good morning, everybody. welcome to street signs. happy fourth of july. >> that's right. welcome. these are your headlines. in shares in the italian lenders are slumping amid reports of the ecb now wanting them to cut nonperforming loans. uk could become a low tax center as chancellor osborne vows to cut corporation charges. meanwhile the mighty minors push the ftse to levels not seen in almost a year. in shareholders voting whether to back a merger as potential

brexit implications loom. >> and deadlock down under. australia's elections only lead to more uncertainty it after the results are too close to call. good morning, everybody. and welcome to what is the beginning of another week. >> that's right. and we're here two hours today for the fourth of july. >> we'll be baking a bit later on. bringing in cakes. >> baking in that way p. i thought you meant the sunny day. we like to celebrate with a good fun fair of cakes. >> this is like a new year. >> definitely. >> our european markets starting the week, we're a little bit in negative territory. not by much. down by a hair really with some knee jerking. still trying to figure out the

implications of the brexit scenario that we're faced with at the moment. and there was a lot of repositioning also closing out the quarter, closing out the first half of the year believe it or not at the end of last week. so that's what we're looking at this morning. our secretary are tors and main equity markets were allege mixed out there with the ftse flat to just a tad tier. the dax, contact and ftse all move lower. of course today the financials and commodities closed state side. and you've got to assume maybe that volume will be a bit lighter here in europe because of that, as well. oil and gas higher, he radio source pulli resources pulling up the most. autos off 1.5% leading the way lower.radio resources pulling up the most. autos off 1.5% leading the way lower. we were talking about the banks a lot last week. shares there, languishing at the bottom of the stoxx 600 after the ecb reportedly sent a letter

urging to speed up the sale of its bad loans. trading will in the stock was suspended earlier following the large drop that was seen. >> and in the uk, georges s og pl plans to slash taxes to could i to keep the businesses leaving the uk. it's part of his new five part plan to energize the economy. osborne said he planned to build a, quote, super competitive economy with a global focus. and if the uk was hoping to use brexit as a chance to position itself as a tax haven, it won't work says the oecd. they said it expected britain to cut corporate tax as a knee jerk reaction, but warned political cost could be high as the move would further pressure public finances. >> tension remains high over the path for post-brexit trait

talks. speaking at the economic forum in, former director general was asked how negotiations could proceed. >> i'm convinced it will take a very long time first because we have this so-called article 50 which is the sort of disentangling of the uk legislation from the eu legislation. and that's square one. and once you've done that, and it will take a lot of time, then you have to go to square two which is what of the new relationship between uk and europe and continent, not only on trade. trade is only a small part of the arrangements that will be necessary. so it's going to be complex, bumpy, probably nasty, and as far as trade is concerned, uk with its 65 million consumerism will have to negotiate a bloc of

450 millions. and in trade, your weight is the size of your market. >> and you spent a great deal of time in brussels. there is a lot of blame at the uk, but others are starting to say maybe there needs to be a leadership change in brussels and saying what did we do wrong in the initial negotiations. do you agree? >> i think brexit obliges those of us who believe that we do better together than alone, it ob laliges us to be better to b evidence for the people that it's good for them. you're right, we need more structure and reform in the european union. we are sort of 1 about.5 growth for the next ten years, that's not enough to sustain the continental europe and social model.

and in order to increase, we need more structured reform such as for instance deeper market notably in services. >> henry dixon is with us. hope fourth of july. how are you is th? >> it's been a lot of long unpredictable days. >> how do you look at your portfolio and position we need to rejig or sitting tight and waiting? >> sitting tight and waiting is not an option. i think the central case has to be against cyclicals and we're keen to wait our way away from any financial leverage, any premiums to book values. replacement costs. if you're anchoring case off a p and l right now, i think that is very dubious indeed.

we retreat to assets and cash. outside of that, i think there has been a blind bid for everything that isn't sterling denominated and is u.s. denominated. we very definitely want to be a bit more thoughtful for that. i understand the bid for pharmacies was exceptional, but you need to maybe look under the surface and need to be more nuanced and try to find what was cheaper before last thursday, had good operation before last thursday and have only exasperated the positive trends. maybe i could single out for micro focus which all sterling denominated cost base and i think it's in a good position to help companies out in a difficult period of time when the companies nd the help essentially streamlining the systems. >> and i want to specifically get your views on the banks here because, yes, there has been a recovery post-brexit, but still off more than 16% since the brexit shock here. of course the italian lenders

are really the losers today, but overall, what is your view? >> i think you need to be cautious. i applaud our banks. they worked unbelievably hard to get themselves in a better position than 2007. but still specifically with banks, we need to be cautious with where they sit in the leverage curve and also we're now looking at potentially going negative. and we do have a case where rates have gone negative, flamely japan being and that is not an environment of financials. so deal with what we absolutely do know. >> on the they negative rate, d worry that central banks will continue to prolong the extortion in markets is this because it was the statement from the bank of england that spurred the recovery in the uk.

thoughts now that the fed will be on hold, as well. >> i think any sort of play that we had with regard to pre-the referendum there will may be a remain dividend, i think that we could point to investment trends that have been subdued. we still need to look to an environment where central banks will be unusually accommodative. so, yeah, persistence of low rate will definitely be here probably longer than we wanted or wished for. i do think it makes the end game that much worse because as i say medium and long term is a series of short terms and you have to make very stark choices in the short term. >> i spoke to a number of fund managers last week off camera about their positioning and many were saying we are piling in to cold or we're seeing clients wanting to pile into gold. is that something that you are doing, as well? >> gold was actually a reasonable portion of our

portfolio before the event and we've been more optimistic about our gold holdings after the event. but we're always drawn to horrible bad markets. sounds bizarre. but there was a mohorrific fourr five years in gold. and if you overlaypeople's emotions on top of that, when it's 1800, it goes to 2200 and when it's 1,000, it goes to 800. and that opens up a huge anom y anomaly. so we started with the holdings and valuations are definitely below the market. obviously what they're selling is going up and in many cases costs are going down. so a simple area that is cheaper than the market and growing faster than the market. >> what do you think the main

bregs hed ne brexit hedge is? >> if there is a domestic play, we don't want to completely turn our back on the uk, but the only portion of the market that has both asset value and sound balance sheets would be the house builders. airlines for example, maybe a difficult portion. and with regard it is to some of the value that i think is likely to spill out of london europe, commercial real estate for example. if we were to have this this conversation in dublin, it would be near 400 pounds. so i think that does play to a relative value opportunity maybe between london and dublin. so i think we're keen to express that relative value trade as it seeps cross border. >> henry, great stuff.

stay with us for a bit. that is henry dixon. >> get involved. e-mail the show. treat signs europe at cnbc.com. we're also on twitter, of course. >>@nancy cnbc, @street signs. >> we're happy to take your questions and your comments throughout this two hour show. in and we have a big event right near the end. we will be baking. that's right. louise and i will try our hand at baging up a storm because we are of course celebrating independence day with some of america's favorite sweet treats. don't want to miss that coming up later.

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let's bring you up to shares of bmps. they had been language gishing after the ecb sent a letter to the bank urging to speed up the sale of bad loans. the bank says it has been told the nonexposing loan exposure must fall and trading was suspended following the large drop. italy has denied reports of bailing out its troubled banks. prime minister says he will fully respect eu rules following reports that he was prepared to go against the rules of the bloc's banking union. a spokesperson confirmed that they were in discussions with italy over a possible public recapitalization of the country's banks. >> i had the chance to speak with a former italian prime minister mario monty and asked

him. >> these reports, they don't really capture the essence. the economy values things that respond to the eu rules. and to say that they refuse is doing -- is not giving merit to the others. exactly four years ago and exactly on a day which like today a football hatch between germany and italy was being played, i with other heads of states and governmentsatch betw germany and italy was being played, i with other heads of states and governmentsmatch bet germany and italy wabeing played, i with other heads of states and governments put a lot of pressure on angela merkel in 2012. and although she had stubbornly

refuse this hd this before, she agree to go on much more sweetly with the banking union and to take a position that would give political comfort to the ecb in order to introduce a capitalizing mechanismechanism. so it's a mistake in my view to consider things in europe as unchangeable or changeable only if and when chancellor merkel agrees, although she's technically quite a force in european politics. >> putting ms. merkel aside, are you suggesting that in extraordinary times such as these with the potential instability having a ripple effect that the eu should be able to make exceptions including when it comes to bank recapitalization? >> honestly, i'm not deep enough in this pile. i was in the past.

actually i was there in the phase in which with the permission at the time compelled germany to eliminate tensionally all of the legal guarantees on their savings banks before the financial crisis. so i don't know the details enough. i am confident that the outlook between the italian authorities and european commission will arrive at the solution which may put away the risks of overreactions while on the other hand not eliminating the necessary incentives for banks to become more capitalized and to become also more attentive to what they do in their governor thanks procedures.

>> it's called the single biggest risk on the european landscape this year outside the uk. citi says that if the vote on constitutional reform fail, ren renzi's government could fall triggering political chaos in italy. >> meanwhile deutsche bank says they won't need a capital increase for the foreseeable future. the ceo said, quote, i believe we can build organically, which we have not done over many years. >> hsbc is saying that it's completing the sale of brazilian business after obtaining regulatory approval. the sale is part of hsbc strategy to shift towards select asian markets which it deems more promising than brazil. the chairman of spanish bank says m&a is off post brexit. in an interview, chairman said

merging was almost impossible. and lse shareholders are expected to approve a merger with deutsche boerse. german market regulator had raised concerns over having the headquarters of the eurozone exchange outside the eu. results of that vote are expected a bit later today. joining us now is a reporter, gustav, thank you for joining us. we're about an hour away from the actual vote taking place. yes, ls chlt shareholders expected to approve it, but questions remain. how realistic is it that this is brexit-proof? >> as you have seen, they said brexit might make the deal more

compelling. the vote seems to be quite okay as far as we hear from the sources. people seem to like the rationale. we'll see in a few hours what the outcome will be. we will see the result of 12 of july and anything can happen i guess. the big outstanding uncertainty might be regulation, will germany approve the deal. >> one reason it could be seen as more compelling for lse shareholders is bwhen you look t the split. will the terms of the deal have to change? >> we have heard that you cannot change the terms as such until the vote and merger. so that might be what happens. who those. again, we haven't really seen the shares drop, so i guess that's one of the risks.

>> they said quote/unquote the most exchange could be outside the eu. this is hard to imagine. where they put their headquarters will be crucial, as well. >> it will be crucial. it does have a big sale being such a big financial regulation in germany. so the location pick a big factor to look at. >> i think we need to look at the gracing down of the hedge fund community. we saw friday a weak market and we could point to a number of deals that are similar stress points in the market. i would put it into market it is

location and think this is a deal that will get voted through and intricacies of the head office, i can see that quite easily being overcome. >> what is the time frame here? because will regulators approve it until the article 50 clause gets triggered? >> i think if you look on the financial organizations and their view with regards to article 50, just those predominant -- if there was no cross border cape at of these businesses, i think you would be concerned. but this is clearly a business highly european so i don't think article 50 is an impediment as it is for many others. >> the signals have been quite confident. you have a stop date in about a year. but like you say, article 50 would give a two year period and who knows then what will happen.

>> and they say no m&a will take place in this environment. is that realistic? >> i think you have to look at sectors that were clearly fertile grounds for m&a before this and i think that they will be after. i think buying power of a japanese company for lids of london is about 30% better. i think could easily look deep to be sized for a company maybe baseded in japan for an example. so i'd be cautious saying there would be no m&a. >> and it seems chinese are investing a lot in the u.s. how about . >> it's a confidence game. but once the dust settles from brexit, if you still have a case

for buying in europe even in the uk, i think we might see it continue to happen. >> gustav and hundrenry, thank both so much. >> it's interesting you bring up the possibility of chinese companies buying here because tencent and publicis announced a partnership. no details were disclosed, but this comes just a few days after tencent's deal for super cell. >> a minds wondering if they're making a bigger push into europe. i spoke to the sceenior executi vice president in pair re and asked him whether or not their company had their eyes had on future acquisitions. >> options are always opened. we wish that we know more open minded industry leaders that we

have known each other for 10, 15 years. it's always very easy to what we see similar values. >> meanwhile australia remains mired in political uncertainty as the result of this weekend's general election remain taos close s too close to call p. neither major political party has secured the 76 seats needed to form a majority government. and you can get more on the reaction and market reaction we've been watching especially when it comes to the if chlt x markets. head to our website for full coverage on that one. >> and for more on the markets not just the aussie market, but asian market, sri in singapore joining us. >> and let's pick up on the australian story and political uncertainty. because there is no clear winner as you referenced from the elections over the weekend. so we go into the back room

dealing with the independents and minor parties, but the risk here is that turnbull will be forced to form and it will call political paralysis. and simply indications for the aaa credit rating. so the markets taking it in their stride. similar story for the local dollar, as well. did come under pressure, but came back off the lows. i think you will see a fair bit of volatility over the course of this week until the final count comes in from postal ballots, et cetera. all in all we did see improvement today in equities in our rimg on, but it really is a low conviction, low energy up move given the fact that the markets are closed and u.s. participation remains low. back to you. >> sri, good to see you. thank you very much. yes, good morning, happy fourth of july. many of you writing in with precisely those well wishes.

gary, good morning to you. keep your e-mails coming through. street signs europe at cnbc.com. >> and twitter, as well. @nancycnbc. >> and @louisabojesen. >> our live blog will update you all the good stuff going on. after the break we'll be talking high yield, fx markets, gold. and some tasty cakes still coming. (guy) oh man, the show's

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good morning. welcome to street signs. >> your headlines this morning, please cut your bad loans. shares in the italian lender hit an all time low after the ecb

makes fresh demands in a letter. >> and chancellor osborne vows to cut corporation charges. and ftse at levels not seen in almost a year. >> lse votes on whether to back a merger. >> and australian's elections only lead to more uncertainty after the results are too close to call. welcome back to "street signs." let's get you up to speed with the uk construction. figures coming in at the lowest since june 2009. it is a level of 46, uk construction pmi in june, compares to a reuters poll of 50.5. a decrease from 51.2 in may. so that will not be good news for those waiting to see whether

or not the brexit vote has implications for data. keep in mind there were already concerns about the construction sector, some trying to figure out whether it was tied to simple uncertainty, but here we are also looking at the pmi showing incoming new work declines at the steepest pace since december of 2012. for the time people, sterling holding just slightly higher against the dollar, but again we've seen this comeback in the wake of the brexit uncertainty. but there you have it, uk construction at pmi at 46 in june, lowest level since june 2009. >> so do we think that the bank of england will be injecting more stimulus? this is a huge drop. >> a huge drop and the panning of england saying they're more are are or less hinting at action. >> i guess if it's a one off, you see a holding off placing orders up to the brexit vote. but i'm wondering whether they want to see more data before they potentially inject. >> exactly.

>> or whether they just go ahead and jump in. >> and how long it takes. because there could be a lag. and we're still waiting to see when article 50 is triggered. >> and down graded forecast for the pound to parity. a level of 112 against the dollar. banks chief strategist and head of research joining us now from zurich. good morning. good to have you with us. so you've changed some of your forecasts. and essentially you're saying you also see stagflation for the uk in 2016/17. just talk us through some of the main changes that you've made. >> yes indeed, this is about uncertainty, uncertainty for the economy, uncertainty for the corporations making investment positions. and therefore we expect probably a technical recession when it comes to the uk economy. which actually is not something

which is completely out the picture given some of the leading indicators you just showed. and against that backdrop and given that the pound is already post 10% of its value, it wouldn't surprise us to see inflation rates actually coming up on the upper side of expectations. so low growth, rather above average inflation, that is everything you need for a stagflationary scenario. >> you talk about uk based investors. what should they be doing, what should they be thinking about in terms of positioning and how do they hedge their portfolio? >> if you're in the uk and think in the british pound a weak occurrence is something that you have to insulator portfolio against. and one way to do that is have a certain amount of u.s. dollars, swiss franc, yen, euros in your

portfolio. and the other thing is to buy gold straight away. gold hits an all-time high after a brexit position. if you measure it in british pounds, i think this is something which probably may continue over the months to come. so it's really about inside lating cash you hold in your own currency. and this is certainly not the place to be at this juncture. >> and we were going over the latest data. you may have heard the discussion we were having about potential boe action. is your forecast that the bank of england will have to cut rates here? >> yes, this is certainly one of the options. but given the yield level or the rate level actually, doesn't really move the needle. i think this will be rather symbolic that the bank is signaling something, but other than that, they have to come up with unconventional measures most likely and that is also what they will likely communicate tomorrow because you've seen major policy

reaction when it comes to the bank of england, but also when it comes to the chancellors ss osborne talking about tax rate cuts. this is to stem against the uncertainty. >> sterling turning negative after the sluchl mp in pmi. some saying we 00 scould see a to the bottom. is that your expectation and what does it mean for equities here? >> i don't think this is the blueprint for even else. i think this is a rather specific situation. but of course, you know, it adds to the pressure. to a certain extent only p.. a lot of the investments planned for the uk, say you're toyota and think about expanding your

production which is uk, most probably some will be diverted to other places in europe. and i think this tax cut is to be seen against this backdrop rather than seeing this as a global competition. this is just to mitigate some of the negative impact the uk runs into over the next few quarters. >> interesting you point out investment being diverted. how are you investing in emerging markets? >> yes indeed i think this actually played very much into the cards of emerging markets. what happened in europe lately overall, but also when we look at how the u.s. central bank is addressing the issue, so a push out of rate hikes far into the future. and if there was anything that was giving major headwinds

between emerging market assets, it was the rise of the dollar. so we think that this is off the table for the time being and this is actually given the at tag difference valuation in emenlging markets the time to pick up some exposure there. we were very much out of the emerging markets in the past two to three years, but we think this is now the time to have positions because these capital flows back into the united states but also into europe probably slowing if not even reversing. and we'll see most probably or have seen emerging market equities relative to the world. >> when would you prefer of the emerging markets? >> asia still main beneficiary. i think this is kind of in the best of both worlds, benefitting from lower commodity prices structurally, but also seeing the capital flows actually outflows slowing. and i think this is actually the most interesting part. of course the beaten down assets

like in brazil and latin american stocks in general, they have had a strong rebound. we think most of that is behind us. so it's rather going into the structural story of emerging market which is basically asia. >> what do i do with dealts? a ten year low of 0.779, the 30 year note in the states also hitting a new low. toy continue to buy debt with these yields at the moment? >> that's a tough one indeed. psychologically, this is one of the worst things that can happen to investors to have -- for instance swiss investors, you wait 25 years until you make money on your government bonds. for germany, more than ten years. nevertheless i think this is the only asset which will save you

in case this is turning even worse in terms of global deflationary pressure. this is not baseline scenario, but a sizable risk scenario and the only way to insulate that is holding some of these safe haven assets which are unfortunately extremely pricey. but in terms of asset allocation and portfolio balance, this is something you can't circumvent even at this juncture. >> christian, thank you very much. >> meanwhile we're still keeping an eye on the race for the white house and hillary clinton was interviewed by the fbi over the weekend as part of and ongoing probe into her use of a private e-mail server during her time as secretary of state. nbc's edward lawrence joins us with the latest. we know that hillary clinton said in an interview with nbc she was quite eager for this meeting. where do we go from here? >> reporter: from here hillary clinton says she wants to put this all behind her.

she said she's been answering questions on this for a year from the media and she said she's thousand done with it. this could be a signal that the probe is coming to an end. usually the fbi will interview the person at the center of the probe towards the end of the investigation there. she's trying to change the optics here. it looks bad for her with the image of her being interviewed for three hours by the fbi during that criminal probe. so on tuesday, she will go with president obama to charlotte, north carolina if their very first campaign event together. both hillary clinton and president obama are expected to criticize donald trump. meanwhile donald trump on tuesday will have his own rally just down the interstate in raleigh, north carolina. he's expected to say voting for hillary clinton is like voting for a third they were for president obama. both campaigns are putting a lot of resources in the state of north carolina because they believe there is a vulnerability now. in 2012, it went to mitt romney, a republican. but hillary clinton believes that she can take the state because of the gender bathroom

bill that passed, the controversy down there. she believes she can sway voters on her side. donald trump thinks that he can keep the voters in his corner. this could be a vital week for donald trump. he's had a very tough three weeks previous. so his campaign faltering just a bit and he needs a strong week this week. in and i w >> i was looking at this picture that trump tweeted of hillary clinton against the backdrop of a whole bunch of $100 bills, a red star next to her that says most corrupt candidate ever. and social media was awash with criticism after this picture was tweeted. how much has this hurt his campaign? >> reporter: this is another controversy that donald trump created himself. his former campaign manager came out and said, well, this is just something that was on twitter, he tweeted it, there was no ill will meant here. but the anti-defamation league said it is now time for donald trump to try to distance himself

from anti-semitism, also racist remarks. that picture was tweeted by an account of a year of an account on twitter and that user has tweeted other racist things. so the picture was deleted off of donald trump's account and changed to a circle instead of the star there. but you can still see two of the points, still it caused a lot of controversy for him and at the moment the candidate himself has not addressed this. >> edward, thank you very much. edward lawrence from nbc news. if you weren't interested enough in the political instability in the uk, you have it in the u.s., and here comes austral australia. >> and austria, as well. >> thousaaustralia remains mire political uncertainty and the rut of the general election remains too close to call. matt taylor has all the details from down under. >> my advice, to desolve both houses of parliament.

>> reporter: it was a risky move that could yet prove to be disastrous. an early election was elected to return the liberal national coalition back to power, but instead is too close to call. >> australians would have no doubt preferred a clearer drought come but it will be a number of days before the electoral commission completes the count. >> reporter: 76 of the 156 are required to take power. and with many seats still hanging in the balance, the chances of a hung parliament are high. malcolm turnbull remaining confident he will lead the new government. >> i remine quitely confident that a majority coalition government will be returned at this election when the counting is completed. >> reporter: the coalition is banking on pre-poll and postal votes to get it over the line in marginal seats where counting resumes on tuesday. labor meanwhile is basking in

its perceived victory in taking the election todown to the wire after many had written off the opposition. declaring july 2 as the comeback night for the labour party. >> but there is one thing for sure, the labour party is back. >> repr: instability at the top level of government including malcolm turnbull deposing former prime minister tony abbott just nine months ago has cridriven voters away from the major parties and the coalition and labor may have to turn to the minor parties and cross benches to form a new government. math nthew taylor, cnbc, sydney. >> and for more on the market reaction, head to cnbc.com, we'll keep you up to at a tidat throughout the day. iraqis are in mourning after

the explosions in baghdad. deadliest attack since 2007 took place in a busy commercial district as many families were shopping ahead of holiday celebrations marking the end of ramadan. islamic state which had recently been driven out of take luof tah has claimed responsibility. and in bangladesh, 20 were killed. the so-called islamic state has claimed responsibility, but importantly though the bangladeshi home minister has ruled out any vochl of the group. six of the seven attackers were killed, one was arrested. the majority of the victims were japanese and italian citizen. i also think it's point to note when looking precise will at who the attackers were, it turns out that it's emerging that they all were in their late scenes, early 20s and apparently all products of bangladesh's elite, many

attended some of the top english private schools, universities both in the country, outside of the country. among them the son of a former city leader from the prime minister's own fwofrning party. so it if you look at some of the news flow coming out and some of the reaction from the bangladeshi people, they are completely failing to understand how this could happen given the profiles of the people who consider twere the attackers. still to come here, as george osborne unveils tax cuts to create a super competitive economy, our next guest says mark car any wney was the only with a plan. we'll tell why you. that was invigorating! you're probably wondering why i've just carved a giant wooden tiger. well, the answer is that a real one would maul me. i've crafted dr. whiskers here as a visual aid to show you that should you visit the lot, carmax associates will not pounce like tigers

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welcome back. you're watching street signs. i'm louisa bojesen.

france beat iceland in the football championships. thus ending the fairy tale story of the smallest populated country in the

. good morning. welcome back to "street science." >> your headlines this morning. >> no love in this letter. shares hit an all-time low after the ecb tells the italian lender to cut its bad loans the u.k. is to become a low tax center as they vow to cut corporation charges. they are pushing the ftse to levels we haven't seen in a year. shareholders vote whether to back a $27