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tv   The Pulse  Bloomberg  July 14, 2016 4:00am-5:01am EDT

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cook's will carney cut? will the boe cut rates for the first time since 2009? it is the first that -- it is the most anticipated decision in years. markets welcome relative u.k. political stability. day one at number 10. brexit britain continues to emerge. prime minister may begins her first morning in office. we will discuss britain under may. ♪
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mark: welcome to "the pulse." live from bloomberg's european headquarters, i'm mark barton. we approach what could be the bank of england's first rate cut in seven years. we speak to form of monetary blanchflower and theresa may's cabinet begins its first full day in office. we'll talk uk's politics with former chancellor of the .xchequer, lord nigel lawson first up, let's check in on the markets today -- the five-day winning run came to an end yesterday but it picks up once again today. the stoxx europe 600 up by .9%. the ftse is gaining ahead of the .1%.ate decision, up by sterling is rising, up by .5%.
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1.3214. everybody's waiting for the bank of england. will we see the first rate cut since march 2009? let's get first word news with nejra cehic. nejra: britain's new prime minister theresa may has announced a key member of her cabinet. boris johnson becomes foreign secretary. philip hammond replaces george osborne. david davis has been assigned the task of overseeing brexit negotiations. -- its lowest level since the height of the financial crisis. that is as brexit since -- brexit since it shockwaves across the u.k. frommped two -46 in june -35. that is the weakest reading since early 2009 at all responses were received after the european union referendum. ubs and merrill lynch have
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topped the banking industry topping more than $300 trillion combined. that is according to a study. morgan stanley dropped to number three. asset managers shrank at all three banks. credit suisse has changed the structure of its senior london makers according to people familiar. the company increased fixed pay while illuminating allowances that come under regulatory scrutiny. global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. i am nejra cehic, this is bloomberg. mark. mark: it is the most hotly anticipated bank of england decision in years. investors are betting the country's central bank will cut its base rate for the first time since 2009. anna edwards is outside the boe. good morning.
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there is a difference between what the economist thinks and what investors think. anna: good morning. investors and economists not necessarily on the same page. [indiscernible] 81% rise in, a cut of 25 basis points by the bank of england today. compare that to the 56% of economists who are expecting a cut on the bank of england. it is not a done deal. it is not expected by everybody. many who do not expect a cut today expect to see one later on this year. some are suggesting maybe the mpc waits then. they will have a little more data because they do not have much data to play with now. shehe hour before this, thinks -- she saying she doesn't think this would be a good idea.
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-- that would be bad for the u.k. economy. tying in with the low rate, how helpful are they conversation. mark: sterling is rebounding once again. it is up for the fourth day. what is behind the move this week? of political vacuum has been filled, i suppose it is not all of it. we don't know everything about the cabinet yet. we do know at least some of the names who are filling those top jobs and that may be taking some of the uncertainty away. .e'll have to wait and see theresa may has said that will not happen until 2017. there are big questions. -- thereeen talking will not be an emergency button.
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we'll have to wait until the statement to see how they think the economy will go. whether they will be taxing anymore or cutting the deficit. he said that will still be the plan. interesting to see the pound rebounding a little bit. i spoke to paul from ubs earlier. he was wondering how much the pound would boost the economy from the u.k.. it doesn't increase the volume. that is his observation. -- interesting piece by bloomberg intelligence on the voting and how that might all work out. they are saying is it going to be important to have unanimity? ?ill they vote for a cut will the governor of the bank of england then be the decider?
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it will be interesting to see the metrics. we get the minutes and decision at noon. mark: anna, i cannot wait. anna edwards at the bank of england. let's introduce our first guest. he is peter schaffrik. thanks for joining us. 81%market putting in probability in a cut. 56% of economists say we are going to see a cut. yes? or no? peter: we think it is going to happen and we think it is going to happen today. it is going to happen in august again. when you think about what the governor has told us. and you think about the mpc other publications said previously that if a brexit happens, they would be willing to reduce interest rates towards zero. that is what they are going to do today. mark: what is lower bound? peter: we think it is going to
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be somewhat north of 0%. 10 basis point is what we're calling. -- the market is implying around 10 basis point's. i think that is probably fair. mark: does it have an impact? does it serve as a boost to the economy amidst all of this uncertainty? peter cook we can have a big -- peter: at the end of the day, i believe the lower borrowing costs for the economy as a whole does help. having a reaction from the central bank is going to send a powerful signal to the market. i think that is what is happening. if i can make one other point, another interesting debate will be whether apart from interest rate reductions, we will be getting renewed qe programs which we ought to call for. mark: should we do that in
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august when there is a cautionary inflation reform? peter: i reckon it is going to be more in august. not necessarily because of the hard data. it is much more to see what the physical plants from the government will be. mark: what does qe2 look like? peter: we reckon it is going to be about 50 billion. that is probably going to do quite a bit to the market. the market is anticipating it to some degree already. it is going to help if the numbers turn out to be worse than anticipated. mark: do they stick with sovereign bonds or do they become more brave? like the ecb? beforewe have been here the bank of england has ruled out a corporate bond buying program that was not successful. there.eter, stay
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peter schaffrik at rbc. plenty coming up on the pulse with our first rate cut in seven years on the cards. we are going to talk about the u.k. economy before the bank of england rates set in. the uk's new prime minister name server ministers. will get the analysis from .ormer chancellor lord lawson brexit now? or brexit later? we will discuss when and how the u.k. should start negotiations to leave the eu. this is bloomberg. ♪
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mark: let's get bloomberg business flash. here's nejra cehic. nejra: -- after an outage that started at 11:38 a.m. local time. it was caused by duplicated trade confirmation messages. it is the least that's it is the second malfunction in the past year. it was a two hour destruct -- disruption. volkswagen's plans to recall cars in the week of the emissions scandal has hit a costly speedbump. california regulators have rejected the proposal to fix its bw, audi as "incomplete and ." thentially insufficient
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german company has already reached a $603 million settlement with 44 u.s. states. loss santa is looking for alternatives after rejecting a takeover from bayer. the company has revived talks with germany's bss about a possible -- no final decision has been made. that is the bloomberg business flash. mark: patrick carcass says the u.s. economy should not sustain much damage from the brexit vote. hikeid more than one rate may be warranted before the end of year. >> i believe inflation is true to target sometime next year. considering the projection, that it may be appropriate for up to two additional rate hikes this year -- the funds rate will approach 3% in 2018. mark: for more on global risks,
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let's continue the conversation with peter schaffrik. for yields tobeen continue to have lower on this chart. yesterday -- a german 10 year which went negative for the first time. this is the german auction yield below zero. it poses interesting dilemma for the ecb. peter: it does indeed. the dilemma is different from the bank of england. the ecb has already cut rates. they have already rolled out a qe program. the dilemma they now have is the sophistication of the program as they were point out, in your bond yields below zero. they have a range of german level thathe mesic the ecb has set where they can touch these things in the qe program. i think they are running short.
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mark: what do they do? tweak the rules? what is the solution? peter: frankly, i do not know. there is a host of options did my fear is they might be going for the smallest denominator. frankly if you ask me what should happen, i think they should move away from a p the markets down south are in more need of help them the german bund market. mark: less likely? or not? peter: if you pull deposit rates come all it does, it gives them in the here and now more leeway. it is not getting away from the problem -- sooner or later they are going to run out and buy anyway. southern european markets will need ecb's help. mark: are they pushing investors to the u.s. and also some risky assets? where is this taking us?
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peter: the ecb is a bit of a pickle. the ecb wants people to go into riskier assets within the euro area. instead they are going into the u.s.. you keep the currency low but at the end of the day it is not helping the you -- the u.k. economy. also, entice people to go more into risky assets. mark: our record low bond yields across global sovereign bond markets, obviously they are reflective of central-bank policy. do they tell on underlying story about recession and gloom? should we extrapolate the two? they aream not sure telling a story about impending recession, but they tell us a story of lack of risk taking, investment and their drive into the safest assets that are
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there. it is a problem because at the end of the day when you look at investment days, what you see is neither companies or governments are investing in the economy, and that is lowering growth in the future. mark: that is something japan is dealing with. the big topic of conversation this week has been helicopter money. where -- is a possible? peter: my personal hunch is there's going to be an interim. the original helicopter money the central bank created is given to ordinary people. there is going to be a step in between. it says we are going to give the money to the government and the government is going to be listening the fiscal -- which is not exactly the helicopter money which was originally perceived. mark: peter schaffrik from rbc capital markets. up next, adults in the room,
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more politicians claim -- politicians playing children's games. fomc memberer expect today? -- what does former fomc member expect today? ♪
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mark: welcome to london. the big question is the bank of england will announce its rate
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cut for the first time in seven years. investors put in the chances of a rate cut at more than 80%. for more on what to expect, i am joined by economics professor and former member of the mpc, danny blanchflower. denny, great to see you. thanks for joining us. danny: lovely to chat. mark: it is march 2009. danny, if you were on the mpc today, would you be voting for a cut? if so, what would that -- what sort of magnitude? danny: there are some similarities i think to march 2008. i would certainly be thinking time to show the markets that we were ready and poised to act,
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but i think it would be a clear surprise, a bigger cut than the market is thinking. i would be voting for a 50 basis that cut with expectations in all likelihood there was more coming. what we are seeing here is carney said the two meetings will be one. they are going to have to sort out how to do quantitative easing over the next month. the slowing of consumer confidence, the fears over investment and slowing of retail sales and car sales will mean that the mpc has to act, particular he because there won't be any fiscal policy action. i would be voting for a cut. there may well be a surprise that it might be 50. people will be voting for 50 cut . mark: if that is 50, that texas to 50. when you see more to come, do you mean more rate cuts to come,
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or as you suggest, we set the stage for more qe. is that it for rate cuts? danny: i think long and hard about it. the very mechanism by which you do it in whether you can do it, the conversation will have to take place with the chancellor. i rule out to, i will out negative rates today. other central banks have gone negative. it was telling that the swedish central-bank a week or so ago forecast -- other central banks are doing it. i think they will be sitting, thinking about it. think about the prospects of doing it. they will not do it today because they need to have a conversation with the chancellor. i suspect they have room to move from a positive .5 to -.5. then quantitative easing will come. getting permission ford, taking
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about what they can buy -- permission for it, thinking about what they can buy. you should think of it as a packet of measures. it is pretty scary. consumer confidence and business confidence are starting to fall in the way and the way it looked like it was falling in march and april of 2008. the concern will be we need to get an early. they learned those lessons from 2008. the concern again is the house price collapse may be coming. mark: danny, you were critical of carney before the vote since then, you have said he is the only adult in the room could what caused your change of tune when it comes to the governor? room.the what caused your change of tune when it comes to the governor? danny: we have seen the condition on the remain forecast. there were issues that others talked about, that perhaps carney -- i did not take that
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view, but i think edge of the desk each of the interventions he took i was extremely impressed by. it looked like he was the only adult in the room. i like very much his talk that this is going to be joined up thinking. we are going to get liquidity going. ftc anding to have the the mpc monitoring things together. the current circumstance, it made sense for him to say the stimulus is going to come, the mpc is here and the fpc and they are working together. there are silos that are joined up thinking. he has done an exemplary job. he has done a fantastic. the british people have their money's worth. the criticisms of him have been wrong. i was making them. i reversed them. i think he has done a good job. we haven't heard anybody on
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either committees disagree. we have heard people going along with it. mark: danny, i have to leave it at look forward to speaking to you soon. this is bloomberg. stay with us. ♪ get ready for the rio olympic games
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by switching to xfinity x1. show me gymnastics. x1 lets you search by sport, watch nbc's highlights and catch every live event on your tv with nbc sports live extra. i'm getting ready. are you?
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x1 will change the way you experience nbcuniversal's coverage of the rio olympic games. call or go online today to switch to x1. mark: welcome to "the pulse." live from europeans headquarters here in london -- live from the european headquarters here london. francois hollande leads april the just leads a parade for country's biggest holiday, bastille day. here's nejra cehic. nejra: reason may has announced a key member -- announced key members of her cabinet. worst johnson -- boris johnson becomes foreign secretary. david davis has been assigned
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the task of overseeing brisket housexit negotiations. prices have fallen to the lowest shockwaves across the u.k. the index compiled from a survey of real estate agents dropped to -42 in june from -35 the previous month. that is the weakest reading since early 2009. all responses were received after european union referendum on june 23. ubs and merrill lynch have top the banking industry managing more than $3 trillion combined for the world's wealthiest people. that is according to an annual study. morgan stanley dropped one spot to number three. asset funding manager shrunk at all three private banks. credit suisse has changed the structure of, but -- compensation for some of its senior london banking. it eliminated the so-called
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allowances that come. global news, 24 hours a day, powered by 2600 journalists in more than 120 countries. cehic.jra this is bloomberg. mark: check out what is happening to european markets today, thursday. it is boe day. will we see the first rate cut since march 2009? the stoxx 600 is up. still 2% below the levels that the close -- at the close of june 23. the ftse is gaining. one of the best-performing developed markets since brexit picked sterling is rising of the fourth day -- brexit. sterling is rising for the fourth day. year here inthe 10 the u.k. is up by a couple of basis points after reaching a record low last friday. the uk's new prime minister theresa may has been getting her
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first full day in office standing outside yesterday, she laid out her priorities. >> the government i lead will be driven not by the interest of the privileged few, but by yours. we will do everything we can to give you more control over your lives here it mark: more appointments -- your lives. mark: more permits are expected over the next few hours. boris johnson is the surprise choice for foreign secretary. i am pleased to break it -- to welcome lord lawson. thank you for joining us. theresa may has done in her first roughly 12 hours? lord lawson: it is a short space of time to form a judgment but she is an extremely experienced and competent minister. she has got on very quickly with
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choosing the key members of the government. what i am most delighted about his we are not going to have this long campaign which we were told would be until september when a new prime minister would be in office. she is now in office. she is getting on with the job. that is excellent. mark: is it wise putting all of these exit tears -- all of these brexiteers in prominent roles? we will come to talk more deeply about liam fox and david davis is roles? lord lawson: that is to machiavelli and. -- that is too machiavelli an. -- he will make a great success of it. the brexit -- the extrication of britain from the european union which is the test of the first
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term of theresa may's premiership. mark: some say he is made a number of gaffes and will have to start his term of heading up -- was it aoffice shrewd choice? was it running a man in a position where he can do least damage? lord lawson: he can get away gapsgaps. -- get away with . a lot of politicians don't get away with them. we'll see how he makes out. people could many do foreign secretary. i think we will enjoy him as foreign secretary. mark: talk to me about philip hammond. you smile. the reason for that he often doesn't make headlines.
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of safe pair of hands? lord lawson: i think it is. but i don'tises think he is going to be a great performing chancellor. i think he will be a safe pair of hands. marco is that we need? how would -- mark: is that what we need? how would you compare yourself to him? lord lawson: i was my own chancellor and mild style. he -- and my own style. he will be his own chancellor. i think he will be a safe pair of hands. mark: you worked under the first female prime minister. he will work under the second female prime minister. are there parallels? importantn: the most thing about margaret thatcher is not that she was a woman. margaret thatcher and theresa may are very different kinds of people. mark: he has spoken to sky news
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and he said no emergency budget before the referendum, george osborne who is no longer in the cabinet, he suggested that we will have to fill the blackhole. is that sensible politics? no emergency budget? lord lawson: this is all a part of project fear. and -- one out, of the way to scare their pants off the british people. the british people realize they were not going to be scared. mark: is that what cost osborne's job? divert -- deservedly? lord lawson: initially he was a very competent chancellor. he got on to tackling the enormous budget deficits he
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inherited he was getting along very well. he wanted to be a reforming chancellor. to the brexit campaign, i'm afraid all integrity was lost and credibility was lost. mark: i tell you what is also lost, the business of surplus by 2020. which theresa may says he backed out. putting an: i thought date on balancing the budget -- i balance the budget when i was chancellor. you can do that. it takes time. you don't know how long it is going to take. you have to be moving in the right direction but how long it is going to take depends on a whole lot of circumstances outside of your control. i never thought it was sensible to put a date on the time when you would eliminate the deficit. he just have to say that is our
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direction of travel and that is what we intend to do. marco hammond's number one challenge -- marco hammond's number one child -- mark go hammond's number one challenge mark: hammond- someone challenge is -- -- would say lord lawson: it is in fact the economy is far healthier than it was in the great breaking crisis. mark: how do we stabilize the economy. lord lawson: he has shown he is a safe pair of hands. asget ahead as quickly practicable with the brexit process.
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i think the only problem we have is there is uncertainty. uncertainty is not good for the economy. it is not good for british people. therefore, the shorter period of uncertainty, the better. mark: which we are going to talk about in the next segment. thank you for joining us. lord lawson. still up next, trade deals, tax cuts taking time. the uk's new brexit minister sets up his view on how the u.k. might begin to lead -- leave the eu. i will get more thoughts from lord lawson next. this is bloomberg. ♪
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mark: brca 2 bloomberg business flash with nejra cehic. nejra: the singapore stock exchange has said equity trading will not resumed today after an outage that started at 11:38 a.m. local time. the suspension was caused by duplicated trade confirmations. it is at least the second malfunction in the past year. it was a near t our disruption in jerusalem's trading last august. volkswagen's plans to -- has hit a potentially costly speedbump. california red leaders have rejected the automaker's proposal to fix its vw audi as "incomplete as a substantially continue to will
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the german company has reached a 600 and $3 million settlement -- $603 million settlement with 44 states. -- people familiar with the matter say the company has revived talks with germany's basf about a possible combination of their -- no final decision has been made. -- is reported to be in talks to buy as much as 49% of paramount pictures and viacom is seeking a deal that would value her amount to as much as $10 billion. tax cutsde deals, taking time before triggering article 50. that is the headline of an opinion paris -- opinion piece by david davis writing for the conservative home a website. he argues the country should take its time in negotiating with the eu.
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we are here with lord lawson. thank you for staying with us. in are automatically disagreement with david davis, the new brexit star. czar, becausexit he has suggested the government will take its time before triggering article 50. you think that is a mistake? lord lawson: the government has to work out its objectives. i think the sooner that is done, the better. get down to the process and i think the process can be simplified if we give up this misconceived idea of seeking some special trade deal with the european union. we are not going to get any special trade deal. they will string us along. they feel deeply hurt and some of them feel hostile. they feel hurt by the fact we decided to leave here they are not going to give us any special deal. certainly no special deal
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without certainty. one of the conclusions of the very liberal -- integration. mark: that is a definite no. no freedom of movement. lord lawson: it will be the british government deciding who and how many come in from the whole world, including the european union. there isn't a trade deal on the cards. you don't need -- talking about access to the signal market and everybody has access. you don't need the so-called single markets because -- it is not a true single market anyway. everybody has access to the single market. indeed trade between the rest of the world in the european union market is going all the time you -- all the time. our trade with the rest of the
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far faster and bigger than our trade with the rest of the european union. you don't need to be inside the single market. if you say we are not going to waste our time trying to negotiate any special deal, the french certainly won't have it. on all of the other things that do have to be discussed with the european union. also, which is very important, we have to decide how we are going to conduct ourselves outside of the european union. how we are going to treat our scientists, which regulations we are going to scrap? which ones we are going to keep? i am talking about the european union. that we can do ourselves spirit we don't have to negotiate that
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with anyone it is a matter for us to decide. mark: philip hammond said the untangling process -- ex line lord lawson: -- process -- lord lawson: as i was saying before the break, there is a degree of uncertainty. uncertainty is never good for british business and economy. as soon as we can can get this -- as soon as we get this concluded, the better. i believe we have a huge opportunity but we need to get down to it. mark: corporation tax cut 15%. isn't that among the measures that businesses should get? would welcome? is alawson: i think it
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sensible indication of the direction of travel, yes. we want to have an economy which is friendly to business and enterprise. more importantly, cutting .orporation taxes any other problems with corporation taxes has emerged. the big multinationals can avoid do.ery easily, and they where is small businesses can't. it is a very unfair tax. scrapuld do better to corporation tax altogether. and then have a corporate sales .ax i think more important, for more, and is what we did in the 1980's is to get rid of unnecessary damaging regulation.
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we can do that with our own indigenous relation but we couldn't do it with the european union. we will be up to do it as soon as we exit the european union. that will be helpful as indeed the deregulation was helpful. now we need to do it to get our energy costs down and we have the highest energy cost in the world and that is very bad for britain -- british industry. very hard on the poor who have to pay more to keep -- to heat their homes and anybody else in the world. there is a lot to be done which is when -- which is within our own control. mark: the new prime minister yesterday pledged to? injustice interest -- pledged to tackle injustice. re: you surprised she chose to focus more on that and maybe other things such as brexit? the cornerstone seem to be
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watching out for those who are disadvantaged in society. is this a shift to win the center ground again? it is a sense of what the country would like to see. there is a feeling of the country -- and indeed in many other countries -- that we have been going through a very difficult time. -- it hasn deeply been to glee difficult for the ordinary man and woman. richer.s get richer and there is a very natural and understandable repulsion, both here and in other countries around the western world over that. i think what she will be judged theost of all is how operation is exiting -- of exiting the european union is conducted.
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mark: the bankers which provide financial services in the writes, the passport he is paramount -- the past sporting rights -- passporting writes are paramount. somelawson: there may be rearrangement as far as europe is concerned. it may be in necessity for some banks to conduct a european operation through subsidiaries in european union, rather through -- it is a great mistake to think that london is a european financial center. it is not a european financial center, it is a global financial center. it is the only global financial center apart from new york. so.s going to remain the strength that london has with all of the infrastructure,
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legal accountancy -- paris and frankfurt already rolling out the red carpet. these are -- mark: that merger has not yet gone through. lord lawson: no indication that it is going to. ahead in financial services spirit i'm not saying we are way ahead in every industry -- services. i am not saying we are way ahead in every industry. in financial services, absolutely we are. not just banking insurance. mark: talk to me about the bank of england. of course the chancellor should never give their view on what the bank of england should do. now you are a former chancellor, you can say whatever you like.
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should they cut rates yet go lord lawson: -- should they cut rates? lord lawson: carney has given a strong indication and i think even other members of the committee who may have doubts about the wisdom of this will be reluctant since he is gone out in front and said it and indicated it. i think they will be reluctant to stand the way of it. i don't think it will do any good at all. it sends am, because crisis which is totally unwarranted. you look at europe and the european central bank, they cut , printing money hand over fist. look at the limit to the state of the european union economy. it doesn't do much good. i really do think that it takes
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a little longer that there is no -- fix.x the way to get the way to get the world economies going the right way is to do supply-side reforms, make them more efficient, more productive. reduce costs like energy costs. that is the way to do it or to mark: sterling, lowest ever, 1985. you will remember that. 1.05. how much of the slack is being taken away post-brexit from sterling decline? has beenof the damage softened by sterling? lord lawson: sterling has , not so muchecline against the euro, but much more against the dollar. the euro fell against the dollar. people have been saying look at our currency count. is overvalued.g
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they have been saying that for a long time. now it is not overvalued. incidentally, the common external tariff's of the union is around the weighted average. the fall in sterling has adjusted to that. we don't need to worry at all about trade with the european union. mark: lord lawson, it has been a pleasure talking to you. former u.k. chancellor and exchequer, lord lawson joining a spirit stay with bloomberg. surveillance is up next. let's get live pictures from paris where french president francois hollande leads celebrations for bastille day. ♪
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tom: swan secretary johnson will speak to johnson. europe will seek to respond. olivier blanchard with his brexit optimism. markets are calm as prime into 10 may moves downing street. suddenly, it is bank earnings season. mr. dimon will give bank tellers a raise. this is bloomberg surveillance live. i am tom keene in new york. l


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