good morning happy friday welcome to "street signs." i'm joumanna bercetche these are your headlines two media reports suggest president trump approved a strike on iran but then backed down the u.s. government has not commented. the u.s. aviation has banned operators from flying over iran-controlled airspace. brent remains on course for its first weekly rise in over a month amid escalating tensions between washington and tehran. eu leaders fail to agree on candidates for the big jobs in

brussels italy remains optimistic about defending he its deficit case to the commission >> we just talked yesterday, i will talk in a few minutes there was a fair play -- >> a new dynamic to the conversation >> i hope so. european chipmakers in the red after semiconductor supplier iqe warns full-year revenue will miss expectations as u.s. restrictions on huawei hit global supply chains good morning we have a very busy show first i want to take you some pictures of eu leaders who are gathering for the roundtable we'll bring you the latest from brussels throughout the show this after reports that there doesn't seem to be an agreement yet on the future of the president of the european commission

negotiations are continuing. lots to discuss, not least the future about the european -- the head of the european commission as well as italian political developments as well as geopolitical developments overnight. something that we'll be discussing shortly with willem marx who is there in brussels. i also want to bring data from the eurozone we had pmi numbers come out, flash numbers for the month of june we had germany and france coming out a short while ago. now we have the composite number for eurozone as a whole. just to break them down, the number came in at 52.1 slightly better than the expectation of 51.8. actually the composite pmi is at a seven month high some positive signs here the flash services pmi came in at 53.4. higher than the reuters poll of 52.9 higher than the prior month of 52.9 manufacturing, which is what many people have been focusing

on, came in at 47.8. this is a little bit lower than the consensus of 48. a bit higher on services weaker on manufacturing. i would add that about a half hour ago we had the german pmi numbers. their manufacturing did show positive signs, still in contractionary territory still below the 50 mark. it does show some hints that perhaps the cyclical low in europe is now behind us. let's take a quick look at how european markets are faring. most indices are trading cautiously in the green. ftse 100 up 0.10% at 7,400 xetra dax, up about 0.10%. cac 40 up a quarter percentage point. it's interesting that the reaction in europe is more muted given the gains in u.s. equities yesterday with the s&p reaching an all-time record high and dow

back at levels not seen since last october u.s. equities continue to go from strength to strength given the geopolitical events that have happened. let's look at how gold and oil have done. the story for gold, you are getting a flight to quality bid because of geopolitical concerns the bigger macro driver is what the fed decides to do next on wednesday we had that fed meeting. they signaled a rate cut as soon as july. that spurred activity and inflows into gold. wti and brent on the back of yesterday's developments we saw a spike of more than 5%. a lot of geopolitical risk premium priced in there. no doubt the positioning was light given how much oil has dropped over the last couple of months on demand concerns. president trump reportedly approved military strikes against iran but then backed

down according to the "new york times" and the "washington post." the report says trump approved the moves in retaliation for iran shooting down a u.s. drone over the strait of hormuz. the reason for calling off the strike is unclear according to both papers. white house and pentagon officials have so far declined to comment on the report however the "new york times" states that government officials asked the paper to are hold the article. a u.s. official confirmed to nbc news that a decision was made to act but the white house changed position late in the day president trump backed his administration's claims that the drone was in international waters, and claimed the incident incident could have been a mistake. >> i would imagine it was a general or somebody who made a mistake in shooting that drone down unfortunately that drone was

una unarmed, there was no man in it. it was over international waters clearly over international waters we had no man or woman in the drone. it would have made a big difference, let me tell you. it would have made a big, big difference i have a feeling, i may be wrong, i may be right -- i'm right a lot -- i have a feeling it was a mistake made by somebody who shouldn't have been doing what they did. i'm not just talking the country made a mistake i'm talking somebody under the command of that country made a mistake. >> dutch airline klm confirm heed it is avoiding part of iran's airspace amid heightened tensions around the strait of hormuz klm said safety is a top priority u.s. flight operators have been banned from flying over some iranian controlled airspace by the federal aviation administration the faa cited heightened military activities and increased political tensions in

the region lots to die jeggest here. hadley joins us with more. let's go back to what president trump was saying now the pentagon released a map of the drone path showing it was outside iran's waters when it was shot that doesn't coincide with what the iranians are saying. what's the latest here >> there's so many moving parts to the story, but in terms of where that drone hit the water, according to centcom and a map they released yesterday, that was 34 kilometers off the coast of iran. they say that is international waters that it is clear indication that the drone was flying in international airspace this was a pentagon briefing held yesterday to the surprise of many in the press corps because it's been over a year at least since they had another briefing so a big move to prompt such a briefing the actual statement was read

via a teleconference from the u.s. air base in qatar listen in to what the lieutenant general had to say >> this attack is an attempt to disrupt our ability to monitor the area following recent threats to international shipping and the free flow of commerce iranian reports that this aircraft was shot done over iran are categorically false. the aircraft was over the strait of hormuz and fell into international waters at the time of the intercept the rq-4 was operating at high altitude, approximately 34 kilometers from the nearest point of land on the iran yaian coast. this dangerous attack was irresponsible and occurred in the vicinity of air corridors between dubai, uae and oman, possibly endangering innocent

civilians. >> speaking of those dangers, we talk about that air corridor, it's one of the world busiest. dubai one of the major international transit hubs globally the third busiest airport when it comes to international airline passengers as much as a third of the world's population lives within a four-hour flight of debuy. when talking about whether or not there will be more of a reaction from the gulf arab countries, so far no statements with regard to the drone, but in the last half hour we got a statement from etihad airways, they say they have not made moves to stop flights in the area but they are closely monitoring the situation lots of moving parts to the story, i thought it was significant that the pentagon singled out not just tanker traffic but also air traffic as well >> a very, very important shipping route through the strait of hormuz hadley, thank you very much. let's bring in the senior

research fellow from chatham house. great to have you with us. there's been multiple events over the last month between iran and saudi tankers off the coast of the gulf of oman, most eventually the attack on the u.s. drone if iran is behind these attacks, what is their incentive here what are they trying to do >> ultimately the iranian government is pushing back after a year of president trump's maximum pressure campaign. they waited out a year to see if there would be any response from the remaining signatories to the iran nuclear agreement to meet iran's economic commitments and requirements as part of the deal that's yet to transpire. so there was a shift in strategy in tehran where it was time to push back, particularly after the trump administration did not renew iran's oil waivers on may 8th. we've seen subsequent series of

events where iran is pushing the red lines here >> would you say ultimately what they're trying to achieve is sanctions relief >> they would like sanctions relief as part of a wider negotiating outcome. what we are seeing is posturing on both sides, which is very dangerous because of the escalatory nature of the cycle of events. president trump wants iran to come back to the negotiating table for a new deal iran won't come back to the negotiating table until it receives a face-saving solution of some kind of relief so we're in a standoff >> so we are in this standoff right now. what is interesting is president trump did sound more measured. the response so far from other leaders that we heard from, the senate majority leader as well yesterday, and the response so far from the u.s. is we are going to be cautious nobody wants to escalate into a much bigger conflict

if the iranians keep provoking, it will also make president trump seem a little bit weak if he doesn't do something in response what do you think his options are here >> i think the president is slightly constrained because he just kicked off his election campaign on wednesday. he has repeatedly promised to draw down american military influence in the region. we've seen the marginal increase in the 1,000 troops being sent, increase in military presence throughout the wider region. i don't believe he wants to get drawn into a wider conflict. there may be a measured response where perhaps the u.s. could deny their action in the same way that iran is also seeking plausible deniability for everything they're doing but i think that if you look at the statements of both tehran and washington, they're both being very clear that neither side wants direct military conflict or a wider regional

conflict still an absence of direct dialogue, diplomacy, and the deescalation measures. we are in a dangerous moment >> how do you see this playing out, as you say given that president trump relaunched his reelection campaign. at this point no side wants to see the conflict escalating further. what do you see happening in the short-term then given the posturing from both sides? >> i see a low-level simmering conflict where hopefully the iranian government will see the lack of immediate response as a positive sign and will draw down a little and we can have some respite from this cycle of the attacks we've seen over the forthcoming weeks. should they choose to up the ante again, ultimately there will be reaction from the united states >> at this point would you say the deal is 100% dead? with europe there's still signs of hope from both sides that they can somehow keep the deal alive. where do you see europe in this?

>> europe is an important player the iranians have given them two deadlines, june 27th and then july 7th to provide a meaningful economic response package that they will not be able to provide. what they can do is lead a diplomatic effort. where are european foreign ministers and heads of state on this not front and center, and being cautious because they are caught between tehran and washington, but at the same time they don't want a nuclear crisis on their hands. >> doesn't that create a diplomatic opportunity for europe and willem had the chance to speak to the foreign affairs commissioner yesterday, she said they would be looking for a diplomatic solution with iran. perhaps this presents an opportunity for europe to be the person in the middle helping both sides deescalate. >> i think they're very important and they have a role to play because they could

bridge the transatlantic divide and communicate with iran. i don't see them taking those steps. it's now or never. they should be engaging with the iranian government and with washington in a public and meaningful way >> next week jared kushner will be releasing his peace plan. there's a bahrainian conference taking place all of this coming at an interesting time how do you affect the developments over the last couple of weeks to sort of hang over the conference that's happening in bahrain >> the conference is definitely being called into question, particularly with participation from two critical parties. however i think the trump administration is really locking f for a rin herwin here in advance of the company

perhaps looking for success to demonstrate president trump's foreign policy objectives are being met in some way. >> thank you very much for taking the time to chat to us. there have been some fresh reports out of tehran and hadley you and i were just discussing the lack of response from the iranian side we just had some breaking news >> absolutely. apparently, this is a reuters exclusive. iranian government officials have said they received a message from u.s. president donald trump via oman overnight warning of an imminent attack on iran, and they essentially say that the trump administration gave iran a limited period of time to respond to the message and the response apparently was that they were against any kind of talks with the united states. but they would be giving them the message. i think it's interesting to point out this is not the first

time that the imanny imanis havd a go-between role, they did this in talks to start the jcopa. and others in the region have asked them how big of a role they continue to play in this context. it's obvious those channels remain open. i want to mention there has not been much of a response in the last 24 hours from the gulf arab countries themselves off the back of this drone attack. even the uae national newspaper above the fold is not talking just about a football match apparently but also referencing qatar and its role involving terror financing so they're not even focusing on it in the local paper. that reflects their ability or inability to respond given they're not getting clear messages from washington or the trump administration about what

will come next >> literally burying their heads under the sand there i think what's interesting, these flashes, ultimately the sources are saying that trump is saying don't want war, we want talks. he's given them a deadline to actually commence talks. this is in line with the conversation i was just having, it does appear the u.s. at this point still wants to go down the diplomatic route and engage in talks. the iranians probably won't let that happen unless they get something in return. hadley, thank you for bringing us the latest geopolitical 2q 7 developments from the region if you want to get involved, you know where to find us on twittetwit e twitter. (osamah) cancer is...

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kong after a deadline they set for the government to scrap a controversial extradition bill expired. demonstrators gathered outside police headquarters demanding the complete withdrawal of the extradition law as well as the release of detained activists. this is hong kong's fourth demonstration in two weeks xi jinping was serenaded on arrival in north korea with people holding up images of the leader the two-day trip is the first visit by a chinese president in 14 years and comes amid stalled nuclear talks between pyongyang and washington xi and kim jong-un held talks and agreed to strengthen bilateral ties major u.s. firms have written to the trump administration in opposition to further tariffs on chinese goods. apple, dollar tree and fitbit are among the u.s. companies that sent letters to the white house. apple has warned that duties will tilt the playing felt in favor of its competitors president trump and president xi

are due to hold face-to-face talks in osaka at the g20 summit next week. european chipmakers opened lore after sanctions on huawei i want to bring in my next guest, andrew finnel from fitch. thank you very much for taking the time to chat with us today let's talk more broadly about the impact the trade war is having on your ratings and assessment of the region have you downgraded any sovereigns on the back of the developments >> no, we haven't yet. we actually put vietnam on a positive outlook not that long ago. specifically on china, the rating on china is really at the moment all about policy settings clearly this trade war has put a degree of pressure on authorities in beijing

they had to counter act with a significant policy easing since the middle of 2018 >> you're supportive of this policy easing even if it's coming at the expense of deleveraging >> this is the key question for the rating our main job over the next year or so as a rating agency is to assess qualitatively and quantitatively the rating effects. one element that has been more credit friendly is that the authorities have done a significant on-balance sheet fiscal easing. this is different than other easing periods that the authorities have done in the past decade or so. this doesn't influence how we view the sovereign rating. >> that's interesting. let me rephrase it what if the u.s. goes for another round of tariffs on china on the extra 3$300 billion worth of goods would you still not look at that and think maybe it's time to

reassess the impact this trade war might have on the economy? >> totally this is really the million dollar question right now. under the current tariff assumptions we have basically the recent increase on 2$200 billion in chinese exports to the united states. we don't think that matters much for the sovereign rating the chinese economy can accommodate that increase, but the policy challenge becomes much more tricky in the event of a further escalation you have to think about the options available. some people are saying maybe china can engage in another significant credit stimulus. that would be credit negative for the ratings. but also our banks team doesn't think there's enough capital in the banking system to support that credit stimulus >> as long as it's direct, targeted stimulus and more of the monetary kind, that would be positive to you. >> balance sheet fiscal easing is rating neutral.

>> we were just talking about hong kong and another demonstration happening today on the back of the extradition bill it has not been completely repealed per se. if this extradition bill were to go ahead, and it doesn't look like it is at this point, what would that do to hong kong's rating insofar as people start questioning the autonomy of this country and i abilits ability t service? >> the protests themselves don't influence how we view the sovereign rating we just affirmed the rating at double "a" plus, but the protest do get to the something else, the perceived erosion of autonomy of hong kong. >> that is something that would concern you? >> what i can say is we rate hong kong three notches above

that of mainland china mainland china is rated "a" plus hong kong is double "a" plus it rests on the assumption that the business environment, government standards, policy settings are all distinct from that of mainland china integration of the economy over time will continue to test that assumption for us going forward, our main task is to basically assess to what degree there has been erosion, if there has been at all. >> very interesting and very important for the financial community as well. thank you very much for coming on "street signs." >> thank you stay with us, because right after the show we'll be talking none other uk leadership contest. stay with us smokey bear: only you can prevent wildfires.

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welcome to "street signs." these are your headlines iran rebuffs an overture from president trump to

deescalate tensions. >> oil reverses earlier gains, but brent remains on course fo its first weekly rise in over a month amid escalating tensions between washington and tehran. eu leaders fail to agree on candidates for the big jobs in brussels italy remains optimistic about defending its deficit case to the commission >> boris johnson and jeremy hunt face off for the role of uk prime minister as the final two candidates are confirmed in the race to succeed theresa may. the story yesterday was that of the s&p making all-time new highs. indeed the president tweeted about that last night. not so much the case for european markets this morning. we are seeing most of these markets trade slightly in the green. more cautious than the price action we had in the u.s. yesterday. no doubt weighed down by

geopolitical concerns as we have been discussing on the show as things heat up between the u.s. and iran that's the picture across the board. ftse 100 up 0.3% cac 40 leading the charge up 0.40 let's switch on and talk about foreign exchange euro rebounding yet again. we're back above the 1.12 handle 1.13 today even though we had those dovish remarks from the ecb at the beginning of the week, fixed income has continued to rally. the currency is pretty much stuck as weakness in u.s. dollar has been the theme cable also just shy of 1.27. 1.2682 is where we're at today let's talk about u.s. and how things are shaping up today. a bit in the red dow, nasdaq, s&p seen lower. but moderately so. later on we'll watch out for the

pmi manufacturing numbers coming out of the u.s. as well in addition to the housing start numbers. there's been a lot of focus on the housing numbers in the u.s. given there's been slow activity in that sector i just want to bring you some flashes that we're getting out of lufthansa, this following reports earlier in the show, we were talking about air france and klm that they had some safety concerns about flying over the strait of hormuz and the gulf of oman lufthansa is saying that our planes have been avoiding the strait of hormuz since june 20th, and they have expanded the non-flight zone regarding iran as of today. they say that the non-flight zone does not affect the whole of iran. it's still serving routes to tehran via its flights this is the second airline that we hear from today in europe saying they are rerouting and have not been flying over the

strait of hormuz that's one thing to watch out for. eu leaders are currently locked in a roundtable session giuseppe conte said he will discuss eu debt disciplinary procedures with jean-claude juncker today. willem joins us live from brussels so much going on the question i want to ask you, have italy made progress at all in convincing the europeans in the to go down this path of an edp or a disciplinary procedure when it comes to their public finances >> not long before giuseppe county arrived here yesterday, he said a letter to the office of the commission president, to the commission more broadly saying, look, there are clear things that we want to see changed. we do respect the rules. he spoke to us yesterday before the meetings began saying he was optimistic that the commission would potentially change tact

and rethink its approach to italy. he talked p the idea of the fro stability pact that could penalize italy billions of euros, he says that was more about stability and less about growth of course the italian forecasts are for further economic growth. i had a chance to catch up with mr. conte just a few moments ago before he went into meetings this morning i asked whether he sensed any change in the dynamic. i asked him whether he felt that the commission would be listening to what he said, whether he would have a chance to discuss this issue today with mr. juncker. >> mr. juncker, yes, i will talk in a few minutes there was a fair play -- >> a new dynamic to the conversation >> i hope so

i hope so. >> so the beginning of this month the commission released a review of italy's compliance with the various requirements under that stability and growth pact essentially they found not only was the deficit to gdp potentially going to be way out of whack with what the italians were claiming in a year or two's time, but they had concerned that on the current set of assumptions around the politics and the spending plans in italy there were no major changes, we would see a huge yearly deficit growth so what's really interesting going into the next couple of weeks, the italians trying to fight their case and say you guys are not taking into account the special factors that we outlined previously. you need to give us more flexibility. as soon as next week the commission will be meeting for its weekly meeting on tuesday. there's a tpossibility they coud take under consideration the recommendation made in this review and push forward with this edp process but they may

give it more time because of this letter from mr. conte and then wait another week following that, you would have the finance meeting at the 8th or 9th of july, they would then need to approve this process and move on from there >> still many steps to get through before we end up in a situation where italy are formally in the edp. there's still hope there could be a resolution between the two sides. it is the eu leader summit one topic being discussed is that of the future of the european commission presidency it doesn't seem to be an agreement. yesterday talks had broken down among the eu leaders about who is the leading candidate reports suggested that manfred weber, head of the epp party, that he is losing favor. where do we stand on those discussions? what can we be looking forward

to >> so, talks broke down, it wasn't so much yesterday as just very early this morning. we had quite a few leaders leaving as late as 3:00 a.m. brussels time after those negotiations went late into the night. what seems to have happened, there was no way or no single candidate that could win over 21 of the 28 european leaders they need a qualified majority 65% of the 28 in order for a candidate to be proposed formally to the european parliament who then in turn would in theory endorse that candidate. what we've seen leading up to this process is the various political groups or families as they call themselves inside the european parliament putting forward their preferred candidate for the job. some political leaders across europe say we don't like this process because we have such a fractured parliament, don't think some of these people are qualified to take on the job

macron talked about weber's lack of suitability for the job going forward, macron said we should discount and discard some of these candidates put forward by the european parliament and start afresh with a list of people qualified for this specific job that's not to say that that those people have been ruled out, but it seems to have weakened the candidacy of some who were put forward by the parliament over the next eight he or nine days leading up to another summit next weekend, donald tusk, the president of the eu council, he will be trying to consider all these options open to him listen to what the leaders have to say, and try by next sunday to come up with a consensus so by the time the parliament begins a new session with a fresh-faced set of meps, there will be someone put forward by the council for xhig president a

commission president and some other top jobs that the parliament can approve >> willem, thank you for that. from leadership to the european commission to leadership of the uk boris johnson and jeremy hunt will go head to head to become the next prime minister. hunt edged out michael gove in the final ballot johnson is the overwhelming favorite to succeed theresa may. the former london mayor is committed to leaving the eu with or without a deal on october 31st chancellor philip hammond spoke out about a no-deal brexit he warned the scenario would permanently harm the economy >> a damaging no-deal brexit would cause short-term disruption to our economy, soaking up all the fiscal headroom we built and more while fiscal and monetary policy interventions could help to smooth that path to a post no-deal brexit economy, both

could only be temporary, neither could spreptd the economy being permanently smaller. >> you have to wonder who philip hammond is directing those comments out steve, we have a busy month ahead for the conservative party. the last two names, boris johnson and jeremy hunt. boris johnson still the favorite >> absolutely. what a fascinating day here in westminster and in the city of london last night. first of all, what happened in westminster, as you know, boris johnson got 160 votes, three more than he got in round four in the morning, which is intriguing at least four or five of javid' backers said they would vet for boris johnson. that has led to accusations of vote lending

mr. gove and mr. johnson have a lot of history some people say they wanted to avoid the drama that would have involved gove and johnson going head to head gove originally was a backer of mr. johnson back in 2016 for the leadership, then decided to good on his own the phrase stabbing him in the back was talked about at the time now it is hunt versus johnson. in the evening yesterday we saw the mansion house speech as well very interesting, philip hammond trying to seize back the initiative from mark field, the mp for the city of westminster and the city of london, who manhandled apparently -- allegedly, a greenpeace protester at the mansion house speech yesterday key be in trouble. he's a foreign office minister under, yeah, jeremy hunt so very interesting back plots from yesterday going forward, hunt versus johnson. you're right johnson is the overwhelming favorite with the 160,000

conservative voters. you had to be in the party for at least a month, three months before this vote and indeed be over 18 years of age apparently according to research from queen mary university a vast number of these people voting will be white middle class males who are picking the next prime minister the united kingdom for the whole country. he is the overwhelming favorite. the former foreign secretary very interested to see how they can move the process forward once the votes have finished let me tell you about the mathematics and the calculations the whole process will end by the week the 22nd of july where the announcement will be made of who won. there will be 16 situations where both candidates get to go up to county and smaller conservative associations, starting in birmingham tomorrow at an event hosted by ian dow,

finished on the 17th of july in the city of london the ballots will go out between the 6th and 8th of july. postal ballots will go in for those votes. at the moment it appears mr. johnson is the overwhelming favorite he's not immune to gaffes. whether that will diminish his view in terms of the party faithful remains to be seen. if it's mr. hunt or mr. johnson, there's the same old problems going on one is that on the 31st of october we are leaving the european union at the moment mr. hunt said if we're near a deal, he would look for an extension even mr. johnson has been slightly changing his language, not we are going to but we must go, and it's eminently feasible we will go on october 31st one wonders if there will be wiggle room on that given the fact that europeans are not keen on further extension if there is

not a good plan "b" or negotiations ongoing we will have a new prime minister by the end of july. will that change the brexit deadline no and how will anyone get something through parliament when it is so fractious. >> no wonder the pound is trading just below 1.27 today. if you want to get involved in the discussion, it's been a busy show today, we' we're @streetsignscnbc coming up, u.s. banks are stronger than ever that is the message from our next guest as we preview the stress test results due later today. that and more when we come back. you need to buy a car

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cameroon will face england in the first knockout round of the women's world cup after a tying goal secured the west african side a 2-1 victory over new zealand. elsewhere the usa eased past sweden 2-0 in the final group

stage match. the defending champions will face spain in the next round the workplace messaging platform slack enjoyed a strong first day of trading shares surged around 50% closing at $39 per share in what has been a mixed year for tech ipos, slack's performance raised eyebrows over its unconventional route to market >> workplace messaging service slack went public in a red hot ipo market it was an immediate hit. the company used a direct listing approach whereby half the shares were immediately available to trade no lock up period. the nyc provided a reference price of $26 the night before, which was roughly where the stock was traded in private transaction. it opened at $38.50.

there were plenty of shares to trade. it wasn't clear how many shares shareholders would be willing to sell a lot of power to buy and sell was in the hands of a small group of people. many were eager to buy, even at these higher prices. 45 million shares traded at the open that's about 20% of the shares available to trade that's a lot to sell at the open of course it helps that you have a record high in the stock market that's the biggest thing slack has a lot of negatives, of course, dproegrowth is de-sell rating, it is expensive, it is losing money and this is software i'm bob pisani, cnbc business

news, new york. mark carney says libra could become a crucial part of the global financial system. carney said the digital currency has the capability to increase financial inclusion, but he also warned it requires close scrutiny from global regulators. >> the bank of england approach is libra with an open mind, but not an open door unlike social media for which standards and regulations are only now being debated and legislated, well after they have been adopted by billions of users, the terms of engagement fore for innovations like libra must be adopted well in advance of any launch that's something that the chancellor and i insisted upon at the last g7 deutsche bank executives are reportedly prepared for continued restrictions from the fed on the lender's u.s. investment banking unit, even if

it passes today's stress test. executives remain confident of achieving a conditional pass in the stress test having failed the second part of the test in 2018 let's bring in a senior manager from axion let's talk about deutsche, the last time around they failed the test on qualitative grounds, not quantitative grounds how is it shaping up today >> we expect them to fail still on qualitative grounds the bank is in the middle of streamlining its internal systems, and we feel that it may not be up to the expectations of the authorities in the u.s so we will see any way, it won't restrict the ability to distribute capital. it's just going to be restrictive in terms of profits

from the u.s. subsidiaries back to europe. >> part of the strategic plan announced last year was to reduce the leverage they have in the u.s. to begin with will today's results affect that outcome somehow? will it spur them on to deleverage faster if they fail >> it's a work in process. they are working on it it's probably taking a bit more time we should not take a positive outcome as granted for the results coming up later on today. it seems that the focus would be more on the u.s. banks, and their strategies than on the bar bank story they will be among other european institutions like

barclays, credit suisse, ubs to report >> generally speaking, when you talk about the banking sector, even in europe, which has different issues, the sector's a lot better capitalized than in the past is that one of the developments that will come out of the stress tests later today? the investor community will look at these banks and say all right, i don't need to worry about them being insufficiently capitalized anymore? >> very much we're seeing an evolution of the stress test. initially from a crisis mode back in '09 and '10where t where treasury in the u.s. wanted to get comfortable with the sector and the stress test, we entered into a mode where the stress tests are validating the planning strategy in a more stable environment as you pointed out, the banks are stronger than ever in the

u.s. >> how do banks do if the u.s. starts cutting rates >> so, what is very interesting is if you look at the net interest margin, even though rates have actually flattened when you look at the slope of the curve the banks still managed to extract that n.i.m. back to the pre-crisis level if you look at the revenues since 2016, the total amount of revenues in the u.s. has increased by 30% that is the benefit of qe exiting. so the fed has a less of the drag on the balance sheet and they can increase and capitalize by -- >> just briefly, are you positive then on the banking

sector for the latter half of the year, as s&p is making new record highs >> so, if you look at valuations, from the price earnings multiple point of view, the u.s. banks are still in the high single digits if you compare to ubs typically those definitely will have some compelling entry re l levels if you lock at capitals, the banks will be doling out more capital than returning earnings. >> something to look at from a valuation perspective. thank you for joining me that is it for today's show. have a lovely summer sste.olic i'm joumanna bercetche "worldwide exchange" is coming up next.

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it is 5:00 a.m president trump reportedly approving air strikes overnight before reversing course. we are live in washington with more the market shrugging it all off. the s&p 500 hitting a new all-time high. will the dow hit one today it is not just stocks. oil on pace for its best weekly gain in nearly a year. helima croft has analysis. a 3$3.2 billion healthcare deal in the works. and it was one of the top public market debuts of the year don't call it an