francine: don't rule out september. a rate hike is possible next month. markets underestimated the fed weekend. pesky watch out the letters stress tests. we'll talk to the director general of the country's banking association. they $5 billion deal with didi said to move -- set to merge with china's uber business. ♪ welcome to the pulse.

i'm francine lacqua. let's get to the markets. but we are getting a little bit of data. this is a picture from eurozone manufacturing for july. the survey was 51.9. we got plus 52. this is the picture for today. you can see banks on the backside of those stress tests a little bit lower. i wanted to show you yen went up -- .34. to four european stocks gaining a touch. let's get straight to bloomberg first word news with nejra cehic . nejra: data on chinese manufacturing in july has left analysts scratching their head. both gauges little significant this year in china's important manufacturing sector. .ber will emerge with didi

that is according to people familiar. they say the new company will be valued at $35 billion. business loans and u.k. are set to shrink to the lowest in more than a decade since weaker economic prospects are following the brexit -- total will -- thet -- and a number markets have recovered from the shock of brexit. in managing director said strange and said the eu and the backlash toward trade in global position may threaten growth. he told bloomberg that he is pessimistic about a turnaround and trade. grexit traders turned into -- with the problems looking forward implied by brexit and

the need for the u.k. to negotiate trade deals, the opposition of the u.s. from both , the likelyndidates delay in the agreement between the u.s. and europe, it is hard right now to be optimistic about trade turning around. nejra: global news, 24 hours a day, --global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. i am their chairs, this is bloomberg. francine: two presidents are sounding off on the central bank will raise rates. -- robert he will not kaplan says a hike to come is soon as september. >> and think september is very much on the table. i think we'll have to see how events unfold. it is too soon to jump to conclusions on that. i have learned as a central

to makewe've that time a judgment between now and the september meeting. i wanted to take advantage of it time. to job reports between now and then, want to get the benefit of that information before commenting. francine: investors put the chances of a rate hike and roughly one in three and the odds of an increase by the end of next year are only slightly better. for more on the fed's next move, let's bring in ashok shah. thank you for joining us. we need to start with the fed because the fed is the biggest unknown or the one that is likely to move in the markets in one go. are they dovish echo on a more dovish than they were couple of weeks ago? ashok: if you look of the data that was coming out last week, it was pretty bad. the downturn in the inventories indicates they're going forward.

you do not get that kind of movement. the main reason you get the pressure to think about raising rates is really due to the fact that [indiscernible] the wages begin to rise. when we have seen is the first sign that wages are picking up in the lower income categories. that means the pressure is greater building but a lot of that has to do with the minimum wages being raised gradually over the next year or two. that is going to have an impact. really, the most important thing in any political decision, do you raise rates ahead of the election echo francine: why would you? the most difficult thing they have is if they have a great jobs number or data saying you need to start hiking rates now, it puts them in nature he situation. why would you do something just a couple of weeks before the presidential election? ashok: the fed does not want to

enter into the political debate of having to defend its action in terms of -- of the outcome of the election. any guidance in terms of when the rate rises going to be effective. the important thing to remember is in the last few weeks, the third item that was boring the fed which was the international risk environment brexit, things have been calling down on the front end that allows them to be more optimistic about when they can signal the rate right -- the rate rise coming. francine: this is the w.a.r. functionction -- w irp . it is still below 40. quinn would be the optimum time? >> december would be the mode december top -- december will be the more appropriate time.

we need some spare ammunition in case a year or two for years now it is necessary to help the economy. rather than getting the interest rates down to zero level. it is a tough question because the global markets already driving the 10 year down. very close now and u.k. to coming to just under zero like in europe. brexit would take a year or two years. u.s. is going to be dependent on the global economy and one that is common down gently and we see no serious pick up in the world gdp right now. we're closing at 2.5%. the data coming from china and asia are not that bullish. francine: will talk a little more about asia and europe, including the -- ashok shah, the

investment director at london in capital to stay with us. coming up, italy's bank stress and one of the country's biggest lenders seizes y doubt it was be to the director general. uber has a right in china. the taxi building company plans a merger. we will bring you that story and the bank of england cut rates. we'll bring you some of the key economic data mark carney will be watching. this is bloomberg. ♪

francine: let's get to the bloomberg business flash with nejra cehic. nejra: uber will emerge its chinese business -- that is according to people familiar. they say the new company will be valued at $35 billion and they will continue to operate its own app in china. china is considering a sweeping overhaul of its steel industry which would consolidate major steel producers into two giants. that is according to people familiar. the nation's biggest mill by output and show them group will be combined into northern china steel. shanghai and wuhan ins deal will be merged into sovereign china steel group. shawnee -- sony shares have risen after the company posted a profit.

analyst we surveyed were expecting a $308 billion loss. the playstation division outweighed the impact of the earthquake which shut the main mammoth -- the main manufacturing -- nintendo has fallen after the hit game can one go dropped in japan. last week, shares posted their biggest decline in more than two decades. while pokemon go has been a social phenomenon, they do not expect a major earnings boost from the at. panasonic shares have longed in tokyo after reported worse than expected first-quarter earnings on friday. net income fell 64% from the same period from a year earlier. -- 5, 7ncluding goldman and 10 year notes. one of china's most takeover hungry groups is scaling back. they have snapped of assets from

cirque du soleil over the past couple of -- over the last couple of years. the ceo spoke to bloomberg television. >> i believe we have ample capability to get investment grade rating. -- thattrategically this has become our strategy. nejra: that is the bloomberg is is flash. -- italy's is the third bank to have its y doubt in the exam. yenhis is on the back of and concerns over the stress test and some the weakness we saw in core tier one capital ratio. jennings now is giovanni sabatini. -- joining us now is giovanni sabatini. great to have you on the program . first of all, in your eyes, are

these credible? there's been a lot of speculation these stress tests could of gone further and therefore it leads to concern. giovanni: the results of the stress test confirm the resilience of the european banking sector, including italian banks. surprise aftero the work done by the european banks to strengthen the character base after the investment. the core equity tier one ratio has almost dabbled us since then is theg 13% which starting point. these results are positive for italian banks. that in theank

arst case scenario showed .roblem shortfall of capital the very same day, he announced a substantial plan -- exceptional nature. we think that -- francine: will it the enough? will what was announced on friday been up to shore off what three previous plans in the past did not do? giovanni: i think they have announced a measure that will be bankcient to restore the capital base, the very important thing is the ecb has approved the plan. also the worst-case scenario,

the capital shortfall is about 5 billion euros, so not considering other positive effects stemming from the sale of -- the selloff of the nonperforming loans. a capital increase of 5 billion euros. the shortfall will be matched by the new measure. francine: what is your biggest concern? you talk about nonperforming loans. we have to have a decision by the commission and european union on whether these aliens will have to apply. will it be the and of the world if it did? giovanni: the amount of nonperforming loans at the italian banks is the legacy of crisis ineepest italy. lastst 10% of gdp over the stressrs which is a real

, not a stress test. italian banks were able to resend this crisis. showing in the event of an sufficientstress with resiliency as shown by the results of the stress test. issue.orming loans is an does it mean overvalued by markets? the issue has been addressed both by italian banks and bite the italian government. the italian government says that important reform to address one of the major issues which was processth of judicially -- judicial process to repossess collateral. to estimate that's we estimate this measure will be sufficient.

i think nonperforming loans is an issue but it has been overvalued and currently being addressed by banks. francine: one quick question. it is down 5%. there are involved in monte possibly. -- do they need to raise capital? giovanni: as the attorney banks association, we do not comment. i think overall the credit performed well during the stress test. the needhere will be for capital increase is something will be discussed by with the single , thevisory mechanism

capital guidance was will be released during the rep process in september. francine: thank you so much free time. giovanni sabatini. for more, will speak to kerala schuler.-- carola up next, uber hills a right in china -- uber hails a ride in china. the company plans a merger. will be back with ashok shah -- we will be back with ashok shah. this is bloomberg. ♪

francine: uber is to merge its china's business. investors in newburgh china are expected to receive a -- investors in uber china aren't expected -- are expected to receive -- lulu, great to have you on the program. --u: exactly, creditor -- thaty, nation of the we have seen between uber and didi. our understanding is uber will end its investors -- will be taking a 20% stake in the new entity that they are forming, basically didi acquiring uber china's business and italy amassing $1 billion in the global entity and some benefits for didi in terms of global expansion.

francine: white is uber doing this? lulu: largely -- francine: why is uber doing this? the merger is being driven by the two companies it -- two companies. uber alone lost $2 billion in the charter market last year. if you look -- in the china market last year. the government is a stimulating the price for where they were offering prices lower than costs has to come to an end. both companies trying to wrap up the saddle and turn profits before they can talk about ipo's going forward. francine: lulu, thank you for the update. manufacturings sector must discretionary today. the official pmi is down. thought to ashok shah.

china, we have not talked about it for a while. we have this huge volatility and .razy markets last summer january, then we believe everything stable. are we right? ashok: raleigh right. just broadly right. -- broadly right. it went quite sharply up in the first quarter. it lifted the slowdown. again, unless the -- they continue for the fiscal boost, the economy will continue to come down because the manufacturing side is still relatively calm. that is what is driving china. rebalancing which is a way for exports to do -- is a very slow process and of course from time to time, the economy slows. it is slowing down because of exterminate -- external

environment. the does not have transition delayed even further. francine: it is government help, right? it is injecting money so it is an economy where we can trust the numbers. it is not so fulfilling. is to go to get a bso into some capital spending. the liquidity comes out of the agencies, out of the banking sector or corporation. this is all very temporary relief. more medium-term, they need to go in change the direction of the economy to be much more the massively driven. -- be much more to mystically german. is -- becauseing the prices go up very quickly. they need to keep it under control. they can only give it

[indiscernible] francine: we -- we started this conversation by talking about the fed. what is the biggest risk out there that the fed should be watching out for? ashok: the biggest risk, we have had -- turning around and stabilizing. the oversupply situation still is quite prevalent across the board and all commodities from energy all the way to the basement. the commodity price getting down again. we have this fear of an biggest -- having to raise capital and we have a nonperforming loan -- a nonperforming loan cycle. we haven't had a real we organization of energy companies in the u.s. that really needs to take place to move the risk from the system -- to remove this risk from the

system. francine: ashok shah, thank you so much and coming up, we talk brexit and economy in the u.k. ♪

francine: welcome to "the pulse." we are getting manufacturing pmi at 48.2. we were expecting 59.1. i don't know if we have a pound chat, but it is one we need to look out or. pound, 1.3 to 18. we are looking at what it means

for the future and what it means for mark carney. let's get to first word news. nejra: manufacturing has left analyst scratching their heads. -- has jumped to the highest since february of last year. investors are underestimating how may times the u.s. central bank will raise interest rates this year and next. the pace lower than previously thought. investors put the chances of a rate hike at roughly one in three and the odds of an increase only slightly better than even. shrinks loans are set to to the lowest in more than a decade as weaker economic prospects dampen demand. contract tog will

1.8% next year. the outlook is a picture of gloom that may prompt the bank of england to add stimulus. thei aramco has lowered price of crude by the most in 10 months. $1.30 toe cut by $1.10. the new pricing as part of a battle pricing share templeton global iran. francine: the u.k. central-bank cut rates. those numbers,f let's bring in jamie murray. thank you for coming on. when you look cap pmi, they were weaker than expected. >> the pmi needs a bit more

detail. it is a balance of opinion. it doesn't tell you how much output is slowing, just that it is. it is kind of important. you have this reading that is very weak. either there is strong consensus growth this slowing a little bit or it is falling off a cliff. we think it overstates the weakness in growth. francine: you are expecting low growth, but not a recessionary environment. >> it will post it may be some zeros, but we are not asked to major recession, not like we had . we don't see the same hysteria here. business investment is going to be weaker. a lot depends on households.

if they stop spending, we will have a recession. going and it looks ok, maybe we will not have one. francine: you can see investment being pulled that. find out the economy is not falling off a cliff, or if it does, when will it? for gaugesg to watch are consumer sentiment. if consumption growth slows, that is what it would take to have a recession. the damage is restricted to investment, that will have enough effect on jobs and wages. someone restricted to businesses holding off on investment plans and we are not off or a big crash. the thinking on where the economy goes from here, in terms of what the boe will do, is rates lowered a done deal?

>> i think they will do that. know the economy is going to be slowing. one snowflake does not make a --. they want to see more about how the outlook is changing. butcould do qe this week, there is no need to. you could delay it another month or longer. francine: and a month or two we will have a more clear picture of sentiment. you will see measures on what is going on with demand, rather than one indicator. the longer we go, the more clear the picture is going to be. purchasesff on asset and you save those for if you need them later. francine: thank you. we are just getting breaking w.e.from our

electricity german company. we will keep an eye on it. it is a benchmark for these industrials, especially one of the big electricity exporters in germany. markets are a little volatile, not really having a huge direction. let's head to the bloomberg with mark barton. mark: fifth day of gains after the third consecutive weeks of advance. the worst performing industry is the banking industry. the banks in of europe, all 48. it look at the best performing bank, up by 4%. it is the oldest bank, also

europe's riskiest. it has been bowed out twice by the italian government since 2009. it plans to sell 5 billion euros of stock. see.esting to performer onorst the stoxx 600 food and beverage index, very clearly heineken. brewerld's third biggest reported sales growth that missed expectations. this below par performance upsetting estimates. heineken down by 2.7%. it is cutting the prices in more than 1000 items by an average of

18% in a bid to squelch fears brexit will lift shopper's bills. it is the third round of major cuts by morrison this year. have brexit has fallen, we had concern retailers would raise prices in response. imports fresh produce and other items. about 40% of food bought in supermarkets is imported according to a researcher. wm morrison supermarkets down by 2.3%. francine: stay with "the pulse." plenty coming up. lenders are tested for resilience. discuss a new report by

mackenzies on global income and equality. that, coming up your way. this is bloomberg. ♪

francine: moody's show banks are resilient under adverse conditions. the managing direction -- managing director joins us to discuss results. there were concerns about

italian banks. are these tests credible? mosterall, we have seen european pranks -- most european -- and they to be came out better than under the 2014 stress test, despite the fact that these scenarios that were developed for the stress test were more comprehensive than last time. somewhat harsher assumptions were used, as well as additional risks.such as conduct france's overall, the results have critics, they have not tested their main weakness, their shortage of loss -- capital.

investors want to know whether european banks have enough capital. did we do that correctly? >> at banks proved to be resilient under these scenarios. the tests or used as benchmarks at the end of 2016. in capitalaced levels, but close to it. weer these scenarios, observe most of the banks came out with capital ratios above 7% 8%, which we consider level underonable solid stress conditions. banksne: how can these deal with these bad loans hurting their balance sheet and

a fulfilling their main function, which would be lending to the economy. >> the italian banking system 360all is suffering from million loans on the banks' balance sheets. for the purpose of this test, five were selected. resilientd relatively results, with the lowest coming 7%.bout this is one of the key factors. recordre also able to resilient or satisfactory incomes under the stress scenario. with theof how to cope burden of problem loans in the banking system, the government has announced or introduced a .umber of measures

these measures have not proved fully efficient so far. it may take time for the banks to overcome the key weakness in that system. end game what is the for the italian banks? will they have to buy into the bail in program or will they be more flexible? >> can you repeat the question? in questione bail for italian banks, how much will they have to abide by it or will the eu the more flexible? the banking resolution and recovery directive is in place -- effective since 2016 across all european countries and italy is no exception to that. howemains to be seen

potentially necessary recapitalization will be performed. -- has announced another set of measures to address their problems of bad loans and capitalization, which relies on private investors and solutions. this plan is subject to major execution risks. if it is executed successfully, it will be beneficial for all monte paschi. out at eight came 2018 capital ratio of 17.8%. 8% stress short of capital level observed that many

other banks. there are two or three main reasons or drivers for this result. bank, ase, deutsche much as other german banks recorded credit losses under the stress scenario, compatible with credit risk in the german market environment, the second point is that deutsche bank, as many other german banking and tensions, theered harsh erosion of interest income under the stress scenario due to the fact german banks have modest net interest orgins that are subject to exposed to these scenarios the epa put in place under their stress test. one additional component to be

mentioned is that the major component of the results that affected deutsche bank under the stress test were the effect of -- phase-in. they account for 40% of the stress lost results. these effects are already captured or included in the bank's capital plan. what is the prescription for weaker banks? consolidation seems to be out of the question. >> if we talk about weaker banks, you have irish banks in some of the austrian banks that came out comparatively weaker under the stress test. austrianse of the bank, the stress test results were a function of them being exposed to cross the border

exposure and operations in more volatile countries in central eastern europe. impactedptions have those results. system hasn banking to catch-up in terms of increasing their capitalization further. the austrian banks started into the stress test with comparatively lower capital levels compared to others. there is more that needs to be done in terms of raising capital . regarding irish banks, they performed well under the baseline assumption or baseline scenarios, which is reflective --the word every of the reflective of the recovery of the irish economy. under severe stress scenarios, the level of problem loans,

still on the balance sheets of irish banks results in harsh losses. francine: thank you for your insight. great comments there. in the last couple of minutes, we have had breaking news. did chuxing is buying uber c hina. we will hear from the former israeli president on the possibility of a trump presidency. this is bloomberg. ♪

francine: let's get to the bloomberg business flash. u.k. manufacturing shrank, suffering its biggest drop in more than three years. the purchasing managers index reading ofow the 49.1. the report suggests britain's decision to leave the european onon may have a harsh impact the economy. china is considering an overhaul of its deal industry. that is according to people familiar with the plan. buyout point --

mill by output will combine with --. the number two producer will steelinto southern china group. sony's shares have risen. were expecting a $380 million loss. strength in its playstation division outweighed --. has fallen after the hit game pokemon go dropped from the top of cap download charts into pan. -- charts in japan. the company has said it does not expect a major earnings boost from the app. itasonic has plunged after reported a worse than expected

first-quarter earnings. net income fell from the same period a year earlier. it plans to sell nearly $4 billion in bonds. banks to look into the sale of notes. a group is scaling back its buying spree in china. it is focused on getting leaner. the ceo spoke to bloomberg television. >> we have ample capability to groups rating.t this has become our strategy. nejra: that is the bloomberg business flash. elliott gotkine sat down and asked if donald trump would be good or bad for israel.

>> you think whoever becomes president will be the same as usual or do you worry about his comments about muslims and immigrants that maybe this is not someone that would share the same values as you would feel are part of the soul of israel. >> i do not want to get involved in the american elections. it is sad to suggest america will disconnect relations with nato. we leave the whole field open. america is the first superpower in the history that did not take --. i am telling you, leaving is

wise. you create friends and friends are the most portable enterprise you can have because to have enemies is very expensive. you waste money and time. ♪

francine: don't rule out september. the dallas fed president said a rate hike is possible next month. u.s. job data on friday. the latest european stress tests. sizable hit.ered a uber takes a ride. i'm francine in london. tom keene is in new york. a most interesting start of