♪ anna: requisite, one year on. theresa may's promise to protect use residence in britain is not with a response -- is met with a response. for the biggest banks in the u.s. cleared the first round of the fed stress tests. morgan stanley trails the streets on a key measure of leverage. bill of health. the republican plans to replace obamacare hit early resistance. ♪ anna: a warm welcome to

"bloomberg daybreak: europe." we start the program by looking at brexit, one year on. we mark the one-year anniversary since the brexit about. let's have a look at the bloomberg brexit parameter. this is based on proprietary indexes that have been made by bloomberg and u.k. inflation. economic activity and that inflation adding up, which has been deteriorating in the most recent months. the start of this brexit process. uncertainty weighed on this index. data was clear up the start of the one you're period, helping some of that data to bounce back. that trade-off between growth .nd inflation growth trend we will talk more about that in a moment. we had 3 million e.u. residents having in the u.k..

that was news out of brussels overnight. that does support the pound a little bit. 1.27 on the pound. here is the risk radar. a lot to talk about on the commodities story. this is where we are on the oil price. we are up, as you can see. we're a bungled as well. wti before -- below $40 a barrel. gold bouncing for a third day. bit of nervousness there. climbing from a one-month low on gold. let's have a look at what we are doing on that equity picture. this is the msci in asia. a tepid in -- enter into the week. shanghai proving to be one of the weaker spots in today's trading session. the s&p 500 -- s&p 500 futures up. we heard from fed speakers overnight.

it looks unnecessarily aggressive. we will debate that. a strong rebound for the tech sector and some health-care stocks that a boost yesterday. let's get the bloomberg first word news this friday morning. in the u.s., senate republican leaders issued a long-awaited health care of -- health-care proposal. the plan was immediately opposed by a group of conservative gop senators. their opposition could threaten the passage of the bill. the president of the united states offered his strong backing for the proposal. disaster.re is a it is dead. we are putting in a plan today .hat is going to be negotiated would love to have democrats support, but their obstruction is they will never support. we will not get one, no matter how good it is. juliette: donald trump has named

woody johnson to serve as u.s. ambassador to the u.k. johnson is also chairman and ceo of a company, a private asset management firm and the great-grandson of johnson and johnson. of the biggest banks operating in the united states have clearly federal reserve stress test. the first subject to phase test exceeded minimal thresholds. morgan stanley trails on a keep measure of leverage. -- on a key measure of leverage. the governor of mexico's central bank says it has taken the steps for inflation to meet its 3% target. he was speaking to bloomberg after raising borrowing costs for the seventh time in a row. >> the last months have been good month. we had a rocky year last year.

of the correction taking place has been the result of policy actions we have taken in the monetary side, the fiscal side. going for theare dynamics that is consistent with inflation shock. juliette: president trump appears to have changed his review of china's belt and road initiative. the foreign ministry in beijing u.s.the president says the is willing to cooperate with china on the vast infrastructure project. you previously showed unwillingness to work on the plan. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. you can find more stories on the

bloomberg at top . here in out the week asia, it has not been a solid session. or prettye nikkei up, flat. the csi 300 coming under pressure up by .4%. worth noting this index of large stocks has performed well over the week. flat andseng pretty this really is asx 200 also flat. muted flat to the end of the asian session. toshiba, never far from the headlines, down 4.5% in tokyo. it has thought an extension of announcing its financial records until august 10 from june 30. takata, yesterday we saw a fall of 55%. today up 45%. still a lot of speculation it could file for bankruptcy. falling the most.

chart, weook at this spoke on bloomberg television earlier to the incoming hong kong chief executive carrie lam. she says one of the key things she will focus on when she comes into power is hong kong's housing affordability crisis. this chart shows the blue line of hong kong property prices. they are the most expensive on record. you can see just how far i had hong kong is in terms of the future housing affordability crisis. anna: thank you very much. the housing story very topical in hong kong. 6:07 in the u.k. theresa may told e u leaders at a summit in brussels that almost all 3 million e.u. citizens living in the u.k. will be able to continue building here after brexit. the proposal was met with a tepid reception from e.u. leaders, who stressed many

issues remain ends resolved -- remain unresolved. ofwe talked about the state the u.k. departure. theresa may clearly said that e.u. citizens who had been in the u.k. for five years will retain full rights. this is a good start, but there are still many questions. matt miller joins us now from brussels. you have a few questions and answers of your own. let's get to the basics. what is theresa may offering? what is the settled status? she says anyone was laid in the u.k. for five years before the cutoff dates, which has yet to be named, will be granted immediately settled status. access to things like health care, pension and be taken for granted by this citizens. those who have not lived in the u.k. yet for five years, will be

allowed to legally remainder after the cutoff date until they have caught up that five years. then, they will be evil to apply for settled status. it will not be a big bureaucratic paper job. they will be able to do it with a light touch, digital application to make things easy. to the u.k.ved before the cutoff date will be given a two-year grace. -- grace period before they are allowed to apply for some sort of legal residential status. strokes,y broad somewhat meet you expectations for appeasement to some extent. anna: we got some of those broad strokes you described. we will look into detail on monday. what remains unresolved? matt: first, the cutoff date. it could be anytime between march 29 of this year and march 29 of 2019.

that is one issue that still remains unresolved. also, there are a number of issues that that e.u. insists on. 2017xample, any e.u. citizens living in the u.k. should be subject to the european court of justice. recently has said no on that u.k.y and insists the courts will be able to take care of their grievances. anna: thank you very much. matt miller for us in brussels. more from act as we go through the day. one year to the day after e.u. n voted to exit the >> the british people have made a clear decision to take a different path. as such, i think the country requires fresh leadership to take it in this direction. a period ofl be uncertainty and adjustment following this result. at the prime minister said this morning, there will be no initial change in the way people

can travel and the way goods can move for the way our services can be sold. >> we needed negotiations to start as soon as possible. we need to start thinking globally about our future. the other thing that needs to happen is it needs to become a national bank holiday and an independent state. -- independent day. anna: it has been a busy year. we have not gone that national holiday yet. joining us now on set is michael bnp paribas. we saw substantial weakness in the pound and we have not recovered. uncertainty seems to be increased -- increasing. you say this is not reflected in

u.k. assets. is this because of the election? michael: it has been a busy year. lang forward, it is likely to get even busier. election andr the the level of uncertainty is much higher than it has been. at not justk across the pound but other u.k. assets, there has been little reflection of that, not just sense the election, but prior to the election as we were having a run-up to the negotiation. anna: some people have interpreted that uncertainty to suggest something softer is coming. michael: that is important. it is also a case of investors not wanting to put capital behind there is trades. a situation where a lot of risk entrees have been working very well. the global mentality is still risk on. how they come in and

starts selling the pound. anna: where does the pound go? the market was short the pound in the middle of last year. then again the middle of this year. it has sent bounced back -- since bounced aback. michael: this is key. -- ave a position engage positioning gauge. oft year, throughout most the are, the market was short -50. now, it is up -17. that position is reflected in the imm here. in terms of levels, we have looked at scenarios where different potential outcomes for the u.k. our base case is around 130, pre-much where we are now. is 113.t-case estimate

i am not saying we will get there, but it gives you an idea of how bad news is currently priced into cable. be not far from where we are. michael: it shows you have the risk is to the downside. 2017 is in this chart. are betweenou position where they are expecting a rate hike from the bank of england as early as august. the market has spent the last couple weeks repositioning around something more hawkish. how hawkish are you? michael: we are moderately dovish. we do not think the boe will raise rates. when you look at the mpc at the it is difficult to think you will get the five votes you will need. anna: rivals tend to vote for the

governor. michael: exactly. ofhave an even number members. if you get a split vote, mark carney's vote overalls and he is clearly on the other end of the spectrum. the other half of the mpc will be happy the market is pricing in a rate hike. that is going to help provide support for the pound. anna: the inflation report in may with the message the governor was trying to give. it was suggesting rates could go up in the market did nothing to believe them. now things have changed. there is another suggestion of not looking through the spiking inflation just because it is driven by the pound, some of the pound weakness has a long-term impact on inflation forecast. she says inflation forecast to be about target this year. so, why not act? michael: the paper we had from

forbes a couple weeks ago underscores the bank of england, while their main focus is hightion, because of the pass through from the exchange rate to inflation, it means they are looking at the currency a lot. the link between the currency and inflation is three to six months, which gives the current profile. inflation should be three to six months. any weakness now good see higher inflation in the u.k. almost 4%. anna: michael sneyd stays with us. later on bloomberg tv, we will speak to the founder of cobra and a member of the house of laws who thinks brexit will not happen. we will talk about the future of security policy with the director of europol.

we will talk about the power of the law versus the common. coming up, the biggest banks in the u.k. clear the first stress tests. this is bloomberg. ♪ ♪

welcome back, everybody. 6:20 in london. you are watching "bloomberg daybreak: europe. the hang seng is a flat this afternoon. let's get the bloomberg business flash. toshiba has asked authorities for an extension to submit its earnings report by august 10. it seeks more time to complete accounting in its u.s. nuclear unit. the bankruptcy, which it announced in march, and has made it difficult to close the books before the deadline. britain's first new nuclear

plant may cost consumers 30 billion pounds or more in higher electricity costs. that is five times more than ministers expected. urged to come was up with a plan before electricity suppliers in case of a collapse in the project. the irish government has indicated it is on track to inse about 3.2 billion euros a stake in an irish bank. estate sale of a 27% stake in aib is set to be the largest ipo and a european exchange this year. that is your bloomberg business flash. very much. you 34 of the largest banks operating in the u.s. have cleared a federal reserve stress test of their ability to withstand economics -- nm -- economic shock. >> all 34 of the biggest banks

past the first phase of the fed's annual stress tests. they banks the fed deemed as systemic important all have exceeded the minimum capital requirement. wells fargo, bank of america, and citigroup are some of the highest about that ratio. four banks and yellow came within two percentage points of that 3% ratio. morgan stanley was the worst of its peers and for the second year in a row. one fed governor said they results show -- the results show large banks will remain well-capitalized. the economic disaster scenario they painted is akin to the great recession. equity prices will lose half their value and unemployment was -- would soar to 10%. banks did better than their u.s. counterparts. all of them were not just above

the 3% minimum, but above that by more than two percentage points. deutsche bank trust past with the most flying colors with the leverage ratio of 13.5%. andook ahead to june 28, that is phase two of the stress test call become prehensile capital analysis review. they can investors will find out whether and how much more or less they can return in dividends as well as buybacks. ramy inocencio, bloomberg news, new york. anna: michael sneyd is a still with us. the fed is stressing that bank under tough conditions. ise of the data in the u.s. weakening, not to that extent, but weakening. what you make of the dollar cycle as it stands? dollarte line tracks the against the recovery in the eurozone growth. see continuing this downward

trend? wouldl: most of the focus hint around the outlook for euro-dollar, which had a good run last year off the back of the strong eurozone data. coupled with the soft data from the u.s. we do not think that euro-dollar will move higher. we think it has become too overstretched. the pound story, the positioning and euro-dollar is now it's largest long it has been for the last five years. this is an extreme position. it shows you the competition of those factors just mentioned have meant people have ramped up on long euro-dollar positioning. ecb, while tapering, is keeping policy loose, contrasted to a fed were even inflation has come up. the central bank is prepared to continue its hiking cycle. some people are mourning

the fed is going to make a mistake. do you think that is true? inflation has been coming down in the u.s., though stabilized. slightly in the most recent period. is that because the fed has said this is transitory? the fed is set underscores despite the most read -- weakness in inflation. michael: the movie lower is accommodation of what has been happening with oil and not even long-term breakeven inflation rates tend to be sensitive to moves in oil. also, the softer data we have had. we have had stabilization after that fall. expectationsad the on the impact it has on other assets. you have a situation where real yields and u.s. have been negative for a long time. this has been supportive to risky assets. because inflation expectations are lower, real yields are

starting to move dramatically higher. you are having a pricing of liquidity conditions. this is concerning. it is heading higher, but had -- but it is for the right reasons. economic strength has been strong. really gilts are going up for the wrong reasons now. that is inflation expectations going lower because of less confidence in the economic outlook. the fed still conduct -- still determined to remain on that hiking pack. anna: will be fed make a mistake of the hike again this year? michael: we are expecting just one more this year. that is because we expect the focus to shift to balance sheets -- balance sheet reduction. we expect that to be announced in july. it is a non-press conference meeting, but we think, given the is to be announced

next month. anna: thank you very much. next, begin the mexican central bank governments: the country's currency. that exclusive interview coming up next. this is bloomberg. ♪ ♪

welcome back, everybody. "bloomberg daybreak: europe." berlin and brussels. the dollar against the yen trade pretty flight. -- pretty flat. a new edition of daybreak is available. let's have a look at some of the stories that have made it into today's edition. the cover story is may's opening bid. almost all you citizens living in the u.k. will be will to do so after brexit. theresa may says she wants to offer more certainty about their futures. her proposal met a tepid reception from e.u. leaders, who

stressed many issues remain unresolved. we look to get more details on this important policy on monday. the next story is on the fed stress test. the biggest banks are putting in the u.s. all past the central bank's annual test of their ability to withstand an economic meltdown. morgan stanley trails on a key leverage ratio. they put these banks under some tosiderable fictional stress come up at these results. we get around to next week. daybreak focuses on the airline sector. was met withines skepticism -- with skepticism by investors. the ceo says the offer is puzzling and concerning.

the pilot union calls it an act of financial aggression. let take a look at the price of oil. it is heading for a fifth week of decline. we are joined from hong kong by then. right to have you on the program. we have been talking about oil being in a bear market. my guess what is driving this. -- remind us what is driving this. it is almost a case of deja vu. it is a supply story. that supply is coming from various regions. and libya. libya has is appointed over the past few months. pumping atnt, it is the highest level in four years. that is causing concern for the market and opec. if you look back to may, it was nigeria and libya that were responsible for the biggest gains.

the market is caught firmly in this oversupply mode. it is driving the prices lower. everybody is asking themselves whether opec is going to do anything about this. where does oil go from here? ben: good question. opec has its challenges. from here, if prices remain low, you probably have to look towards compliance and whether those countries in on this deal will remain compliant to what they have agreed. the biggest cheat has been iraq. the country has not been compliant at this stage to what it has pledged. look for the edges fraying into that deal if prices remain this low. some are talking about west texas testing that $47 a barrel mark. $45 was seens ago,

at the barrier for the market. many did not think it would go much further. it is precarious and time sensitive for the market. the silver lining could be that at these low levels it might push the u.s. supply a little bit out of the market. at the moment, there are some things and it is going to find a base around here and perhaps move higher. time will tell on that. anna: some analysts point towards the u.s. industries -- industry's ability to cut cost and the industry to make profit. that is something opec is fighting against. ben: the u.s. has been a surprise to almost everyone. opec, the iea, analysts from goldman to city. it is an industry that is managed to adapt.

it has improved technology. it is managing to make money at these low prices. many have thought this year $55 was the range, but it has proved resilient. the energy information agency is talking about supply in the u.s. exceeding 10 million barrels a year in 2018. it is one of those industries that is applying a huge amount of pressure on the oil price. that is probably the biggest reason why prices, especially west texas, is heading close to that $40 a barrel mark. anna: thank you so much for joining us today. let's get back to michael sneyd. your thoughts on the oil market right now. i have this chart that type oil in with what we are seeing in with equity markets. a leadingnger indicator it seems for stocks. oil prices are falling, that is the blue line.

we have not really managed to make much headway back to $60. this is the way equity markets have carried on regardless. not quite the link there there was. it is interesting. the direction of the correlation i think is driven by whether or not it is the supply or demand dynamic driving the price. anna: this is a supply story. michael: exactly. you can see between 2002 to 2008 it was high demand driving at the higher oil price. is good for stocks. the relationship we have had since 2014 is the lord oil price has strike down -- is the lower oil price has strike down global inflation. the banks have been much more accommodative than they have been. whatever the oil price,

good for stocks. michael: depending on which way it goes. in terms of the united states, does a weakening oil price still have that stimulus effect on the u.s. economy that many talked about? 2014, that is what everybody was waiting for with the big drop in the oil price. willie boost the u.s. economy? -- will it boost the u.s. economy? maybe had ahave now change. it depends on which sectors and assets you look at. we have had a change from bowl oil -- low oil pricing for the u.s. to higher benefit to the u.s.. particularly to implement to be shale industry and wages. in terms of assets and things like u.s. high-yield credit, it tends to be dominated by energy.

--ower oil price tends to be to lead to wire -- to lead to wider credit spreads in the u.s.. you recently lowered your u.s. inflation forecast to 1.5%. , howl weakness persists much does that waiting to weakness inflation than the u.s.? how much does that way into weakness inflation in the u.s.? this is a lower against a fed that is wanting to raise rates. the fedwe read this is is looking at two main indicators. it is looking at inflation and the unemployment rate.

coming months, we think the fed's focus is going to be on the unemployment rate. that determines were inflation is going to be one to two years down the line. it is looking at forward expectations of and -- of inflation. anna: wages? michael: yes, looking at wages. where this is going to be important for asset markets is that when you have a period in if thetock inflation, current inflation rate is defining, the fed wants to tighten policy, that is a situation where real rates tend to go up. you get a tightening of liquidity conditions, which given the asset prices and stock markets have been supported by boost liquidity, it is a threat for these markets. anna: where does this leave the emerging markets? producers will not be watching this and consuming nations will

be likely a little better. this is year to date. there are many stories that peso has the mexican its own drivers right now. is the oil story key for emerging markets? michael: the key story is going to be what happens with the global liquidity. given you have had such strong performance and march markets, --with em and such strong positioning with em markets, that theme is going to dominate around opportunities around oil importers and exporters. , michaelhael sneyd strategist for bnp paribas stays with us. governor saysxico the central bank has taken steps for inflation to reach its 3% target.

speaking to bloomberg, he also says mexico's interest rate pause could withstand the u.s. federal reserve hiked. -- the last months have been good month. we had a rocky lira -- year last year. a lot of the correction taking place has been the result of policy actions we have taken in the monetary side, the foreign exchange side, the fiscal side. going through the dynamics that are consistent with inflation shock. therefore, we believe the actions we have taken with information we have up to now should be sufficient to take us to our 3% objective towards the

end of 2018. of course, this is conditional on the information we had today on expectation of what the fed will do. they are expressing confidence that will be have done is sufficient. if it will be sufficient, it is hard to say. reserveif the federal were to raise interest rates again this year as many expect and the fed has acknowledged, is it possible the interest rate mexicohat is forcing for -- that is foreseen for mexico

could persist even with that event? >> it is possible. on the context. the fed isay that going through a complex process. they have managed it really well. take -- they are doing something that is completely new. we believe that where we are now will lead us to the level at some point. we are ready to make that , up to today, we think it is sufficient. fed and yourf the institution, right now the volatility in the treasury

market and the volatility for the peso, by historical standards, is very low. it is an expression of trader confidence in monetary policy and confidence in the currency and bond market. is the market optimistic, or would you say realistic? you have to ask the market. [laughter] i think, in general, the market has been acknowledging what we have been doing. think -- many aspects. sometimes, markets are too pessimistic. sometimes, markets are exuberant. what we need to do is to keep a cool head. that is what we are trying.

>> you are not unsettled at the moment by what the markets are doing right now? >> no. i am not unsettled. anna: that was the bank of mexico governor speaking to bloomberg. bloomberg customer, you can watch the show using the tv function. you can also follow all of our charts and the functions we are using and influence the conversation by clicking on the button at the bottom of the screen. 6:45 in london. coming up, aib makes its market return and the biggest european ipo of the year. this is bloomberg. ♪ ♪

welcome back, everybody. "bloomberg daybreak: europe."

s&p futures suggest we will he stronger by a 10th of a percent. in london, it is 6:48. juliette saly has your bloomberg is this class. --number business flash. juliette: toshiba has asked for an extension to submit its earnings report by august 10. it seeks more time to complete accounting and audit u.s. nuclear unit. the bankruptcy has made it difficult to close the books before the deadline at the end of this month. britain's first new nuclear plant they cost consumers 30 billion pounds or more in higher electricity costs. that is five times more than ministers expected. the national office urged the government of, but they plan before electricity suppliers in case of a collapse of the

project. emerson electric is in talks to acquire paradigm. according to a person from leader with the matter, the deal could be announced within weeks. paradigm is currently owned by apex partners and taken my equities. -- and gmi equities. that is your bloomberg business flash. thank you very much. the irish government is set to raise 3.2 billion euros in europe's largest ipo so far this year. it turns to markets after having tapped -- picked ireland in a financial crisis. joining us is timothy. great to have you on the program.

you have been watching this story. it was iconic as far as irish history -- as far as irish history. it looks like they are going down the middle of the market range. why is this ipo particularly important beyond the five factor? -- beyond the size of factor? as you-- timothy: referred to before, this is the main lender to the irish mortgage lender. the government has spent 21 billion euros rescuing this bank. this is the first step in that bringing it back to the market, to the hands of taxpayers. why is the pricing of the

deal different than a typical corporate ipo? timothy: certainly. a have the government pricing state owned entity. , then price it too high you annoy investors. feel put out.yers it is a difficult one. anna: trying to find the classic sweet spot. timothy, thank you. michael sneyd is still with us on set. story of theonic crisis finally turning a page and coming back to market. this recovery we have seen in europe, it took a long time.

pre-17 has been a strong year for the eurozone. --2017 has been a strong year for the eurozone. michael: it has been strong. on the chart, you can see the take up we have had. eurozone versus the u.s. and u.k. is the upper gap is still march. -- still large. recovery can be sustained for some time. anna: some of that is structural, isn't it? that goes to show the importance of the reform agenda to the are weon and others going to see reforms elsewhere? michael: we expect reforms to be coming. the evidence so far as these reforms are slow. at the moment, that is not too much of a problem. where this could become more of a concern is towards the end of next year.

to get further growth, you need structural reforms in place. we are going to be watching the structural reforms carefully. anna: you think the time is right for those reforms? the sentiment indicator is pointing to an uptick in growth. i ask at the time is right, because momentum in the economy might seem like a good time to make changes to labor market roles, for example, that could be unpopular. michael: now is the right time. is that whene have the economy is doing well, the political pressure to make changes is less. -- it is ame become shame, because where you look where structural reform is needed, it is in labor markets.

like youth unemployment rate and long-term unemployment rate are still high. that is where focused reforms could be needed. anna: that could be friend and foe to the structural changes needed. let's talk about european assets. generally speaking, do you think this flow of money into european assets, does that strengthened the euro so much as to make the ecb uncomfortable? is a lotwe think there of value in european stocks, particularly versus u.s. stocks. europe, much lower. profit margins have a lot of room to recover. this seems to be consensual, but it seems the amount of positioning in the trade is

still liked. -- still light. because the moment -- money rotating out of the u.s. despite all of the talk we have heard already, you still think that is to come? michael: when you look at that data and talk to investors, the total amount of flow into this trait has been very small. in terms of what this might mean for euro-dollar, we don't see this flow as a huge benefit. -- if you are a foreign investor, it is advantageous for you to hedge your fx position. paid to putely get on the hedge. fs --t paid to reduce the fx risk in your portfolio. michael, thank you very

much for your time this morning. next, theresa may has delivered a plan for protecting you residents. find out that beat up next. this is bloomberg. ♪

♪ anna: brexit, one year on. theresa may's promise to protect is met with tepid response from eu leaders. >> eu citizens that have been in u.k. for five years obtain full rights. this is a great start, but there are many questions. anna: 34 of the biggest banks operating in the u.s. clear the first round of stress test. morgan stanley trailed the street on a key measure of leverage. bill of health. republican senate plans to replace obamacare hit on early resistance.

welcome back. this is "bloomberg daybreak." i'm anna edwards. european equity markets. let's see where we plan to open up this friday. still an hour away from cash trading on equity markets. not much of a handover from the asian sessions. the asian equity trading day was pretty meaty. we saw some weakness coming through in the hong kong market. we are expecting to go weaker at the start of european trading, down by about .2% at the start of the day. maybe more resilience on the cac and dax. here is where we have been overnight in commodities, first of all. this is a conversation we have talked about a week.

specifically around oil. 42.93 on wti. bouncing a little bit, but we are still below the $43 a barrel mark. the supply picture very much in focus for us. .25%, upprice up by for a third day, climbing from a one-month low. let's have a look at where we are in the rest of the risk radar. futures, i mentioned we had a tepid day, up by .1% and on u.s. trade. we heard from one jet -- fed speaker, james bullard speaking with "the washington post or coke unnecessarily aggressive. getting news out of irish allied bank. looking to see where this would price.

we are getting this ipo, and iconic ipo, pricing at 4.40 euros per share. that is done line across the bloomberg right now. some analysis in the last hour about how significant this is, taking this bank from public ownership at the height of the financial crisis back to the market many years after the crisis. turning a page in irish financial history. let's get a first word news with juliette saly. in the u.s., senate republican leaders have issued a health care proposal aimed at winning over votes of moderate and conservative wings of their party. the plan was opposed by a group of four conservative gop senators. rand paul, ted cruz and others. the opposition could threaten passage of the bill. donald trump offered his backing for the proposal. a disaster, it

is dead. totally dead, and we are putting in a plan today that is going to be negotiated. we would love to have democrat support but they are obstructionist. we will never get one, no matter how good it is. has nameddonald trump woody johnson to serve as u.s. ambassador to the u.k. johnson is the chairman and ceo of johnson co., a private asset management firm and the founder of johnson and johnson, the health care products manufacturer. before of the biggest banks and u.s. have cleared a stress test of their ability to withstand economic shock. every bank subject to the annual test exceeded minimum threshold. morgan stanley trailed the rest of wall street on a key measure. the second year it performed worse than its peers on one of the main measures. the governor of mexico's central bank says it has taken the right steps to reach its 3% target inflation.

speaking to bloomberg after raising borrowing costs for the seventh time in a row. >> the last months have been good months. it was a rocky years last year. a lot of the correction that has taken place has been the result of policy actions we in the monetized side, in the foreign exchange side, but also on the fiscal side. basically, we're going through dynamics that are consistent with the runoff inflation shock. juliette: hong kong's incoming chief executive has held the benefit of close integration with china, the missing -- dismissing concerns. she spoke with bloomberg before her term begins on july -- in july. been veryng has

relevant to the close of antebellum -- and development of the chinese economy. now we are more relevant because there are major initiatives in economic development. with our very unique position and our traditional strength and advantages. juliette: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . it is the close of trading in japan and australia. a tepid asia. the session in asia yesterday was boring. the nikkei closing higher by .1%. index ofek for that large-cap stocks in shanghai and .henzhen

australia's market closing higher by .1%. toshiba is closed down 4.5% in asked for ant extension to announce its financial results, saying the bankruptcy of its westinghouse unit has impacted its account keeping records. takata rebounding after that slump yesterday. still speculation it could file for bankruptcy. companywind farm cutting its guidance. chart, if youting are interested in property, particularly in the asia pac. the blue line is hong kong's property outperforming singapore and sydney, even though they have expensive property markets. we were talking earlier on bloomberg television, the incoming chief executive, and

she was also talking about hong kong housing affordability being a key priority. perhaps more of a reopening of the land in hong kong. anna: thank you, never boring in the asian session. juliette saly taking us through the details. breaking news for you in relation to bearing. the ecb recommending article 22 of its statute. the amendment will enable the euro system to fulfill its mandate, it says. it proposes a statue change to become the euro-clearing regulator. the commission will issue an opinion on this recommendation. formal wanting to make its ownership of the regulatory process around euro clearing. what the ecb thinks about regulating and what greg's it means for regulating. we heard the bank a friend -- bank of france governor preston

mc -- pressing the case to have derivatives based their operations within the eu this is a political flashpoint around brexit. the le pen and, mark carney pressing the case for leaving in euro clearing base london. the ecb looks to solidify its position as a regulator. the amendment will allow the euro system to monitor and address risks associated with centro -- euro clearing. 8:09 in brussels and theresa may told eu leaders at a summit that all 3 million eu citizens in u.k. will be able to continue living there after brexit. it was met with good reception from eu leaders who stressed many issues remain uninstall -- unresolved. talked about the state of negotiations on the u.k.'s departure. place andp has taken

theresa may curley said the eu citizens who have been in the u.k. for five years will retain full rights. this is a good start, but there are still many questions. anna: matt miller, joins us now. we come to what we heard from theresa may in a moment. havef the response we heard, angela merkel giving us some of that. let's get back to the ecb story. ecb prevented -- proposing a statute change for euro clearing. a political flashpoint around brexit, isn't it? matt: right, and not something everyone agrees on. the bank of france governor has said he wants to move eu clearing -- clearing of derivatives into the eurozone. we have heard that the u.k. wants to keep them in london and even some bund is bank cash bund is bank think it should be going

back to chicago where most of the biggest clients are located. proposal, the european commission is going to talk about this over many months and then in november, donald tusk has said the council will vote on where to move certain like they bodies, clearing regular, the medicines authority, a lot of these regulatory bodies they want to move possibly into the you -- eu or maybe put somewhere else. anna: this story will run and run, we have heard high-level voices weighing in on the topic. where you are, all of the conversation was around the rights of you citizens after brexit. what is theresa may offering to the 3 million who live in the u.k.? she is offering for eu 27 citizens living in the u.k. now is that if you have been there for five years, you

can automatically get the right to things like health care and things like pensions. if you haven't lived there for five years yet, before the cutoff date -- we don't know what the cutoff date is, it will be sometime in those two years of brexit negotiations, then you will be able to continue to stay in the u.k., clock up here five years and apply for those rights in a more digital, less pure craddock way and you currently have to. way thanureaucratic you currently have to. you will begin a two-year grace. to apply for some legal resident status. she is trying to appease members about havingrned their families and lives disrupted. but there are some sticking points. anna: matt, thank you. we will wait for monday. more from matt miller to the day on bloomberg television. we are joined by patrick

armstrong. patrick, good to see you. one year since the brexit vote. .e market at bloomberg let's look at this brexit barometer. proprietaryd on a index. employment, uncertainty and inflation. downwards asaking of late and you can see on the far left what we saw this time a year ago or just after. in the latestke turns around the brexit conversation and your appetite for u.k. appetites? gilt,k: we are short short sterling and short ftse 250. all three of those from different manners, but all are related to brexit. we are looking at a global expansion for almost the whole world is participating.

the weak link is the u.k.. brexit definitely creates risks for the u.k. that the rest of the world doesn't suffer from. prefer assets in europe. we will see pmi's today that will be strong. these ftse 250 countries -- companies -- >> you are saying everything is relative. the u.k. looks relatively uncertain so why bother? patrick: absolutely, why pay the same multiple and half the risk if i don't have to take that risk with year and -- with european assets. on gilts, you have inflation at 2.9%. brexit creates headwinds for the economy, so you can see the attraction of gilts, but it creates stagnation very forces as well as recessionary. dramaticallys potentially and that is very stagflationary.

brexit,o have a good those gilts -- the yield is way too low. think -- you are concerned about the outlook for the u.k. economy. expectations are the possibility of a rate hike. 330, at their highest since february. a rate hike could be coming in 2017, could be live for the bank of england in 2017. we saw three members voting last time. patrick: carney did his best to say this wouldn't happen, he remain a dove. i think you won't be seeing any hikes. you do have inflation right now, where is the fed -- there are periods of weakness, the ecb would do that. there are dogmatic members that

aren't looking to the future. in her speech last night, her last one before leaving the bank of england, she was suggesting that she is looking into the future in terms of inflation, but as she continues to see inflation. inflationas if this numbers going to disappear. she sees above target inflation for three years. patrick: it is inflation, but not necessarily the right kind. importing inflation from week sterling and it is not coming from real strength in the economy. wage growth and purchasing power, that is not growing, do you want to stifle that with high interest rates? inflationary forces are coming even from negatives right now. anna: so europe looks better for you. you have european pmi's coming out, we talked about the strength in european data, where does that look headed? how long does that have to run? patrick: still the early stages

of expansion in europe, nowhere near full explode -- in claimant there. -- employment there. we are long in banks, long industrials. andre getting banks industrials and book value, industrials at 15 times earnings. compared to u.s. companies, those are incredibly cheap valuations and europe is leading the pack right now on pmi's. anna: patrick armstrong, cio at plurimi wealth. we will keep the focus on brexit. we will talk to the member of the house of lords who thinks brexit more happen. a great story on the bloomberg by my colleagues in bloomberg news on that subject. les, the future and security policy across the region with the director of europe all.

a quick recap on another brexit related story. this one emanating out of frankfurt. the ecb proposing a statute change so it becomes the euro clearing regulator. this is just a proposal at the moment. they are recommending article 22 that the euro system statute. the ecb may provide facilities and may make regulations and payment systems for financial instruments within institutions and other countries. this goes to the heart of institutions around the country. heard from mark carney, making the case for keeping euro clearing in london and we heard the opposite case put why the government of the bank of france this week. we will see where this heads next. 7:18 in london. coming up, the biggest banks in the u.s. past the first round of stress tests. what to expect from round two. we will discuss. this is bloomberg.

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>> i said from the beginning, i want citizens rights to be those -- in those negotiations and it will be. . believe we made a fair offer they have made their lives in the u.k. and will be able to stay and continue to do this. thank you. theresa may saying she set out with a serious and fair offer on citizens rights, a constructive start. she said the proposal is designed to give confidence to eu citizens living in the u.k.. fairescribes this has proposal on citizens rights. she presented the broad strokes of that proposal last night over post-dinner coffee and we get

more details on monday. let's turn to the united states. 34 of the largest banks in the u.s. have cleared a federal reserve stress fest -- test of their ability to withstand economic shock. >> has bloomberg news predicted, all 34 of the biggest banks operating in the u.s. past the first page -- phase of the stress test. the banks the feds deem as systemically important exceeded the minimum capital requirement. else fargo, bank of america and citigroup were some of the highest about that ratio, but four in yellow came within two percentage points of that 3% ratio. morgan stanley was the worst of its peers for the second year in a row. with that said, one fed governor said "this year's results show even during a severe recession, our large banks would remain well-capitalized." the economic disaster scenario they painted is akin to the great recession, equity prices

would lose half their value and unemployment would soar to 10% from the current 4.3%. for foreign banks operating in the u.s., those did better than their u.s. counterparts. all were not just above the 3% minimum, but above that by more than two percentage points. deutsche bank passed with the most flying colors, with a leverage ratio of 13.5%. june 28 this phase two. capital analysis review. bank investors will find out whether and how much more or less they can return in dividends as well as buybacks. bloomberg news, new york. anna: patrick armstrong, cio at plurimi wealth is still here. here thoughts on the banking sector. they are getting good at past in these stress tests as the conversation turns to whether this be so stressed. moreck: next time is

important for discussing buyback plans and that is what investors will be looking for. versussets are cheap historic norms, but expensive versus europe. we don't have a position in u.s. banks. they are fairly valued and probably have a short-term tailwind. anna: you don't feel like buying them with a view to reform? patrick: you could make the case, i am just overall short united states equities, and that is based on the market underestimating the fed. futures pricing in nothing. anna: and you don't price in nothing. you think the fed would move and more than they should? patrick: they've got another one this year, for sure and four next year. the only missing ingredient is inflation that is not there. but the fed focuses on

unemployment and probably rightfully so. they focus more on the he shouldn't have recession at interest-rate levels. anna: it is not a mistake? patrick: i don't think so. the u.s. economy is moving towards something more stable above 2%. wage growth on atlanta fed numbers right now. that are rosier than interest rates. we have become used to zero rate interest policies. it is not normal. anna: does it have to be bad for stocks if the fed is hiking for the right reasons? patrick: it is because the mom -- mothballs are too high -- multiples are too high. 20 -- trading 20 times earnings, that can be justified if we get into a normal interest rate environment. anna: patrick, thank you for your time. patrick armstrong, cio at plurimi wealth.

the european open is next. guy johnson and matt miller live in brussels. the latest on theresa may's proposal around eu. a negativegesting start for european trade. that is it for me this morning. ♪

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which is why comcast business delivers consistent network performance and speed across all your locations. fast connections everywhere. that's how you outmaneuver. ♪ guy: friday morning, when you're on. welcome to "bloomberg markets: the european open." your first trade on cash opening. i am guy johnson in london, matt miller in brussels. we are watching bridget. -- brexit. we break out the bloomberg. right to remain. theresa may tells eu leaders those who lived in the u.k. for five years will get the same rights as u.k. citizens at brexit. my