manus: will draghi delay? first postts for the brexit decision. will the governor hold off on action for now? the turkish premier imposes a three-month emergency rule as he continues to the ranks of army, courts, and the lira enters record glows. lufthansa stock drops. easyjet tumbles on reports of lower quarterly revenue.

welcome to "the pulse" live from bloomberg's european headquarters in london with me, manus cranny. let's take a look at your risk radar, top of the hour on "the pulse." stoxx 600, over the past four days, we've managed to eke out a gain. the airline stocks take us down. levelsyen retested its that we saw on the sixth of june. we may see more stimulus. the stoxx 600 close down a four-week high last night. check out lufthansa. the numbers are going to be below the previous years. just looking at the stock performance, 10.22 at the

moment, we've been falling for three days. the last time we saw a rout like this was the 14th of june. easyjet sales came in at 4.2 million. revenue slipped 8%. they are saying the brexit vote, the attempted turkish coup, many challenges. easyjet down 4.3%. time for a first word check. nejra cehic is with me. nejra: good day, manus. turkey has imposed a state of emergency as the government pursues those responsible for a film to recoup. -- for a failed military coup. since the attempted coup collapsed on saturday, thousands of army officers, judges, and prosecutors have been detained. uk prime minister theresa may travels to paris today to meet france le monde.

-- francoise lalonde. -- hollande/. theresa may says that won't happen until next year. >> i want to work with chancellor merkel and my colleagues in a constructive spirit to make a sensible and orderly departure. all of us need time to prepare for these negotiations and the united kingdom will not invoke article 50 until our objectives are clear. this will not happen before the end of this year. nejra: hsbc's global head of foreign exchange in london, mark johnson, has been released on bail after being arrested. u.s. authorities allege johnson was involved in a friend running scheme involving a $3.5 million currency transaction in 2011. his lawyers said they wouldn't be commenting. donald trump has said that under

his presidency, the u.s. may not automatically defend nato members attacked by russia. the billionaire said he would only come to the aid of countries after reviewing whether they, "fulfilled their obligations to us." news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. manus: the european central bank will announce its latest policy decision today, followed by a press briefing with mario draghi. brexit will probably top the list. not to mention the banking concerns. caroline hyde is on the ground in frankfurt. no fireworks in terms of policy response, but the question will be the rhetoric. will he load up the market

expectations for action in september? caroline: has he still got everything it takes to preserve the eurozone and growth that they were just eking out? it seems to the reigning on his parade. the brexit dampening some growth prospects for the eu and eurozone in general. so far, the economist all the leave there will be no rates change today, no change to quantitative easing, not in september. it has been quite a mixed message of late. the bank lending survey showed no shocks coming from brexit and that lending remained resilient. falling earlier in the week. there is clearly going to be some hit to the economic sentiment. what can he do to drive forward the overall growth prospects for

the eu? caroline, thank you. that brings its own set of headaches. caroline hyde will cover that ecb policy decision at 12:45 u.k. time. later, we've got mario draghi and the conference. that is your agenda for the rest of the day. my guess is fabio, european economist. we've been listening to caroline. i love your notes, patience, patience, that is the message from hsbc. >> we don't expect much today. draghi has been saying we put a lot of stimulus in place in march. we need to see how this plays out. we had some positive results from the bank lending survey, but not much change compared to

what we have seen. demand is lacking for fixed investment. the ecb will wait to see morning a, but we have to keep in mind that the ecb is heavily constrained. even in september, we expect , but we ecb will extend don't expect they will be able to expand the qe from the current 18 million per month. manus: the yield curve, in the green is germany, at the very bottom, you see movements go through. the red line is -0.4%. we've got german bonds below the line all the way out to six years, followed by the white line which is france, and italy. this is about possibly having to extend the duration. they are going to run into a wall in terms of what is available. >> that is the key dilemma of

seamy. -- of the ecb. at the moment, all the way up to seven years in german bonds, the ecb cannot buy them. they know if they drop the yield floor, the bond could go even lower. that is a problem from an economic perspective. on the other end, if they drop the t, that is a huge problem from a political perspective. manus: if one is not market, double, one is not socially palatable, where does that take us next? >> there are small tweaks the ecb could do. they could raise the limit in terms of bonds. that is not going to do much. we think dropping the yield floor is more likely. this tells you how difficult it will be for the ecb to expand

qe. manus: when you brainstorm, you say, what could they do to shift the deflation dial? what would it be? >> they could do monetary finance investment plan, which is what the european union is lacking. in terms of what they could do, it is very easy. what they will be able to do is a much more complicated question. that is why draghi is shifting more attention of the countries. they have to do more because the ecb is running out of tools. we will see what your country decides. that is a real litmus test. fabio, stay with me. savio, the european economist at hsbc. plenty more coming up. erdogan escalates. turkey's premier declares a three-month state of emergency. may moves on. the u.k. prime minister heads to

paris after the german chancellor says she's willing to wait on brexit talks. will the french reception be frosty? more trouble at the republican convention. donald trump's former rival, ted cruz, booed off the stage. this is bloomberg. ♪

manus: time for a business flash. we've got nejra cehic. nejra:

rever has reported -- unilve has reported that it beat estimates. almost a month after the u.k. voted to leave the eu, the ceo told bloomberg that he starting to see the economic impact of brexit. >> if you look at the economic data, you see a slowdown. you see last job openings. you see a reduced estimate for the u.k. economy. investments stay away. rcohe has reported a rise in profit that beat analyst estimates. the swiss drugmaker's core earnings climbed 7% from a year earlier. it send the rise was spurred by demand for medicines that treat cancer. the company ceo told us he remains confident despite global

uncertainty. >> we are very happy about the development we have seen in the first half. in spite of the political turmoil you see in parts of the .orld, i remain confident i remain confident as we go forward. nejra: lufthansa shares have fallen after the carrier cut it profit forecast. the german airline lowered the outlook two below previous year despite a strong performance in the first half. lufthansa pointed to repeated terrorist attacks and economic uncertainty that have hit demand. manus: thank you very much. the u.k. prime minister is in paris today, where a meeting with french president hollande tops the agenda. the message of berlin yesterday where she met german chancellor angela merkel for the first time as premier, there's no rush to

trigger article 50. >> i want to work with chancellor merkel and my colleagues in a constructive spirit to make this a sensible and orderly departure. all of us will need time to prepare for these negotiations. the united kingdom will not invoke article 50 until our objectives are clear. this will not happen before the end of this year. manus: setting the stage of britain's position. the next stage is paris, where she meets francois hollande. caroline connan is in paris. one of hollande want to say? what are the issues that will be most prescient? caroline: we expect the french president to be a little bit more pressing on theresa may than the chancellor angela merkel. he wants brexit to happen very quickly. last week, when she took office, tosident hollande called

congratulate her, but also urging her again to trigger article 50 as soon as possible. taxes, linked brexit to saying he can only lower french taxes next year if the brexit question has been solved, and if that hasn't had too much impact on the french economy. it is a political question because a quick exit will give him some argument against the national front of marine le pen, who has been calling for a frexit, a french referendum on leaving the european union. manus: thank you very much, caroline connan in paris. fabio is the european economist at hsbc. what i want to show you first of all is this function here. as the train. it gives you an idea where the

trade flow is for the united kingdom. top of the agenda is germany. followed by the u.s., china, netherlands, france at number five. let me bring fabio, the european economist, at hsbc. this is an interesting dynamic. it is with germany. france needs us. germany needs the u.k. everybody needs a good outcome. fabio: the u.k. is the consumer of last for the eurozone. certainly, there is some truth in the argument that you wouldn't want to erase paris. that trade surplus of 50 million euros with the u.k., they will think twice before raising tariffs. for example, merkel didn't speak much yesterday to that difficult trade-off between, can the u.k. stop immigration and yet retain access to the single market?

we couldn't believe there is no incentive to raise tariffs, but there's a political argument whereby it is very difficult to accept a deal where they can allow the u.k. to stop immigration. manus: therein lies the rub. i think markets have yet to thatstand the push back will come from france and germany on the free movement of people. i want to show you a chart, recession risk. let's bring in up for family a. -- for fabio. we will get dana later on. it is the highest since we started tracking the data in 2012. are we just waiting for a recession? forecastinge not recession. we investment will all significant. we will see some stagnation. we start to see investment come

through. consumer confidence has fallen. then the recent depreciation of the pound will mean inflation will go up. certainly this is going to affect the u.k. growth negatively. whether there will be recession, we have to wait to see more data. manus: i thought the bank of england report yesterday held up pretty well. there's the probability of recession, but the report yesterday wasn't as bad as i thought it could be. fabio: we will have to wait until we get a little more data. if you have other markets in terms of investment, they were showing weakness before the brexit. we think that some of that investment is going to continue. the housing market is starting to be affected. we do see a risk that investment will be it.

there is a prolonged period of uncertainty and no one how negotiations are going to play out. manus: we've had the initial lurch on sterling. when does the next block of volatility come? is it when we see these detailed negotiations? are you lower on the pound? fabio: we are quite negative on the pound, looking to know lower, but i think you are right that we have to see some triggers. the trigger could be once we start to see some clarity on what the u.k. is going to ask for. manus: fabio, stay with me. that is the $20 billion or 30 billion dollar question. , the british prime minister travels to paris. we will break down what is topping that agenda. this is bloomberg. ♪

turkey,&p downgraded warning of rising political uncertainty after last week's coup attempt. that brings me to chart of the hour. this is your spot dollar lira. we made a record low this morning. we have bounced off.

have a look at this. i've got cash in the green and 12-month for price in the orange. one of these forwards are implying, there's propensity for another leg lower on dollar-lira. is that overarching on the market? i caught up with s&p this morning. they already were at junk. they are more worried about the corporate contagion. j.p. morgan chase say, you could facing $9 billion firesale of lira bonds. credit default swaps for turkey are higher than brazil and russia. that means four layers below in terms of risk. turkey is just one personification of some of the risks the markets are dealing with. fabio is a european economist at hsbc. the risks keep coming. forgive me if it is not terrorism. it is the risk of brexit and

trump. these risks are manifesting themselves on a more regular basis then we normally see. fabio: political risk is there to stay. just looking at europe, we've got a very difficult referendum at the end of the year, then french, and german election giving and all these events will continue to undermine the markets. it makes it very difficult for the new to come up with a comprehensive response to the brexit. manus: doesn't shave your growth target? it is a huge electoral issue in italy in the latter part of the year. that is going to be hung on the banking resolution. how much is growth being held back by politics? is it quantifiable? fabio: on the back of the brexit, we've reduced our growth for the eurozone.

in italy, there are some important elements. in particular, when you have to look at is the ability of italy to remain on the reform. we've seen the latest government undertaking important reform, constitutional, labor market, and the risk is that we might move away from that reform path. that would create much bigger risk in terms of the risk of the country having to leave the euro. manus: the euro has retraced. we have seen the euro retraced to create brexit level. -- to its pre-brexit level. fabio: the market is a little bit calm. there's a wall of liquidity coming into the market. we have to be careful reading through what we think might happen to the economy. there are things than europe needs to do to reassure its future, complete the banking

union, capital markets, and if they don't do that, we are worried about the future. manus: fabio, thanks for joining me this morning. we're going to talk about u.k. data. this is bloomberg. ♪

manus: welcome back to "the pulse" from bloomberg's european headquarters in london. u.k. retail sales are quite a significant lower than the market expected, and drop of 0.9%. the survey was for a decline of 0.6%. this is cable at the moment. a fall of 0.9%. the market was looking for a drop of up to 0.6%. when you strip out some of the other elements, the autos, a

not quitee are telling. this was the tail end of the second quarter. this would have been brexit approximately in the numbers. takeout fuel and autos. retail sales excluding autos, 3.9%. finances, let's talk on on that. the public sector net borrowing comes in at $7.3 million. that is lower than the market estimated at $9.2 million. we are seeing in the month of the referendum, sales fell off a cliff. biggest drop in six months in june, at sign than the vote to leave the european union is beginning tonight. the volume sold in stores and online, down 0.9%. food sales fell nine 1.2%.

nonfood sales fell by 0.8%. sales at department stores down 1.6%. clothing and footwear saw a drop of 1.8%. those are the headline numbers. no great reaction on cable. let's get the bloomberg first word check. nejra cehic is with me. nejra: turkey has imposed a three-month state of emergency as the government pursues those responsible for a failed military coup. president erdogan says there will be no backsliding from democracy. since the attempted coup, thousands of army officers, judges, and prosecutors have been detained. uk prime minister theresa may travel to paris today to meet francois hollande. angela merkel told may that brexit talks must not begin

before the u.k. invokes article 50. theresa may says that won't happen until next year. >> i want to work with chancellor merkel and my colleagues in a constructive spirit to make this a sensible and orderly departure. prepares need time to and the united kingdom will not invoke article 50 until our objectives are clear. this will not happen before the end of this year. hsbc's global head of foreign exchange has been released on bail after being arrested yesterday. u.s. authorities alleged johnson was involved in a front running millionnvolving a $3.5 currency transaction. his lawyer said they wouldn't be commenting. donald trump has said that under his presidency, the u.s. may not automatically defend nato

members attacked by russia. the billionaire said he would only come to the aid of countries after reviewing whether they, "have fulfilled their obligations to us." the comments come as vladimir putin oversees the biggest russian military buildup at its western border since the collapse of communism. global news 24 hours a day. i'm nejra cehic. this is bloomberg. manus: we were just looking at the real push and pull on our markets. lufthansa down 8%. 165% of the normal days volume has treated through lufthansa. easyjet down but nowhere near the same. it is the airlines pulling these markets lower. nejra: the stoxx 600 is pretty much unchanged, edging lower now, down almost 0.3%. we will look and see what might be causing that.

i can tell you that in terms of the industry groups, it is the travel and leisure stocks very much on the downside, down 1.2%. commodity producers leading the gains. when it comes to travel stocks, it is the airlines that are very much in focus. lufthansa down 8.3% at the moment. lufthansa basically cut its 2016 profit forecast after terrorist attacks and economic uncertainty set demand. easyjet reported lower quarterly revenue and said volatility would affect the summer travel season. these airlines seeing the effect of brexit and terrorist attacks. manus: breaking news for you now on yen. we have got mr. kuroda over at the bank of japan saying there is no need and no possibility

for helicopter money. this is the great debate in japan. this is dollar-in. you can see that we are seeing this virtual drop. it is ratcheting a little bit 1% onenow rallying by dollar-yen in the session so far. ins has been a huge argument japan as to what happens next. are you going to get a ¥10 trillion worth of stimulus? that is a great debate. there's another debate, the european central bank and what happens next. caroline hyde is standing by with a guest. caroline: i'm standing by with christoph rieger, head of raising credit for commerzbank. give us a sense of what you are expecting from the ecb and draghi today. will there be a hint of more stimulus to come? christoph: this meaning is not

so much about adding monetary stimulus, but about details on the qe program. tweaks can have major implications on the markets. you get a bit of a taste of this a couple weeks ago. that caused a huge reaction in italian futures as well as german bond futures. caroline: this is about making it wider eligibility? at the moment, we've got yields far below german debt. there's concern that they are running out of bonds to buy. what will be the changes made in mark -- made? christoph: they are running into natural restrictions and there are various options that will be discussed. they've bought some time because they are frontloading some of

the purchases. they can buy less. we had a bit of the yield increase in recent days. this takes some pressure off them to act immediately. they need to change some of the parameters. most likely they will move the deposit facility forward so they can buy yields, which will cause a further steepening of the bond curve when it gets announced. caroline: so time to keep on plowing into government debt or corporate debt? we've seen the easy way -- the ecb buying corporate debt. christoph: we suggest to go where the ecb is not going. there are a lot of spillover effects that the ecb is not touching. the non-eligible corporate bonds in europe, for instance, but also emerging markets. they have a lot of potential

with the developed markets. caroline: one key question that will be faced my mario draghi, to knowl be wanting about brexit ramifications. what about the u.k., retail sales not good? are yields going to plummet further for the united kingdom? christoph: it is too early to address the ecb what the bank of england. we need to see more hard evidence of how the economy is doing and how the negotiations will go with regards to brexit. i think they will not react as quickly on the ecb side of things and the bank of england will wait until august. the rate cut is fully priced in. right now, i think a lot of you are already on the downside. caroline: stimulus, when will it be announced? what will be that stimulus? christoph: we are looking for

another rate cut, but not before december. they will wait a little longer than some people are expecting. they will expand qe purchases for longer. caroline: wonderful speaking to you. christoph rieger, head of rates and credit research at commerzbank. seems as though it is time to go where the ecb doesn't go, corporate credit. back to you in the studio. manus: caroline, great conversation. let's see how low those yields can go. lufthansa cut its profit forecast. easyjet missed their earnings estimates. both stocks have taken a considerable hit. richard is in frankfurt. run me through the details on why lufthansa had to cut their forecast. >> they are not the first european airline to cut their forecast. they are the third after british

airways and easyjet. if you think a few weeks back, we just have the brexit referendum. iag came out the next day and cut their forecast. there was pure translation effect. they are reporting currencies. that was technical. easyjet, a few days after that , we had strikes by pilots, by air traffic controllers, all that impacted our forecast. now, the picture is a bit different. for the first time, both from easyjet and lufthansa, we are clearly hearing that it is a demand issue, that people are flying less, traveling less, afraid of terror. in the case of lufthansa, it is especially people from out of europe not going to europe.

if you are sitting in china or japan and turn on the news, you want to take a nice european break, would go now when you think that every other week there seems to be a bomb blowing up in another capital? probably not. they are holding back from those leisure trips. that is hurting lufthansa on the long haul. for easyjet, it is more travel within europe. the same thing applies. if you are in turkey and the country is in state of emergency, you can't fly. the reasons are multi fold and they are hitting companies from easyjet to lufthansa. manus: richard, thank you very much. lufthansa down 8.4%. volume the normal days has transacted. kuroda denying that, the bank of japan governor, denying that any

kind of helicopter money is on the way. there is dollar-yen. jan is strengthened, the dollar down. no need and no possibility for helicopter money. stay tuned to bloomberg. first up, earnings season on wall street. good, bad, or just better than expected? we break down the u.s. banking season. draghi faces a near zero german bond yield ahead of a post brexit ecb decision. surveillance looks ahead with pimco's global economic adviser. corona rules out helicopter money as i've been saying. look at what that means. this is bloomberg. ♪

manus: the ecb will announce its policy decision today. while the general consensus is they will remain on hold, draghi is likely to face questions on brexit. now to talk about banks on a different continent, the u.s. lenders, it is chris wheeler. whatever mario draghi's headaches are in the italian banking sector, i know that you've flipped across the pond. let's talk about u.s. banks. pay cuts. i find this interesting. the hardest pay cuts in four years are coming through. jpm, morgan stanley, and goldman

slashing first half pay. is it the start of a bigger trend? >> i think it is. the banks are trying to show investors that they are going to stick to their compensation ratios. you stick to the same ratio, compensation goes down. we can look at goldman sachs. they shared 1700 staff in the second quarter, 3% of their workforce, a lot of those in fixed income and investment banking. they are weeding out some of the veterans and trying to focus more on the middle levels and bring them through. i think that is why we see these coming down. manus: goldman is in this piece on bloomberg, cutting. is there more of that to come and more job cuts to come to saint the revenue which you want

to see? >> they may well be. the big uncertainty is what happens in the second half. 2015, butave a decent still, what is clear is there is no certainty whether markets are going to pick up in terms of volumes and activity or whether it will be another week second half. manus: more paralyzing volatility on the way in your view? we've got trump, potentially, and hillary. we have italian banking crisis. there's a couple of the headwinds which have the capacity to be global. >> on the call yesterday with morgan stanley, they made the point that when brexit gain, there was a big step back from m&a, but the question was, will not pick up again and will companies say, we could see

quite a bit of volatility in the second half. let's start hedging. that is good for investment blanks. citigroup, $19 billion in the till. shareholders aren't getting their mitts on it. >> they are getting some of it. we just had the stress tests. they increase the amount of by back that citibank can do. citibank is spinning off a lot of capital. it cannot use it. it is pushing into equities more. not it really needs to get that capital back to shareholders. equity bases are getting so high that it is dragging down that metric. manus: wells fargo, you still would maintain that there is more pain to come in terms of their exposure to energy. are you not giving any hope that

things will get better? do i have to deal with a historic issue, the trouncing of oil in q1? bankst of the other big took big hits in the first quarter are very much more exposed to the mainstream end of the business. the problem with wells fargo is it was not a big player in those markets. it has focused on the midsize players. a lot of noninvestment grade that. unlike the other banks, they still took some pain whereas most banks saw a decline in the provisions they took against energy-related companies. manus: record low mortgage rates. that gives succor to the other side of the business. side.ind the i.b. >> at least financing would fall away. therefore mortgages would be down.

it looks like that has moved away because the thought of interest rate cuts has moved down further. that could be very big business in the second half. manus: it could mean a pay rise. restricted get your take on the banks. chris wheeler, banking analyst at atlantic equities. next, we are live in cleveland for the latest from the republican national convention after ted cruz was booed for failing to endorse donald trump. that story. this is bloomberg. ♪

manus: the third night of the republican national convention was not without drama. offstage forbooed failing to directly endorse his rival. the texas senator urged voters to think of the constitution when they cast their ballots. we've got our bloomberg politics reporter, sasha issenberg, live from cleveland. never a dull moment at this convention. was the cruz speech a surprise? sasha: it has been a guessing game for a few weeks. had trump made that a condition to speak incruz such a high-profile slot? it was clear that cruz was never going to fully embrace trump, baihe almost seemed to be

t his audience. people saw that as a way of telling conservatives, even if they are going to cast a ballot of them are, they are under no obligation with trump. manus: and trump teams to have offered some more clues on his foreign policy in terms of america's commit and the nato. -- commitment to nato. sasha: an interview came out last night as things were going on here. one of the points trump made when asked if he would protect eastern european nato countries against russian incursions was to suggest in the case of the baltics that he would review their donations and whether they had been living up to their obligations under nato treaties. the implication being that he would not necessarily come to the defense of the baltics.

i have a feeling we are going to be hearing a lot from the capitals on that today. manus: absolutely. so all eyes down. let's see what the next 24 hours brings from cleveland. that is our politics reporter, sasha issenberg in cleveland. keep an eye on dollar-yen. we've had this latest statement from the governor and the bank of japan saying that helicopter money is not on the agenda. dollar-yen, dollar down, yen rising. kuroda said there is no need and no possibility for helicopter money. everybody has been focused on what happens next in terms of fiscal stimulus that may come from the bank of japan. stay with bloomberg. you've got guy johnson, tom keene, having a conversation

with the head of microstrategy at alebris investment. also going to talk politics with the bond and central-bank policy with pimco. this is bloomberg. ♪ \

♪ tom: draghi press conference. the ecb president will select tools from his cutie infinity toolbox. is.erto gallo of algebr n declares adoga state of emergency. to 2020.es on this is bloomberg surveillance live from our world