francine: brexit has housing u.k. properties go low. not dovish enough. the reserve bank of a new zealand cuts. and crude oil below $42 a barrel. oil holds its losses. welcome to "the pulse" live from bloomberg's european

headquarters in london. we are just getting some breaking news out of the international energy agency. they are one of the best barometers to understand the supply and demand balance when it comes to oil. they are seeing market rebalancing despite the record gulf production. yesterday, we found out that we understand saudi arabia is pumping at record highs. put it against the disruptions we saw in venezuela and nigeria, and that stockpiling the u.s. which beat estimates, and this is a picture for crude. this is brent. states iswti in the still below $42. iea saying the market rebalancing is happening despite this record oil production from the gulf. what they mean is saudi arabia. that is nymex. let's get straight to the rest of the markets. i wanted to show you the new

zealand dollar. we are seeing that higher. pound below 1.30. we had some disappointing news for the housing market. let's get to nejra cehic. look researched to a one-year high after the reserve bank of new england cut rates to a record low of 2%. traders deemed the decision insufficiently dovish amid the global eagerness for yields. the pboc has set the highest yuan fixing since the brexit vote, one year after the shock devaluation that unnerved little markets. it is set to join the imf basket of reserve currencies. options traders are the least bearish on it in almost two years. a gauge of volatility has declined to its lowest level since november.

valeant pharmaceuticals says it is cooperating with authorities in new york after the wall street journal reported that the company is under investigation. it said federal prosecutors are examining whether valeant and a mail-order pharmacy hid their relationship. the founder of alpha at's venture capital is to leave the company on friday. he built a silicon valley powerhouse, having created google ventures in 2009. david crane, a veteran of google, will exceed maris. a man who wanted a private audience with donald trump spent three hours scaling the glass facade of trump tower using suction cups. he climbed as high as the 21st floor before officers grabbed him through an open window. police say the climber posted a video on youtube entitled "

message to mr. trump," in which he said he had an important issue to discuss. global news 24 hours a day powered by 2600 journalists in 120 countries. i'm nejra cehic. francine: thank you. we are here with gilles moec. first, brexit. it has hit the u.k. property market. sales dropped the most since 2008. earlier, the chief economist told us about the economic impact of the u.k. referendum. >> perhaps a knee-jerk response in the immediate aftermath of brexit was a little too estimates stick, but they are -- too pessimistic. but they are still relatively subdued. there's a little more optimism compared with last month's reading. we have had an interest rate cut. we have had talk about money being made available.

i think that does support confidence. francine: that was the chief economist at rics speaking to us earlier on. our guest is gilles moec from bank of america merrill lynch. a pleasure. i'm so glad you are not scaling any walls to get here. brexit, we've talked about it in the past. no one can really figure out what the long-term effects are. we don't know how confidence will perform in this. what does property tell us? can you read more into it about general sentiment? it seems that last month it was in catastrophic mode. now it is just plain bad. i don't think it is such a strong rebound. if we try to look at all the data we've had so far, it seems there's a contrast between everything that has to do with collapsed,which has

and more pointed questions on outputs, which have done kind of ok, not as bad as sentiment. we're quite comfortable at the moment with our sense that what we have is a very shallow recession. it is less than what the direct reading of pmi would tell you. the u.k. would tell you pmi is consistent with contraction. shallow recession. it is more about pessimism than actual company decisions at this stage. blowt is still a very big to the economy. but maybe not as bad as what the headline figures would suggest. francine: did you follow closely the fact that the boe hit a snag on day two of qe? they said, we will wait until november to fix this, which means they are expecting another uncovered option. gilles: the bank of england was

a victim of its own transparency. the ecb probably have similar issues in the past, but we wouldn't know about it because the ecb has always implemented qe in a more discretionary manner. to some extent, the bank of england is a victim of its transparency. francine: is that a bad or a good thing? you can argue that you can change the disposition of how many longer maturity bonds you sell. is that too simplistic? gilles: it is never a good thing anyway because of the signal it sends. asis as much about signaling it is about transmission channels. something the ecb constantly talks about. if you wake up yesterday, you read the british past, it is all about, qe failed. qe did not fail. it is too early to know if qe failed.

it is not that easy technically. in any case, it is not great. i don't think that it changes the stands, don't think the bank of england needs to think hard about the stance as a kind of fringe consequence. more, there to do is likely to be more on how to take the base rate down. they say they are ready to do that rather than magnifying qe immediately. francine: why do they just not go out and sell longer maturity gilts? gilles: they could. we proposed the bank of england would get into swaps. it is always our message about qe. you can tweak it a lot. i think their reaction yesterday was the right on, not to overreact to what was maybe a technical snag. it happened in august, which is never a great month for liquidity.

the following option when very well. there's no need to overreact. what makes me a bit nervous about this general sentiment now in the market and maybe also in the real economy, that qe is not that great. a year ago, anything the central bank could do was great. it immediately triggered a positive sentiment. this has changed. francine: ok, thank you so much. stick around. i will ask you whether they need to do more. gilles moes stays with us. stay with "the pulse." plenty coming up. germany inc. reports its last day on the dax. then, crude conundrum. oil in a bear market. saudi output hits a record. and audi's july figures. can the luxury brand catch up with mercedes and bmw?

this is bloomberg. ♪

francine: this is "the pulse." i'm francine lacqua in london. let's get to the bloomberg business flash with nejra cehic. nejra: zurich insurers second quarter profit fell. to 739ome declined million dollars, but beat analyst estimates.

ceo mario greco is trying to make the company more efficient by cutting jobs, selling assets, and combining the biggest units. valeant pharmaceuticals said it is cooperating with authorities in new york after the wall street journal said the company is under criminal investigation are allegedly defrauding insurance. and reported that federal prosecutors are examining whether valeant and a mail-order pharmaceutical hid their relationship. the founder and chief executive officer of alphabet's venture arm is to leave the company on friday. maris build a silicon valley powerhouse, having created google ventures in 2009. david crane will succeed maris. that is your bloomberg business flash. francine: thank you so much. we've had results from a german company this morning where third-quarter profits beat estimates. corporate earnings helped propel

the dax into a bull market. let's bring back gilles moes and richard from frankfurt. richard, let's start with the results today. who have we heard from and how strong where the numbers? four companies from germany's dax reporting today. score. it is 321, the a maker of adhesives and washing detergent, the operating profit beat expectations and the operating margin will surpass the target the company had given out for the full year. roseche telekom earnings almost 9%. a slight beat in the second quarter. fiscal guidance for the full year confirmed new customers added at the t-mobile u.s. business. thyssenkrupp, not that obvious at first glance.

profit down 18% in the third quarter. china is flooding the market with steel. still, analysts had feared worse. this is a beat. the only down one of those , theting today is rwe german utility in western germany. analysts had wanted to see more. francine: how does that all fit in with the dax rally? dax has been in a strange situation, rallying more than 20% since february. we've been waiting for more fundamental data to prove that is right. things like trading volume have been missing optimistic forecasts for the year. the earnings forecast for the dax have come down. it doesn't fit the picture.

yes we had some heavyweights, including munich re-and siemens beating expectations, so you can argue with the season wrapping up and three out of four companies reporting today , butng, it fits in investors want to see more proof that this rally can be sustained. francine: richard, thank you. let's get back to joe miller. -- gilles moec. markets are going up. the economy is not doing great. inflation is difficult to spur. in a greaty is not place compared to eight months ago. gilles: the real economy in the eurozone is decent so to speak. most of this ok resilience comes from policy.

it comes from monetary policy and increasingly fiscal spending. it is not instantaneous growth. it is really growth on crutches. better than nothing, but definitely not great. the market also takes on board the message from monetary policy. what we see is the conjunction of extraordinarily low interest rates throughout the yield increasingly in the periphery. you see the corporate bond market being completely flattened. that is -- francine: that is incredible, isn't it? i think the price differential between a spanish 10-year and italian 10-year is nothing. gilles: it is what the ecb wanted to do. i always have this issue when we start talking about bubbles in

the context of the monetary policy we have. qe and conventional policy is about creating bubbles. you want to artificially reduce the risk premiums. you want to artificially skew the market. francine: how does that help the real economy? gilles: it does in a strange way. first of all, i think it is a bit ignored. when you look at where profits come from, from an aggregate point of view, a lot of it comes from the fact that costs have collapsed. it is not real operational profits. it is simply the fact that low interest rates have generated this very nice saving that helps. it means that companies don't have to shed labor. they can actually invest a bit more because they get a bit more money. you also have the possibility to get the fiscal push that we have

now. francine: is there a flip side that you are keeping zombie companies alive? and unless we see real growth, as soon as interest rates start rising in europe, we see defaults from corporate europe? gilles: but what is the alternative? i accept that. i started writing about zombie companies in europe and some of it, yes, probably is true. the reason why aggregate productivity is so slow in europe at the moment, some of it probably comes from the fact that companies are not producing enough. but they kept people on the payroll thanks to interest rates. that is true. the alternative was a complete collapse of the european economy. what the ecb has been saying all along, and i think they are, it comes at the end so no one

listens, it has to become demented structural reforms. -- to be complemented by structural reforms. francine: so short in the communique so we get to the fiscal points. there we go. thank you so much for now. up next, the terror threat takes center stage in france and germany. we are live in paris. this is bloomberg. ♪

german chancellor angela merkel's government will today introduce measures to bolster security after paris index last months. in paris, france wildland finds himself stuck between opposition and his own socialist party that wants to protect democratic freedoms. greg viscusi joins us from paris. joe malec is also -- gilles moec is also with us. terror replacing economy as the main issue in the election. greg: that is the case. even after last year, whenever people were asked about the main issues in the presidential election, it was always jobs and the economy. security and terrorism was important, but far behind jobs and the economy. after this year's attacks, which seem even more random, and really raised the fear level,

terrorism is right up there. terrorism and security now listed as important as jobs in the next elections. francine: what does that mean for hollande? one of the things i was quite surprised at his so many questions about how security was handled and the communication after the nice attack. it is amazing we haven't seen anyone really lose their job. is that fair? greg: i'm not sure if that is fair. i think people do understand that it is almost impossible to pick up these lone wolf attackers. the last two attacks in france have been of a lone wolf variety. that is not to say mistakes weren't made, basic policing mistakes about traffic control in nice and one of these hackers that was let go by a judge after he'd spent 10 months in jail for trying to reach syria.

it is true that mistakes were made. on the other hand, that level of policing, i've not really heard of any serious calls for anyone to resign. but it has raised the sense of, is the government really in control of these issues? it is hard to say if it is worse for hollande to run on his economic success or lack thereof , or run on security. in both cases, he's a very weak candidate. francine: thank you for the update, greg viscusi in paris. let's return to gilles moec. the problem with france is there so much structural reform. they have a disinflation problem and political upheaval isn't helping. gilles: it is not. there was something that francois hollande said after the attack at bataclan at french parliament. he said, the security pact trumps the stability pact, which

was a clear message to europe. we going to focus on security issues, national defense issues. there is still this homework to do on structural reforms and so forth. for the time being, the priorities are not there. it is probably a normal response from a state facing the sort of challenges. very often, you would expect the next general election to be about the economy. to some extent it was the case in 2007. in 2012, it was about national issues, andltural so forth. the debate on reforms always comes second. whoever becomes president has trouble pushing through these reforms because they were never at the forefront of the debate when people had to choose. francine: almost like you have a mandate but it is not the one to

push the economy forward. gilles moec from bank of america merrill lynch. up next, the outlook for oil. global markets will rebound, says the iea. that as crude languishes. ♪ [ hip hop beat throughout ] [ fans cheering ]

♪ olympics 2016, let me get you on my level. ♪ ♪ so you never miss a moment, ♪ ♪ miss a minute, miss a medal. ♪ why settle when you can have it all? ♪ ♪ soccer to wrestling. track and field to basketball. ♪ ♪ fencing to cycling. diving to balance beam. ♪ ♪ all you have to say is, ♪ "show me," and boom it's on the screen. ♪ ♪ from the bottom of the mat, ♪ ♪ to the couch where you at? ♪ ♪ "show me the latest medal count?" ♪ ♪ xfinity's where it's at. ♪ welcome to it all. comcast nbcuniversal is proud to bring you coverage of the rio olympic games. [ clock titime. ] you only have so much. that's why we want to make sure you won't have to wait on hold. and you won't have to guess when we'll turn up.

because after all we should fit into your life. not the other way around. francine: welcome to "the pulse ," live from european headquarters in london. i am francine makua. -- francine lacqua. nejra: the friend -- the kiwi has surged to a high. it was lower to a record low of 2% but traders deemed the decision insufficiently dovish amid the yields that have been spurred by global monetary easing. the pboc has set the highest

yuan fixing since the brexit vote, coming exactly one year after the shock. options traders are the least bearish on it in almost two years. outflows have slowed and the gauge of volatility has climbed to its lowest level since november. valeant pharmaceuticals says it is cooperating after the wall street journal reported they are under criminal investigation for allegedly defrauding insurers. they are examining whether the alley and and philidor hinted their relationship -- hid their relationship. venture armlphabets is set to leave on friday. bill marist built it into a silicon valley powerhouse. veteranane, a 17 year

of google well succeed him. theresa may is shunning the european and her vacation choice, taking her vacation in switzerland. her pounds will buy fewer swiss francs. sterling has fallen 11% since the june referendum. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. cehic.jra this is bloomberg. francine: the iea sees the oil market rebounding beside -- despite record saudi production after crude reentered the bear market last month. there is little sign of an output freeze as saudi arabia's production hit a record in july. alex griffiths, thank you so much. how difficult or impossible to predict the price flow output?

whichwe have a price debt takes it to about $40 next year. the very short answer is no one knows. what we do know is earlier this year we had the prices below $30 . at that point you start seeing short-term cash losses so that is unsustainable. as we got near $50 there was the concern, our u.s. producers going to start to come back? it is healthy and where the majors are talking about they are able to make their cash flows and dividends at that point. $50 is comfortable. in the 40's is less clear and low 40's is probably not comfortable for anybody. to price debt was revised $42 this year and we are expecting significant free cash flow, about $11 per barrel. covered opec for

nearly a decade and it was very clear that the cartel had a price target. they would not tell you but you could guess it. now between shale, the oil rigs, and stockpiles, in blue is wti, it is amazing how it fluctuates simply on the stockpiles. alex: it is the danger of having too high-frequency data. you get this weekly and oil trades on that. the u.s. is about 10% of the market and it is a market which has still a lot of imports and exports -- mainly imports, influencing the stockpile. a stockpile in one part of the world is not that telling. about twiceles are normal, and there is a big glut. francine: how do you figure out

china? we have toine, and look at gasoline as a good indicator. i saw a report from one of the national oil producers that gasoline will peak for china around this year. how difficult is it to really understand real demand in china? alex: china is just a complete puzzle to everybody. francine: that is fair. alex: one, it is growing still. as a 10%? is it 4%? it is still a significant material addition to global gdp. addition to chinese wealth that the movement of investment to consumption. that athe largest item person buys, a car. chinese gasoline demand has been going up reasonably solidly. where we have been seeing more

negative is in the diesel side. essentially diesel, because europe is a bit weird, diesel is typically pegged to industry gasoline to consumer. if you look at car ownership in china more generally, current levels are essentially at the level the u.s. was at in 1920. there is a huge gap and those cars have smaller engines, they will be partly hybrid, etc. francine: what is your take on metals or raw materials? in twohas made a rally weeks but it does not have to do with supply and demand. it has to do with the fed and the impact on the dollar. alex: it has to do with the correlation between all the different commodities. it has got all the commodities plus oil, and there is some kind of national -- natural hedge.

they have all essentially moved together so a lot of what we are oil is theimply, biggest commodity out there in terms of trading volumes and it does move the whole market. copper is probably one of the better stories in commodities we think because balancing is going to happen in a couple years time. there is still a surplus in the market and copper is notoriously prone to production problems, essentially. it will be a couple years before it balances, and that is the difference when we look at commodity players like the oil companies, maybe we can come -- that talk about the has just come out, but you can see the oil market closing. something like iron ore there is more supply coming on and the people bringing the supply on or not blinking. francine: we see it with think. -- zinc.

production was curtailed and that has a impact on the price. griffiths stays with us and we will be talking a little bit more about some of the oil majors. can they balance their cash flows as the oil price continues to languish in the 40's? is audi a contender? can gw's luxury brand compete? places, newow zealand cuts interest rates to a record low. this is bloomberg. ♪

francine: markets flat-ish this morning. let's stood -- head to the bloomberg. nejra: we are seeing european stocks holding near a seven-week high but pretty much unchanged if we look at the stoxx 600. pretty much flat. upd and beverage companies almost 7/10 of 1%, the best performers. oil and gas companies lagging at the bottom, both down more than 1%, not surprising with the weaker oil prices we are seeing. one of the best on the bench is europe's -- it

largest tour operator. a sign that terror attacks are cutting growth but it did maintain its outlook for increased profit. probably why we are seeing these gains. i wanted to show you the dax because we have seen it going to bull market territory this week and it is still up 20% from the february low. what we have seen is it move into overbought territory, heading above 70, above the red line on the relative strength index and that begs the question, was the rally too far too fast? the last time the dax reached in november, a tumbled 43% in the following months. mrr at theo that various performers, and quarter of 4.4%. the german maker of adhesives.

they reported second-quarter profits that beat analysts -- analysts estimates. germany's largest steel maker is down more than 4%. fell 18% asrofit record exports from china continue to put pressure on prices. finally moving to currencies, i wanted to show you the kiwi dollar because we have seen this rise to a one-year high despite the fact the central bank cut interest rates. the market saw it as insufficiently dovish. francine: let's continue our conversation on oil but turn the focus to the oil majors. we have just come out of the reporting of the second quarter. they all missed estimates. what impact is the low price having on these companies? let's get back to alex griffiths. thank you so much for sticking around. when you look at the oil majors,

and you focus on the debt side, they have a huge concern that they need to give back to shareholders. there is so much pressure for these companies to give back. that hurting their ability to invest in the longer term? alex: if we look at investment, it has fallen last year, far less outside the u.s. but very material falls. that is going to happen again this year. it is not necessarily as bad as the headline figures look because what you have had is not just cutting projects but also costs coming down, costs of rigs, for example. if you look at graphs of sanction projects, the projects that will keep supply up over the next 20 to 30 years and will come online in about five years, the number is very low by standards. you get people warning, and the iea warns that there might be a

crunch in the next few years. that is not that outlying a scenario. it is actually quite possible. they are cutting back on the. -- cap x. last year, prices fell a bit, a cut cap x a bit. what you do not want to do is go through a four-year project and .top before it comes in line you want to finish it so people finish off projects. francine: these are dangers in six to seven years because of lack of investment, because the price is all over the place, they are not finding new oil and therefore the price shoots up to $100 fairly rapidly. alex: it is not so much the case of finding the oil, it is more to do with production. there are enough reserves to cover us for quite a while but

it is investing to make sure it comes out of the ground. yes, you are right, there is a risk of that. is seen as the thing that can be brought online and it is more the manufacturing process in your traditional, massive, deep water development that takes you five years. i know the ground, i know how much it costs, i am pretty sure i can get oil out, and six months i have oil. the question is, is that going to be enough to make up for any shortfall? when you are looking at the barrels,m, 4 million estimates were about 10 so that gives you 6 million barrels to play with depending on what the costs are because the cost of shale varies a lot. if you go further out to get to your 10 million barrels it gets more expensive. francine: when you look at the

industry groups, the oil majors, and there's a big difference between exxon and bp and shell -- let's put them against the mining companies, who has the toughest job? i think in terms of the markets it is probably anglo. they have been in trouble for a while, not in trouble, that the markets have been tough for a few years. oil is a different story and the rebound should be quicker. i would saying they are having a more difficult job but they are pretty well prepared. their leverage is low. we still expect, if you look at the hp in rio, the change of the rating, they are massive companies with huge amounts of flexibility and ability to cut costs and reduce debt. the reason for that is the

strangeness of exactly what is going on in iron ore, the fact are ruining their own market. they are pursuing a long-term goal so they are keeping the price of iron or low, but because they invest in these massive assets which are still making decent money, there are two sides to that story. in terms of bounceback, it is ,oing to be longer potentially or the fundamental suggests it should be longer. francine: thank you so much, alex griffiths. bmw pledges to remain the world's largest carmaker amid being taken over by mercedes. this is bloomberg. ♪

francine: i am francine in look while. -- francine lacqua in london. taylor: deutsche telekom -- --ra: deutsche telekom stripping out interest, taxes, depreciation, amortization, and other items as surging sales of offset -- phone unit second quarter profit fell.

to $739me declined million that beat analysts estimate. ceo mario greco is trying to make the company more efficient by cutting jobs, selling assets. ka-shing hasi operationsrnings -- rose one point 9% during the first six months of 2016, helped by higher profits at its european mobile phone unit. cooperating.it is the company is under criminal investigation for allegedly defrauding insurers. federal prosecutors are examining whether valeant and philidor he did their relationship -- hid their relationship.

the ceo of alphabets venture arm is set to leave on friday. he created google ventures as it was then known in 2009. david crane, a 17 year veteran of google, will succeed marist. francine: let's turn our attention to luxury cars. we are expecting numbers from audi. how will they compare to rivals? benedikt kammel is joining us. what are you expecting? edikt: we are going to get the audi numbers in a few minutes but even so there are a few trends we can spot. the big trend is that mercedes has managed to maintain its dominance in the market. ahead years, bmw has been

and now it looks as if mercedes is going to take them over unless something goes horribly wrong, and that does not seem to be the case. they are doing phenomenally well , their sales are up more than 10% so far. bmw only up by about 5%. a lot of it has to do with the way that mercedes has repositioned itself. traditionally are cities was a company that associated with more staid sedans and a more conservative audience. the have rebound -- revamped their product offering and that has driven home their sales. francine: what is the one thing you are looking out for? i do not know if it is margins for electric cars which would give them the advantage. benedikt: there are several things. always, who rights has the biggest overall sales. that is great. thing inlity is a big

the industry and they want to make sure they are not sacrificing profitability for margin. -- for sales, sorry. have all managed to stay up in the 8% to 10% bracket in terms of profitability. they are all doing reasonably well but what we are going to look at is how the new e class of mercedes is doing. it has came out of a middle the range sedan. if that car does well it is going to propel mercedes going forward. bmw has the five series which competes with that car. that is not due for a facelift until next year so mercedes has the upper hand in terms of the product cycle at the moment and that is helping them as well. francine: thank you so much, bloomberg's managing editor, benedikt kammel. we have to look at all asset

classes. i would say watch out for crude, crude below $52 a barrel. keeping stocks under pressure. this is a big picture for kiwi and yuan. the asian stocks are halting a five day rally. this has to do with central banks, crude extending its slide follow the -- following the price increase in u.s. stockpiles. screen,see it on your after the central bank in new zealand that interest rates and signaled a more gradual easing --t dan some investors had easing past then some investors had imagined. .his is bloomberg we will go through a lot of central-bank action, bonds, plenty coming up including an in-depth look at what the yuan did. this is bloomberg. ♪

[ hip hop beat throughout ] [ fans cheering ]

♪ olympics 2016, let me get you on my level. ♪ ♪ so you never miss a moment, ♪ ♪ miss a minute, miss a medal. ♪ why settle when you can have it all? ♪ ♪ soccer to wrestling. track and field to basketball. ♪ ♪ fencing to cycling. diving to balance beam. ♪ ♪ all you have to say is, ♪ "show me," and boom it's on the screen. ♪ ♪ from the bottom of the mat, ♪ ♪ to the couch where you at? ♪ ♪ "show me the latest medal count?" ♪ ♪ xfinity's where it's at. ♪ welcome to it all. comcast nbcuniversal is proud to bring you coverage of the rio olympic games. [ clock titime. ] you only have so much. that's why we want to make sure you won't have to wait on hold. and you won't have to guess when we'll turn up.

because after all we should fit into your life. not the other way around. ♪ 2008.ne: brexit hit housing. u.k. housing sales drop the most since the financial crisis. the reserve bank of new zealand cut interest rates. traders are seeking more. crude trades below $42. global oil markets rebalancing this year. this is "bloomberg surveillance." i am francine lacqua in london. tom keene in new york. we have a lot