good morning, everybody. welcome to street signs. these are your headlines. good morning. i want to recognize you're sitting here next to me first. new team today. our headlines today, buying the dip. stocks coming back after brexit. wipes $3 trillion off of world markets in two trading days. >> enjoy a rebound with the sector up 3%. the pound recovers from a 30-year low. >> double troupe. s&p downgrading the rating on

brexit. we speak to one of those agencies during this hour. >> bound for brussels. uk minister faces the music as eu leaders rule out formal talks before article 50 is invoked. welcome, everyone. let's take a look at the industry. we are witnessing something of a turn around after three days of very, very heavy selling, but i've got to add, this does look like something especial a lot of uncertainty clouding the political establishment here in the uk and also clouding the road map in terms of article 50 in the way forward. when you look at the negotiations that are in front of the uk, et cetera, a lot of uncertainty. let's take a look at sterling which has been at the pointy end

of things. the british currency right now, steady. 143 .49. had i think there's some very interesting price action in the uk bond market. guilts are not collapsing so there still is a safe haven allure to be had in some corners of the british markets. yields are below 1%. you're looking at a record low for-year-old s. >> there is. we went below 0.1% across the board as well. we've been pushing lower on these yields. speaking of-year-o ing of yield expected to start speaking within the next couple of minutes and ahead of this speech, he's described his

sadness over the result of the referendum. we'll be bringing you that speech live once it starts. >> let's bring in mike head of management at pin co. great to see you. let's start with sterling. how acongress i'll do we have to rerate the currency and is it realistics to expect levels of 125 by the tend of the year. >> going in we thought sterling could fall at 130 if we did vote to leave so we've been hovering around above that. when we look at sterling where it stratrades now, it looks reasonable to us. i do think it is quite important to remember the last time we were down here was the mid 1980. i think we've done basically the bulk of the move. >> mike, our reference this

earlier, the guilt market is not collapsing. uk government is still in favor. what does that tell you. >> it tells you two things. it tells you investors need a safe haven and something they can go to in events of stress and to date the market retains that status. there's been a rerating of where the bank of england is going to put the base rate and what they're likely to do over the quarters and months ahead. >> by when, mike? >> when would they cut. >> i think the eethe easiest is probably august. i think they would want to see how the pmis pan out and if we get another big league down there we would probably accelerate things. if i were the bank, i would want to wait a month or two to give

clarity. our best expectation growth is going to run 08 the next 12 months. if that's the case, august is in play. >> on "squawk box" our guest host was making the point that voting for brexit, we're taking control back and we're trying to unwind all of this uneasing that the very central banks have been throwing towards the market and we need to get out of it, but ironically i think we may end up with more. aren't we just going to be adding to quantitative easing because we're looking at the low down. >> take control means you want to raise interest rates, i think you would take a significant hit to the economy. saving's rate for household is at a 50 year low. it's now oftbvious to me we're a position to see higher rates. i think we'll see further

easing. the base rate can go to zero. i'd be surprised if the bank wanted to go negative. >> i wanted to mention. we're getting some flashes through on wires that the rbs ceo is saying that the bank had 16 million customers before the vote. they continue to have the same number and jobs remain the same as well. telling in the memo that the referendum outcome that it carries with it a range of unknown about the short, medium and long-term prospects, but again underlying to reensure investors and customers that they continue to have the same number of customers and same number of jobs as well. mike, when looking at some of the opportunities out there, do we necessarily have to have lower? do you think we have to be in a position where we test recession

nare scenarios. >> we don't have to. the question that we'll all need answering in the next few months is how much of the slowdown was nervousness over the brexit and how much more is to come. i think our basic expectation is there is more to come unfortunately. we don't have to go into recession. if we get down to zero, maybe we do or don't go into recession. i think we need to put it into context. let's think about this in the context of previous down turns. typical downturn involves 3-4% points. the low point of the year was down six in 2008. this is a hit to the economy. we need to put this into context and that's quite important to do. how the markets respond in the next few days will probably have an impact on that as well. if we see some stabilization

today, clearly if we see more stabilization, that will support better growth number. >> mike, thank you very much for now. you're staying with us. i want to tell viewers as well we're waiting for mario to start speaking in portugal in a bit. we're seeing from the website that mario is stating that we demonstrated with our unconventional tools it's possible. he goes on to say via the website that they've shown this can be effective in supporting dp domestic demand and even when -- so that just coming from the ecb website. it will be interesting to hear what line he takes. >> once again comes down to

trying to reassure the visitor ri markets and the fear right now is the déjà vu of a few years ago. the bank rs in this negative feedback loop right now and the peripherals are as well. focuses back on protecting the italian banking sector. the difficult political environment. brexit seems to have enboldened. >> it has i. i would ask the question whether or not you have more populism initially it might lead to some people becoming happier if they're new government is voted in. doesn't it mean in the long-term everybody becomes poorer. you start to look inward. you cut trade ties.

that's initially how it is formed. i think we all end up poor, economically poor here. and also maybe from a society point of view if you want to have that discussion. >> it's a vote against establishment politics. that's what it comes down to. >> ironically, whoever you vote back, boris johnson, is he going to be negotiating waysed on the military people? i don't know. >> expectations back to levels consistent with price stability. each has faced conditions particular to its own jurisdiction. each has deployed measures appropriate to its own context and each has acted to fulfill the mandate laid down in it's on constitution. and yet the fact that all center bank haves faced a challenge of low inflation is not

coincidental. this begs the question, what is the best way for us to deal with them? at one extreme, central banks can take global conditions and set their policies accordingly to. the other extreme is explicit coordination between policies. in between is a range of informal solutions. whatever one's views on these options, what is clear is that the question of the international dimension of monetary policy is becoming more pertinent since the common factors affecting central banks are increasing. tin deed a growing literature suggests that globalization has

created a common factor in inflation developments, which goes beyond fluctuations of energy and commodity prices. higher input volumes have increased the importance of international price and wages relative to domestic ones making the global output gap for relevant. in that context, there are two types of factors that are significant for the global low inflation environment we face today. more factors have put downward pressure on prices and more have lowered the equilibrium rate. the first type of factors includes the large negative output gaps generated by the financial crisis and its aftermath which still average 1%

among commeconomists today. this global slack has produced plies inflation. both of which have been weak for several years among advanced economies. prices set by produces in the area are set by producers in trading countries are highly correlated. also, the pricing global inflation has been the slump in demand for energy and commodities linked to the low down in emerging markets. this has fed just not lower headline inflation, but also lower under line inflation through its affects on costs and imported prices. indeed, if one decomposes inflation for the advanced economy, one finds that since 2013 there has been a notable

rise in the global component linked largely to oil and commodity price falls. these various factors may originate only in parts of the global economy. some originate more in advanced economies. other more in emerging markets, but in an integrated world, they have global affects. weakness has come over from various channels into a similar challenge for all. the second type of factor is more structural in nature. they concern the global forces that have let to very loaf equilibrium interest rates across advanced economies and perhaps made it more complicated for monitoring everywhere. in particular, this has led many

central banks in the advanced economies to engage in large scale unconventional policies. that low interest rate environment is a consequence of global excess of desired savings, overplanned investment which results from rising that savings as populations plan for retirement, for increased demand for and lower supply of safe assets. from relatively less capital expenditure in the context of slowing population growth in advanced economies, from the secular shift from industries intensive and physical capital to those more intense of human capital and from a slow down in productivity growth that reduces returns on investment. again, those factors may not be distributed ho ed across econom

>> not a great deal there in terms of future policy intentions or action. let's just recap some of the main highlights. he does admit that monetary policy has inevitably created destabilizing spillovers. it's possible to create -- i want to read the headline. price stability, i would imagine. >> yes. >> engineer financial conditions. inevitably created spillovers. let's bring in mike again. mike, where does all this leave the ecb because the way that i see it is if we do see populous parties that means potentially structural reform getting pushed on to the back burner and

greater emphasis being placed on monetary policy at the ecb. doesn't mean more easing. >> i think it does. my read of what mario was just saying was to give himself flexibility if he needs to. his argument is that, you know, the policy framework works. just a question of the downwards affect of a large global gap. he wants to give himself flexibility to do more if he has to. the populism angle and that kind of thing is putting pressure on many countries in europe, and, of course, in the uk. so i think there's -- yeah, i think there's a number of angles to this one. so far the populous votes within most european countries has not been the dominant vote. you saw that in the spanish elections on sunday. it's not all one way traffic and we should remember that as well, but clearly the issue of supp t

supporting growth and making sure everyone benefitted growth is improving is key to a successful economy. >> just so much to talk about. thank you very much indeed for joining today. head of sterling management at pinco. coming up on the program as the race to replace david cameron heats up. they tell them to get a move on if they want to leave the eu. we'll be right back.

drank gi ghi

for at least some degree of insulation from global shocks. another aspect is understanding the role of domestic policies more broadly in mitigating negative. the large body of empirical work in recent years has shown that fiscal regulatory and supervisory policies can help mitigate the adverse effects of

foreign policy on final stability. indeed, the relatively recent experience with a so-called tantrum showed how differences shaped how severely different economies were affected by financial spillovers. in other words, it has become clearer since the crisis that the famous principal in which we apply at the domestic level also needs to be applied at the global level. policymakers need to have sufficient instruments to deliver on their objectives. and they do -- and they do have them and when they do have them, they must use them. the second implication of the global nature of low inflation is that there is a common

responsibility for addressing its sources. whatever and wherever their origin. indeed, to the extent that the environment in which we operate is more affected by the global output gap and the global saving investment balance, the speed with which monetary policy can achieve domestic goals inevitably becomes more dependent on others on the success of authorities in other jurisdictions to also close their domestic output gaps and on our collective ability to tackle the secular drivers of global saving and investment balances. in a recent speech in brussels,ive made a similar point regarding interaction between monetary policy and other policies at the domestic level, such as fiscal and structural policies. and there i maintain that

central bank independence could best be described as independence. always achieve its objective eventually, but it will do so faster and with less if the overall policy is consistent. what i'm say sg here is that the same applies to the global level. we may not need formal coordination of policies, but we can benefit from alignment to policies. what i mean by alignment is shared diagnosis of the root causes of the challenges that affect us all. in a shared commitment to found or domestic policies on that diagnosis. today, for instance, the way in which domestic policies respond to a shortage of demand globally will vary.

in some cases the increases may be on public investment. on others in supporting private demand through more growth friendly tax and regulatory policy, and, of course, through monitory policy. the relative stance of stabilization policies will differ across countries depending on positions. the sign of the effect on global demand needs to be positive. similarly, structural policies that aim at raising participation and productivity may take different forms in different places, but they need to achieve the same outcome. here the g 20 can play a useful, perhaps essential role, in bringing about the appropriate alignment of policies. it is key that what is agreed in

those four is translated in the concrete policy actions. for example, the g 20 commitment to raise global growth by 2% with structural measures is one example of how intentions and actions can diverge. it contrasts with the more successful example of what's provided by the coordinated global expansion in 2008, 2009. such four of course cannot bind countries into specific actions, but mutual recognition of their common interest can act as a form of coordination device. that common interest today is a faster closing of the global output gap, more stable global inflation, higher long-term global growth and greater global

financial stability. and such an improved policy would reduce. since the burden of stablization would be better share ed across policies. the international spillovers from policies are likely to be wholly positive. since they primarily boost domestic demand in the home country. that is also true within regions such as the you aeuro area wher there are different output gaps. in a globalized word, whe have o think not just about whether our domestic monetary policies are appropriate, but whether they are properly aligned across

jurisdictions. >> that was draghi speaking there. calling for policy alignment among the central banks. >> a great deal there in terms of any information regarding policy coordination on a global central bank level, which would really be the bigger broader idea here to draw a line. >> absolutely. we're taking your comments and question on twitter. @cnbc. coming up addresses the german parliament today. later reviews on britain's vote to leave the eu. that's coming up next. stay with us.

>> let's take a look at the european markets where we are seeing quite a solid rebound. the italian market leading the pack at this point up by 4%. we have the italian government considering capital injection for the very vulnerable banking sector there. let's take a look at sterling as well, if we can. okay. we are seeing some stability there in cable. 133.26 is where we are, but still looking very vulnerable and there are some banks calling 125 by the end of this year. interestingly guilt as we've been discussing have been holding up quite well. we're not seeing that market collapse and yields are below 1%. now the european banking sector

has posted the biggest two-day loss on record following the brexit vote and many investment banks believe there's more pain to come for the sector. >> now, this of course as rbc is saying that european banks they've entered, quote, unchartered territory following last week's vote. warned of a prolonged period of uncertainty raising earning's concern. usb saw their rate gts downgraded as in orddowngrade ed. at the same time, the british government has abandon plans to share down it's sharings. in loids in light of this brexit referen referend referendum. cut exposure to uk banks raising 9 thousand pounds through stock sells. the plan has been plushed back. >> over in italy the government is reportedly preparing measures

to protect the lenders which could include kbaurn teeing bank bonds. by the hedge funds. the sectors reacting to this news. no detail yet in terms of the actual exact measures that we may see, but broadly there is a sharp rally in the italian banking center. up by almost 11%. >> we have leaders meeting today in brussels. mayor draghi in portugal. now addressing parliament in berlin. she's essentially talking about the german parliament, they regret the decision of the british people. they have to respect the british decision though. europe has gone through crisis and challenges in the past and now they have to take a big step forward within and with the european integration so merkel talking live there about how the decision has to be respected,

but we need to move ahead on european integration. of course, being the only european leader who stood out when the crisis first started to take in more than a million refugees and migrants in germany and came under a lot of heat from that in the aftermath from other european countries and could be argued that's one of the reason why the uk ultimately voted to exit the eu. one of the reasons. one of the issues. >> i'll admit this whole brexit mess, we only seem to be witnessing real quality from the likes of nicholas and chancellor merkel in the current environment. >> somewhat disagree. >> i would say the message from european leaders has been very m mixed. >> absolutely. it's a downgrade for uk with both fich and s&p slashing their

rating. s&p warning more downgrades could follow. global chief sovereign rating officer. good to have you with us. there are those who would say that s&p also was caught offguard by this brexit vote and this downgrade comes a bit late. how do you view what's happened and the downgrading scenario, can we anticipate more downgrades to come if if turmoil continues. >> some people might say that we were wrong footed on brexit and they would probably be right. we've been quite clear or base case had been all along that the remain vote would win the day, which was as we all remember of the broad consensus at the time. so indeed we were surprised by the outcome, and the rating action that we took yesterday, which is a two-not downgrade from two a to trip a is the new

reflection of reality that britain finds itself. >> what is done is done and that brexit decision is irreversible so the question is what do we need to see now from the leadership here and crucially how it manages this tortuous exit process and what do you want to see to help rebuild the credit profile in the uk. >> i think what is urgently required to be established in the next couple of weeks is sort of we get to know what the plan b is because we had a time where the british people were asked to vote on two options. one is eu membership and the other than is uncertainty. no consensus to replace it. i think it's urgent to actually form late a consensual view of what they want to present to

brussels. >> boris johnson the best man to deliver that plan b and an exit strategy? >> that's certainly not for me to judge. i'm not even a british citizen and can vote in any of this. our role as a rating agency is not to endorse one candidate or the other. we are pointing out the credit implications that have been taking and the position has been taken by the british electorate last week is that -- is a very negative step as far as creditworthiness is concerned. this is irrespective whether boris johnson is the estimate or theresa may. whoever it might be. we have to look next. the rating is still on a negative outlook that reflects our view in the next year or two could be downgraded again. this would partly hinge on what the reaction is from here. not only in britain, but potentially also in europe because this has to be a dialogue which is very difficult, unprecedented.

it's a lot of unknown. a lot of veto players in all of this so the uncertainties at the maximum. >> guilts across the board and we continue to see yields moving ever lower. the impact of funding is going to be interest fg you find yourself in a position where you've got inflation, but you're not able to raise rates. it's been going on since the brexit vote. how do you think the overall environment is going to change from all these mechanical switches that are happening. >> well, the fact that we see sort of a rising guilt prices and fall in the yield is to be expected. we have in situations of great uncertainty like now, there is the usual reflex of fight to quality. even after the downgrade, the uk government issues double a paper, which is extremely highly rated, i would say.

this is a secure asset where some investors are flogging towards. this has been observed in similar instances before. that's not surprising, but the devaluation or the depreciation of sterling will other things being equal overtime inflate inflationary and it will be challenging for the bank of enland to balance all the needs at the same time. >> sure. >> curtailing inflation expectations, but that's tomorrow's battle. inflation expectations are still pretty low. >> we've got to go. thank you so much for your views. a global chief rating officer. from one rate agency to another. >> let stay on topic and bring out ed. head of ema at fich. i'm sure you were listening to

that conversation. what is crucial right now is a post referendum visit on the exit strategy. i want to talk to you what we heard from the chancellor today. he may or may not be the chancellor in the not to distant future. there will be cuts in spending. there will be higher taxes. it will be growth negative. what are the credit implications of that. >> we think brexit represents a substantial negative shock to the uk economy and public finances and is generating severe political upheaval. i think at the moment what we can say is that everything is in a state of flux. we expect the economy to be weaker. that weaker gloet will feed through and have an adverse impact on tax revenues. if the government is to achieve current fiscal targets they would need to introduce further measures.

whether the government is willing and able to do that, the current point in time or under the next leadership is still a matter of great uncertainty. >> is a recession your base case and if it is, how dee prolonged will it be? >> it's not our base case. we expect uk growth to fall to not .9% in 2017. down from 2% in our prior base case so within the next couple of years that would leave the level of gdp in uk around two and a half lower than our prior remain base case. we're not calling a technical recession of two negative quarters was given the uncertainties of both, that's well within the margin. >> if there is an budget, where do you think this leaves theback of england?

do you have to sweeten the pill of os tarty with easing and could the base rate be at zero by the tend of the year. >> i think what's clear is the uk faces a much more difficult starting point so we're either going to have weaker growth or worse public finances or a combination of the two. i think if the government does compliment fiscal taightening, that's something we would expect the bank of england to take into account in terms of how they balance. what they face in the interim is a picture of inflation with weaker potential growth and difficult at the moment, but then potentially inflammation rising as the devaluation of sterling through. they have a difficult balancing act to makes.

some reduction in interest rates is certainly within the bounds of pocket. >> lovely. thank you very much indeed. now, in the last hour the president of the european parliament opened an emergency session to discuss the uk's decision to leave eu. comes just hours before a two-day submit of national leaders. now, nancy is in brussels. out to you first. let me ask you this, do eu leaders have a brexit plan because the unofficial strategy seems to be we are going to make an example out of you. all sounds very primary teacherish. beyond that is there anything else to discourage the others from leaving too? >> reporter: well, i can tell you the message we're getting from policymakers is they simply can't come up with a plan until they remove the uncertainty that is article 50. they want the uk to trigger

article 50 as soon as possible so they can start the formal legal process of the uk exiting the eu. we've been hearing from merkel, saying there will be no secret in discussions. no informal negotiations until that article 50 clause is drinkingered. you mentioned that extraordinary parliament session. now juan claude is speaking there. he said we want the uk to trigger this clause so we can get on with it and start looking at the formal process. interesting to note that yunger also said look, i'm not sick. i'm noot tired despite what the german papers have suggested. he's going to fight with every breath to reform this project. right here he's hitting at charges in the newspaper in germany and elsewhere saying perhaps some of this blame should be directed at the eu leaders as well. a lot of discussions that david

cameron took a gam skpbl lost. others saying the leaders in brussels did not take the exit serious enough. david cameron came here and asked for reform pledges to take back to the uk and now time for them to look in the mirror and say do we share some of the blame in this. what do we need to do to convince other skeptics this union is worth being a member in. they've taken off one of our wings, but we are still flying. as you know, we are just hours away from dave cameron's arrival in brussels. >> thank you very much for that. now, uk business secretary is holding a submit later on today to discuss the business implications of british's recent

vote to leave the european union. priority to ensure the upcoming negotiations with europe they were in the interest of uk companies, investors, and workers. now delegates from the british chamber of commerce are expected to attend. >> good morning. >> what's the line from business through all this. >> i think businesses want three things. stability in the markets. clarity over the timetable for what happens next and they want some action here at home on domestic economic policy. i think the best analogy i can come up with is this, if you were getting divorced, you would still go to work and do your day job. big decisions to take here at home while negotiating a complex exit. >> you don't want to get divorced. it's messy. >> of course it is.

doesn't it trouble you we are effectively getting radio silence from the leadership here which is in disarray which begs the question to draw a like under all this uncertainty. as you said we need the guidance we need. a post referendum road map. is boris johnson the right badge to deliver that guidance. >> it's not for me. what business want ss the existing government, people in office today to get on and do those things which they said they would do in their manifesto beyond the referendum. things like ta replacing energy regeneration capacity. building homes, et cetera. these are kind of things that boost supply chains and boost tangible business confidence in the uk. >> from what you're hearing, businesses you're speaking to, are they looking outside of london, are they looking outside of uk in terms of doing

business. >> we've always been international. many of them are looking at their options in markets really all across the globe. saying to us a wait and see approach for the moment. vast majority of businesses, particularly those not publicly quoted, very little changed last friday morning. the change is coming in the months and years ahead. looking at options now and deviedsing strategies for a period. >> speaking of, what has been the impact. what's the mood in the city amongst financial services? are all those con tibia general si plans that were theoretical being put into affect or can the sector adjust to the new reality. >> i think the sector has no choice, but to adjust. it will adjust because it has no choice. you know, we will see some changes in the financial services sector. that's to be sure. i don't think we'll see all of these contingency plans

activated quickly. one thing i have been hearing is the sectors that are going to have the best time over the coming months would be the advisory sectors. professional services. they're going to have a time steering clients through a particularly difficult period. >> i got scolded by the producers. i'm going to ask one quick question. budget, if it does come, is that going to condemn. >> we are against deflation nare budget measures. if there was a time to in fact in business infrastructure to promote confidence, this is going to be it. >> thank you very much. acting director of the bcc. football. >> right. i thought this would be good news, but it's not. europe. britain is out of soccer as well. iceland freeze england out. we'll have all the details on.

exiting europe twice in a matter of days, iceland stunned england with a 2-1 victory despite initially falling bi iid to an early penalty. replied with two goals to send england packing. england manager stepped down after the match. elsewhere italy produced a brilliance team performance. it could have been worse for the defending chachones if not for fine goal keeping. the match you see could not keep of giorgio. italy's win now sets up the mouth watering final clash with germany. right. here is a look at the full quarter final lineup.

very strong teams. wales is in there as well. come on wales. >> the icelandic guys. some of them have other jobs. one guy is a baker during the day. and the goal keeper stepped out of football and came back. >> what a tremendous game they pl played. gold hitting a two-year high. upgrading their forecast on this pressure metal. next guest saying silver may be the better metal play. from new york, andrew. good to have yo with us. why do you say that. >> silver is a metal that most people don't really think about when they think about precious metals. it's a industrial metal as well a precious metal. the reason investors choose gold, silver has those properties.

about two-thirds of silver produced coming from industrial demand. >> give us your price targets on gold and silver as well. 1400 is that a distinct possibility for gold on the upside and what is the gold/silver ratio telling you. >> i'm not allowed to give specific price targets, but if you use the silver/gold to look at wra we're currently out. for each ounce of gold that's mined there's ten ounces of silver mined. it seems there may be an opportunity historically that average that has been close tore 40 or lower if you look at a long time period. broader based assets even fixed income which has been very expensive recently and prior to brexit, precious metals as a whole look potentially as a cheaper alternative on a

historical bases. >> you're an etf man. how strong is the case for the physical. so be it gold and if it is going to be in favor, how much portfolio allocation do you set aside. are we going to see the precious metals in singapore start filling up. >> listening to the station, there's uncertainty looming and in that situation people look for alternative assets and silver and gold being those typically under owned relative to broad based portfolio. i think there's a lot of people looking for mining exposure as well as precious metals. if you ook at that space, that's been an area that's been trading at a very high beta compared to precious metals. someone looking to get exposure may wish to have physical. we actually offer something that provides exposure to the silver

miners. >> what happens if the dollar continues to hold onto strength? are we going to see more dollar strengs? are we still going to see buying into silver. >> we've seen metals trying to diverge. it's the broader global economic story we're seeing among uncertainty and looking like an alternative asset to other types of currencies. >> andrew, perfect timing. thank you very much. have a cup of tea. walk up. co-founder of pcf. that's it for today's show. we're all done. >> stay safe in this markets. >> stay safe. >> worldwide exchange up next. .

it good morning. european leaders convene to answer the question on everyone's mind, what happens next? markets now bouncing back. the bound crawling off its low and u.s. equity features pointsing to a higher start on wall street. so will today's dinner date in brussels give the clarity we need. we will find out. it's tuesday, june 28, 20.