker and required part of international exposure or extension. the you imagine the rebuilt united kingdom banks can be strong enough and supple enough to lead a more independent united kingdom post brexit? absolutely, i think we have a history of a strong banking industry. you have had plenty of hiccups in the united states so i think the good news is the management and places pretty strong. we have seen a lot of changes with jes staley coming on board

and bill windsor at standard chartered. toughd has been really and i think that has positioned the u.k. banks really well. tom: christopher wheeler's breaking -- speaking with jon ferro yesterday, and john was saying it was pretty gloomy with the staff of the banks. intoe in the summer, we go autumn, and bonus time is february or whatever. will there be bodies next -- left standing next year to accept the bonuses? chris: a quote from the investment bank of ubs says, we quite -- cut enough. the problem with that is that things change. we probably could have said that two years ago, but there are not a lot of places for people to go.

top playmakers can always find somewhere to go but the vast majority of people are sitting there happy they have a job and are hoping for an upturn in the markets. the we will talk about italian banks and overnight, all sorts of talk about how they will recapitalize. in our next hour, komal sri-kumar, a more cautious view on the american economy. futures up 10, this is bloomberg. ♪

francine: i am francine lacqua in london, tom keene in new york. we have quite it lots of big news desk quite a lot of big news with foreign policy --

quite a lot of big news with foreign policy. the court's finding that china has no historic rights in the disputed sea. we have china saying they do not recognize this tribunal and although the case was raised and pointed out by the philippines, it will affect all of these countries. questions of legality of what we call the dotted marker. it is stretching hundreds of miles to the south and east of the mainland. this is probably the most contentious issue in asia when it comes to foreign policy. something else contested by the eu in terms of regulations, let's get back to banks. euro area finance ministers are meeting in brussels and while italian banks are not on the agenda, they remain the elephant in the room. says italy minister

will have to respect eu rules to take losses. we are still with chris wheeler and also nandini ramakrishnan from j.p. morgan asset management. how do you deal with the us -- with the italian banks? is going to be really complex and i think by the end of the day mr. lindsey is going to have to make a tough's -- tough decision. he may choose to bail out his banks and take the consequences because the rest of europe knows it is important to have a robust banking system and if he does not choose that it will have implications. on the other hand it will blast through the rules put on bail ins as opposed to bail outs. that has quite major implications. francine: are you expecting a run on the banks or is this something that we talked about and we know that one way or another we will have a solution?

chris: they will definitely have a solution, there is no doubt about that. talk of more asset sales, and that is not going to be the solution but part of the solution to make sure this important institution is able to operate effectively and normally. tom: i compare it to deutsche bank. linked together, the real economy issues of italy with deutsche bank, they are linked at the hip, aren't they? absolutely not because the important thing about unicredit, it has institutional butnternational operations the italian bank has gone into a recession. idiosyncrasies around the bank laws that made it worse but those have gone up and the banks have got to be recapitalized to make sure they can function normally. with deutsche bank it is a different situation because the

big issue for them is investment banking. the german retail bank has never been profitable. the public banks that compete with them as a private bank, so i think they are quite different. go with the difference but to me the underlying economy is critical. we have showed this chart before, the united kingdom gdp compared to italy, italy in red, lagging behind literally in every era. they fought back and they need to be recapitalized, but they are a laggard amid deutsche bank .mong a stronger german economy if germany does not recover, do they have the same growth issues as italy? chris: i do not think so because the german population is not as indebted. the banking sector is supported

by a large number of not-for-profit banks, savings banks and folks banks, cooperative banks. deutsche bank could do with a good tailwind from germany because clearly what is a big international plow in capital markets, germany is a big happy to and part of how it makes its money so you cannot completely extracted from the german economy. francine: i guess the problem with banks, at the end of the day we have to make sure there is a transmission mechanism which goes back to the boe concern, if you focus on share price they do not fundamentally do the only thing they were created to do, which is lend money and help the economy? trackingwe have been credit standards and how much money is flowing around in the economy. one of the key boosts to the euro macro story is that credit has been flowing so in that

consumer space if you have a big contraction, you have all of these consumers in italy using their savings and that will put us in a watch mode. francine: this is a shameless plug. i want to listen to what he had to say. >> at this point in time i think we are exactly where we should be to face the environment that we have, to face the regulation that we have, to face 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. francine: are they best in class, chris? everyone else seems to be planning their way and they started the restructuring a few years before the crisis. chris: they barely have a fixed income business anymore which is the dominant part of most investment bank markets.

they have done really well and i think the strategy has played out well for them. if you then compare them across the water to the big u.s. plays, they are a second-tier player. that is no disrespect to andrea, he has done a wonderful job. tom: i would look at the structural change. bring up this chart. dini line-up top, j.p. morgan. bnp paribas in green. as you say, the reality for ubs in red and deutsche bank in .ellow, as they are second-tier is there room for second-tier banking in europe and transatlantic in the new banking utility era? chris: you could argue that the

equity markets businesses are putting enormous amounts of capital behind their populations so you could say ubs is becoming a little bit of a boutique. a citi a boutique than or bank of america. if younot be a boutique have consequences in the areas you are focusing on and that is the feeling i have for european investment banks. tom: i am going to put that out on twitter, deutsche bank is a boutique bank. bandini -- nandini ramakrishnan was staying out of the conversation as much a she could. up 10.ard, s&p futures dow futures up big as well. ofomberg "surveillance"

course we are live. ♪

francine: tom keene is in new york. we are going to the bank of england governor mark carney who

is giving his testimony to lawmakers. the boe saying they were concerned that reducing banks' buffers would mean that a lot of the institutions would give back to shareholders instead of banking, giving more lending to the economy but mark carney says it is a way to stimulate the economy. in ays the u.k. is different situation from the financial crisis but still worries about brexit. tom: is this a chat or a q and day? francine: it is a chat. they take it in term. sometimes it can be a robust chat and it just depends on the lawmaker. i am looking forward to the best-known brexiteers who always gives them a tough time. difficult.an be

his father was much softer and individual. francine: very diplomatically put. seemse look at brexit it amongst the turmoil which has been quite something, we now have a new prime minister who seems firmly in charge. does she need to trigger article 50 sooner or later? nandini: it depends on if you want to get this done under the rug but once you trigger article 50, it takes two years at most two x in the eu and several more years to get trade agreements in place. with that uncertainty, markets are not going to like it. at some point arc its do need to move on and focus on the fundamentals of u.k. companies something that is a continuing same rather than a shock. very importantly, i looked

at the valuation as a rough comparison of general electric and siemens, and it is absolutely stunning the differential in valuation. are you recommending european multinationals within equities or do you have to ride u.s. blue chips? like thewe did eurozone european macro story for a while but it is being challenged with italian issues and brexit fallout. right now the stabilization of the u.s. dollar as well is decent fundamentals in the u.s. put our focus more on the good value plays with multinationals. francine: where do you see the most weakness in banks? chris: i think it will be the europeans and it will move through various sectors. we will see that big u.s. banks report in the next few days. what does that mean for the deutsche banks of this world?

we will have to shift back to the u.k. banks and then we are going to have idiosyncratic situations as we have in italy where you need to solve market capitalization issues. i'm frayed the whole sector is still in flux. u.s., the big issue is how much more capital of the fed once the banks to hold. francine: chris wheeler and nandini. coming up we speak with komar sri-kumar. we will follow mark carney as he testifies on the financial report. ♪

tom: the shock of brexit

receipts. thisare less negative morning. janet yellen will be forced to wait and wait. according to komal sri-kumal. finally, hillary feels the bern. good morning. this is bloomberg "surveillance." you aren't by in our headquarters -- you are live in a headquarters. megan murphy is pacing back-and-forth and forth, dying to talk about hillary and bernie. francine lacqua is in london with more important issues. to be learning a thing from governor carney? chitchat it is a good because he is also feeling the bern and coming under fire as people question whether the boe remains credible. he is getting as good as he gets. he is testifying saying, yes, we are credible. tom: we are going to take

have himirways and straighten him out, the congressman from california, she would have it different tone. right now on bloomberg "first word news." >> china has lost a landmark court battle over the south china sea. court of arbitration found in favor of the philippines overwater claimed by china. the chinese claim that virtually the entire south china sea, but the court ruled they have noticed work rights in the area. china said the court has no jurisdiction before the ruling. theresa may and has two days to build a team to rescue the u.k. from its worthless [indiscernible] replace davido cameron by prime minister by tomorrow night and will need to decide as to be in charge of negotiations to leave the european union and they will need to elect someone to steer the economy of chance of the exchequer. markets are guessing

on details of the stimulus package. spend money onld infrastructure, including high-speed railways and cruise liners and said that he wants to accelerate japan's exit from deflation. president obama goes to dallas today to meet with families of five white police officers killed lasted a white man. he will also speak at a memorial service. it is the 11th time during this presidency that he has spoken in a city reeling from a mass shooting. former president george bush will also take part. a new poll shows hillary clinton crushing donald trump. according to the latest herbal online poll for bloomberg politics, white voters would the college degree back clinton over trump 48% to 37%. republican mitt romney won that poll in 2012.

tom: thank you. they can murphy will join us later. u.s. politics of the moment, we have been very british centric. he will have a better than buoyant market, futures up 10, record high all around, 10 year yield, risk on, even oil with a bit. x remarkably low, signaling a bull market. know, not indon't the 20,000 at but getting the quickly. there is curve steepening in the last 36 to 48 hours. curve steepening is a huge difference from the last two weeks of trading. francine: it is, but then you a records&p 500 at

high and there is -- you get earnings and expectations are not going anywhere. a confusing world elements look at how we price risk. a lot of the story is in japan. you can see the yen curving as we expect more stimulus from shinzo abe and look at the pound, advancing 1.3179. tom: let me go to bloomberg right now. idea of the dow -- this is the dow. non-inflation-adjusted. up we go, to decade trend in red, one decade trend in green, nicely elevated above both. better than good equity performance. is what i picked out, the return of the oil shows that price recovery may be a bumpy ride. this is brent crude, so contango

for those of you who forgot, where near term are cheaper than haggis and that is doubled in the last couple of months. as: we have komal sri-kumal our guest this morning. our audience loves to because i find her audience is gloomier kumalre cautious and dr. agrees with that assessment. you changed not your recession call but dampened to called. can you get above 3% gdp? komal: i don't see us getting above 3% in the next several years. as long as we continue with the policy of zero close to zero interest rates and you have $12 trillion worth of negative yielding debt and sovereign debt throughout the world, it is a system of the fact that both the world and u.s. are in bad shape. i don't see any good recovery from it. tom: within that and the united x,tes, why will i plus g,

what part of economy will dampen growth even if we are doing relatively better than others? cmal: when you look at the portion of it, consumption, accounts for 70% of the total. dependingees become investors and get a new zero return, that is dampening consumption. it has been happening from 2009 onward, so quantity and zero interest rates will never cause an economic recovery. francine: overall, how should we look at a lot of these equities? s&p 500 at a record. business of +? -- is this a bad sign? komal: what is happening is the market believes in the yellen

and as always they exist or the perceived runs exist, the markets are going to push up and despite what tom said, the steepening of the yield curve in the last few hours, we going to see the yield curve flattened again because there is no economic growth and there's no inflation expectation, still you together, put it -- francine: but what do we need it to change? komal: you can call that the $16 trillion question because if you on and on,7, it went and suddenly, it came to an end. i think what we are suggesting and what the global markets are signaling is that after a peri

od of slow growth and speculative forward move in the market is, we are reaching a part of capitulation. we look for a point where there thatcorrection as to when might happen. i will give myself a full one year ahead and somewhere within that. tom: we have a pretty good idea of the u.s. yield curve. if you bring up the united we go and then a big flattening, a massive moved coming in 10 year, that safe haven field. is this a proxy for where the u.s. will go? is the dynamics, the rate of yield curve, u.k. the italian yield curve, are we going to enjoy that's a brutal move? komal: absolutely. at the great you have is a sequence. countries follow one after the other. you had europe and japan do that first, and now you have the bank ingengland, which is eas

behind the bank, now the federal have to do it because the dollar will go toward that with the euro and you'll see the pound go below 1.20 to the dollar and that is when the yield curve starts to flatten. tom: there are a lot of moving parts here. is the dollar following these bank dynamics? i would respectfully suggest that the financial system is of course driving the economic departure. do you disagree? komal: it depends on how you define the financial system. tom: the negative freight systems they are dealing with. komal: that is right, the global central banks are off on the hold, as well as eventually the strengthening dollar, so i think if you're looking at a cause-and-effect, i think the central banks are doing its and you're getting [indiscernible] that is causing out the yield to go down in the dollar to strengthen. tom: francine, bring up that tried again. this is the u.k. and i have

never shown this. francine, your world is a brutal world and you really wonder on july 27 andct onto the september meeting of the fed. francine: i imagine you are talking about my world being the u.k., but if you also look at italy and this is where the real distortion could take place it delete is selling one-year bills at a record low yield, negative yield, minus zero point 17%. we don't have a solution for the italian banks that we don't know if the prime minister can survive his own referendum in october. you look at this one-year bill at a record low field with -- field. but does that tell us about the state -- what does that tell us about the state of the world? francine, you're right about both of those countries, the italian and burden side. despite theld

crisis on the banking sector. suggestive of the immense amount of power that the central banks are still holding. what it also tells me, francine, is that the fundamentals are not at work. the italian banking system is in a very difficult situation. italye had the bank of had talked about the need for a bailout of the banking system eventually. you have had the chief economist at deutsche bank calling for 150 billion euro bills to fund the european system. how do we have negative yields? because the expectation is he would have helicopter money from the ecb, the bank of england, and then you would cap influencing tokyo and washington, d.c. francine: thank you. if mark carney was not testify, i would think you'd be watching bloomberg tv because he has made

some comments on italian banks saying he thinks of italian banks will probably need week capitalization. mark carney also save the u.k. exposure to italian banks as low . however, the u.k. banks are exposed to commercial real estate. we will have plenty more from mark carney as he gets more questions from lawmakers. you are watching "surveillance." this is bloomberg. ♪

testified in westminster. i am france in the clock. tom keene is in new york. he was descendent send it -- defending the bank of england after attacks over his brexit morning, saying that they have really played out and he gave some comments in the last couple of minutes about italian banks, probably sparing markets overall in europe, but mark carney saying some italian banks probably need realization but that the u.k. exposure to italian banks is lost. tom: thank you so much. markets continuing the feeling of the last few days. futures right now, let me get that over here on my new set of futures, up 10, dow up. brian knows that, he is with oppenheimer funds. he was counseling their portfolio managers to look for better times ahead. it is tough. you cannot go to cash if you're running a mutual fund. brian: it is difficult to go to

just for whole, not portfolio matters. the biggest problem investors have is that they do not stick to consistent plans and markets always have a tendency to make that would solve themselves look silly. in: we know we should not be cash and long-term performance of equities, but do you have a big gastric around his markets are now? are your managers working with a yeah but and that is janet yellen? brian: reset the only way that markets could continue to advance and not have significant disruption in economic activities is if you don't have a major policy mistake in the world. in our opinion, early in the year, the fed raising interest rates, flattening the yield curve, raising the dollar and tiny conditions was a policy mistake but markets corrected as expected. you come to the weaker period to find that global policy is

going to be more, they given markets rebound, as would have expected, then you have a disruption that does breaks it. i would've expected breaks it would have been -- brexit would have been a bigger distraction than it has. ofs would extend the periods policy combinations and investors are coming out from january to june. the i think you just said punch bowl is full and overflowing. francine: he says that moment that brexit is contained. do not think that as people realize what brexit means, it means that there wondering is there is a general election if we can go back on the referendum. the greenart seeing shoots of the recession of heople lose their jobs, whic is not a given, but will people not be notice about the future point?om that

brian:brian: i think that is right senate the global economic activity will slow in the coming months, unavoidable. you are seeing confidence wavering the u.k. and parts of europe, so that is clear. overtime when you are going to find is that slowing economic activity will weigh on revenues of companies, so i'm not here suggesting that this is an all clear, goldilocks moments, that markets are going to just rip from here without any type of correction in the future. what i am suggesting is that investors trying to time these things are finding themselves in the wrong side of the market. tom said, thes as punch bowl is overflowing, markets had higher over here but it will be a more challenging environment over time because it's slow growth globally at the period of weak economic a badty, brexit was outcome for the global economy, and that will be disrupted, but investors will have to be selective. there will be parts of the market where they can make money. francine: two global markets

understand the implications of ?rexit it seems they have brushed it off mainly because of central-bank action. are you expecting turmoil will central banks like it any fears? komal: the central banks so far have managed to placate. the british stocks of outperformed the rest of the vote.an stocks brexit even in the case of the u.k. equities, have decided that by what thee offset bank of england does on thursday and on august 4, and that you can continue to do this for quite a while. question,back to the very important question you raised earlier, how does this come to an end? ryanually, i agree with that the global growth is on the trend and no amount of global liquidity increase will do that. eventually, we will find out the corporate earnings are on the

way down. we are find out the corporate valuations do not justify the price is that we have. eventually, you have a massive connection. that is what happened in 2008. tom: let's look at the distortion screen. this is an amazing chart, a transatlantic spread. the difference of yields between the u.s. and the german 10 year. it is a negative in germany, so it is -- the german tenure as negative, so if you add the german yield to the u.s. yield, you get out there 2.5 standard deviations. this is where and unusual. komal: absolutely because germany is also becoming a big say fabian been, along with the united states and the japanese government bonds, so what you have is a situation where you rules beingthe the pushed down and germany be negative and the italian 10 year yield a new much less than the

u.k. 10 year, it cannot be justified based on fundamentals. tom: we will talk to brian lovett about what people actually do with the money internationally. coming up, david bloom of hsbc global. we will look at foreign exchange. you are watching bloomberg's "surveillance" globally. this is bloomberg. ♪

good morning.

francine lacqua and tom keene, well fed, in london and new york. jamie dimon raising the wages for jpmorgan. this was an interesting morning must-read from fortress diamond today. regardless.esting in america, it is true that some businesses cannot afford to raise wages right now and then he goes on to the sales pitch, we will invest over 200 gazillion this year on training of thousands of entry-level employees in consumer banking. we are on a pace to during 30% more employees this year, many of whom are tellers. great about this was a took a soy from the rarefied bloomberg world of banking and talked about people who would kill to have one of those jobs. francine: you know what? find waysng, we must to help pick people up the economic ladder, but actually,

as a bank, this serves zero purpose of attracting the best talent our clients face, so you attract them from competitors. urge everyone in banking to read it about the rest of commercial banking, where people are dying to get a raise. francine: next on bloomberg "surveillance," we speak the pounds, sterling entries and bloom, and you will also be hearing about what mark carney has been saying. he has been testifying, saying everything the boe has predicted for brexit has come true. this is bloomberg. ♪

tom: bloomberg's "surveillance." futures up 70. francine lacqua in london. i am tom keene in new york.

that's get to our first word news. lost a landmark court battle over the south china sea. the u.n. court of arbitration found in favor of the philippines overwater claimed by china. the chinese claimed virtually the entire south china sea, but they ruled that they had no historic rights in the area. before the ruling, china said the court has no jurisdiction. the u.s. government says the u.s. hopes china and the philippines abide by the south china sea ruling, according to a statement. an ally inll have britain's incoming prime minister. while she served as home secretary, theresa may has worked closely with her security departments on crime and terrorism. may set that uk's counterterrorism strategy to fight radicalization. mark carney is defending the bank of england against the decision for their role in the brexit campaign. he is testifying before

parliament today and denies the central bank undermines independence by highlighting the risk of a british decision to leave the european union. global news 24 hours a day, powered by more than 2600 journalists and analysts in more the 120 countries. this is bloomberg. francine: thank you. let's talk about mark carney's comments and testimony to lawmakers and how that impacts sterling. we are joined by david loom, head of fx strategy -- david bloom, head of fx strategy. always a pleasure. the pound climbing for third day, but this is on the back of the fact that theresa may will become the next prime minister, so we have a little bit more certainty of what happens next. political certainty has gone up and sterling has gone up and that is the way it goes. we are trading on politics, not on economics or structure at the moment to read on the political side, things have gotten better. we know who it is and that is

before the month of september. it is a risk on field. francine: we do not know if she will trigger but all we know is that she should become prime minister by tomorrow afternoon, and who knows how long the negotiations will take place or how we end up. david: we have had a falling currency for a while. give us two days. come on. what is today's to you? we need to days of something days of something good. the next thing we will look at his bank of england on thursday. tom: david, one of the things that interest me is the idea of dollar strength. anthony, bring up the chart. if i look at trade weighted dollar, when you some urinalysis together, is it stronger dollar? dollar or the other line is the trajectory of reuben dollar of the 1990's and the red line would be the huge move necessary to equate with

the plaza dollar move of previous years. we are knowing you that. can we see all and dollar strength? david:david: no. we see weakness today. you have got your own politics coming up. politics is on their gender. have the attire in a referendum coming up, u.s. election coming up, and the problem is we do not like the euro, the dollar, the yen and sterling. what are you left with? tom: the mystery of the dollar to me is tangible. you hit the nail on the head, if you look at the comparison of 1985, the with germanys u.s. and france wanted to mention that the japanese yen appreciates massively so that the u.s. cuts the current

deficit on the balance of payments. tom: now we do not have that. komal: but they had a surplus and now what do have instead is instead of a compliant bank of japan as in 1985, you have a currency were going on. tom: david, is it a currency war? david: no, i think they have given up on that. the eurozone and japan was starting to see this was the coming to disrupt end in january, people thought china may intend move the dollar much higher, which we never believed. that became a great concern and everyone just backed off. i think they have backed off on the currency wars. sterling has fallen, not because we are in a currency war but because we have a lump in catch deficit and we have to adjust leaving the eu and we have a flexible currency, so it is flexing. i think the currency war has taken a step back. it may be reignited at some stage, but that the moment, i

think piece has been called. komal: i don't think we ever give up on currency wars. 008began in december 2 and this is like a ping-pong game, and the countries have been appreciating the currencies. japan will try to do that, in u.k., the pound looked appreciate. even in thursday or after the august form meeting. we had the bank of japan meeting coming up toward the end of july. once you see the dollar depreciate significantly, say close to one euro of dollar, that is when you see the fed reacting and the fed has to cut rates. is thatncine, the idea everyone is focused on sterling, but the more dollar centric analysis is a site of great conversation and great debate right now. francine: this is probably the one thing china is looking at, and we will go back to china but not yet.

we have seen it extend since 2014. thatw there is a big hoax we are going to get more stimulus and that the prime minister had victory over the weekend to do more, but abenomics is not a done deal and we do not know the endgame and if it will work. francine, he referred to the importance of china, and we have had this stealth devaluation going on for the last three weeks. we have been focusing so much on brexit. the more important news worldwide, i think, is the fact that the chinese currency is depreciated. this is their share of the currency wars. at some point in time, the u.s. treasuries going to speak up and the chinese will listen and then you have more depreciation. and theilian real, chinese currency weakening and it takes place a lot more than this. francine: david, what is your take on the yen? is it the fact that investors

are moving away from haven currencies or is this because you're expecting stimulus from shinzo abe to work? couple ofhink a things. i think people are expecting a big fiscal package all of a sudden. give the chance of helicopter money, so, it should be going down from that. we have a political resolution in japan and the prime minister in england. australia has been in a quandary over who won the last election, so it is about politics and a risk on feeling. as for the currency war, all i can say is give peace a chance. we have seen currency battles, but a war is a big move and tom wasn't showing you we are nowhere near that kind of move, so yes, we see it on the side but i don't think -- but i think the currency war is largely over.

tom: bring up a chart of the kuroda and yen. to be have strong yen through 100 or can we actually get back in the vicinity of where mr. abe would like it? david: we were before the vote in the u.k. thinking dollar yen could go to about 1.15 or so and and we areracted in going for 95 now. the reason is they will not be doing helicopter money, and they have been much more cautious in their approach. now we talk about fiscal policy. i think over time, the yen will strengthen. tom: this is extraordinary. what does it do to japanese stocks? if flied out crushes their export business, right? brian: yes. tom: are you over the japanese -- are not. with think that opportunities exist. mention europe. brian: europe will be a

challenge. some of the companies will benefit from a weaker currency, but europe will be challenged by growth inf weaker the u.k. and when the european union loses its second-largest economy, it is hard to imagine economic activity that being there. you will have to focus on companies in europe generating the revenue and the emerging economies or the united states, where growth will likely look better than it does in the continent. thisine: david, looking at always moving world, what is your best pairing? david: at the moment, we think sterling could go down. we have heard economy today talking the talk, but can he walk the walk. brian: we will find out. david: sterling will go back down. we have had to couple of days, are is not good, but there big questions. at the moment, we are happy to be selling sterling and to be short of the pound. brian: the pound is the pound. tom: david bloom, thank you.

that was a good conversation on foreign exchange. the good that on our digital products. later on bloomberg radio, he has janice garminled, with straight talk on being long, short, i am going the other way. stay with us. ♪

welcome back. i am francine the caught in london. tom keene is in new york. we are looking at all asset losses, but let's get to the bloomberg flash. >> the head of ubs investment

bank is signaling that job cuts have come to an end. erik schatzker spoke with him about the sign of the workforce after thousands of jobs are eliminated at the swiss bank. >> 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 regulation that we have, to face the forces that we have. now, at this point in time, our challenge is to execute correctly what we have in front of us. >> there are a few caveats. orcel says more regulation or worsen in of market -- worsening of market conditions could cut more. research, pcmarket makers shipped 5% fewer machines than they did when you ago. that follows an 11% decline in the first order. demand in north america offset a slump in the rest of the world. the mobile game that has become a massive hit again as in april.

. in 2014, google unveiled pokemon challenge for google maps. to capturee invited the fictional monsters in the app. nintendo released a new version next week and it forces players to explore the world around them with their smartphones. that is the bloomberg business flash. tom, you are a fan? and i caught a squirtel do not know what to do now. >> what is that? ll bounced up d to sri's coffee cu francine: does it have a yields? no, but it spends in yen. [laughter] anyway, we are trying pokemon. francine: we are trying to keep up. into something more

adult in international relations and this has been a long time coming. really extraordinary. this is on china in the philippines. i attended a meeting at the united nations about eight months ago. the tension in the room was remarkable. on thise diplomats area, the philippines to the east and vietnam over the west in islands real and not real. we from the islands so much -- we know spratly islands so much of the bottled world war ii. to happy with us today. do we need to show the flag evermore in the south china sea? dennis: good morning. it is great to be with you and your audience. this is a landmark ruling by the arbitration tribunal. in has made a big splash and i think that this is a victory today for the philippines for international law and for a

peaceful global system. tom: within that, andrew, do need to show the flag in support of the philippines, including building out the military bases from a generation or two ago? think the key here is that the u.s. needs to maintain a strong presence in the region to make sure that it remains an open and a peaceful region. as part of that, the u.s. needs to work closely with its key ally, the philippines, to develop cooperatively a variety different capabilities to keep things stable, so i definitely think the variety of facilities and options are part of that picture, but the important thing today is that this is a victory for international law, and this is a very positive thing that china

is not going to be able to take lightly. francine: how are we expecting china to react? they say basically they do not recognize arbitration and what they say is null and void. is there a danger that this could spark a potentially destabilizing reaction from china? andrew: i don't think there will be uncontrollable escalation of any kind. beijing's first concern is about domestic public opinion now that the tribunal has ruled that sleeping south china sea claims to not hold water. i do think additionally that all parties in the region need to remain vigilant and make sure that they prevent china from grabbing with coercion or force what they could not obtain legally. i think provided that everyone is vigilant, it will not be easy

for china to engage in any sort of unjustified or escalates worry behavior. ory behavior. francine: do we need a more diplomatic resolution and you would be the best person to conduct that foreign affair diplomacy? andrew: definitely a strong presence in the region is extremely important, and one thing that all parties and all observers need to understand clearly is that china does not just have the world's second-largest blue water navy in the world, the largest coast guard, but also, virtually the world's only significant maritime militia. there has been some media coverage of fishermen in this militia. they are not mere civilian fishermen. they can be tasked by china's military, that is one of the things that people need to watch

out for. as for diplomacy, i am optimistic now that this ruling can further empower and be moree aussi effective. andrew, forank you, your comments. this is a picture of equities across the board. commodities also on the rise. this is by the prospect of stimulus and major economies. the yen sinking, and the pound at 1.3159. this is bloomberg. ♪

the report this morning, a lot going on. sterling stronger, 1.3170 and francine, what do you have? shortly, ifming up you look at the pound, it is probably one of the main stories. jon, i know you are looking at currency and yield. jonathan: very much a risk on time for the market. equities are rallying.

i would say look at the treasury market because there really lashing up. see some 10 year yields and bonds coming to the market today. $20 billion worth, so look out for that and how it performs. i'm looking forward to hearing more from erik schatzker's interview with the usb investment president andrea orcel. a very fragile banking world. if you are that ubs, you will like what you hear. job cuts are ending their. tom: thank you. megan murphy joins us now. to aad no time to say hi little person like me yesterday in new york. megan murphy in washington, simply, does secretary clinton need bernie sanders' voters in the battleground states? wisconsin, madison, paolo, but are they in the states?ound

megan: i want to say that i did not want to ignore you but i was playing pokemon. she needs these voters just not in the battleground state but where she particularly needs them is in areas like ohio, pennsylvania, florida, where she really needs it to turn out the sort of disaffected, disillusioned, people who feel that america is getting less equal, that there is too much of a stratification between the very wealthy and the poor and that these are the kind of people that she really helps to what would be an endorsement from bernie sanders. what we will be watching for is helpful throated the endorsement is. francine: does she need more than an endorsement? is there something that bernie sanders can teacher?megan: i think bernie can teach her how to get real enthusiasm in the campaign. can she get people to support her in the way that they have supported him? tom: thank you for the quick moment. megan murphy in washington. we will have coverage of the

secretary and the senator. us, dori-kumal with politics matter in your caution cars the economic tepidness inherent in the system? inherentthink it is tepidness, but if the elections are very important in talking to my clients outside of the united antes, you find that it is immense amount of concern about the election likely have never seen before. specifically, the trump candidacy and what it will do for the dollar and what it will do for them. there has been talk about u.s. treasury obligations. all of those have been active for foreign investments, so there is concern. --: brian love it, quickly, is openquickly, what have are doing with single digit revenues?

looking for the best opportunities where investors can find them, and of there niches market and you have to look from the bottom-up to identify where the earnings growth. if you look at the 25 times multiple commie making -- 25 times multiple and you make an assumption. it has been a rising tide environment for so long. tom: thank you so much. komal sri-kumal will continue with us on radio. coming up on bloomberg television, we continue on radio, from london and new york, this is bloomberg. ♪

rally.n: global stocks the prospect of more stimulus. erik: the conservative -- you might david: the conservative party rallies as one layer of uncertainty is removed from the

pound. the white house reveals bad news for the republican party. the presumptive nominee, donald trump. jonathan: a very warm welcome to "bloomberg ." i am jonathan ferro with david westin and alix steel. the rally rages on. david: it sure does. yesterday, we had an s&p 500 record and the asian stocks are up today and we are getting into earning seasons. alix: it will get interesting and starting off on the right foot. you will have great test to discuss where stocks go from here, including david derosa. he will be with us for the entire hour. plus, andrea